GENERAL PROVISIONS
This act shall be known as the Insurance Code.
The provisions of this code in so far as they are substantially the same as existing statutory provisions relating to the same subject matter shall be construed as restatements and continuations thereof, and not as new enactments.
All persons who, at the time this code goes into effect, hold office under any of the acts repealed by this code, which offices are continued by this code, continue to hold the same according to the former tenure thereof.
No action or proceeding commenced before this code takes effect, and no right accrued, is affected by the provisions of this code, but all procedure thereafter taken therein shall conform to the provisions of this code so far as possible.
Unless the context otherwise requires, the general provisions hereinafter set forth shall govern the construction of this code.
Division, part, chapter, article, and section headings contained herein shall not be deemed to govern, limit, modify or in any manner affect the scope, meaning, or intent of the provisions of any division, part, chapter, article, or section hereof.
Whenever, by the provisions of this code, a power is granted to a public officer or a duty imposed upon such an officer, the power may be exercised or the duty performed by a deputy of the officer or by a person authorized pursuant to law by the officer, unless it is expressly otherwise provided.
Writing includes any form of recorded message capable of comprehension by ordinary visual means. Whenever any notice, report, statement or record is required or authorized by this code, it shall be made in writing in the English language unless it is otherwise expressly provided.
Whenever any reference is made to any portion of this code or of any other law of this State, such reference shall apply to all amendments and additions thereto now or hereafter made.
“Section” means a section of this code unless some other statute is specifically mentioned and “subdivision” or “subsection” means a subdivision or subsection of the section in which that term occurs unless some other section is expressly mentioned.
The present tense includes the past and future tenses; and the future, the present.
The masculine gender includes the feminine and neuter.
“Spouse” includes “registered domestic partner,” as required by Section 297.5 of the Family Code.
The singular number includes the plural, and the plural the singular.
“County” includes “city and county.”
“City” includes “city and county.”
As used in this code the word “shall” is mandatory and the word “may” is permissive, unless otherwise apparent from the context.
“Oath” includes affirmation.
“Signature” or “subscription” includes mark when the signer or subscriber can not write, such signer’s or subscriber’s name being written near the mark by a witness who writes his own name near the signer’s or subscriber’s name; but a signature or subscription by mark can be acknowledged or can serve as a signature or subscription to a sworn statement only when two witnesses so sign their own names thereto.
“Person” means any person, association, organization, partnership, business trust, limited liability company, or corporation.
“Commissioner” means the Insurance Commissioner of this State.
Whenever in this code the terms “State Industrial Accident Commission” or “Industrial Accident Commission” or “commission,” relating to the said “State Industrial Accident Commission” or the said “Industrial Accident Commission,” appear, said terms shall mean “Division of Industrial Accidents,” including “administrative director” of said division or “appeals board,” or both, as the context may require.
“Division,” and “department,” in reference to the government of this state, mean the Department of Insurance of this state.
“Administrative law bureau” or “administrative hearing bureau” means the unit within the Department of Insurance that provides administrative hearings.
An administrative law judge appointed by the commissioner pursuant to civil service rules shall be employed within the administrative law bureau and shall not be supervised directly by the commissioner or supervised directly or indirectly by an employee in the legal branch of the department.
Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.
The person who undertakes to indemnify another by insurance is the insurer, and the person indemnified is the insured.
“Admitted,” in relation to a person, means entitled to transact insurance business in this state, having complied with the laws imposing conditions precedent to transaction of such business. The State Compensation Insurance Fund shall be deemed to be admitted pursuant to authority to transact workers’ compensation insurance granted by the Legislature. The commissioner shall not revoke or suspend the State Compensation Insurance Fund’s authority to transact workers’ compensation insurance.
“Nonadmitted,” in relation to a person, means not entitled to transact insurance business in this State, whether by reason of failure to comply with conditions precedent thereto, or by reason of inability so to comply.
“Domestic” means organized under the laws of this State, whether or not admitted.
“Foreign” means not organized under the laws of this State, whether or not admitted.
“State” means the State of California, unless applied to the different parts of the United States. In the latter case, it includes the District of Columbia, the commonwealths and the territories.
“Mortgage” includes a trust deed, “mortgagor” includes a trustor under such trust deed, “mortgagee” includes a beneficiary under such trust deed, or a trustee exercising powers or performing duties granted to or imposed upon him thereunder, and “lien” in respect to real or personal property includes a charge or incumbrance arising out of a trust deed.
“Resident” means residing in this State, “nonresident” means not residing in this State.
“Insurance agent” means a person authorized, by and on behalf of an insurer, to transact all classes of insurance other than life, disability, or health insurance, on behalf of an admitted insurance company.
A life and accident and health or sickness licensee is a person authorized to act as a life agent on behalf of a life insurer or a disability insurer to transact any of the following:
Life insurance.
Accident and health or sickness insurance.
Life and accident and health or sickness insurance.
Licenses to act as a life agent under this chapter shall be of the types as set forth in Section 1626.
“Life and disability insurance analyst” means a person who, for a fee or compensation of any kind, paid by or derived from any person or source other than an insurer, advises, purports to advise, or offers to advise any person insured under, named as beneficiary of, or having any interest in, a life or disability insurance contract, in any manner concerning that contract or his or her rights in respect thereto.
“Insurance broker” means a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health with, but not on behalf of, an insurer.
“Casualty broker-agent” means a person licensed pursuant to Section 1625.
“Property broker-agent” means a person licensed pursuant to Section 1625.
“Insurance solicitor” means a natural person employed to aid a property and casualty broker-agent acting as an insurance agent or insurance broker in transacting insurance other than life, disability, or health.
“Transact” as applied to insurance includes any of the following:
Solicitation.
Negotiations preliminary to execution.
Execution of a contract of insurance.
Transaction of matters subsequent to execution of the contract and arising out of it.
“Paid-in capital” or “capital paid-in” means:
In the case of a foreign mutual insurer not issuing or having outstanding capital stock, the value of its assets in excess of the sum of its liabilities for losses reported, expenses, taxes, and all other indebtedness and reinsurance of outstanding risks as provided by law. Such foreign mutual insurer shall not be admitted, however, unless its paid-in capital is composed of available cash assets amounting to at least $200,000.00.
In the case of a foreign joint stock and mutual insurer, its paid-in capital computed, according to its desire, pursuant to the provisions of subdivision (a) or subdivision (c) of this section. If computed pursuant to the provisions of subdivision (a), its admission is subject to the qualification therein expressed.
In the case of all other insurers, the lower of the following amounts:
The value of its assets in excess of the sum of its liabilities for losses reported, expenses, taxes, and all other indebtedness and reinsurance of outstanding risks as provided by law.
The aggregate par value of its issued shares of stock, including treasury shares.
For the purpose of computing paid-in capital or capital paid-in, shares of stock are not taken as liabilities.
Provisions of this code relating to a particular class of insurance or a particular type of insurer prevail over provisions relating to insurance in general or insurers in general.
Unless expressly otherwise provided, any notice required to be given to any person by any provision of this code may be given by mailing notice, postage prepaid, addressed to the person to be notified, at his residence or principal place of business in this State. The affidavit of the person who mails the notice, stating the facts of such mailing, is prima facie evidence that the notice was thus mailed.
A written record required to be given or mailed to a person by a licensee, including an offer of renewal required by Sections 663 and 678, the notice of policy change or cancellation requested by the insured as required by Section 667.5, the notice of conditional renewal required by Section 678.1, the offer of coverage or renewal or a disclosure required by Section 10086, the offer of renewal for a workers’ compensation policy, Section 662, paragraph (2) of subdivision (a) of Section 663, Section 664, 667.5, 673, 677, paragraph (2) of subdivision (a) of Section 678, subdivisions (a), (b), and (c) of Section 678.1, or a written record required to be given or mailed to a person by a licensee relating to the business of life insurance, as defined in Section 101 of this code may, if not excluded by subdivision (b) or (c) of Section 1633.3 of the Civil Code, be provided by electronic transmission pursuant to Title 2.5 (commencing with Section 1633.1) of Part 2 of Division 3 of the Civil Code, if each party has agreed to conduct the transaction by electronic means pursuant to Section 1633.5 of the Civil Code, and if the licensee complies with this section. A valid electronic signature is sufficient for any law requiring a written signature.
For purposes of this section, the definitions set forth in Section 1633.2 of the Civil Code apply. The term “licensee” means an insurer, agent, broker, or any other person who is required to be licensed by the department.
Notwithstanding subdivision (l) of Section 1633.2 of the Civil Code, for purposes of this section, “person” includes, but is not limited to, the policy owner, policyholder, applicant, insured, or assignee or designee of an insured.
In order to transmit a record listed in subdivision (a) electronically, a licensee shall comply with all of the following:
A licensee, or licensee’s representative, acquires the consent of the person to opt in to receive the record by electronic transmission, and the person has not withdrawn that consent, prior to providing the record by electronic transmission. A person’s consent may be acquired verbally, in writing, or electronically. If consent is acquired verbally, the licensee shall confirm consent in writing or electronically. The licensee shall retain a record of the person’s consent to receive the record by electronic transmission with the policy information so that it is retrievable upon request by the department while the policy is in force and for five years thereafter.
A licensee discloses, in writing or electronically, to the person all of the following:
The opt in to receive the record by electronic transmission is voluntary.
That the person may opt out of receiving the record by electronic transmission at any time, and the process or system for the person to opt out.
A description of the record that the person will receive by electronic transmission.
The process or system to report a change or correction in the person’s email address.
The licensee’s contact information, that includes, but is not limited to, a toll-free number or the licensee’s internet website address.
The opt-in consent disclosure required by paragraph (2) may be set forth in the application or in a separate document that is part of the policy approved by the commissioner and shall be bolded or otherwise set forth in a conspicuous manner. The person’s signature shall be set forth immediately below the opt-in consent disclosure. If the licensee seeks consent at any time prior to the completion of the application, consent and signature shall be obtained before the application is completed. If the person has not opted in at the time the application is completed, the licensee may receive the opt-in consent at any time thereafter, pursuant to the same opt-in requirements that apply at the time of the application. The licensee shall retain a copy of the signed opt-in consent disclosure with the policy information so that each is retrievable upon request by the department while the policy is in force and for five years thereafter.
The email address of the person who has consented to electronic transmission shall be set forth on the consent disclosure. In addition, if the person who consented receives an annual statement, the email address of the person who has consented shall be set forth on that record.
The licensee shall annually provide one free printed copy of any record described in this subdivision upon request by the person.
If a provision of this code requires a licensee to transmit a record by first-class mail, regular mail, does not specify a method of delivery, or is a record that is required to be provided pursuant to Article 6.6 (commencing with Section 791), and if the licensee is not otherwise prohibited from transmitting the record electronically under subdivision (b) of Section 1633.8 of the Civil Code, then the record may be transmitted by electronic transmission if the licensee complies with all of the requirements of Sections 1633.15 and 1633.16 of the Civil Code.
Notwithstanding subdivision (b) of Section 1633.8 of the Civil Code, if a provision of this code requires a licensee to transmit a record by return receipt, registered mail, certified mail, signed written receipt of delivery, or other method of delivery evidencing actual receipt by the person, and if the licensee is not otherwise prohibited from transmitting the record electronically under Section 1633.3 of the Civil Code and this section, then the licensee shall maintain a process or system that demonstrates proof of delivery and actual receipt of the record by the person consistent with this paragraph. The licensee shall document and retain information demonstrating delivery and actual receipt so that it is retrievable, upon request, by the department at least five years after the policy is no longer in force. The record provided by electronic transmission shall be treated as if actually received if the licensee delivers the record to the person in compliance with applicable statutory delivery deadlines. A licensee may demonstrate actual delivery and receipt by any of the following:
The person acknowledges receipt of the electronic transmission of the record by executing an electronic signature.
The record is posted on the licensee’s secure internet website, and there is evidence demonstrating that the person logged onto the licensee’s secure internet website and downloaded, printed, or otherwise acknowledged receipt of the record.
The record is transmitted to the named insured through an application on a personal electronic device that is secured by password, biometric identifier, or other technology, and there is evidence demonstrating that the person logged into the application and viewed or otherwise acknowledged receipt of the record.
If a licensee is unable to demonstrate actual delivery and receipt pursuant to this paragraph, the licensee shall resend the record by regular mail to the person in the manner originally specified by the underlying provision of this code.
Notwithstanding any other law, a notice of lapse, nonrenewal, cancellation, or termination of any product subject to this section may be transmitted electronically if the licensee demonstrates proof of delivery as set forth in paragraph (7) and complies with the other provisions in this section.
If the record is not delivered directly to the electronic address designated by the person but placed at an electronic address accessible to the person, a licensee shall notify the person in plain, clear, and conspicuous language at the electronic address designated by the person that describes the record, informs that person that it is available at another location, and provides instructions to the person as to how to obtain the record.
Upon a licensee receiving information indicating that the record sent by electronic transmission was not received by the person, the licensee shall, within five business days, comply with either clause (i) or (ii):
Contact the person to confirm or update the person’s email address and resend the record by electronic transmission. If the licensee elects to resend the record by electronic transmission, the licensee shall demonstrate the transmission was received by the person, pursuant to paragraph (6), (7), or (8). If the licensee is unable to confirm or update the person’s email address, the licensee shall resend the record by regular mail to the licensee at the address shown on the policy, or, if the underlying statute requires delivery in a specified manner, send the record in that specified manner.
Resend the record initially provided by electronic transmission by regular mail to the insured at the address shown on the policy, or, if the underlying statute requires delivery in a specified manner, send the record in that specified manner.
If the licensee sends the first electronic record within the time period required by law and the licensee complies with both paragraph (5) and subparagraph (A) of this paragraph, the record sent pursuant to clause (i) or (ii) of subparagraph (A) shall be treated as if mailed in compliance with the applicable statutory regular mail delivery deadlines.
The licensee shall not charge any person who declines to opt in to receive a record through electronic transmission from receiving a record electronically. The licensee shall not provide a discount or an incentive to any person to opt in to receive electronic records.
The licensee shall verify a person’s email address via paper writing sent by regular mail when more than 12 months have elapsed since the licensee’s last electronic communication.
An insurance agent or broker acting under the direction of a party that enters into a contract by means of an electronic record or electronic signature shall not be held liable for any deficiency in the electronic procedures agreed to by the parties under that contract if all of the following are met:
On or before January 1, 2022, the commissioner shall submit a report to the Governor and to the committees of the Senate and Assembly having jurisdiction over insurance and the judiciary, regarding insurer compliance with laws governing electronic transmissions of insurance transactions, including renewal offers, notices, or disclosures. The commissioner shall ensure the report addresses the use of electronic transmissions by insurers conducting the business of insurance, the department’s enforcement actions relating to those electronic transmissions, and the impact of those enforcement actions on insurer compliance rates.
Notwithstanding paragraph (4) of subdivision (b) of Section 1633.3 of the Civil Code, a statutory requirement for a separate acknowledgment, signature, or initial that is not expressly prohibited by subdivision (c) of Section 1633.3 of the Civil Code may be transacted using an electronic signature, or by electronic transaction, subject to all applicable provisions of this section.
Whenever the commissioner has reason to believe that a licensee has been or is engaged in conduct in this state that violates this section, or if the commissioner believes that a licensee has been or is engaged in conduct outside this state that has an effect on an insurance risk located within this state and that violates this section, the commissioner shall issue and serve upon that licensee a statement of charges and notice of hearing to be held at a time and place fixed in the notice. The date for the hearing shall be not less than 30 days after the date of service.
At the time and place fixed for the hearing, the licensee charged shall have an opportunity to answer the charges against it and present evidence on its behalf. Upon good cause shown, the commissioner shall permit any adversely affected person to appear and be heard at the hearing by counsel or in person.
At any hearing conducted pursuant to this section, the commissioner may administer oaths, examine and cross-examine witnesses, and receive oral and documentary evidence. The commissioner shall have the power to subpoena witnesses, compel their attendance, and require the production of books, papers, records, correspondence, and other documents that are relevant to the hearing. A stenographic record of the hearing shall be made upon the request of any party or at the discretion of the commissioner. If no stenographic record is made and if judicial review is sought, the commissioner shall prepare a statement of the evidence for use on review. Hearings conducted under this section shall be governed by the same rules of evidence and procedure applicable to administrative proceedings conducted under the laws of this state.
Statements of charges, notice, orders, and other processes of the commissioner under this section may be served by anyone duly authorized to act on behalf of the commissioner. Service of process may be completed in the manner provided by law for service of process in civil actions or by registered mail or by a mailing service offered by a third-party with tracking capability that is not more expensive than registered mail. A copy of the statement of charges, notice, order, or other process shall be provided to the person or persons whose rights under this section have been allegedly violated. A verified return setting forth the manner of service, the return postcard receipt in the case of registered mail, or signed receipt documentation shall be sufficient proof of service.
If, after a hearing pursuant to paragraphs (1) through (4), the commissioner determines that the licensee charged has engaged in conduct or practices in violation of this section, the commissioner shall reduce their findings to writing and shall issue and cause to be served upon the licensee a copy of the findings and an order requiring the licensee to cease and desist from the conduct or practices constituting a violation of this section. As part of the order, the commissioner may suspend a licensee from providing records by electronic transmission if there is a pattern or practice that demonstrates the licensee has failed to comply with the requirements of this section. A licensee may appeal the suspension and resume its electronic transmission of records upon communication from the department that the changes the licensee made to its process or system to comply with the requirements of this section are satisfactory.
Until expiration of the time allowed using the procedure set forth in paragraph (7) for filing a petition for review or until the petition is actually filed, whichever occurs first, the commissioner may modify or set aside any order issued under this section. After expiration of the time allowed under paragraph (7) for filing a petition for review, if no petition has been duly filed, the commissioner may, after notice and opportunity for hearing, alter, modify, or set aside, in whole or in part, any order issued under this section whenever conditions of fact or law warrant that action or if the public interest requires.
A licensee subject to an order of the commissioner under this section or a person whose rights under this section were allegedly violated may obtain a review of an order of the commissioner by filing a petition in a court of competent jurisdiction, within 30 days from the date of the service of the order, pursuant to Section 1094.5 of the Code of Civil Procedure. The court shall have jurisdiction to make and enter a decree modifying, affirming, or reversing any order of the commissioner, in whole or in part.
An order issued by the commissioner under this section shall become final upon either of the following:
Upon the expiration of the time allowed for the filing of a petition for review, if no petition has been duly filed. However, the commissioner may modify or set aside an order to the extent provided in paragraph (6).
Upon a final decision of the court, if the court directs that the order of the commissioner be affirmed or the petition for review dismissed.
An order of the commissioner under this section or order of a court to enforce the order of the commissioner shall not in any way relieve or absolve a person or licensee affected by that order from liability under any law of this state.
A licensee who violates a cease and desist order of the commissioner under this section may, after notice and hearing and upon order of the commissioner, be subject to one of the following penalties at the discretion of the commissioner:
A civil penalty of not more than ten thousand dollars ($10,000) for each violation, except that the total civil penalty for violations of this section in a single investigation shall not exceed two hundred fifty thousand dollars ($250,000).
A civil penalty of not more than two hundred fifty thousand dollars ($250,000) if the commissioner finds that violations have occurred with such frequency as to constitute a general business practice.
Suspension or revocation of a licensee’s license if the licensee knew or reasonably should have known it was in violation of the cease and desist order.
Insurers shall maintain a system for electronically confirming a policyholder’s decision to opt in to an agreement to conduct transactions electronically and a system that will allow the policyholder to electronically opt out of the agreement to conduct business electronically as specified in subdivision (c) of Section 1633.5. The insurer shall maintain the electronic records for the same amount of time the insurer would be required to maintain those records if the records were in written form.
If any provision of this code, or the application thereof to any person or circumstance, is held invalid, the remainder of the code, or the application of such provision to other persons or circumstances, shall not be affected thereby.
The existence of insurers formed prior to the date this code takes effect shall not be affected by the enactment of this code nor by any repeal of the laws under which they were formed, but such insurers shall thereafter operate under the provisions of this code.
All insurance in this State is governed by the provisions of this code.
The designation of insurance coverage as “group” in any code or law of this state other than this code does not authorize its representation as a group coverage or as a group policy, certificate, or contract by any person licensed or certificated by the commissioner unless the policy providing the coverage is defined as group insurance by a specific provision of this code or of the laws of the state in which the policy, certificate, or contract is issued. This section shall apply only to life, disability, and workers’ compensation insurance.
Any person who willfully and knowingly makes, circulates, or transmits to another any false written or printed statement for the purpose of damaging the financial condition or stability of any insurance company doing business in this state is guilty of a misdemeanor punishable by a fine of not more than one thousand dollars ($1,000).
“Electronic funds transfer” means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, that is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape, so as to order, instruct, or authorize a financial institution to debit or credit an account. Electronic funds transfer shall be accomplished by an automated clearinghouse debit, an automated clearinghouse credit, a Federal Reserve Wire Transfer (Fedwire), or an international funds transfer, at the option of the insurer.
For purposes of this section:
“Automated clearinghouse” means any federal reserve bank, or an organization established by agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and that authorizes an electronic transfer of funds between those banks or bank accounts.
“Automated clearinghouse debit” means a transaction in which any department of the state, through its designated depository bank, originates an automated clearinghouse transaction debiting the taxpayer’s bank account and crediting the state’s bank account for the amount of tax. Banking costs incurred for the automated clearinghouse debit transaction by the taxpayer shall be paid by the state.
“Automated clearinghouse credit” means an automated clearinghouse transaction in which the taxpayer, through its own bank, originates an entry crediting the state’s bank account and debiting its own bank account. Banking costs incurred by the state for the automated clearinghouse credit transaction may be charged to the taxpayer.
“Fedwire” means any transaction originated by the taxpayer and utilizing the national electronic payment system to transfer funds through federal reserve banks, pursuant to which the taxpayer debits its own bank account and credits the state’s bank account. Electronic funds transfers may be made by Fedwire only if prior approval is obtained from the department and the taxpayer is unable, for reasonable cause, to make payments pursuant to paragraph (2) or (3). Banking costs charged to the taxpayer and to the state may be charged to the taxpayer.
“International funds transfer” means any transaction originated by the taxpayer and utilizing “SWIFT,” the international electronic payment system to transfer funds in which the taxpayer debits its own bank account, and credits the funds to a United States bank that credits the state’s bank account. Banking costs charged to the taxpayer and to the state may be charged to the taxpayer.
The Legislature hereby declares its intent that the term “workmen’s compensation” shall hereafter also be known as “workers’ compensation.” In furtherance of this policy it is the desire of the Legislature that references to the term “workmen’s compensation” in this code be changed to “workers’ compensation” when such code sections are being amended for any purpose. This act is declaratory and not amendatory of existing law.
DIVISION 1. GENERAL RULES GOVERNING INSURANCE [100. - 1879.8.]
PART 1. THE CONTRACT [100. - 679.75.]
CHAPTER 1. Classes of Insurance [100. - 124.5.]
Insurance in this state is divided into the following classes:
Life.
Fire.
Marine.
Title.
Surety.
Disability.
Plate glass.
Liability.
Workers’ compensation.
Common carrier liability.
Boiler and machinery.
Burglary.
Credit.
Sprinkler.
Team and vehicle.
Automobile.
[Reserved]
Aircraft.
Mortgage guaranty.
Insolvency.
Legal insurance.
Miscellaneous.
Life insurance includes insurance upon the lives of persons or appertaining thereto, and the granting, purchasing, or disposing of annuities.
Fire insurance includes:
Insurance against loss by fire, lightning, windstorm, tornado, or earthquake.
Insurance against loss of, or destruction of, or damage to, any of the following property, when such insurance includes loss thereof by fire and excludes coverage of property while in the custody of, or possession of, or being transported by, any carrier for hire or in the mail:
1. Accounts, books, maps, manuscripts, indexes and other valuable papers, documents and records incidental to the business or profession or activity in which the insured is engaged, resulting from any cause, but excluding any article constituting stock in trade or used as a sample or sold or held for sale.
2. Moneys, stamps, coins, bullion, securities, notes, drafts, acceptances or instruments of like kind or character, resulting from any cause, except:
Forgery.
Any dishonest, fraudulent or criminal act of any officer, employee, partner, director, trustee or authorized representative of the insured.
Insurance by means of an all-risk policy of the type commonly known as the “Personal Property Floater” against any and all kinds of loss of or damage to, or loss of use of, any personal property other than merchandise.
The provisions of Section 2070 shall not apply to insurance written pursuant to subdivisions (b) or (c).
Marine insurance includes insurance against any and all kinds of loss of or damage to:
Vessels, craft, aircraft, cars, automobiles and vehicles of every kind (excluding aircraft and automobiles operating under their own power or while in storage not incidental to transportation), as well as all goods, freights, cargoes, merchandise, effects, disbursements, profits, money, bullion, securities, choses in action, evidences of debt, valuable papers, bottomry and respondentia interests and all other kinds of property, and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit, or transportation, including war risks, on or under any seas or other waters, on land or in the air, or while being assembled, packed, crated, baled, compressed or similarly prepared for shipment or while awaiting the same, or during any delays, storage, transshipment, or reshipment incident thereto including marine builder’s risks, and all personal property floater risks.
Person or to property in connection with or appertaining to a marine, inland marine, transit or transportation insurance including liability for loss of or damage arising out of or in connection with the construction, repair, maintenance or use of the subject matter of such insurance (but not including life insurance or surety bonds); but except as herein specified, shall not mean insurances against loss by reason of bodily injury to the person. Inland marine insurance shall be deemed to include hull insurance on water pleasure craft not used for commercial purposes of a size and type to be determined by the commissioner.
Precious stones, jewels, jewelry, gold, silver and other precious metals, whether used in business or trade or otherwise and whether the same be in course of transportation or otherwise.
Title insurance means insuring, guaranteeing or indemnifying owners of real or personal property or the holders of liens or encumbrances thereon or others interested therein against loss or damage suffered by reason of:
Liens or encumbrances on, or defects in the title to said property;
Invalidity or unenforceability of any liens or encumbrances thereon; or
Incorrectness of searches relating to the title to real or personal property.
Surety insurance includes:
The guaranteeing of behavior of persons and the guaranteeing of performance of contracts (including executing or guaranteeing bonds and undertakings required or permitted in all actions or proceedings or by law allowed), other than insurance policies and other than for payments secured by a mortgage, deed of trust, or other instrument constituting a lien or charge on real estate.
Insurance against loss resulting from the forgery or alteration of any instrument of any kind or character or of any signature thereon. Nothing in this section shall be deemed to limit any of the powers of title insurers.
Any of the following insurance when included as a part of contract containing any such guarantee of behavior or performance or in a contract indemnifying any bank, banker, broker, financial or moneyed corporation or association, any state, political subdivision, public or municipal corporation, or any officer of any state, political subdivision, public or municipal corporation: Insurance indemnifying the insured named therein against loss or destruction from any cause of any evidences of debt of any kind or character, evidences of ownership of any kind or character, deeds, mortgages, warehouse receipts, bills of lading, certificates of stock, bonds, notes, drafts, checks, instruments of similar character, stamps, documents, money, precious metals of any kind or character, refined or unrefined, and articles made therefrom, jewelry, watches, necklaces, bracelets, gems and precious and semiprecious stones, and also against loss or damage, except by fire, to the insured’s premises, furnishings, fixtures, equipment, safes and vaults therein caused by burglary, robbery, holdup, theft or larceny or attempt thereat. No such insurance indemnifying against loss of any property as specified herein shall indemnify against loss of any such property occurring while in the mail or in the exclusive custody or possession of a common carrier for the purpose of transportation, except for the purpose of transportation by an armored motor vehicle.
No insurance may be written as surety insurance if it falls within the definition of financial guaranty insurance as set forth in Section 12100.
Disability insurance includes insurance appertaining to injury, disablement or death resulting to the insured from accidents, and appertaining to disablements resulting to the insured from sickness.
In statutes that become effective on or after January 1, 2002, the term “health insurance” for purposes of this code shall mean an individual or group disability insurance policy that provides coverage for hospital, medical, or surgical benefits. The term “health insurance” shall not include any of the following kinds of insurance:
Accidental death and accidental death and dismemberment.
Disability insurance, including hospital indemnity, accident only, and specified disease insurance that pays benefits on a fixed benefit, cash payment only basis.
Credit disability, as defined in subdivision (2) of Section 779.2.
Coverage issued as a supplement to liability insurance.
Disability income, as defined in subdivision (c) of Section 799.01.
Insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
Insurance arising out of a workers’ compensation or similar law.
Long-term care.
In a statute that becomes effective on or after January 1, 2008, the term “specialized health insurance policy” as used in this code shall mean a policy of health insurance for covered benefits in a single specialized area of health care, including dental-only, vision-only, and behavioral health-only policies.
Plate glass insurance includes insurance against breakage of glass.
Liability insurance includes:
Insurance against loss resulting from liability for injury, fatal or nonfatal, suffered by any natural person, or resulting from liability for damage to property, or property interests of others but does not include worker’s compensation, common carrier liability, boiler and machinery, or team and vehicle insurance.
With respect to operations or property covered by a policy of liability insurance as defined in subdivision (a), insurance of medical, hospital, surgical and funeral loss or expense of the insured or other persons injured, and in the case of an automobile liability policy disability benefits to the insured or other persons injured and in the event of their death, funeral and accidental death benefits to their dependents, beneficiaries or personal representatives irrespective of legal liability of the insured, when issued with or supplemental to the insurance defined in subdivision (a);
When issued with or supplemental to the insurance defined in subdivision (a), disability insurance covering the insured and members of his household, or other persons who customarily operate any automobile covered by such a policy and who are named in such policy; and such disability insurance may cover against accidental injury, death or dismemberment caused by any or all hazards as defined in such coverage;
Insurance covering injuries sustained by an insured resulting from a tort committed by a third party against which such third party is not himself covered by liability insurance;
Insurance coverage against the legal liability of the insured, and against loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of negligence or malpractice in rendering professional services by any person who holds a certificate or license issued pursuant to Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code, a license issued pursuant to the Osteopathic Initiative Act, or license as a community clinic defined in subdivision (a) of Section 1203 of the Health and Safety Code, or a license as a health facility pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code.
The provisions of this code relating to disability insurance do not apply to insurance defined in this section.
Insurers admitted to transact liability insurance are also deemed to be admitted to transact workers’ compensation insurance for the purpose of covering those persons defined as employees by subdivision (d) of Section 3351 of the Labor Code.
Workers’ compensation insurance includes insurance against loss from liability imposed by law upon employers to compensate employees and their dependents for injury sustained by the employees arising out of and in the course of the employment, irrespective of negligence or of the fault of either party.
Common carrier liability insurance includes insurance against loss resulting from liability of a common carrier for accident or injury, fatal or nonfatal, to any person but does not include liability or workers’ compensation insurance.
Boiler and machinery insurance includes insurance against loss of property and liability for damage to persons or property from explosion of, or accident to, boilers, tanks, pipes, pressure vessels, engines, wheels, electrical machinery, or apparatus connected therewith or operating thereby.
Burglary insurance includes:
Insurance against loss by burglary or theft or both.
Insurance against loss of, or destruction of, or damage to, any of the following property, resulting from any cause, when such insurance includes loss thereof by burglary or theft, or both, and excludes coverage of property while in the custody of, or possession of, or being transported by, any carrier for hire or in the mail: Moneys, stamps, coins, bullion, securities, notes, drafts, acceptances or instruments of like kind or character, accounts, books, maps, manuscripts, indexes and other valuable papers, documents and records incidental to the business or profession or activity in which the insured is engaged.
Insurance by means of an all-risk policy of the type commonly known as the “Personal Property Floater” against any and all kinds of loss of or damage to, or loss of use of, any personal property other than merchandise.
Credit insurance includes insurance of persons engaged in business against loss by reason of extending credit to those dealing with them, and insurance against loss from the failure of persons to meet existing or contemplated obligations to the insured. However, no insurance may be written as credit insurance if it falls within the definition of financial guaranty insurance as set forth in Section 12100.
Sprinkler insurance includes insurance against loss through damage by water to goods or premises arising from the breakage or leakage of sprinklers, pumps, or other apparatus placed for extinguishing fires, or loss arising from the breakage or leakage of water pipes, or through accidental injury to such sprinklers, pumps, or other apparatus.
Team and vehicle insurance includes insurance against loss through damage or legal liability for damage, to property caused by the use of teams or vehicles other than ships, boats, or railroad rolling stock, whether by accident or collision or by explosion of engine, tank, boiler, pipe, or tire of the vehicle, and insurance against theft of the whole or part of such vehicle.
Automobile insurance includes insurance of automobile owners, users, dealers, or others having insurable interests therein, against hazards incident to ownership, maintenance, operation, and use of automobiles, other than loss resulting from accident or physical injury, fatal or nonfatal, to, or death of, any natural person.
Automobile insurance also includes any contract of warranty, or guaranty that promises service, maintenance, parts replacement, repair, money, or any other indemnity in event of loss of or damage to a motor vehicle or a trailer, as defined by Section 630 of the Vehicle Code, or any part thereof from any cause, including loss of or damage to or loss of use of the motor vehicle or trailer by reason of depreciation, deterioration, wear and tear, use, obsolescence, or breakage if made by a warrantor or guarantor who is doing an insurance business.
Automobile insurance also includes any agreement that promises repair or replacement of a motor vehicle, or part thereof, after a mechanical or electrical breakdown, at either no cost or a reduced cost for the agreement holder. However, automobile insurance does not include a vehicle service contract subject to Part 8 (commencing with Section 12800) of Division 2, or an agreement deemed not to be insurance under that part.
The doing or proposing to do any business in substance equivalent to the business described in this section in a manner designed to evade the provisions of this section is the doing of an insurance business.
The warrantor maintains an insurance policy with an admitted insurer providing coverage for 100 percent of the warrantor’s obligations under the warranty. The insurance policy shall allow the warrantyholder to make a direct claim for payment from the insurer upon the failure of the warrantor to pay any covered claim within 60 days after a complete proof-of-loss has been filed with the party designated in the warranty. In addition, all of the following shall apply:
The warrantor shall file with the commissioner a copy of the insurance policy. At any time, a warrantor may have on file with the commissioner only one active policy from one insurer.
The insurer’s liability under the policy shall not be negated by a failure of the warrantor, for any reason, to report the issuance of a warranty to the insurer or to remit moneys owed to the insurer.
No policy cancellation by an insurer shall be valid unless a notice of the intent to cancel the policy is filed with the commissioner not less than 30 days prior to the effective date of the cancellation, or, in the event that the cancellation is due to fraud, material misrepresentation, or defalcation by the warrantor, not less than 10 days prior to that date.
In the event an insurer cancels a policy that a warrantor has filed with the commissioner, the warrantor shall do either of the following:
File a copy of a new policy with the commissioner, before the termination of the prior policy, providing no lapse in coverage following the termination of the prior policy.
Discontinue acting as a warrantor as of the termination date of the policy until a new policy becomes effective and is accepted by the commissioner.
The warrantor does not use the words insurance, casualty, surety, mutual, or any other words descriptive of the casualty, insurance, or surety business or deceptively similar to the name or description of any insurance company or casualty or surety company in the vehicle protection product name or warranty or in any advertising or other materials provided to prospective purchasers.
The warranty has been issued to a customer that is insured under a comprehensive vehicle insurance policy for the vehicle covered by the warranty agreement.
The warranty is in writing and provides all of the following:
The benefits are limited to the difference between the actual cash value of the stolen vehicle and the vehicle’s replacement cost, temporary vehicle rental expenses, reimbursement for insurance policy deductible, and registration fees and taxes on a replacement vehicle or a fixed amount for those benefits.
A statement that the warrantyholder shall be entitled to make a direct claim against the insurer covering the obligations of the warranty upon the failure of the warrantor to pay any covered claim within 60 days after a complete proof-of-loss has been filed with the party designated in the warranty.
A disclosure stating clearly the name, address, and telephone number of the insurer covering the obligations of the warrantor.
A toll-free telephone number established and operated by the warrantor for the warrantyholder to call for questions about the warranty or the procedures to file a claim.
A statement that clearly indicates the terms of the warranty, whether new or used cars are eligible for the vehicle protection product, the method for calculating the benefits paid and provided to the warrantyholder, and the procedure for filing a claim under the warranty.
A disclosure in 10-point type or larger that reads as follows: “This agreement is a product warranty and is not insurance. It is not subject to state insurance laws but is subject to state law concerning warranties.”
A disclosure in 10-point type or larger that reads as follows: “To be eligible for this warranty, the warrantyholder must have comprehensive insurance coverage on the vehicle that is protected by the antitheft device.”
The benefit is payable upon the theft of the vehicle, as defined in the warranty, and subject to the satisfaction of the procedural proof of claim requirements of the warranty.
For purposes of this section, the following definitions shall apply:
“Warrantor” means the manufacturer or provider of a vehicle protection product who, under the terms of a vehicle protection product warranty, is the contractual obligor to the purchaser of a vehicle protection product.
“Vehicle protection product” means a vehicle protection device, system, or service that is installed on, or applied to, a vehicle, is designed to deter the theft of a vehicle, and includes a written warranty that provides if the product fails to deter the theft of the vehicle, that the warrantyholder shall be paid specified incidental costs by the warrantor as a result of the failure of the device, system, or service to perform pursuant to the terms of the warranty.
For purposes of this section, “vehicle protection product” shall also include alarm systems, window etch products, body part marking products, steering locks, pedal and ignition locks, fuel and ignition kill switches, and electronic, radio, and satellite tracking devices.
The commissioner may issue a stop order pursuant to Section 12921.8 to a warrantor who is in violation of the requirements of this section.
A warrantor shall have the burden of proving that a claim filed in compliance with the terms and conditions of the warranty is not covered by the warranty. A warrantor shall have the burden of proving that a claim settlement amount fulfills the promises contained in the warranty.
The requirements of this section shall not apply under either of the following conditions:
The warranty only provides for the repair or replacement of the vehicle protection product subsequent to a mechanical or electrical breakdown of the vehicle protection product.
Nothing in this section is intended to affect any pending litigation.
Aircraft insurance includes insurance of aircraft owners, users, dealers or others having insurable interests therein, against loss through hazards incident to ownership, maintenance, operation and use of aircraft, other than against loss resulting from accident or physical injury, fatal or nonfatal, to any natural person.
Mortgage guaranty insurance includes insurance against financial loss by reason of the nonpayment of principal, interest and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust, or other instrument constituting a lien or charge on real estate.
Insolvency insurance includes insurance against loss arising from the failure of an insolvent insurer to discharge its obligations under its insurance policies.
Legal insurance includes the assumption of a contractual obligation to reimburse the insured against all or a portion of his fees, costs, and expenses related to or arising out of services performed by or under the supervision of an attorney who is an active member of the bar of any jurisdiction or jurisdictions of the United States, in which these legal services are performed.
Legal insurance does not include any of the following:
Retainer contracts made by an individual lawyer or law firm with an individual client with the fee based on an estimate of the nature and the amount of services that will be provided to that specific client, and similar contracts made with a group of clients involved in the same or closely related legal matters (such as class actions);
Plans providing no benefits other than consultation and advice on matters in connection with, or a part of, referral services.
Plans providing limited benefits on simple legal matters on a voluntary and informal basis, not involving a legally binding promise, in the context of an employment or educational or similar relationship; or
Legal services provided by labor unions or employee associations to their members in matters relating to employment or occupation.
Legal service incidental to other insurance coverages.
The foregoing is not intended as an exclusive list of legal services plans or arrangements which do not constitute legal insurance as defined by this section.
Miscellaneous insurance includes insurance against loss from damage done, directly or indirectly by lightning, windstorm, tornado, earthquake or insurance under an open policy indemnifying the producer of any motion picture, television, theatrical, sport, or similar production, event, or exhibition against loss by reason of the interruption, postponement, or cancellation of such production, event, or exhibition due to death, accidental injury, or sickness preventing performers, directors, or other principals from commencing or continuing their respective performance or duties; and any insurance not included in any of the foregoing classes, and which is a proper subject of insurance.
Except as otherwise stated, the enumeration in this chapter of the kinds of insurance in a particular class does not limit any such kind to any one of such particular classes, inasmuch as the classification of similar insurance may vary with the subject matter, risk, and connected insurances; but the fact that similar kinds of insurance occur in different classes does not extend or change the scope of any such class.
An insurer admitted for all the classes of insurance defined in Sections 102, 107, 108, 112, and 120 is authorized, in addition to the underwriting powers granted by such classes, to include any and all insurance described in paragraph (b) in a policy which contains fire coverage written on a form complying with either Section 2070 or 2071 and which provides insurance covering only noncommercial risks and covering either residence properties (not more extensive than a four-family dwelling) and appurtenances, or the contents thereof other than merchandise, or both.
Such insurance is any or all insurance against all risks of physical loss of, damage to, or personal liability (except workers’ compensation) for injury to person or damage to property incident to, any or all of the following:
The location described and property covered by the fire insurance policy as described in subdivision (a),
Personal effects,
Boats not over 16 feet in length (including furnishings, equipment, outboard motors, and trailers); provided the physical loss or damage coverage does not exceed five hundred dollars ($500),
Personal property intended primarily for residential or recreational use, (excluding boats except as provided above),
Farm implements or self-propelled vehicles, excluding automobiles and aircraft, and,
Horses, including accouterments and vehicles or implements to be drawn thereby.
An insurer admitted to transact liability insurance may extend such insurance on noncommercial or farm risks to include insurance of the legal liability of the insured for damage to property caused by use of “teams” or “vehicles” as the meaning thereof is limited by Section 115.
“Financial guaranty insurance” means that insurance as defined by Section 12100.
“Homeowners’ insurance” means insurance covering the risks described in subdivision (a) of Section 675.
CHAPTER 1.5. Risk Retention [125. - 140.]
This chapter shall be known and may be cited as the California Risk Retention Act of 1991.
The Legislature finds and declares that the provisions of this chapter are for the purpose of providing a means for a bona fide for-profit or nonprofit association or individual business to insure against liability and those obligations imposed by statute.
Unless the context otherwise requires, the general provisions hereinafter set forth shall govern the application of this chapter and supersede any other provisions of law in conflict.
The purposes of this chapter are as follows:
To regulate the formation and operation of risk retention groups and purchasing groups in this state formed pursuant to the federal Liability Risk Retention Act of 1986, to the extent permitted by that law.
To promote the formation and operation of risk retention groups and purchasing groups in this state. Californians who are experiencing difficulty in obtaining liability coverage are encouraged to form and operate risk retention and purchasing groups in this state.
To authorize the formation of a risk retention group for directors and officers of corporations, whether for profit or nonprofit, who are engaged in the same line of business with respect to the liability risks faced by those officers and directors within the meaning of the federal Liability Risk Retention Act of 1986.
The following definitions govern this chapter:
“Commissioner” means the Insurance Commissioner of this state or the commissioner, director, or superintendent of insurance of any other state.
“Domicile,” for purposes of determining the state in which a purchasing group is domiciled, means the following:
For a corporation, the state in which the purchasing group is incorporated and registered to do business pursuant to the federal Liability Risk Retention Act (15 U.S.C. Sec. 3901 and following).
For an unincorporated entity, the state of its principal place of business and in which it is registered to do business under the federal Liability Risk Retention Act (15 U.S.C. 3901 and following).
“Hazardous financial condition” means that, based on its present or reasonably anticipated financial condition, a risk retention group is unlikely to be able to do either of the following:
“Insurance” means primary insurance, excess insurance, reinsurance, surplus lines insurance, and any other arrangement for shifting and distributing risk that is determined to be insurance under the laws of this state.
“Liability” means legal liability for damages including costs of defense, legal costs and fees, and other claims expenses because of injuries to other persons, damage to their property, or other damage or loss to the other persons resulting from or arising out of any of the following:
Any business, whether profit or nonprofit, trade, product, services, including professional services, premises, or operations.
Any activity of any state or local government, or any agency or political subdivision thereof.
“Liability” includes financial responsibility required by the state for any activity for which an individual is required to obtain a license or certificate to provide a service. For purposes of this subdivision, a state agency has discretion to accept or deny proof of financial responsibility.
“Liability” does not include personal risk liability or an employer’s liability with respect to its employees other than legal liability under the Federal Employers’ Liability Act (45 U.S.C. Sec. 51 et seq.).
“Personal risk liability” means liability for damages because of injury to any person, damage to property, or other loss or damage resulting from any personal, familial, or household responsibilities or activities, rather than from responsibilities or activities referred to in subdivision (f).
“Plan of operation or a feasibility study” with respect to risk retention groups chartered in California includes analysis which presents the expected activities and results of a risk retention group including, at a minimum, all of the following:
Information to demonstrate that its members are engaged in businesses or activities similar or related with respect to the liability to which those members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations.
For each state in which it intends to operate, the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer.
Historical and expected loss experience of the proposed members and national experience of similar exposures, to the extent that this experience is reasonably available.
Pro forma financial statements and projections.
Appropriate opinions by a qualified, independent casualty actuary, including a determination of minimum premium or participation levels required to commence operations and to prevent a hazardous financial condition.
Identification of management, underwriting and claims procedures, marketing methods, managerial oversight methods, investment policies and reinsurance agreements.
“Public entity” includes the state, the Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state.
“Purchasing group” means any group which does all of the following:
Has as one of its purposes the purchase of liability insurance on a group basis.
Purchases that insurance only for its group members and only to cover their similar or related liability exposure, as described in paragraph (3).
Is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations.
Is domiciled in any state.
“Risk Retention Administration Account” means an account within the Insurance Fund to be used as a depository of moneys received under this chapter or appropriated by the Legislature for the purpose of administering this chapter.
“Risk retention group” means any corporation, public entity, or other limited liability association formed under the laws of any state, Bermuda, or the Cayman Islands that meets all of the following criteria:
Whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members.
Which is organized for the primary purpose of conducting the activity described under paragraph (1).
Which is either of the following:
Chartered and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state.
Before January 1, 1985, was chartered or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before that date, has certified to the insurance commissioner of at least one state that it satisfied the capitalization requirements of that state, except that any group is considered to be a risk retention group only if it has been engaged in business continuously since that date and only for the purpose of continuing to provide insurance to cover product liability or completed operations liability as those terms were defined in the Product Liability Risk Retention Act of 1981 before the date of the enactment of the federal Liability Risk Retention Act of 1986.
Does not exclude any person from membership in the group solely to provide for members of the group a competitive advantage over that person.
Has as its members only persons who comprise the membership of the risk retention group and as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by that group.
Whose members are engaged in businesses or activities similar or related with respect to the liability of which those members are exposed by virtue of any related, similar, or common business trade, product, services, premises, or operations.
Whose activities do not include the provision of insurance other than for the following:
Liability insurance for assuming and spreading all or any portion of the liability of its group members.
Reinsurance with respect to the liability of any other risk retention group or any members of that other group that is engaged in businesses or activities so that the group or member meets the requirement described in paragraph (6) from membership in the risk retention group that provides that reinsurance.
The name of which includes the phrase “risk retention group.”
“State” means any state of the United States or the District of Columbia.
An entity seeking to be licensed in this state as a risk retention group shall be organized under the laws of this state and licensed as a liability insurance company pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2.
An entity that has not completed its chartering and licensing as a risk retention group in its domiciliary state is subject to the requirements of Article 8 (commencing with Section 820) of Chapter 1 of Part 2.
In addition to the requirements of Article 3 (commencing with Section 699) of Chapter 1 of Part 2, a risk retention group licensed in this state shall submit to the commissioner a feasibility study or plan of operations and all other documentation required by the federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901 et seq.) to be submitted by a risk retention group to a nonchartering state.
In addition to the requirements of Article 3 (commencing with Section 699) of Chapter 1 of Part 2, a risk retention group licensed in this state shall comply with all of the following at the time of licensure, and thereafter:
The “board of directors” or “board,” as used in this section, means the governing body of the risk retention group elected by the shareholders or members to establish policy, elect or appoint officers and committees, and make other governing decisions.
“Director,” as used in this section, means a natural person designated in the articles of the risk retention group, or designated, elected, or appointed by any other manner, name, or title to act as a director.
The board of directors of the risk retention group shall have a majority of independent directors. If the risk retention group is a reciprocal risk retention group, the attorney-in-fact shall be required to adhere to the same standards regarding independence of operation and governance as imposed on the risk retention group’s board of directors and subscribers’ advisory committee under these standards, and, to the extent permissible under this state’s laws, service providers of a reciprocal risk retention group shall contract with the risk retention group and not the attorney-in-fact.
No director qualifies as “independent” unless the board of directors affirmatively determines that the director has no “material relationship” with the risk retention group. Each risk retention group shall disclose these determinations to its domestic regulator, at least annually. For this purpose, any person that is a direct or indirect owner of, or subscriber in, the risk retention group, or is an officer, director, or employee, or all three, of an owner and insured, as contemplated by 15 U.S.C. Section 3901(a)(4)(E)(ii) of the federal Liability Risk Retention Act of 1986, is considered to be “independent,” unless some other position of that officer, director, or employee constitutes a “material relationship.”
“Material relationship” of a person with the risk retention group includes, but is not limited to, any of the following:
The receipt in any one 12-month period of compensation or payment of any other item of value by that person, a member of that person’s immediate family, or any business with which that person is affiliated from the risk retention group or a consultant or service provider to the risk retention group that is greater than, or equal to, 5 percent of the risk retention group’s gross written premium for that 12-month period or 2 percent of its surplus, whichever is greater, as measured at the end of any fiscal quarter falling in a 12-month period. The person or immediate family member of that person is not independent until one year after his or her compensation from the risk retention group falls below the threshold.
A relationship with an auditor as follows: a director or an immediate family member of a director who is affiliated with, or employed in, a professional capacity by a present or former internal or external auditor of the risk retention group is not independent until one year after the end of the affiliation, employment, or auditing relationship.
A relationship with a related entity as follows: a director or immediate family member of a director who is employed as an executive officer of another company where any of the risk retention group’s present executives serve on that other company’s board of directors is not independent until one year after the end of that service or the employment relationship.
The term of any material service provider contract with the risk retention group shall not exceed five years. Any contract, or its renewal, shall require the approval of the majority of the risk retention group’s independent directors. The risk retention group’s board of directors shall have the right to terminate any service provider, audit, or actuarial contracts at any time for cause after providing adequate notice as defined in the contract. The service provider contract is deemed material if the amount to be paid for that contract is greater than, or equal to, 5 percent of the risk retention group’s annual gross written premium or 2 percent of its surplus, whichever is greater.
For purposes of this standard, “service providers” shall include captive managers, auditors, accountants, actuaries, investment advisers, attorneys, and managing general underwriters or any other party responsible for underwriting, determination of rates, collection of premium, adjusting and settling claims, or the preparation of financial statements. Any reference to “attorneys” does not include defense counsel retained by the risk retention group to defend claims, unless the amount of fees paid to those attorneys are “material” as referenced in this paragraph.
A service provider contract meeting the definition of “material relationship” pursuant to paragraph (2) shall not be entered into unless the risk retention group has notified the commissioner in writing of its intention to enter into the transaction at least 30 days prior thereto, and the commissioner has not disapproved the transaction within that period.
The risk retention group’s board of directors shall adopt a written policy in the plan of operation as approved by the board that requires the board to do all of the following:
Ensure that all owners or insureds, or both, of the risk retention group receive evidence of ownership interest.
Develop a set of governance standards applicable to the risk retention group.
Oversee the evaluation of the risk retention group’s management, including, but not limited to, the performance of the captive manager, managing general underwriter, or other parties responsible for underwriting, determination of rates, collection of premium, adjusting or settling claims, or the preparation of financial statements.
Review and approve the amount to be paid for all material service providers.
Review and approve, at least annually, all of the following:
The risk retention group’s goals and objectives relevant to the compensation of officers and service providers.
The officers’ and service providers’ performance in light of those goals and objectives.
The continued engagement of the officers and material service providers.
The risk retention group shall have an audit committee composed of at least three independent board members as defined in paragraph (2). A nonindependent board member may participate in the activities of the audit committee, if invited by the members, but cannot be a member of that committee.
The audit committee shall have a written charter that defines the committee’s purpose, which, at a minimum, shall be to do all of the following:
Assist in board oversight of the integrity of the financial statements, the compliance with legal and regulatory requirements, and the qualifications, independence, and performance of the independent auditor and actuary.
Discuss the annual audited financial statements and quarterly financial statements with management.
Discuss the annual audited financial statements with its independent auditor and, if advisable, discuss its quarterly financial statements with its independent auditor.
Discuss policies with respect to risk assessment and risk management.
Meet separately and periodically, either directly or through a designated representative of the committee, with management and independent auditors.
Review with the independent auditor any audit problems or difficulties and management’s response.
Set clear hiring policies of the risk retention group as to the hiring of employees or former employees of the independent auditor.
Require the external auditor to rotate the lead or coordinating audit partner having primary responsibility for the risk retention group’s audit as well as the audit partner responsible for reviewing that audit, so that neither individual performs audit services for more than five consecutive fiscal years.
Report regularly to the board of directors.
If an audit committee is not designated by the insurer, the insurer’s entire board of directors shall constitute the audit committee.
The board of directors shall adopt and disclose governance standards by making the information available through electronic means, such as posting the information on the risk retention group’s Internet Web site, or other means, and providing that information to members and insureds upon request. The information shall include all of the following:
A process by which the directors are elected by the owners, insureds, or both.
Director qualification standards.
Director responsibilities.
Director access to management and, as necessary and appropriate, independent advisers.
Director compensation.
Director orientation and continuing education.
The policies and procedures that are followed for management succession.
The policies and procedures that are followed for the annual performance evaluation of the board.
The board of directors shall adopt and disclose a code of business conduct and ethics for directors, officers, and employees and promptly disclose to the board of directors any waivers of the code for directors or executive officers, including all of the following topics:
Conflicts of interest.
Matters covered under the corporate opportunity doctrine under the state of domicile.
Confidentiality.
Fair dealing.
Protection and proper use of risk retention group assets.
Compliance with all applicable laws, rules, and regulations.
Requiring the reporting of any illegal or unethical behavior that affects the operation of the risk retention group.
The captive manager, president, or chief executive officer of the risk retention group shall promptly notify the domestic regulator, in writing, if he or she becomes aware of any material noncompliance with any of these governance standards.
Domestic risk retention groups, licensed as of December 31, 2013, shall be governed by subdivision (d) on and after January 1, 2015.
Risk retention groups chartered, incorporated, or licensed in states other than this state and seeking to do business as a risk retention group in this state shall file a notice of operation with the commissioner of its intention to do business in this state. The notice shall be filed with the commissioner within 60 days of the filing by the group of any notice filed with its chartering state of its intention to do business in this state, but in no event may a notice of intended operation be filed with the commissioner less than 60 days prior to the group commencing business in this state. In doing business in this state the risk retention group shall observe and abide by the laws of this state including the following:
A risk retention group shall submit to the commissioner all of the following:
A statement identifying the state or states in which the risk retention group is chartered and licensed as a liability insurance company, date of chartering, its principal place of business, and other information, including information on its membership, as the commissioner of this state may require to verify that the risk retention group is qualified under subdivision (k) of Section 130.
A copy of its plan of operations or a feasibility study and revisions of the plan or study submitted to the state in which the risk retention group is chartered and licensed. However, the provision relating to the submission of a plan of operation or a feasibility study does not apply with respect to any line or classification of liability insurance that (A) was defined in the Product Liability Risk Retention Act of 1981 before October 27, 1986, and (B) was offered before that date by any risk retention group that had been chartered and operating for not less than three years before that date.
A statement of registration that designates the commissioner as its agent for the purpose of receiving service of legal documents or process.
A registration filing fee of one thousand one hundred ninety-six dollars ($1,196) shall accompany the statement of registration, which shall be deposited in the Risk Retention Administration Account, which is hereby created within the Insurance Fund. Notwithstanding Section 13340 of the Government Code, moneys in the account are continuously appropriated to the department for purposes of this chapter.
Any risk retention group within this state shall submit to the commissioner all of the following:
Upon commencement of business within this state and annually thereafter, a copy of the group’s annual financial statement submitted to the state in which the risk retention group is chartered and licensed, which shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries or a qualified loss reserve specialist.
Upon request by the commissioner, a copy of each examination of the risk retention group as certified by the commissioner or public official conducting the examination and all documentation received as part of the examination.
Upon request by the commissioner, a copy of any outside audit performed with respect to the risk retention group.
Any risk retention group and its agents and representatives shall comply with Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2.
Any risk retention group shall comply with the laws of this state regarding deceptive, false, or fraudulent acts or practices. However, if the commissioner seeks an injunction regarding that conduct, the injunction shall be obtained from a court of competent jurisdiction.
Any risk retention group shall submit to an examination upon request by the commissioner to determine its financial condition if the commissioner of the jurisdiction in which the group is chartered and licensed has not initiated an examination or does not initiate an examination within 60 days after a request by the commissioner of this state.
Every application form for insurance from a risk retention group and every policy issued by a risk retention group shall contain in 10-point type on the front page and the declaration page, the following notice:
“NOTICE
This policy is issued by your risk retention group. Your risk retention group may not be subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty funds are not available for your risk retention group.”
The following acts by a risk retention group are hereby prohibited:
The solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in that group.
The solicitation or sale of insurance by, or operation of, a risk retention group that is in a hazardous financial condition.
A risk retention group may not offer insurance policy coverage prohibited by Section 533.5 or declared unlawful by the Supreme Court of California.
The risk retention group shall make its initial registration by filing the materials specified in subdivision (a). The initial registration is valid until December 31 of the year in which it was made, as long as the risk retention group is in compliance with this chapter. To maintain the registration in force, the risk retention group shall continue in compliance with this chapter and shall file the following items with the commissioner on or before December 31 of each year:
An annual reporting statement on a form prescribed by the commissioner.
An annual renewal fee to be determined by the commissioner, limited to the actual cost of administering this section, not to exceed three hundred dollars ($300).
Any other information required by the commissioner to determine whether the risk retention group is in compliance with the requirements of this chapter.
The risk retention group shall notify the commissioner in writing of any changes in the information provided according to subdivision (a) within 30 days of the effective date of the change.
No risk retention group shall be required or permitted to join or contribute financially to any insurance insolvency guaranty fund, or similar mechanism, in this state, nor shall any risk retention group, or its insureds or claimants against its insureds, receive any benefit from any such fund for claims arising under the insurance policies issued by that risk retention group.
When a purchasing group obtains insurance covering its members’ risks from an insurer not authorized in this state or a risk retention group, no such risks, wherever located, shall be covered by any insurance guaranty fund or similar mechanism in this state.
When a purchasing group obtains insurance covering its members’ risks from an authorized admitted insurer, only risks located in this state shall be covered by the state insurance guaranty fund.
A risk retention group shall not participate in this state’s joint underwriting associations, California Automobile Assigned Risk Plan, Fair Access to Insurance Requirements Plan, and market assistance plans.
A purchasing group that intends to do business in this state shall, prior to doing business, furnish to the commissioner notice, doing all of the following:
Identify the state in which the group is domiciled.
Specify the lines and classifications of liability insurance that the purchasing group intends to purchase.
Identify the insurance company or companies from which the group intends to purchase its insurance and the domicile of that company.
Specify the method by which, and the person or persons, if any, through whom, insurance will be offered to its members whose risks are resident or located in this state.
Identify the principal place of business of the group.
Provide other information that may be required by the commissioner to verify that the purchasing group is qualified under subdivision (i) of Section 130.
The purchasing group shall register with and designate the commissioner as its agent solely for the purpose of receiving service of legal documents or process, for which a filing fee in the amount of five hundred forty dollars ($540) shall be submitted to the commissioner for deposit in the Risk Retention Administration Account within the Insurance Fund, except that these requirements do not apply in the case of a purchasing group that did all of the following:
Was domiciled before April 1, 1986, and is domiciled on and after October 27, 1986, in any state of the United States.
Before October 27, 1986, purchased insurance from an insurance carrier licensed in any state, and since October 27, 1986, purchased its insurance from an insurance carrier licensed in any state.
Was a purchasing group under the requirements of the Product Liability Risk Retention Act of 1981 (15 U.S.C. Sec. 3901 et seq.) before October 27, 1986.
Does not purchase insurance that was not authorized for purposes of an exemption under that act, as in effect before October 27, 1986.
Any purchasing group that was doing business in this state prior to the enactment of this chapter shall, within 30 days after January 1, 1990, furnish notice to the commissioner pursuant to subdivision (a) and furnish information that may be required pursuant to subdivisions (b) and (c).
Each purchasing group that is required to give notice pursuant to subdivision (a) shall also furnish information that may be required by the commissioner to:
Any purchasing group that intends to do business in this state shall make its initial registration by submitting to the commissioner the materials listed in subdivision (a). The registration is valid until December 31 of the year in which it was made, as long as the purchasing group is in compliance with this chapter. To maintain the registration, the purchasing group shall continue to comply with this chapter. Additionally, the purchasing group shall file the following documents with the commissioner on or before January 31 of each year:
An annual reporting statement on a form prescribed by the commissioner.
An annual renewal fee, to be determined by the commissioner, limited to the actual cost of administering this section, not to exceed two hundred dollars ($200).
Any other information required by the commissioner to determine whether the purchasing group is in compliance with this chapter or other applicable provisions of this code.
The purchasing group shall notify the commissioner in writing of any changes in the information provided according to subdivision (a) within 30 days of the effective date of the change.
No purchasing group may offer insurance policy coverage prohibited by Section 533.5 or declared invalid by the Supreme Court of California.
A purchasing group which obtains liability insurance from an insurer not admitted in this state or a risk retention group shall inform each of the members of the group which have a risk resident or located in this state all of the following:
The risk is not protected by an insurance insolvency guaranty fund in this state.
The risk retention group or such insurer may not be subject to all insurance laws and regulations of this state.
The powers authorized by this chapter shall only be exercised to the extent these powers are not preempted by the Product Liability Risk Retention Act of 1981, as amended by the Risk Retention Amendments of 1986.
No person, firm, association, or corporation shall act or aid in any manner in soliciting, negotiating, or procuring liability insurance in this state from a risk retention group unless that person, firm, association, or corporation is licensed as a casualty broker-agent in accordance with Chapter 5 (commencing with Section 1621) of Part 2 and is authorized to act as an insurance broker; except salaried employees or officers of a risk retention group, provided no part of the compensation of that person is on a commission basis or otherwise based on production of business.
No person, firm, association, or corporation shall act or aid in any manner in soliciting, negotiating, or procuring liability insurance from an insurer not authorized to do business in this state on behalf of a purchasing group located in this state unless that person, firm, association, or corporation is licensed as a surplus line broker in accordance with Chapter 6 (commencing with Section 1760) of Part 2. A nonresident person may be licensed as a surplus line broker for purposes of placing insurance on behalf of a purchasing group.
Any person, firm, association, or corporation licensed pursuant to Chapter 5 (commencing with Section 1621) of Part 2, on business placed with risk retention groups or written through a purchasing group, shall inform each prospective insured of the provisions of the notice required by subdivision (g) of Section 132 in the case of a risk retention group and subdivision (b) of Section 135 in the case of a purchasing group.
There shall be no civil liability on the part of any agent or broker who places liability insurance coverage on behalf of any risk retention group which is incorporated and licensed in this state in the event of an insolvency by the risk retention group.
The commissioner may order a purchasing group or risk retention group to cease and desist from the solicitation or sale of insurance by, or the operations of, a risk retention group or purchasing group whose officers, organizers, or directors have engaged in any of the acts or omissions set forth in subdivision (a) of Section 1668.5. That order shall be made in accordance with the procedures set forth in Article 14.5 (commencing with Section 1065.1) of Chapter 1 of Part 2.
CHAPTER 2. Parties, Events, and Interests [150. - 305.]
ARTICLE 1. Parties to the Contract: Generally [150. - 151.]
Any person capable of making a contract may be an insurer, subject to the restrictions imposed by this code.
Any person except a public enemy may be insured.
ARTICLE 2. Parties to Contract: Mortgagor and Mortgagee [170. - 172.]
Unless the policy otherwise provides, if a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor and the mortgagor does not cease to be a party to the original contract.
In case of such a provision or assignment, any act of the mortgagor, prior to the loss and which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee; but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.
If an insurer assents to the transfer of insurance from a mortgagor to a mortgagee, and, at the time of the assent, imposes further obligations on the assignee, the acts of the mortgagor cannot affect the rights of the assignee.
ARTICLE 3. Events Subject to Insurance [250. - 253.]
Except as provided in this article, any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this code.
A lottery or its outcome shall not be insured against.
A policy executed by way of gaming or wagering, is void.
On and after January 1, 1986, no insurer shall issue or amend contracts of insurance in this state to provide coverage for the payment of any damages awarded to a person because of Section 1029.8 of the Code of Civil Procedure.
ARTICLE 4. Insurable Interest: Generally [280. - 287.]
If the insured has no insurable interest, the contract is void.
Every interest in property, or any relation thereto, or liability in respect thereof, of such a nature that a contemplated peril might directly damnify the insured, is an insurable interest.
An insurable interest in property may consist in:
1. An existing interest;
2. An inchoate interest founded on an existing interest; or,
3. An expectancy, coupled with an existing interest in that out of which the expectancy arises.
A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.
Except in the case of a property held by the insured as a carrier or depositary, the measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.
A carrier or depositary of any kind has an insurable interest in a thing held by him as such, to the extent of its value.
An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but need not exist in the meantime; an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
Every stipulation in a policy of insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, is void.
ARTICLE 5. Insurable Interest: Effect of Transfer [300. - 305.]
Except in the cases specified in the next four sections, and in the cases of life and disability insurance, a change of interest in any part of a subject insured, unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent until the interest in the subject and the interest in the insurance are vested in the same person.
A change of interest in a subject insured, after the occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss.
A change of interest in one or more of several distinct subjects, separately insured by one policy, does not avoid the insurance as to the others.
A change of interest by will or succession, on the death of the insured, does not avoid insurance; and his interest in the insurance passes to the person taking his interest in the subject matter insured.
In the case of partners, joint owners, or owners in common, who are jointly insured, a transfer of interest by one to another thereof does not avoid insurance, even though it has been agreed that the insurance shall cease upon an alienation of the subject insured.
The mere transfer of subject matter insured does not transfer the insurance, but suspends it until the same person becomes the owner of both the insurance and the subject matter insured.
CHAPTER 3. Negotiations Before Execution [330. - 361.]
ARTICLE 1. Concealment [330. - 339.]
Neglect to communicate that which a party knows, and ought to communicate, is concealment.
Concealment, whether intentional or unintentional, entitles the injured party to rescind insurance.
Each party to a contract of insurance shall communicate to the other, in good faith, all facts within his knowledge which are or which he believes to be material to the contract and as to which he makes no warranty, and which the other has not the means of ascertaining.
Neither party to a contract of insurance is bound to communicate information of the matters following, except in answer to the inquiries of the other:
1. Those which the other knows.
2. Those which, in the exercise of ordinary care, the other ought to know, and of which the party has no reason to suppose him ignorant.
3. Those of which the other waives communication.
4. Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material.
5. Those which relate to a risk excepted from insurance, and which are not otherwise material.
Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of the proposed contract, or in making his inquiries.
Each party to a contract of insurance is bound to know:
All the general causes which are open to his inquiry equally with that of the other, and which may affect either the political or material perils contemplated.
All the general usages of trade.
The right to information of material facts may be waived, either (a) by the terms of insurance or (b) by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated.
Information of the nature or amount of the interest of one insured need not be communicated unless in answer to an inquiry, except as prescribed by section 381, or by the provisions of the insurance contract if such provisions are prescribed by this code as part of a standard form.
An intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.
Neither party to a contract of insurance is bound to communicate, even upon inquiry, information of his own judgment upon the matters in question.
ARTICLE 2. Representation [350. - 361.]
A representation may be oral or written.
A representation may be made at the time of, or before, issuance of the policy.
The language of a representation is to be interpreted by the same rules as contracts in general.
A representation as to the future is a promise, unless it is merely a statement of a belief or an expectation.
A representation cannot qualify an express provision in a contract of insurance; but it may qualify an implied warranty.
A representation may be altered or withdrawn before the insurance is effected, but not afterwards.
The completion of the contract of insurance is the time to which a representation must be presumed to refer.
When an insured has no personal knowledge of a fact, he may nevertheless repeat information which he has upon the subject, and which he believes to be true, with the explanation that he does so on the information of others; or he may submit the information, in its whole extent, to the insurer. In neither case is he responsible for its truth, unless it proceeds from an agent of the insured, whose duty it is to give the information.
A representation is false when the facts fail to correspond with its assertions or stipulations.
If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract from the time the representation becomes false.
The materiality of a representation is determined by the same rule as the materiality of a concealment.
The provisions of this chapter apply as well to a modification of a contract of insurance as to its original formation.
CHAPTER 4. The Policy [380. - 460.]
ARTICLE 1. Definition and Scope [380. - 396.]
The written instrument, in which a contract of insurance is set forth, is the policy.
A policy shall specify:
The parties between whom the contract is made.
The property or life insured.
The interest of the insured in property insured, if he is not the absolute owner thereof.
The risks insured against.
The period during which the insurance is to continue.
Either:
A statement of the premium, or
If the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined and paid.
The information described in subdivision (b) shall be provided to the policyholder at the time of application for, or issuance of, a policy of automobile insurance, as defined in Section 660, and in each renewal notice sent prior to the renewal of the policy. However, information described in paragraphs (1) and (2) of subdivision (b) may be provided to the policyholder separately upon request. The information shall not be presented as an abbreviation or code unless a key to the abbreviations or codes used is also included.
For each rated driver or vehicle, as applicable, the number of incidents or other relevant data that apply to each of the following categories:
Traffic convictions.
At-fault accidents (property damage or bodily injury).
Estimated annual mileage driven.
Years of driving experience.
Vehicle use (e.g., pleasure, commute, business).
ZIP Code of the location where the vehicle is garaged, if different from the mailing address of the policyholder.
Driver-related discounts applied.
Vehicle-related discounts or surcharges applied.
The disclosure of information required by this section may contain additional provisions that are not in conflict with, or derogation of, these provisions.
Each insurer shall comply with this section no later than March 1, 2004.
When a policy includes coverage for loss or damage to a specific item of personal property of the insured, which item is separately listed and described and on which item a separate amount of insurance is placed, the insurer shall compute any total loss of such item of personal property as being the amount of insurance placed on it. In the adjustment of a partial loss or damage to such item of covered property, the separately listed amount of insurance applying to the specific item shall be used as the value of the item prior to its partial loss or damage. If a different method is to be used in the computation of loss, the policy, and any application therefor, shall set forth, in type of prominent size, the actual method of such loss computation used by the insurer.
The provisions of this subdivision shall not apply to any property used for a business purpose or to any motor vehicle.
If there are two or more policies insuring the same property against the loss, the loss shall be prorated among the policies.
Every policy issued, amended, delivered, or renewed in this state shall provide coverage for the registered domestic partner of an insured or policyholder that is equal to, and subject to the same terms and conditions as, the coverage provided to a spouse of an insured or policyholder. A policy may not offer or provide coverage for a registered domestic partner if it is not equal to the coverage provided for the spouse of an insured or policyholder. This subdivision applies to all forms of insurance regulated by this code.
A policy subject to this section that is issued, amended, delivered, or renewed in this state on or after January 1, 2005, shall be deemed to provide coverage for registered domestic partners that is equal to the coverage provided to a spouse of an insured or policyholder.
It is the intent of the Legislature that, for purposes of this section, “terms,” “conditions,” and “coverage” do not include instances of differential treatment of domestic partners and spouses under federal law.
Covering notes may be issued to bind insurance temporarily pending the issuance of the policy. Within 90 days after issue of a covering note a policy shall be issued in lieu thereof, including within its terms the identical insurance bound under the covering note and premium therefor.
Covering notes may be extended or renewed beyond such 90 days with the written approval of the commissioner if the commissioner determines that such extension is not contrary to and is not for the purpose of violating any provision of this code. The commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extensions in compliance with such rules and regulations.
A binder which is issued in accordance with this section shall be deemed an insurance policy for the purpose of proving that the insured has the insurance coverage specified in the binder.
As used in this section, “binder” means a writing (1) which includes the name and address of the insured and any additional named insureds, mortgagees, or lienholders, a description of the property insured, if applicable, a description of the nature and amount of coverage and any special exclusions not contained in a standard policy, the identity of the insurer and the agent executing the binder, the effective date of coverage, the binder number or the policy number where applicable to a policy extension, and (2) which temporarily obligates the insurer to provide that insurance coverage pending issuance of the insurance policy. For purposes of this section, “binder” does not include, and this section does not apply to, any writing that conditionally or unconditionally obligates an insurer to provide (1) life or disability insurance or (2) insurance in the amount of one million dollars ($1,000,000) or more.
Except as superseded by the clear and express terms of the binder, a binder shall be deemed to include all of the usual terms of the policy as to which the binder was given, together with applicable endorsements as are designated in the binder.
Except as otherwise provided in this subdivision, a binder shall be valid for the period specified therein not exceeding 90 days from the date of execution of the binder or, if not specified, for that period of 90 days. No binder shall remain valid on or after the date the insurance policy is issued with respect to which the binder was given. Expiration of coverage under a binder shall not be considered a cancellation or nonrenewal of a policy of insurance within the meaning of any statute limiting the right to cancel or nonrenew a policy of insurance.
If any party to a contract or other agreement refuses without reasonable cause to accept a binder as proof of insurance when that proof is required by the contract or agreement, that party shall be deemed to have breached the contract and the other party thereto, shall be entitled to appropriate injunctive relief and may recover damages for the breach and reasonable attorney’s fees and costs. As used in this subdivision, “reasonable cause” includes, but shall not be limited to, any of the following:
Inadequate coverage or inappropriate terms of coverage with respect to the interest of the vendor, lender, lessor, or other person providing a service to the insured.
Failure of the insurer to meet the financial standards “lawfully” established by the lender for all insurers for the type of loan for which the insurance is obtained.
Inability of the lender to determine if the insurer is licensed as an admitted insurer by the commissioner to transact the line of insurance for which the binder is issued.
Failure of the insurance agent to provide the lender with written evidence of the agent’s authority to bind insurance coverage on behalf of the insurer under the binder.
Failure of the binder to comply with this section.
For purposes of all insurance policies providing collateral insurance coverage, binders issued in accordance with this section shall be deemed an insurance policy.
The commissioner may suspend or revoke the license of any agent issuing or purporting to issue any binder of a type for which the agent lacks authority from the insurer named in the binder.
It is a misdemeanor:
For any insurer, or any agent of any insurer, to issue a policy in violation of the requirements of subdivision (f) of section 381.
For any insurance agent or broker to assist in arranging for the insurance where the policy violates such requirements.
For any insurer to violate the provisions of section 382.
“Document,” as used in this section, means a policy or a certificate evidencing insurance under a master policy. The policy or certificate shall conform to Section 381 and shall segregate the premiums charged for each risk insured against. The certificate, in lieu of specifying the risks insured against, may designate them by name or by description. “Document” also includes the applicable policy form and a subsequently issued declarations page conforming to Section 381 or an endorsement.
“Owner,” as used in this section, means any person who is named as an insured in the contract of insurance or document, or in a loss payable clause therein, and, whether or not he or she is named therein, the vendee, pledgor, or chattel mortgagor of a motor vehicle where insurance contracts subject to this section are procured with respect to the motor vehicle by or on behalf of either party to the purchase, pledge, or mortgage.
Every contract of insurance against hazards incident to ownership, maintenance, operation, and use of motor vehicles shall be embodied in a document.
The original or true copy of the document shall be delivered to each owner. Where it is executed by an insurer, the insurer shall deliver the original or a true copy to either of the following:
The agent or broker who negotiated the insurance, for delivery to each owner of the motor vehicle.
Each owner of the motor vehicle.
Any owner whose interest in the insured vehicle is for security purposes only may by written notice to the insurer waive delivery of the policy and in lieu thereof there shall be delivered to the owner a written certificate of insurance setting forth in brief form the matters specified in Section 381.
The agent or broker receiving the original or copy shall deliver one to each owner. Where coverage subject to this section is evidenced by a document executed by an agent licensed under Chapter 5 (commencing with Section 1621) of Part 2, and not by an insurer, the agent and not the insurer is responsible for delivery of the original or a true copy to each owner.
The licenses of any agent or broker found by the commissioner after hearing to have violated this section may be suspended or revoked in accordance with the procedure provided in Article 13 (commencing with Section 1737) of Chapter 5 of Part 2, or the certificate of authority of any insurer found by the commissioner after hearing to have violated this section may be suspended or revoked in accordance with the procedure provided in Section 704.
The purpose of this section is to prevent fraud or mistake in connection with the transaction of insurance covering motor vehicles and in furtherance of that purpose the commissioner may make reasonable rules and regulations therefor. The rules and regulations shall be adopted, amended, or repealed in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
The phrase “motor vehicle” or “motor vehicles” as used in Section 383.5 includes, but is not limited to:
Trailers, house trailers, mobilehomes, campers and all other wheeled vehicles or nonwheeled structures so made as to be capable of being moved as a compatible portion thereof, or trailed behind, any motor vehicle as that term is defined in the Vehicle Code, whether in immobile position or not.
Motorcycles, motorbikes and motor scooters, except powered bicycles not manufactured for inclusion of a motor.
All present or future rules or regulations promulgated by the commissioner pursuant to Section 383.5 shall be applicable to motor vehicles as defined in this section.
A certificate of insurance or verification of insurance provided as evidence of insurance in lieu of an actual copy of the insurance policy shall contain the following statements or words to the effect of:
This certificate or verification of insurance is not an insurance policy and does not amend, extend or alter the coverage afforded by the policies listed herein. Notwithstanding any requirement, term, or condition of any contract or other document with respect to which this certificate or verification of insurance may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of the policies.
This section is not applicable to a surplus line broker certificate as defined in Section 48.
All policies issued by incorporated insurers shall be subscribed by the president or vice president, or chairman, or chief executive officer, or, in case of the death, absence, or disability of those officers, by any two of the directors, and countersigned by the secretary of the corporation. All such policies are as binding and obligatory upon the corporation as if executed over the corporate seal.
When the name of the person intended to be insured is specified in a policy, it can be applied only to his own interest.
When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy.
To render an insurance effected by one partner or part-owner applicable to the interest of his copartners, or of other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest.
When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy.
A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, becomes the owner of the interest insured.
Any exception from the risk generally covered by a policy of insurance which insures property for the period of time when such property is under the dominion and control of a party other than the insured for the purpose of storage or for the purpose of transferring such property to another location shall be printed in at least eight-point blackface type.
The commissioner may approve insurance policies and associated materials in languages other than English if the following conditions are met:
The policyholder is given a copy of the same material in English.
The English version is the official version.
A policyholder document in a language other than English shall contain a disclosure statement in both that language and in English that states that the English version is the official version and the foreign language version is for informational purposes only.
An insurer that knowingly misrepresents information provided in a language other than English shall be subject to Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2.
After a covered loss, an insurer shall provide, free of charge, a complete copy of the insured’s current insurance policy or certificate within 30 calendar days of receipt of a request from the insured. The period for providing the insurance policy or certificate may be extended by the commissioner. An insured who does not experience a covered loss shall, upon request, be entitled to one free copy of his or her current insurance policy or certificate annually. The insurance policy or certificate provided to the insured shall include, where applicable, the policy declarations page. This section shall not apply to commercial policies issued pursuant to Sections 675.5 and 676.6, and policies of workers’ compensation insurance, as defined in Section 109.
An insurer shall do either of the following:
Maintain a verifiable process that allows a policyholder to designate in writing or by electronic transmission pursuant to Section 38.6 one additional person to receive notice of lapse, termination, expiration, nonrenewal, or cancellation of a policy for nonpayment of premium. The insurer shall notify the policyholder in writing or by electronic transmission pursuant to Section 38.6 of this right at the time of the application or within 30 days after the inception date of an individual policy described in subdivision (f), and at least every two years thereafter. The notification described in this subdivision shall instruct the policyholder how to request the designation and how to replace or delete a designee. If a policyholder initiates contact with the insurer after the insurer has provided notice and the insurer complies with the policyholder’s request to establish or change the additional person to receive the notice described in this section, the insurer shall not be required to maintain additional verification.
Comply with subdivision (b).
An insurer that adopts the following procedure shall be deemed to have complied with subdivision (a).
Unless an applicant for insurance has been provided notice of the right set forth in this section prior to inception of the policy, the insurer shall provide the policyholder, within 30 days after the inception date of an individual policy described in subdivision (f), with notice of the right to designate one person, in addition to the policyholder, to receive notice of lapse, termination, expiration, nonrenewal, or cancellation of a policy for nonpayment of premium. The insurer shall provide each applicant or policyholder with notice in writing or by electronic transmission pursuant to Section 38.6 of the opportunity to make the designation. That notice shall instruct the applicant or policyholder on how the applicant or policyholder is to submit the name and address of one person, in addition to the applicant or policyholder, who is to receive notice of lapse, termination, expiration, nonrenewal, or cancellation of the policy for nonpayment of premium.
If after having been provided notice from the insurer of the right to designate an individual to receive notice of lapse, termination, expiration, nonrenewal, or cancellation for nonpayment of premium, the applicant or policyholder fails to designate an individual within 30 days, the applicant or policyholder shall be conclusively presumed to have declined the opportunity to exercise their right at that time.
Notwithstanding subparagraph (C) of paragraph (2) of subdivision (a) of Section 791.13 or any other law, the insurer shall retain and utilize as necessary the contact information provided in the written designation for the lifetime of the policy, and allow the policyholder to update the written designation if the policyholder so requests.
If a policyholder has previously provided a designation pursuant to this subdivision, in writing or by electronic transmission pursuant to Section 38.6, the right to change the prior designation by replacing or deleting a person to receive notice of lapse, termination, expiration, nonrenewal, or cancellation for nonpayment of premium.
If the policyholder has not previously designated a person to receive the notice of lapse, termination, expiration, nonrenewal, or cancellation for nonpayment of premium pursuant to this subdivision, the right to designate a person to receive notice of lapse, termination, expiration, nonrenewal, or cancellation for nonpayment of premium.
When a policyholder pays the premium for an insurance policy through a payroll or pension deduction plan, the requirements contained in paragraph (1) of subdivision (b) need not be met until 60 days after the policyholder is no longer on that deduction payment plan.
An insurance policy shall not lapse or be terminated for nonpayment of premium unless the insurer, at least 10 days prior to the effective date of the lapse, termination, expiration, nonrenewal, or cancellation, gives notice to the individual designated pursuant to subdivision (a) or (b) at the address provided by the policyholder for purposes of receiving the notice of lapse, termination, expiration, nonrenewal, or cancellation for nonpayment of premium. Notwithstanding any other law, notice shall be given by first-class United States mail, postage prepaid, within 10 days after the premium is due and unpaid. This subdivision does not modify requirements for notice to the policyholder of lapse, termination, expiration, nonrenewal, or cancellation set forth in other sections of this code.
This section applies only to policies of private passenger automobile insurance that provide coverage for six months or longer, policies of residential property insurance as described in subdivision (a) of Section 10087 that take effect or that are renewed after the effective date of this section, and policies of individual disability income insurance as described in subdivision (c) of Section 799.01, except if the premiums for the individual disability income policy are paid entirely by the employer.
This section applies to policies that are issued and take effect or that are renewed on or after January 1, 2016.
An individual designated by a policyholder pursuant to this section to receive notice of lapse, termination, expiration, nonrenewal, or cancellation of the policy for nonpayment of premium does not have any rights, whether as an additional insured or otherwise, to any benefits under the policy, other than the right to receive notice as provided by this section.
ARTICLE 2. Types of Policies [410. - 413.]
A policy is either open or valued.
An open policy is one in which the value of the subject matter is not agreed upon, but is left to be ascertained in case of loss.
A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specified sum.
A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.
ARTICLE 3. Insurer’s Name on Policy [430. - 430.]
ARTICLE 4. Warranties [440. - 449.]
A warranty is either express or implied.
A statement in a policy of a matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.
A particular form of words is not necessary to create a warranty.
Every express warranty made at or before the execution of a policy shall be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it.
A warranty may relate to the past, the present, the future, or to any or all of these.
A statement in a policy, which imports that there is an intention to do or not to do a thing which materially affects the risk, is a warranty that such act or omission will take place.
When, before the time arrives for the performance of a warranty relating to the future, a loss insured against happens, or performance becomes unlawful at the place of the contract, or impossible, the omission to fulfill the warranty does not avoid the policy.
The violation of a material warranty or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.
Unless the policy declares that a violation of specified provisions thereof shall avoid it, the breach of an immaterial provision does not avoid the policy.
A breach of warranty without fraud merely exonerates an insurer from the time that it occurs, or where the warranty is broken in its inception, prevents the policy from attaching to the risk.
ARTICLE 5. Inception Hours [460. - 460.]
On and after January 1, 1972, every printed form of an insurance contract, including every policy, endorsement, rider, or any amendment thereof issued in this state by any insurer or issued for delivery in this state by any insurer shall state an inception hour for coverage of 12:01 a.m. of the date upon which it is to be dated. However, the contract may provide that the inception time shall not be prior to the time applied for. Unless a specific provision of this code otherwise prescribes or permits, the hour prescribed shall be standard time at the residence within this state, or the principal place of business within this state, of the insured.
This section shall not prohibit an insurer, directly or through an agent, from issuing a binder, whether it be oral or typed by insertions in blanks in a printed form, specifying an inception or termination hour other than 12:01 a.m. on the date upon which the coverage is to commence, or end, as specified in the standard form or forms issued as the normal policy. Such binder shall not be subject to Section 382 nor have the technical meaning therein ascribed to “covering notes.”
This section shall not prohibit an insurer from issuing any policy or contract on a normal printed form which contains a provision extending the period of coverage for either 12 hours preceding, or following, the effective hour otherwise required by this section.
This section shall not apply to:
Marine insurance as defined in Section 103.
Title insurance as defined in Section 104.
Mortgage insurance as defined in Section 107.
Mortgage guarantee insurance as defined in Section 119.
Surety insurance, as defined in Section 105, or disability insurance, as defined in Section 106, unless, until, and to the extent following:
The commissioner, on or after the effective date of the amendment of this section at the 1969 Regular Session of the Legislature, from time to time, as to specific types, classes, or categories of such insurance, declares, by rules and regulations promulgated as provided by law, that this section shall apply. Such rules or regulations shall provide that no policy or other form required by law to be approved by the commissioner need be refiled for approval if the only change from a previously approved form is the inclusion or change of the inception or termination hour.
CHAPTER 5. The Premium [480. - 491.]
An insurer is entitled to payment of the premium as soon as the subject matter insured is exposed to the peril insured against.
Unless the insurance contract otherwise provides, a person insured is entitled to a return of his or her premium if the policy is canceled, rejected, surrendered, or rescinded, as follows:
To the whole premium, if the insurer has not been exposed to any risk of loss.
When the insurance is made for a definite period of time and the insured surrenders his or her policy, to that proportion of the premium as corresponds with the unexpired time, after deducting from the whole premium any claim for loss or damage under the policy that has previously accrued. The provisions of Section 482 apply only to the expired time.
No contract for individual motor vehicle liability or homeowners’ multiple-peril insurance may contain a provision that mandates that the premium for the policy shall be fully earned upon the happening of any contingency except the expiration of the policy itself. This subdivision shall not apply to policy fees or membership fees.
Any insurance policy that includes a provision to refund premium other than on a pro rata basis, including the assessment of cancellation fees, shall disclose that fact in writing, including the actual or maximum fees or penalties to be applied, which may be stated in the form of percentages of the premium. The disclosure shall be provided prior to, or concurrent with, the application and prior to each renewal to which the policy provision applies. For purposes of this subdivision, an insurer offering workers’ compensation insurance, as defined in Section 109, may provide the disclosure with the quote offering insurance to the consumer prior to the consumer accepting the quote in lieu of disclosure prior to, or concurrent with, the application. Disclosure shall not be required if the policy provision permits, but does not require, the insurer to refund premium other than on a pro rata basis, and the insurer refunds premium on a pro rata basis.
If an application is made by telephone, the disclosure shall be mailed to the applicant or insured within five business days.
The disclosure may be made electronically pursuant to Section 38.6 in lieu of being mailed.
This section does not apply to cancellations that are calculated subject to paragraph (2) of subdivision (g) of Section 673.
This section shall not apply to policies of ocean marine insurance. For purposes of this section, “ocean marine insurance” means insurance of vessels or crafts, their cargos, marine builders’ risks, marine protection and indemnity, or other risks commonly insured under marine insurance governed by the provisions of Chapter 1 (commencing with Section 1880) of Part 1 of Division 2, and as distinguished from inland marine insurance policies.
The disclosure requirements of subdivision (c) shall be prospective and shall apply only to policies issued or renewed on or after January 1, 2012.
Nothing in this section shall require any additional disclosure of a fee or penalty for early cancellation if that disclosure is required by any other law.
In the event any conditional receipt, binder, or other evidence of temporary or implied insurance, except ocean marine insurance as defined in Section 481 and those classes of insurance as defined in Sections 101, 104, and 106, is canceled, rejected, or surrendered by the insurer, the coverage thereby extended shall terminate 10 days after written notice to the named insured is deposited, properly addressed with postage prepaid, with the United States Postal Service.
Any conditional receipt, binder, or other evidence of temporary or implied insurance described in subdivision (a) shall remain in force for a period of at least 30 days from the date of its issuance unless sooner canceled, rejected, or surrendered pursuant to the provisions of subdivision (a).
Whenever a policy of personal lines insurance terminates for any reason, or there is a reduction in coverage, the insurer shall tender the gross unearned premium resulting from the termination, or the amount of the unearned premium generated by the reduction in coverage, to the insured or, pursuant to Section 673, to the insured’s premium finance company. The gross unearned premium shall be tendered within 25 business days after the insurer either receives notice of the event that generated the gross unearned premium, or receives notice from a premium finance company of a cancellation.
Whenever a policy other than a policy of personal lines insurance terminates for any reason, or there is a reduction in coverage, the gross unearned premium shall be tendered to the insured or, pursuant to Section 673, to the insured’s premium finance company. If the policy is not auditable, the gross unearned premium shall be tendered within 80 business days after the insurer either receives notice of the event that generated the gross unearned premium, or receives notice from a premium finance company of a cancellation. If the policy is auditable, the gross unearned premium shall be tendered within 80 business days after the insured provides all requested audit information to the insurer or the insurer’s designee.
Notwithstanding paragraph (1), an insurer shall not be required to tender the unearned premium within 80 business days if the final unearned premium amount cannot be determined due to the insured’s failure, in breach of a policy requirement, to cooperate with the insurer in a premium audit, or if the amount of the unearned premium determined by a premium audit remains in dispute.
An insurer may tender gross or net unearned premium to an agent or broker, or net unearned premium to a finance company, but shall remain liable to the insured or finance company for payment of any portion of the gross unearned premium that the agent or broker fails to remit to the insured or premium finance company.
Any unearned premium that an insurer fails to tender within the time periods specified in subdivisions (a) and (b) shall bear interest at the rate of 10 percent per annum from and after the date on which the unearned premium was required to be tendered. For the purposes of this section, the tender of any unearned premium to the insured or premium finance company shall be deemed complete upon the deposit of the unearned premium in the United States mail, prepaid, addressed to the named insured or premium finance company at the last known address, or to an agent or broker with an assignment pursuant to paragraph (1) of subdivision (g).
For the purpose of this section, the following definitions apply:
“Gross unearned premium” means the unearned portion of the full amount of the premium charged to the insured, including the unearned portion of any amount of the premium the insurer allocated to an agent or broker as commission.
“Net unearned premium” means the gross unearned premium minus the unearned commission.
“Policy of personal lines insurance” means an insurance policy that is designed for and bought by individuals, and includes, but is not limited to, homeowners’ and automobile policies.
The interest penalty required by this section shall not apply to any insurer in conservatorship or liquidation, nor shall this insurer be subject to any other penalty for failure to remit unearned premium in accordance with the time periods required by this section.
An assignment by an insured to an agent or broker of the insured’s right to receive unearned premium shall be valid only for the purpose set forth in Section 1735.5.
If the insured notifies the insurer, 25 or more days after the insurer’s tender of unearned premium to an agent or broker with an assignment pursuant to paragraph (1), that the agent or broker has failed to issue to the insured an accounting of an offset permitted by Section 1735.5, the insurer shall, within an additional 15 days, either tender the unearned premium directly to the insured or provide the insured with the agent’s or broker’s accounting of the offset permitted by Section 1735.5.
Whenever an insurer tenders the net rather than gross unearned premium to an agent or broker or premium finance company, the insurer shall contemporaneously notify the agent or broker of the amount of the unearned commission.
If an insurer elects to tender the net rather than the gross unearned premium to a premium finance company, the insurer shall document that the agent or broker tendered unearned commission to the premium finance company within the period required under subdivision (a) or (b) after the insurer either receives notice of the event that generated the unearned premium, or receives notice from a premium finance company of a cancellation.
Whenever an agent or broker receives a refund from a premium finance company, the agent or broker shall tender that money to the insured within 25 days. Whenever an agent or broker with an assignment from the insured receives unearned premium from an insurer, the agent or broker shall account to the insured for any offset permitted by Section 1735.5 within 25 days. If the agent or broker fails to tender payment of any remaining unearned premium after the offset within 25 days, the agent or broker shall pay the insured interest at the rate of 10 percent per annum from and after the 26th day after the agent or broker receives the refund.
In addition to the required unearned premium refund, an insurer shall provide both the insured and the agent or broker, upon the request of either, with an accounting and explanation of how the amount of the refund was calculated. The explanation shall be clear, concise, and easy to comprehend. The commissioner may adopt regulations setting forth standards to govern this subdivision.
For purposes of subdivisions (a) to (c), inclusive, if the unearned premium is not assigned as security to a premium finance agency pursuant to a premium finance agreement and the amount of unearned premium is less than twenty-five dollars ($25), tender of unearned premium shall include applying the amount of unearned premium either to the renewal premium at the next renewal date or to other premiums due, provided written notice of either application is given to the insured within 30 days after the endorsement, rejection, declination, cancellation, or surrender of a policy of insurance. At the time of endorsement or surrender of a policy of insurance or, within 15 days after the mailing of the written notice required by this subdivision, the insured may request in writing that the unearned premium be tendered as provided in subdivisions (a) to (c), inclusive. Whenever the amount of unearned premium is less than five dollars ($5), tender shall be effective and the written notice required by this subdivision shall not be required if the unearned premium is applied either to the renewal premium at the next renewal date or to other premiums due.
Notwithstanding subdivisions (a) to (c), inclusive, an insurer may at any time solicit the insured’s consent, or may in its policy reserve the right, to apply the unearned premium generated by an amendment or endorsement removing or reducing coverage for an insured person or property to the balance owed on the policy as a whole, rather than tendering a refund of the unearned premium. This subdivision shall not apply if the unearned premium is assigned as security to a premium finance company.
The amount of unearned premium required to be refunded by an insurer pursuant to this section shall not exceed the amount paid to the insurer by the insured or by a premium finance company.
Except as provided by section 481, or by the insurance contract, if a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.
A person insured is entitled to a return of the premium:
When the contract is voidable, on account of the fraud or misrepresentation of the insurer.
When the contract is voidable on account of facts, of the existence of which the insured was ignorant without his fault.
When, by any default of the insured other than actual fraud, the insurer did not incur any liability under the policy.
An acknowledgment in a policy of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding. Notwithstanding such acknowledgment, a policy may be canceled effective at such times as otherwise permitted by law for nonpayment of all or any portion of the premium which is actually unpaid if such cancellation right is reserved to the insurer in the policy.
In case of an overinsurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the subject at risk.
When an overinsurance is effected by simultaneous policies, the insurers contribute to the premium to be returned in proportion to the amount insured by their respective policies.
When an overinsurance is effected by successive policies, those only contribute to a return of the premium who are exonerated by prior insurance from the liability assumed by them, and in proportion as the sum for which the premium was paid exceeds the amount for which, on account of prior insurance, they could be made liable.
No insurer shall, in issuing or renewing a private passenger automobile insurance policy, increase the premium on that policy for the reason that the insured or applicant for insurance has been convicted for traffic violations committed while operating a motor vehicle for compensation during the hours of his employment if, with respect to a conviction, the employee or applicant has submitted to the insurer a written declaration made by the employee under penalty of perjury that the applicant or insured was, at that time, operating a motor vehicle for compensation during the hours of his or her employment. This section applies only to those individuals whose specific duties include driving their employer’s motor vehicles or individuals who have authority in their name from the Public Utilities Commission to operate as a highway carrier and who are the registered owners or lease operators of the motor vehicle used in the operation as a highway carrier.
This section does not apply to an insured or applicant for insurance convicted of any of the following:
Homicide or assault arising out of the operation of a motor vehicle for compensation during the hours of employment.
A violation while operating a motor vehicle for compensation during the hours of employment of any of the following sections or section subdivisions of the Vehicle Code:
Subdivision (a) of Section 14601.
Subdivision (a) of Section 14601.1.
Subdivision (a) of Section 14601.2.
Section 20001 or 20002.
Subdivision (a) of Section 20008.
Section 23103, 23104, 23105, 23152, or 23153.
This section shall not apply to a person insured under the California assigned risk plan prescribed by Article 4 (commencing with Section 11620) of Chapter 1 of Part 3 of Division 2.
An insurer shall not, in issuing or renewing a private automobile insurance policy to a peace officer, member of the Department of the California Highway Patrol, or firefighter, with respect to his or her operation of a private passenger motor vehicle, increase the premium on that policy for the reason that the insured or applicant for insurance has been involved in an accident while operating an authorized emergency vehicle, as defined in subdivision (a) or (f) of Section 165 of the Vehicle Code or in paragraph (1) or (2) of subdivision (b) of Section 165 of the Vehicle Code, or any employer-leased vehicle or employer-rented vehicle, in the performance of his or her duty during the hours of his or her employment, or was involved in an accident while operating his or her private passenger motor vehicle in the performance of his or her duty at the request or direction of an employer.
An insurer shall not, in issuing or renewing a private automobile insurance policy to a federal officer or federal customs agent, with respect to his or her operation of a private motor vehicle, increase the premium on that policy for the reason that the insured or applicant for insurance has been involved in an accident while operating an official government vehicle in the performance of his or her duty during the hours of his or her employment.
As used in this section:
“Peace officer” means every person defined in Chapter 4.5 (commencing with Section 830) of Title 3 of Part 2 of the Penal Code.
“Policy” shall have the same meaning as defined in subdivision (a) of Section 660.
Upon issuance of a policy of insurance described in Section 660, the insurer or its agent shall deliver to the named insured a notice explaining the manner in which the insurer’s rating plan provides for an increase in the premium based upon accidents or convictions within the meaning of Sections 13103 and 13105 of the Vehicle Code.
Every insurer or its agent, not less than 20 days prior to renewal of a policy covered by this section, shall inform the named insured of the named insured’s right to be informed, upon request, of any increase in the premium, in whole or in part, charged the named insured by virtue of the involvement in any accident, or conviction within the meaning of Section 13103 and 13105 of the Vehicle Code, by the insured or any operator of the motor vehicle.
Every insurer shall, after March 1, 1977, as part of the first offer required by Section 663, deliver to everyone who was a named insured under a policy of insurance described in Section 660 on March 1, 1977, a notice explaining the manner in which the insurer’s rating plan provides for an increase in the premium, based upon accidents or convictions within the meaning of Sections 13103 and 13105 of the Vehicle Code. The provisions of this subdivision shall expire on March 1, 1978.
The rating plan of a motor vehicle liability insurer shall not provide for an increase in the premium if based upon an accident in which the insured is not at fault, in any manner, as determined by either the accident report or the insurer. In the event the insurer determines that its insured is at fault contrary to an accident report’s specific finding that the insured is not at fault, the insurer shall reach its conclusion only after an investigation.
CHAPTER 5.2. Renewal Notices [500. - 500.]
Whenever any insurer has, as a regular course of conduct, sent renewal premium notices to an insured, and intends to discontinue that practice, it shall notify such insured of its intention not to send such notices.
CHAPTER 5.3. Consumer Complaints [510. - 510.]
Whenever a policy of insurance specified in Section 660 or 675, a policy of life insurance as defined in Section 101, a policy of disability insurance as defined in Section 106, or a certificate of coverage as defined in Section 10270.6, is first issued to or delivered to a new insured or a new policyholder in this state, or when a bail bond as defined in Section 1800.4 is first executed or delivered, the insurer shall include a written disclosure containing the name, address, toll-free telephone number, and internet website of the unit within the Department of Insurance that deals with consumer affairs. The telephone number shall be the same as that provided to consumers under Section 12921.1. The disclosure shall be printed in large, boldface type.
The disclosure described in subdivision (a) shall also contain the address and customer service telephone number of the insurer, or the address and customer service telephone number of the agent or broker of record, or all of those addresses and telephone numbers. All addresses and telephone numbers for the insurer or the agent or broker of record shall be prominently displayed, in boldfaced type. The disclosure shall also contain a statement that the Department of Insurance should be contacted only after discussions with the insurer, or its agent or other representative, or both, have failed to produce a satisfactory resolution to the problem. If the policy or certificate was issued or delivered by an agent or broker, the disclosure shall specifically advise the insured to contact their agent or broker for assistance.
CHAPTER 5.4. Proof of Coverage Disclosure [515. - 515.]
Notwithstanding any other law, an insurer issuing policies of automobile liability insurance or motor vehicle liability insurance shall, upon request of either the named insured or the Department of Motor Vehicles, promptly issue to that person or the department written verification as to the existence of that coverage.
Upon the request of the insured, an insurer may issue the verification as to the existence of that coverage in an electronic format to a mobile electronic device to the extent available. This section does not require an insurer to provide the verification of coverage in an electronic format in real time.
For purposes of this section, “mobile electronic device” has the same meaning as defined in subdivision (f) of Section 16028 of the Vehicle Code.
CHAPTER 6. Loss [520. - 580.]
ARTICLE 1. Transfer of Interest After Loss [520. - 520.]
An agreement not to transfer the claim of the insured against the insurer after a loss has happened, is void if made before the loss except as otherwise provided in Article 2 of Chapter 1 of Part 2 of Division 2 of this code.
ARTICLE 2. Causes of Loss [530. - 533.7.]
An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.
If a loss or damage results from a combination of perils, one of which is a landslide, mudslide, mudflow, or debris flow, coverage shall be provided if an insured peril is the efficient proximate cause of the loss or damage and coverage would otherwise be provided for the insured peril. Coverage shall be provided under the same terms and conditions as would be provided for the insured peril.
An insurer is liable:
Where the thing insured is rescued from a peril insured against, and which would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, and which permanently deprives the insured of its possession, in whole or in part.
If a loss is caused by efforts to rescue the thing insured from a peril insured against.
If a peril is specially excepted in a contract of insurance and there is a loss which would not have occurred but for such peril, such loss is thereby excepted even though the immediate cause of the loss was a peril which was not excepted.
An insurer is not liable for a loss caused by the wilful act of the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents or others.
No policy of insurance shall provide, or be construed to provide, any coverage or indemnity for the payment of any fine, penalty, or restitution in any criminal action or proceeding or in any action or proceeding brought pursuant to Chapter 5 (commencing with Section 17200) of Part 2 of, or Chapter 1 (commencing with Section 17500) of Part 3 of, Division 7 of the Business and Professions Code by the Attorney General, any district attorney, any city prosecutor, or any county counsel, notwithstanding whether the exclusion or exception regarding this type of coverage or indemnity is expressly stated in the policy.
No policy of insurance shall provide, or be construed to provide, any duty to defend, as defined in subdivision (c), any claim in any criminal action or proceeding or in any action or proceeding brought pursuant to Chapter 5 (commencing with Section 17200) of Part 2 of, or Chapter 1 (commencing with Section 17500) of Part 3 of, Division 7 of the Business and Professions Code in which the recovery of a fine, penalty, or restitution is sought by the Attorney General, any district attorney, any city prosecutor, or any county counsel, notwithstanding whether the exclusion or exception regarding the duty to defend this type of claim is expressly stated in the policy.
For the purpose of this section, “duty to defend” means the insurer’s right or obligation to investigate, contest, defend, control the defense of, compromise, settle, negotiate the compromise or settlement of, or indemnify for the cost of any aspect of defending any claim in any criminal action or proceeding or in any action or proceeding brought pursuant to Chapter 5 (commencing with Section 17200) of Part 2 of, or Chapter 1 (commencing with Section 17500) of Part 3 of, Division 7 of the Business and Professions Code in which the insured expects or contends that (1) the insurer is liable or is potentially liable to make any payment on behalf of the insured or (2) the insurer will provide a defense for a claim even though the insurer is precluded by law from indemnifying that claim.
Any provision in a policy of insurance which is in violation of subdivision (a) or (b) is contrary to public policy and void.
Notwithstanding any other law, an insurer may defend a duly licensed physician or surgeon against any cause of action involving the performance of any act for which a physician’s and surgeon’s certificate is required.
ARTICLE 3. Notice and Proofs of Loss [550. - 557.5.]
In case of loss upon an insurance against fire, an insurer is exonerated if notice thereof is not given to him without unnecessary delay by an insured or some person entitled to the benefit of the insurance.
Except in the case of life, marine, or fire insurance, notice of an accident, injury, or death may be given at any time within twenty days after the event, to the insurer under a policy against loss therefrom. In such a policy, no requirement of notice within a lesser period shall be valid.
When preliminary proof of loss is required by a policy, the insured is not bound to give such proof as would be necessary in a court of justice; but it is sufficient for him to give the best evidence in his power at the time.
All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds of objection, are waived.
Delay in the presentation to an insurer of notice or proof of loss is waived, if caused by an act of his, or if he omits to make objection promptly and specifically upon that ground.
If a policy requires, by way of preliminary proof of loss, the certificate or testimony of a person other than the insured or beneficiary, there is sufficient compliance with the requirement if the insured or the beneficiary (a) uses reasonable diligence to procure the certificate or testimony, and (b) in case of refusal to give it to him, furnishes reasonable evidence to the insurer that the refusal was not induced by just grounds of disbelief in the facts necessary to be certified or testified.
It is a misdemeanor for any person alone or in concert to prepare or make any bid or other writing which falsely purports to be a bona fide offer to repair a damaged motor vehicle or any other damaged property, with the intent that the same be used for the purpose of fraudulently leading an automobile liability insurer to believe:
That a bid of some other person represents an offer made in open competition; or
That the policy provisions of such insurer governing bids for the repair of vehicles or other property insured under the policy have been complied with in good faith.
A peace officer, member of the Department of the California Highway Patrol, or firefighter shall not be required to report, nor shall any employer of the same be authorized to request or require that a peace officer, member of the Department of the California Highway Patrol, or firefighter report, any accident in which he or she is involved while operating an authorized emergency vehicle, as defined in subdivision (a), (b), or (f) of Section 165 of the Vehicle Code, or any employer-leased or employer-rented vehicle in the performance of his or her duty during the hours of his or her employment, to any person who has issued that peace officer, member of the California Highway Patrol, or firefighter a private automobile insurance policy.
Notwithstanding any other provision of law or any provision in a private passenger motor vehicle owner’s automobile liability insurance policy, in the event of a loss or injury that occurs as the result of an accident during any time period when that private passenger motor vehicle is operated by an employee who is a peace officer, member of the Department of the California Highway Patrol, or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the vehicle’s owner shall have no liability. The peace officer, member of the Department of the California Highway Patrol, or firefighter shall report and provide, within 10 days of the accident, to his or her private automobile insurer all documentation and information known to him or her related to the accident. The employer shall be considered the owner of the vehicle for the purpose of any liability and defense of the claim, and any losses shall be borne solely by the employer.
Notwithstanding any other provision of law, the employer shall assume liability for and defense of a claim in which a dispute exists as to whether the employer directed or requested the employee to use the private passenger motor vehicle when the loss occurred that gave rise to the claim.
If it is subsequently determined that the employer did not direct or request the employee to use the private passenger motor vehicle when the loss occurred, the employer and employee shall provide notice to the private passenger motor vehicle’s insurer of this determination and provide all documentation and information known to him or her related to the claim or loss to the private passenger motor vehicle’s insurer within 10 days of the determination. The private passenger motor vehicle insurer that insures the vehicle shall reimburse the employer the reasonable costs of defense to the extent of the insurer’s obligation and up to the coverage limits under the applicable automobile liability insurance policy.
A good faith delay by an employee in reporting the accident to his or her private passenger motor vehicle liability insurer, under the circumstances described in this section, shall not be used by the insurer as a basis to claim delayed reporting, noncooperation, prejudice, or the like as a means of avoiding the defense or indemnity obligations that would otherwise exist under the terms of the automobile liability insurance policy or applicable law in the absence of delayed reporting. This subdivision shall apply only if the employee complies with requirements set forth in paragraphs (1) and (3).
This subdivision shall not apply to the operation of a private passenger motor vehicle when operated by an employee, otherwise subject to this section, for the purposes of reporting to or from his or her regularly assigned work location.
As used in this section:
ARTICLE 4. Payment of Automobile Collision Repairs [560. - 560.]
An insurer that issues a policy providing automobile collision coverage, as defined in subdivision (d) of Section 660, or automobile physical damage coverage, as defined in subdivision (c) of Section 660, shall, if a covered automobile is damaged by collision or otherwise and the insurer knows that the automobile will be repaired by the repairer, make payment by check or draft, payable to the repairer or to the named insured and the repairer, jointly, or, with the consent of the repairer, by an electronic funds transfer to the repairer, not later than 10 days subsequent to receipt of an itemized bill or invoice covering repairs authorized by the insurer which have been satisfactorily completed. This section applies if the insured has received actual notice that the repairer is doing work pursuant to a contract approved by the insurance company and, in that case, the payment shall include the name of the repairer.
This section does not limit the right of an insured to select, or prohibit an insured from selecting, the auto body repair shop or other repair facility to repair the damaged vehicle, as described in Section 758.5, nor does it limit the right of an insured to decide, or prohibit an insured from deciding, not to have the vehicle repaired. If the insured decides not to have the vehicle repaired, the insurer shall not withhold the payment of reasonable repair cost benefits that are otherwise payable under the policy.
This section does not prohibit an insurer from restricting payment in cases of suspected fraud or from including a named loss payee or lienholder as an additional payee on the claims payment check or draft, to the degree the insurance policy permits the loss payee or lienholder to be added as additional payee on the claims payment check or draft.
This section does not prohibit an insurer from requiring that a damaged vehicle be repaired as a condition for payment if the damage to the vehicle is sufficiently serious that safety features that are part of the vehicle’s operating systems are compromised.
ARTICLE 5. Certain Insurance Covering Real Property [570. - 572.]
Except in the event that the insurer has previously obtained a release on a loss, each insurer which issues, amends, or renews, on or after January 1, 1975, a policy of insurance covering repair or reconstruction work on commercial, industrial, or residential real property and appurtenances thereon, shall, in the event of covered work being performed by a licensee under the Contractors License Law (Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code), make payment by check or draft directly to the contractor performing the work, or, with the consent of the contractor, by an electronic funds transfer to the contractor performing the work, and not to the owner of the property, in every case in which all of the following conditions are present and the insurer has actual knowledge thereof:
The property owner of record has, in a writing signed by him and transmitted to the insurer, stated all of the following:
The work completed meets with his satisfaction.
The insurer, upon direct payment to the contractor, is released from liability.
The writing was not completed or signed by him until after all work was completed.
The property owners of record, the named insured, and any loss payee have consented in writing to such direct payment and release from liability.
The completed work has been certified by the appropriate public agency or authority as conforming to existing building, electrical, and construction codes.
Each subcontractor of the contractor, and each materialman, to whom direct payment is to be made by the insurer has executed, and filed of record, releases of any and all claims, including, but not limited to, mechanic’s liens, which the subcontractor and materialman might have against the property or any appurtenance thereof, the property owners of record, the named insured, and any loss payee named in the policy, for any work the subcontractor performed, or material the materialman furnished, upon the property under the contract for which such payment is being made. The property owner or the contractor, as the case may be, shall submit to the insurer proof, satisfactory to it, of such execution and filing prior to the insurer’s making any direct payment provided for by this article.
Where the insurer has authorized the work and its liability is not in dispute, the direct payment provided for by Section 570 shall be made to the contractor performing the work not later than 30 days after the insurer has actual knowledge that the conditions of subdivisions (a) through (d) of Section 570 have been completed.
As used in this article, the term “loss payee” shall include, but not be limited to, any mortgagee of the insured real property.
ARTICLE 6. Electronic Payment of Claims [580. - 580.]
Every insurer required to make payment for a loss, may, with the consent of the insured, make payment by an electronic funds transfer. An insurer may not require an insured to consent to payment by an electronic funds transfer.
CHAPTER 7. Double Insurance [590. - 591.]
A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.
In case of double insurance, the several insurers are liable to pay losses thereon as follows:
In fire insurance, each insurer shall contribute ratably, without regard to the dates of the several policies.
In marine insurance, the liability of the several insurers for a total loss, whether actual or constructive, where the policies are not simultaneous, is in the order of the dates of the several policies. No liability attaches to a second or other subsequent policy, except as to the excess of the loss over the amount of all previous policies on the same interest. If two or more policies bear the same date, they are deemed to be simultaneous, and each insurer on simultaneous policies shall contribute ratably. The insolvency of any of the insurers does not affect the proportionate liability of the other insurers.
All insurers on the same marine interest shall contribute ratably for a partial or average loss.
CHAPTER 8. Reinsurance [620. - 623.]
A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance.
A reinsurance is presumed to be a contract of indemnity against liability, and not merely against damage.
Where an insurer obtains reinsurance, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.
The original insured has no interest in a contract of reinsurance.
CHAPTER 9. Rescission [650. - 651.]
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this part such right may be exercised at any time previous to the commencement of an action on the contract. The rescission shall apply to all insureds under the contract, including additional insureds, unless the contract provides otherwise.
Whenever an insurer gives notice of rescission of an automobile liability policy, upon request of the driver, the insurer, within 15 days of receipt of the request, shall furnish to the insured a statement setting forth the ground or grounds upon which the notice of rescission is based. There shall be no liability on the part of, and no cause of action shall arise against, any insurer or authorized representative, or its licensed investigative sources, for any statements made by them in a written notice required to be given pursuant to this section. If the insurer fails to comply with the provisions of this section, the insured may apply to the commissioner for a certificate of the facts or information desired. Any such request shall be made in accordance with Article 3 (commencing with Section 12950) of Chapter 2 of Division 3, and the commissioner shall exercise any power conferred upon him by that article as may be necessary to ensure compliance with this section.
CHAPTER 9.5. Filing of Certificates [655. - 655.]
Every insurer issuing policies of motor vehicle liability insurance within the meaning of Section 16450 of the Vehicle Code, automobile liability insurance within the meaning of Section 16054 of that code, or any other liability insurance issued for vehicles with less than four wheels that meets the requirements of Section 16056 of that code shall also, as an incident thereto, complete and file the certificate or certificates provided for under Section 16431 of that code. The proof required by this section may be provided by the filing of a single certificate.
CHAPTER 9.6. Reasons for Denial of Motor Vehicle Liability Insurance [657. - 658.]
Where any admitted insurer, licensed to issue motor vehicle liability policies as defined in Section 16450 of the Vehicle Code, or any licensed insurance agent refuses to accept an application for such a policy or refuses to issue such a policy when a written application has been made, the refusing agent or refusing insurer shall furnish to the applicant for insurance a written statement explaining the reason or reasons relied upon for such action if within 30 days of such refusal the applicant requests in writing, from the agent or insurer who has refused to accept the application or to issue the policy, such a written explanation. Such statement shall be furnished within 30 days of receipt of such request.
Any insurer or agent willfully violating any provisions of this section is guilty of a misdemeanor and is punishable by a fine not exceeding one thousand dollars ($1,000) for each violation thereof.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, the Insurance Commissioner or against any insurer, its authorized representative, its agents, its employees, or any firm, person or corporation furnishing to the insurer information as to the reasons for such a refusal, for any statement made by any of them in any written notice of reasons for refusing to accept the application or issue the policy or in any other communication, oral or written, specifying the reasons for such action or the providing of the information pertaining thereto, or for statements made or evidence submitted in any hearings conducted in connection therewith.
Where any admitted insurer, licensed to issue motor vehicle liability policies as defined in Section 16450 of the Vehicle Code, refuses to accept an applicant for a good driver discount policy as defined in paragraph (1) of subdivision (b) of Section 1861.02 or refuses to issue a good driver discount policy when written application has been made, and where the applicant meets the criteria for purchase of a good driver discount policy, the refusing insurer shall furnish the applicant for insurance a written statement within 10 days of the refusal explaining the reason or reasons relied upon for denying insurance coverage. Notwithstanding Section 1633.3 of the Civil Code, the written statement explaining the reason or reasons for denying the coverage may not be electronically delivered to the applicant unless the application for the good driver discount was electronically delivered to the insurer.
CHAPTER 10. Cancellation or Failure to Renew [660. - 669.5.]
As used in this chapter:
“Policy” means an automobile liability, automobile physical damage, or automobile collision policy, or any combination thereof, delivered or issued for delivery in this state, insuring a single individual or individuals residing in the same household, as named insured, and under which the insured vehicles therein designated are of the following types only:
A motor vehicle of the private passenger or station wagon type that is not used as a public or livery conveyance for passengers, nor rented to others; or
Any other four-wheel motor vehicle with a load capacity of 1,500 pounds or less; provided, however, that this chapter shall not apply to any of the following:
Any policy issued under an automobile assigned risk plan.
Any policy insuring more than four automobiles.
Any policy covering garage, automobile sales agency, repair shop, service station, or public parking place operation hazards.
A motorcycle.
“Automobile liability coverage” includes only coverage of bodily injury and property damage liability, medical payments, and uninsured motorists coverage.
“Automobile physical damage coverage” includes all coverage of loss or damage to an automobile insured under the policy except loss or damage resulting from collision or upset.
“Automobile collision coverage” includes all coverage of loss or damage to an automobile insured under the policy resulting from collision or upset.
“Renewal” or “to renew” means to continue coverage with either the insurer which issued the policy or an affiliated insurer, as defined in Section 1215, for an additional policy period upon expiration of the current policy period of a policy, provided that if coverage is continued with an affiliated insurer, it shall be the same or broader coverage as provided by the present insurer, and the insured shall be notified in writing at least 20 days prior to expiration of the current policy period of all of the following:
That the insurer has determined that it will not offer renewal of the policy with the present insurer.
That it is offering replacement in an affiliated insurer.
That the insured may obtain in writing the reasons for the change in insurers if he or she requests in writing not later than one month following the expiration of the policy period the reason or reasons for the change in insurers. Any policy with a policy period or term of six months or less, whether or not made continuous for successive terms upon the payment of additional premiums, shall, for the purpose of this chapter be considered as if written for a policy period or term of six months. Any policy written for a term longer than one year, or any policy with no fixed expiration date, shall for the purpose of this chapter, be considered as if written for successive policy periods or terms of one year.
“Nonpayment of premium” means failure of the named insured to discharge when due any of his obligations in connection with the payment of premiums on a policy, or any installment of such premium, whether the premium is payable directly to the insurer or its agent or indirectly under any premium finance plan or extension of credit.
“Cancellation” means termination of coverage by an insurer (other than termination at the request of the insured) during a policy period.
“Nonrenewal” means a notice by the insurer to the named insured that the insurer is unwilling to renew a policy.
“Expiration” means termination of coverage by reason of the policy having reached the end of the term for which it was issued or the end of the period for which a premium has been paid.
A notice of cancellation of a policy shall be effective only if it is based on one or more of the following reasons:
Nonpayment of premium.
The driver’s license or motor vehicle registration of the named insured or of any other operator who either resides in the same household or customarily operates an automobile insured under the policy has been under suspension or revocation during the policy period or, if the policy is a renewal, during its policy period or the 180 days immediately preceding its effective date.
Discovery of fraud by the named insured in pursuing a claim under the policy provided the insurer does not rescind the policy.
Discovery of material misrepresentation of any of the following information concerning the named insured or any resident of the same household who customarily operates an automobile insured under the policy:
Safety record.
Annual miles driven in prior years.
Number of years of driving experience.
Record of prior automobile insurance claims, if any.
Any other factor found by the commissioner to have a substantial relationship to the risk of loss.
Any insured who negligently misrepresents information described in this paragraph may avoid cancellation by furnishing corrected information to the insurer within 20 days after receiving notice of cancellation and agreeing to pay any difference in premium for the policy period in which the information remained undisclosed.
A substantial increase in the hazard insured against.
Modification of automobile physical damage coverage by the inclusion of a deductible not exceeding one hundred dollars ($100) shall not be deemed a cancellation of the coverage or of the policy.
This section shall not apply to nonrenewal.
A notice of cancellation of a policy shall not be effective unless mailed or delivered by the insurer to the named insured, lienholder, or additional interest at least 20 days prior to the effective date of cancellation; provided, however, that where cancellation is for nonpayment of premium, at least 10 days’ notice of cancellation after nonpayment of premium due by the specified due date accompanied by the reason for the cancellation shall be given. Unless the reason accompanies or is included in the notice of cancellation, the notice of cancellation shall state or be accompanied by a statement that upon written request of the named insured, mailed or delivered to the insurer not less than 15 days prior to the effective date of cancellation, the insurer will specify the reason for the cancellation.
A cancellation based on nonpayment of premium shall only be effective on the date specified in the notice if the insured has not cured the nonpayment of premium due identified in the notice by the end of the 10-day period.
This section shall not apply to nonrenewal.
Notices made to lienholders pursuant to this section may be done electronically with the consent of the lienholder.
Proof of mailing or delivery of a notice of cancellation to a lienholder or an additional interest on a policy to which this chapter applies shall be sufficient to terminate the interest of the parties provided the notice is mailed or delivered at least the maximum number of days prior to termination of the parties’ interest as required by Section 662. For purposes of this section, “delivery” includes electronic transmittal or facsimile or personal delivery. No lienholder or additional interest shall require a more restrictive form of notice.
Before policy expiration, an insurer shall deliver to or mail to the named insured, at the address shown on the policy, one of the following:
At least 20 days before expiration, a written or verbal offer of renewal of the policy, contingent upon payment of premium as stated in the offer.
At least 30 days before expiration, a written notice of nonrenewal of the policy, including the statement required by Section 666.
An insurer that delivers a verbal offer to renew that is declined by an insured shall, at least 20 days before expiration of the policy, deliver to or mail to the named insured, at the address shown on the policy, a written confirmation of the offer and rejection.
An insurer that attempts to satisfy subdivision (a) with a verbal offer to renew, but is unable to contact the named insured directly at least 20 days before policy expiration, shall, at least 20 days before policy expiration, deliver to or mail to the named insured, at the address shown on the policy, a written offer to renew the policy, contingent upon payment of premium as stated in the offer.
In the event that an insurer fails to give the named insured either an offer of renewal or notice of nonrenewal as required by this section, the existing policy, with no change in its terms and conditions, shall remain in effect for 30 days from the date that either the offer to renew or the notice of nonrenewal is delivered or mailed to the named insured. A notice to this effect shall be provided by the insurer to the named insured with the policy or the notice of renewal or nonrenewal. Notwithstanding the failure of an insurer to comply with this section, the policy shall terminate on the effective date of any other replacement or succeeding automobile insurance policy procured by the insured, or his agent or broker, with respect to any automobile designated in both policies.
The insurer shall not be required to notify the named insured, or any other insured, of nonrenewal of the policy if the insurer has mailed or delivered a notice of expiration or cancellation, on or prior to the 30th day preceding expiration of the policy period.
This section shall become operative on January 1, 2019.
No insurer shall fail to renew a policy solely on the basis of the age of the insured.
On and after January 1, 2000, no insurer shall fail to renew a policy solely on the grounds that a claim is pending under the policy. This subdivision shall not be construed to limit an insurer’s ability to nonrenew a policy based upon a directive from the commissioner for solvency or other financially related issues. This subdivision shall not be construed to limit an insurer’s right to cancel a policy pursuant to Section 676.
Proof of mailing of notice of cancellation, or of intention not to renew or of reasons for cancellation, to the named insured at the address shown in the policy or to the named insured’s latest known address, shall be sufficient proof of notice.
Any insurer who requires periodic physical examinations of an insured as a condition of renewal of a policy shall pay the cost of such physical examinations, except that an insurer shall not pay any cost if it elects to accept the certified written results of an insured’s physical examination voluntarily conducted within 12 months preceding the policy expiration or renewal date.
When a policy of automobile liability insurance is canceled, other than for nonpayment of premium, or in the event of failure to renew a policy of automobile liability insurance to which Section 663 applies, the insurer shall notify the named insured of his possible eligibility for automobile liability insurance through the automobile liability assigned risk plan. Such notice shall accompany or be included in the notice of cancellation or the notice of intent not to renew.
Where the reason for cancellation does not accompany or is not included in the notice of cancellation, the insurer shall upon written request of the named insured, mailed or delivered to the insurer not less than 15 days prior to the effective date of cancellation, specify in writing the reason for the cancellation. The reason shall be mailed or delivered to the named insured within five days after receipt of the request. Notwithstanding Section 1633.3 of the Civil Code, the writing specifying the reason for cancellation may not be delivered electronically to the insured unless the insured electronically delivered the request to the insurer.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, the Insurance Commissioner or against any insurer, its authorized representative, its agents, its employees, or any firm, person, or corporation furnishing to the insurer information as to reasons for cancellation or nonrenewal, for any statement made by any of them in any written notice of cancellation or nonrenewal, or in any other communication, oral or written, specifying the reasons for cancellation or nonrenewal, or the providing of information pertaining thereto, or for statements made or evidence submitted at any hearings conducted in connection therewith.
Unless a policy specifically provides otherwise, the cancellation of a policy, or any change in the policy, executed by an insurer, at the request of the named insured designated on the declarations page of the policy, shall be binding upon any other insured or named insured.
Notice of cancellation or an endorsement evidencing the named insured’s request shall be mailed or delivered to the address stated in the policy to all individuals or to all entities designated as named insureds on the declarations page of the policy.
Section 663 shall not apply to policies of liability insurance issued pursuant to assigned risk plans.
Any insurer willfully violating any provisions of Section 663 is guilty of a misdemeanor and is punishable by a fine of not exceeding one thousand dollars ($1,000) for each violation thereof.
No insurer shall fail to renew any private automobile insurance policy of a peace officer, member of the California Highway Patrol, or firefighter, with respect to his or her operation of a private motor vehicle, for the reason that the insured has been involved in an accident while operating an authorized emergency vehicle, as defined in subdivision (a) of Section 165 of the Vehicle Code or in paragraph (1) or (2) of subdivision (b) or (f) of Section 165 of the Vehicle Code, in the performance of his or her duty during the hours of his or her employment. As used in this section, “peace officer” means every person defined in Chapter 4.5 (commencing with Section 830) of Title 3 of Part 2 and Section 830.6 of the Penal Code, and “firefighter” means every person defined in Section 50925 of the Government Code.
In the case of a volunteer firefighter, this section applies to the regular employer of the volunteer firefighter to the extent that the involvement of the volunteer firefighter in the accident shall not be cause for the employer’s insurer’s decision to renew the employer’s insurance policy as it applies to the employee covered by this section.
CHAPTER 10.1. Certain Automobile Insurance [669.7. - 669.7.]
Notwithstanding Section 660, an insurer may deliver or issue an automobile liability, automobile physical damage, or automobile collision policy in this state insuring a single individual or individuals residing in the same household, as named insured, and under which the insured vehicle is a motor vehicle with a load capacity exceeding 1,500 pounds.
CHAPTER 10.2. Prohibited Cancellations [670. - 670.]
No admitted insurer licensed to issue motor vehicle liability policies, as defined in Section 16450 of the Vehicle Code, shall cancel, or refuse to renew, a motor vehicle liability insurance policy covering drivers hired to drive by a commercial business establishment nor execute the agreement specified in paragraph (1) of subdivision (d) of Section 11580.1 with respect to those drivers for the reason that those drivers have been convicted of violations of the Vehicle Code or the traffic laws of any subdivision of the state that were committed while operating private passenger vehicles not owned or leased by their employer.
This section does not apply to drivers convicted of any of the following:
Homicide or assault arising out of the operation of a private passenger motor vehicle.
A violation while operating a private passenger motor vehicle of any of the following sections or section subdivisions of the Vehicle Code:
Subdivision (a) of Section 14601.
Subdivision (a) of Section 14601.1.
Subdivision (a) of Section 14601.2.
Section 20001 or 20002.
Subdivision (a) of Section 20008.
Section 23104 or 23105.
Subdivision (c) of Section 23152.
Section 23153.
CHAPTER 10.25. Automobile Collision and Comprehensive Coverage [671. - 671.]
No insurer issuing an automobile collision policy, as defined in Section 660, or a policy for comprehensive coverage for an automobile, as defined in Section 11580.07, shall refuse to issue the policy of insurance, or the policy in combination with other coverages, when the refusal is based solely on the age of the automobile to be insured, if the market value of the automobile exceeds two thousand five hundred dollars ($2,500).
This section does not apply to any policy which includes coverage for losses resulting from wear and tear or from normal deterioration of an automobile or its component parts, nor to any policy which provides coverage for an antique or classic automobile.
CHAPTER 10.27. Availability of Cost Estimates [672. - 672.]
Every admitted insurer or insurer group licensed to sell automobile insurance shall provide consumers of personal automobile insurance, as described in Section 660, with a cost estimate for its lowest priced personal automobile insurance policy at the limits the consumer has requested and for which the consumer is eligible.
The insurer shall meet this requirement by either or both of the following:
Maintaining a toll-free telephone number available to consumers in any geographic area in which the insurer is authorized or approved to write business in California. Upon request, the insurer shall provide the consumer with a cost estimate, or shall refer the consumer to an insurer representative or insurance broker-agent who shall, upon request, provide such an estimate based upon information provided by the consumer. The insurer shall make this toll-free number available to the consumer by maintaining a listing in the toll-free telephone directory.
Maintaining an Internet Web site where consumers can obtain a cost estimate online, or be referred to an insurer representative or insurance broker-agent who shall, upon request, provide the cost estimate based upon information provided by the consumer.
Each insurer shall provide the toll-free number or the Internet Web site address, or both, to the commissioner, who shall make the information available on the department’s Internet Web site and through the department’s consumer toll-free telephone line.
CHAPTER 10.3. Cancellation of Policies When Premium Financed [673. - 673.]
As used in this section, “exercise the right to cancel” means the act of formally electing to use the right of the insured to cancel any insurance policy in accordance with and subject to the provisions of that policy when the right to use that right of the insured has been transferred or assigned by the insured in writing executed by, or on behalf of, the insured to a lender who has advanced to the insurer the premium for the policy. The transfer or assignment may be by power of attorney or other document. The transfer or assignment may, but need not, be accompanied by an assignment of any unearned premium due the insured on cancellation.
No lender shall exercise the right to cancel a financed insurance policy because of the default of the insured under a premium payment loan agreement except in accordance with this section.
Written notice of the exercise of the right to cancel shall be mailed by the lender to the insurer and to the insured at the address shown on the premium payment loan agreement or his or her last known address, specifying a date five days or more after the date of mailing of such notice as the effective date of cancellation. Any insurer may, in writing delivered to the lender, waive, generally or specifically, the right to receive such notice or notices. A copy of such notice may be mailed to the producer of record if known to the lender, but failure to do so shall not affect any rights granted by this section. This subdivision shall not apply to an industrial loan company.
An industrial loan company shall, in giving the insured 10 days’ notice of its intent to cancel pursuant to Section 18608 of the Financial Code, furnish a copy of such notice to the insurance agent or insurance broker indicated on the premium finance agreement. After expiration of the 10-day period, the industrial loan company may thereafter, in the name of the insured, cancel the insurance contract or contracts by mailing to the insurer a written notice of cancellation, and the insurance contract shall be canceled as if the notice of cancellation had been submitted by the insured person, but without requiring the return of the insurance contract or contracts. The industrial loan company shall also mail a notice of cancellation, setting forth the effective date of cancellation of the finance insurance contract, to the insured at his or her last known address and to the insurance agent or insurance broker indicated on the premium finance agreement. For the purposes of this subdivision, the words “premium finance agreement” shall have the same meaning as that specified in Section 18564 of the Financial Code.
A written exercise of that right containing a confirmation of the effective date of cancellation shall be mailed by the lender to the insurer within five days following that effective date of cancellation specified in the notice described in subdivision (c) unless the insured has cured any and all defaults. Cancellation shall be effective on the financed insurance policy without requiring the return of the insurance policy or insurance policies, except as provided in subdivisions (f) and (g), on the confirmation date specified in the written exercise of that right. This subdivision shall not apply to an industrial loan company.
All statutory, regulatory, and contractual restrictions providing that the financed insurance policy may not be canceled unless notice is given to a governmental agency, mortgagee, or other third party shall apply where cancellation is effected under this section. The insurer shall give the prescribed notice on behalf of itself or the insured to any governmental agency, mortgagee, or other third party on or before the fifth business day after the day it receives the written exercise of cancellation right containing confirmation of the cancellation date from the lender, as provided in subdivision (e), or a written notice of cancellation from an industrial loan company, pursuant to subdivision (d), and shall, for the purpose of the notice, determine the effective date of cancellation as to those persons mentioned in this subdivision only, taking into consideration the number of days’ notice required to complete the cancellation.
Whenever such a financed insurance policy is canceled by any party for any reason:
The insurer shall, in accordance with the written agreements of which it has notice, return to the lender such unearned premiums as are due to the lender. The amount of the return premiums shall be based upon the confirmed date of cancellation specified in subdivision (e), or upon the written notice of cancellation specified in subdivision (d) in the case of an industrial loan company, lessened by the amount, if any, to compensate equitably the insurer for carrying the risk of loss as to any governmental agency, mortgagee, or other parties specified in subdivision (f) from that date to the effective date of cancellation as to those parties.
When a financed insurance policy is canceled, or the insured discontinues payments to a lender, the insurer shall calculate the return premium on a pro rata basis. This paragraph shall not apply to any policy issued under an assigned risk plan or to any policy with respect to which the insurer has made a loan to the insured for the purposes of payment of premiums for the policy.
The commissioner may amend the rules and regulations of any assigned risk plan, fair plan, or similar plan to provide for the equitable assignment of insurance risks among insurers now in existence or hereafter established, in such manner as may be necessary to carry out the purposes of this section.
A lender which sends a written exercise of cancellation right or a written notice of cancellation to an insurer, as provided in subdivision (c), or subdivision (d) in the case of an industrial loan company, thereby represents that he or she has a valid right to do so and to receive the unearned premium. If the lender thereby accomplishes the cancellation and receives an unearned premium, such representation shall be conclusive as between the insurer and the lender. An insurer relying upon the written exercise of that right containing a confirmation of cancellation date and giving, when applicable, notice as required by subdivision (e), shall be relieved from complying with any other duty or form of cancellation required by this code.
This section shall not apply where the insurer exercises its own right to cancel the policy for nonpayment of premium, direct or indirect, or otherwise. Such a cancellation shall be subject to all applicable provisions of the policy, this code, except this section, and any rights of the lender of which the insurer has written notice.
Whenever a lender or industrial loan company cancels a policy as described in this section and then requests the insurer to reinstate the policy, the insurer shall provide written notice by mail to the insured, agent/broker, and lender or industrial loan company within 15 days that the reinstatement has been accepted or rejected.
This section shall apply only to contracts entered into between an insured and a lender on or after January 1, 1974.
CHAPTER 10.4. Prior Notice Concerning Cancellation or Nonrenewal [674. - 674.9.]
A policy of liability insurance issued to a local public entity or state agency as a named insured shall not be canceled or renewal of such a policy declined for reasons other than nonpayment of premium unless notice is mailed to the named insured at least 45 days prior to the effective date of nonrenewal or at least 60 days prior to the effective date of cancellation. Such notice need not be sent if a renewal notice stating a premium for an additional period of coverage has been sent the named insured at least 45 days before cancellation or expiration of an existing policy and such premium has not been tendered the insurer before such cancellation or expiration. This section shall not require that notice of cancellation or nonrenewal be given an additional insured added by way of endorsement or certificate of insurance.
No insurer shall cease to offer any particular class of commercial liability insurance without prior notification to the commissioner.
The department shall adopt regulations implementing this section as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code, except that for the purposes of Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code, any regulations adopted under this section shall be deemed to be necessary for the immediate preservation of the public peace, health and safety, or general welfare. These regulations shall remain in effect for 180 days. Unless the regulation provides for notification by some other classification or category, notification pursuant to this section shall be made for each class of insurance as defined by the Insurance Services Office.
Except as provided in Section 674.9, an insurer shall notify the department at least 60 days prior to the date it intends to withdraw wholly or substantially from a line of (1) commercial liability insurance, (2) any insurance defined in Section 660 or 675 when coverage is provided by a separate rider or endorsement for an activity for which the insured receives compensation, a stipend, or remuneration of any kind for the activity and then only to the extent of the coverage, (3) any other insurance defined in Section 660, or (4) any insurance issued to an individual or individuals covering a risk not arising from a business or commercial activity. Upon receipt of the notice, the commissioner may request and review additional information, as deemed necessary, and investigate the market conditions to determine whether that insurance may become not readily available in the voluntary insurance market as a result of the withdrawal.
For purposes of this section, “intent to substantially withdraw” means an insurer’s intent to nonrenew in excess of 50 percent of its current policyholders in the line of coverage upon their next renewal.
The commissioner shall adopt appropriate rules, regulations, and standards for purposes of implementing this section.
Any insurer that has notified the commissioner pursuant to subdivision (b) shall (1) notify the commissioner within 10 days after the date given in the withdrawal notice if the insurer does not in fact withdraw that line of insurance from the market, or (2) notify the commissioner within 10 days after reentry if the insurer reenters that line after the withdrawal.
Notwithstanding subdivision (b) of Section 674.6, an insurer issuing policies of liability insurance to long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly shall notify the department at least 90 days prior to the date it intends to cease, withdraw, or substantially withdraw from offering liability policies to those facilities or physicians.
Each insurer writing liability insurance for long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly shall, by a date to be set by the commissioner, but not more than once each calendar year, report to the commissioner information specified by him or her regarding liability policies for those facilities or physicians. The information shall include, but not be limited to, the following:
Whether the insurer is writing coverage for long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly, including new and renewal policies, and the types of policies it is writing.
The number and types of long-term health care facilities or residential care facilities for the elderly and beds covered.
The total amount of premiums from insureds, both written and earned, during the immediately preceding five calendar years.
The total number of claims received, including the amount per claim.
The number of claims incurred, together with the monetary amount reserved for loss and defense and cost containment expense for the immediately preceding accident year or report year.
The number of claims closed with payment during the immediately preceding five calendar years, the total monetary amount paid for loss thereon, reported by the year the claim was incurred, and the total defense and cost containment expense paid thereon, reported by the year the claim was incurred.
The monetary amount paid on claims, including the amount paid per claim, during the immediately preceding five calendar years to be reported separately by the year the claim was incurred, with defense and cost containment expense paid.
The number of claims closed without payment during the immediately preceding five calendar years, reported by the year the claim was incurred, and the defense and cost containment expense paid thereon.
The monetary amount reserved in the annual statement for loss and defense and cost containment expense for the immediately preceding calendar year for outstanding claims incurred but not reported to the insurer.
The number and types of lawsuits filed against the insureds in the immediately preceding calendar year.
Annualized information on investment income or loss, that shall be consistent with the reported information provided by insurers to the National Association of Insurance Commissioners.
For the purposes of information collection conducted pursuant to this section, first priority shall be given by the department and commissioner to collecting and compiling information from insurers concerning long-term health care facilities and physicians providing services in those facilities, and, to the extent that departmental resources allow, secondary priority shall then be given to the collecting and compiling of information concerning residential care facilities for the elderly and the physicians who provide services in those facilities.
Information that is collected for long-term health care facilities and the physicians for those facilities shall be collected, maintained, analyzed, and reported separately from information that is collected, maintained, analyzed, and reported concerning residential care facilities for the elderly, and the physicians for those facilities.
As used in this section, “long-term health care facility” has the same meaning as that term is defined in Section 1418 of the Health and Safety Code.
As used in this section, “residential care facilities for the elderly” has the same meaning as that term is defined in Section 1569.2 of the Health and Safety Code.
Information collected by the department pursuant to this section shall be deemed official information and subject to the disclosure protections of Section 1040 of the Evidence Code. Nothing in this section shall require individualized information that would identify the amount paid by a specific insurer or facility to be released. However, nothing in this subdivision shall prevent the department from preparing reports and policy recommendations based on the data collected pursuant to this section.
CHAPTER 11. Cancellation and Failure to Renew Certain Property Insurance [675. - 679.7.]
Except as provided in Sections 676.8 and 679.6, this chapter shall apply to policies of insurance, other than automobile insurance and workers’ compensation insurance, on risks located or resident in this state which are issued and take effect or which are renewed after the effective date of this chapter and insuring any of the following contingencies:
Loss of or damage to real property which is used predominantly for residential purposes and which consists of not more than four dwelling units.
Loss of or damage to personal property in which natural persons resident in specifically described real property of the kind described in paragraph (1) have an insurable interest, except personal property used in the conduct of a commercial or industrial enterprise.
Legal liability of a natural person or persons for loss of, damage to, or injury to, persons or property, but not including policies primarily insuring risks arising from the conduct of a commercial or industrial enterprise.
This chapter shall not be construed so as to modify or negate any of the provisions of Chapter 3 (commencing with Section 330) of Part 1 of Division 1, nor to destroy any rights or remedies therein provided.
On and after January 1, 2000, an insurer may not refuse to renew a policy of insurance specified in subdivision (a) solely on the grounds that a claim is pending under the policy. This subdivision is not applicable to claims made under coverage for loss or damage caused by the peril of earthquake as provided in Chapter 8.5 (commencing with Section 10081) or Chapter 8.6 (commencing with Section 10089.5), of Part 1 of Division 2.
In the case of a total loss to the primary insured structure under a policy of residential property insurance subject to Section 675, the following provisions apply:
If reconstruction of the primary insured structure has not been completed by the time of policy renewal, the insurer, prior to or at the time of renewal, and after consultation by the insurer or its representative with the insured as to what limits and coverages might or might not be needed, shall adjust the limits and coverages, write an additional policy, or attach an endorsement to the policy that reflects the change, if any, in the insured’s exposure to loss. The insurer shall adjust the premium charged to reflect any change in coverage.
The insurer shall not cancel coverage while the primary insured structure is being rebuilt, except for the reasons specified in subdivisions (a) to (e), inclusive, of Section 676. The insurer shall not use the fact that the primary insured structure is in damaged condition as a result of the total loss as the sole basis for a decision to cancel the policy pursuant to subdivision (e) of that section.
Except for the reasons specified in subdivisions (a) to (e), inclusive, of Section 676, the insurer shall offer, for at least the next two annual renewal periods, but no less than 24 months of coverage from the date of the loss, to renew the policy in accordance with paragraph (1) if the total loss to the primary insured structure was caused by a disaster, as defined in subdivision (b) of Section 1689.14 of the Civil Code, the loss was not also due to the negligence of the insured, and losses have not occurred subsequent to the disaster-related total loss that relate to physical or risk changes to the insured property that result in the property becoming uninsurable.
With respect to policies of residential earthquake insurance, the California Earthquake Authority, or any insurer, including a participating insurer, as defined in subdivision (i) of Section 10089.5, may defer its initial implementation of this section until no later than October 1, 2005.
With respect to a residential earthquake insurance policy issued by the California Earthquake Authority, the following provisions apply:
The participating insurer that issued the underlying policy of residential property insurance on the primary insured structure shall consult with the insured as to what limits and coverages might or might not be needed as required by paragraph (1).
The California Earthquake Authority, in lieu of meeting the requirements of paragraph (1), shall establish procedures and practices that allow it to reasonably accommodate the needs and interests of consumers in maintaining appropriate earthquake insurance coverage, within the statutory and regulatory limitations on the types of insurance coverages and the coverage limits of the policies that the authority may issue.
An insurer shall not cancel or refuse to renew a policy of residential property insurance for a property located in any ZIP Code within or adjacent to the fire perimeter, for one year after the declaration of a state of emergency, as defined in Section 8558 of the Government Code, based solely on the fact that the insured structure is located in an area in which a wildfire has occurred. This prohibition applies to all policies of residential property insurance in effect at the time of the declared emergency.
For the purposes of this section, the fire perimeter shall be determined by the Department of Forestry and Fire Protection in consultation with the Office of Emergency Services. The department shall provide the commissioner with data describing the fire perimeter sufficient for the commissioner to determine which ZIP Codes are within or adjacent to the fire perimeter. The commissioner shall then issue a bulletin to inform insurers which ZIP Codes are subject to this subdivision.
Subdivision (b) does not apply in any of the following circumstances:
If there are physical or risk changes to the insured property beyond the catastrophe-damaged condition of the structures and surface landscape that result in the property becoming uninsurable.
For the purposes of this section, “policy of residential property insurance” has the meaning described in subdivision (a) of Section 10087.
In addition to any policy of insurance specified in Section 675, this chapter shall apply to policies of commercial insurance issued or issued for delivery in this state which are issued and take effect or are renewed on or after January 1, 1987.
As used in this section, commercial insurance means commercial multiperil, commercial property, commercial liability, commercial special multiperil, commercial comprehensive multiperil, errors and omissions liability, and professional liability insurance, and any other insurance not included in subdivision (d) which covers any of the following contingencies:
Loss of or damage to real property used or owned by a commercial or industrial enterprise.
Loss of or damage to personal property, except personally owned motor vehicles, used in the conduct of a commercial or industrial enterprise.
Legal liability of any person for loss of, damage to, or injury to persons or property, arising from the conduct of a commercial or industrial enterprise.
As used in this section, the term commercial or industrial enterprise includes a business operated for profit, a professional practice, a nonprofit organization, or a governmental entity.
As used in this section, the term commercial insurance does not include any of the following:
Ocean marine insurance.
Fidelity and surety insurance.
Surplus line insurance, which is nonadmitted insurance as defined in subdivision (m) of Section 1760.1.
Reinsurance.
Any insurance, other than professional liability insurance for malpractice, errors, or omissions, for which premiums are determined on a retrospective rating basis.
Nuclear liability insurance.
Nuclear property insurance.
An insurer shall not cancel or refuse to renew a policy of commercial property insurance for a property located in any ZIP Code within or adjacent to the fire perimeter, for one year after the declaration of a state of emergency, as defined in Section 8558 of the Government Code, based solely on the fact that the insured structure is located in an area in which a wildfire has occurred. This prohibition applies to all policies of commercial property insurance in effect at the time of the declared emergency.
For the purposes of this section, the fire perimeter shall be determined by the Department of Forestry and Fire Protection in consultation with the Office of Emergency Services. The department shall provide the commissioner with data describing the fire perimeter sufficient for the commissioner to determine which ZIP Codes are within or adjacent to the fire perimeter. The commissioner shall then issue a bulletin to inform insurers which ZIP Codes are subject to this subdivision.
Subdivision (a) does not apply in any of the following circumstances:
If willful or grossly negligent acts or omissions by the named insured, or the named insured’s representatives, are discovered that materially increase any of the risks insured against.
If losses unrelated to the postdisaster loss condition of the property have occurred that would collectively render the risk ineligible for renewal.
If there are physical or risk changes to the insured property beyond the catastrophe-damaged condition of the structures and surface landscape that result in the property becoming uninsurable.
Policies that are inland marine, transit, or transportation insurance, including commercial automobile insurance.
A policy of commercial property insurance with an annual premium of twenty-five thousand dollars ($25,000) or more and the insured employed at least 25 employees on average during the prior 12 months.
Notwithstanding subparagraph (B) of paragraph (2) of subdivision (c), this section shall apply to a policy of commercial property insurance that insures against loss of, or damage to, real property, used primarily for commercial residential or habitational purposes, including, but not limited to, policies insuring all of the following:
Apartment complexes.
Condominium complexes.
Multifamily dwellings with greater than five units.
Student housing.
Senior living facilities.
After a policy specified in Section 675 has been in effect for 60 days, or, if the policy is a renewal, effective immediately, no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:
Nonpayment of premium, including nonpayment of any additional premiums, calculated in accordance with the current rating manual of the insurer, justified by a physical change in the insured property or a change in its occupancy or use.
Conviction of the named insured of a crime having as one of its necessary elements an act increasing any hazard insured against.
Discovery of fraud or material misrepresentation by either of the following:
The insured or his or her representative in obtaining the insurance.
The named insured or his or her representative in pursuing a claim under the policy.
Discovery of grossly negligent acts or omissions by the insured or his or her representative substantially increasing any of the hazards insured against.
Physical changes in the insured property which result in the property becoming uninsurable.
The arbitrary cancellation of a policy of homeowners’ insurance solely on the basis that the policyholder has a license to operate a family day care home at the insured location shall subject the insurer to administrative sanctions authorized by this code unless, there has been a material misrepresentation of fact, the risk has changed substantially since the policy was issued, there has been a nonpayment of premium, or the insurer no longer writes homeowners policies.
The arbitrary refusal to renew a policy of homeowners’ insurance solely on the basis that the policyholder has a license to operate a family day care home at the insured location shall subject the insurer to administrative sanctions authorized by this code unless, there has been a material misrepresentation of fact, the risk has changed substantially since the policy was issued, there has been a nonpayment of premium, or the insurer no longer writes homeowners’ policies. For purposes of this subdivision, an insured’s purchase of a policy of homeowner’s insurance to cover a new, primary residence from the same insurer which insured his or her previous primary residence, provided that the insurer then underwrites homeowners’ insurance in the geographic area containing the new residence, shall be deemed a renewal of the policy on the previous, primary residence.
It shall be against public policy for a residential property insurance policy to provide coverage for liability for losses arising out of, or in connection with, the operation of a family day care home. This coverage shall only be provided by a separate endorsement or insurance policy for which premiums have been assessed and collected.
This section applies only to policies of commercial insurance that are subject to Section 675.5.
After a policy has been in effect for more than 60 days, or if the policy is a renewal, effective immediately, no notice of cancellation shall be effective unless it complies with Section 677.2 and it is based on the occurrence, after the effective date of the policy, of one or more of the following:
Nonpayment of premium, including payment due on a prior policy issued by the insurer and due during the current policy term covering the same risks.
A judgment by a court or an administrative tribunal that the named insured has violated any law of this state or of the United States having as one of its necessary elements an act that materially increases any of the risks insured against.
Discovery of fraud or material misrepresentation by either of the following:
The insured or the insured’s representative in obtaining the insurance.
The named insured or the named insured’s representative in pursuing a claim under the policy.
Discovery of willful or grossly negligent acts or omissions, or of any violations of state laws or regulations establishing safety standards, by the named insured or the named insured’s representative, which materially increase any of the risks insured against.
Failure by the named insured or the named insured’s representative to implement reasonable loss control requirements that were agreed to by the insured as a condition of policy issuance or that were conditions precedent to the use by the insurer of a particular rate or rating plan, if the failure materially increases any of the risks insured against.
A determination by the commissioner that the loss of, or changes in, an insurer’s reinsurance covering all or part of the risk would threaten the financial integrity or solvency of the insurer. A certification made under penalty of perjury to the commissioner by an officer of the insurer of the loss of, or change in, reinsurance and that the loss or change will threaten the financial integrity or solvency of the insurer if the cancellation of the policy is not permitted shall constitute this determination unless disapproved by the commissioner within 30 days of the filing. There shall be no extensions to this 30-day period.
A determination by the commissioner that a continuation of the policy coverage would place the insurer in violation of the laws of this state or the state of its domicile or that the continuation of coverage would threaten the solvency of the insurer.
A change by the named insured or the named insured’s representative in the activities or property of the commercial or industrial enterprise that results in a material added risk, a materially increased risk, or a materially changed risk, unless the added, increased, or changed risk is included in the policy.
Discovery of willful or grossly negligent acts or omissions, or of any violations of state laws or regulations establishing safety standards by the named insured that materially increase any of the risks or hazards insured against.
Failure by the named insured to implement reasonable loss control requirements that were agreed to by the insured as a condition of policy issuance or that were conditions precedent to the use by the insurer of a particular rate or rating plan, if the failure materially increases any of the risks insured against.
A determination by the commissioner that loss of or changes in an insurer’s reinsurance covering all or part of the risk covered by the policy would threaten the financial integrity or solvency of the insurer unless the change in the terms or conditions or rate upon which the premium is based is permitted.
A change by the named insured in the activities or property of the commercial or industrial enterprise that results in a materially added risk, a materially increased risk, or a materially changed risk, unless the added, increased, or changed risk is included in the policy.
With respect to a change in the rate of a policy of professional liability insurance for a health care provider, the insurer’s offer of renewal notifies the policyholder that the insurer has an application filed pursuant to Section 1861.05 pending with the commissioner for approval of a change in the rate upon which the premium is based, and the commissioner subsequently approves the rate change, or some different amount for the policy period. The change shall not be retroactive.
The Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340), Chapter 4 (commencing with Section 11370), and Chapter 5 (commencing with Section 11500) of Title 2 of Division 3 of the Government Code) shall not apply to a determination pursuant to paragraph (6) or (7) of subdivision (b) or subparagraph (C) of paragraph (2) of subdivision (c). The commissioner shall charge an insurer who requests a determination pursuant to paragraph (6) or (7) of subdivision (b) a fee sufficient to recover the costs of making the determination. If the commissioner does not act upon a request by an insurer to cancel or change a policy pursuant to those provisions within 30 days, the request shall be deemed to be approved.
This section shall not prohibit an insurer from increasing a premium during the policy period if the increase is calculated in accordance with the current rating manual of the insurer and is justified by a physical change in the insured property or by a change in the activities of the commercial or industrial enterprise that materially increases any of the risks insured against.
This section shall not apply to a transfer of a policy without a change in its terms or conditions or the rate upon which the premium is based between insurers that are members of the same insurance group.
Nothing in Section 676.2 shall preclude the imposition of remedial underwriting action upon coverage insuring dentists or physicians and surgeons against legal liability arising from the rendering of professional services by an insured licensed pursuant to Chapter 4 (commencing with Section 1600) or Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code, respectively, if remedial underwriting action is imposed pursuant to the recommendation of an underwriting committee advising the insurer; provided that a majority of the members of that committee are licensed pursuant to the chapter of Division 2 of the Business and Professions Code that is applicable to that particular insured, and written notification of the proposed remedial underwriting action is first given to the insured, and the insured is afforded not less than 30 days to present opposition or argument to the underwriting committee as to why the remedial underwriting action should be modified or withheld, prior to any imposition thereof. Remedial underwriting action includes all actions described in subdivision (c) of Section 676.2. Remedial underwriting action imposed pursuant to this section shall not be subject to Article 7 (commencing with Section 1858) of Chapter 9 of Part 2, but nothing in this section shall deny the right of the commissioner to investigate, pursue enforcement action, and seek other remedies as authorized by Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.
It is the intent of the Legislature to encourage peer review by insurers providing coverage to persons engaged in the provision of health services and the adoption of conditions of coverage which are intended to protect the public.
Nothing in Section 676.2 shall preclude, while the policies are in force, changes in the rate upon which the premium is based or the conditions of coverage, or both, of policies insuring health care facilities licensed pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code, if the change is imposed pursuant to the recommendation of a health care facility professional liability advisory committee advising the insurer; provided that a majority of the members of the committee are duly authorized representatives of health care facilities licensed pursuant to that Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code, and written notification of the change is given to all affected insureds at least 30 days prior to any such change.
This section applies only to policies of commercial insurance which are subject to Section 675.5.
Except as provided in subdivision (c), for purposes of this chapter only, a policy with no fixed expiration, or with a term of less than one year, shall be considered to be a policy for a term of one year, and a policy written for a term of more than one year shall be considered as if written for successive terms of one year.
For purposes of this chapter, a policy shall be considered to be for a term of less than one year if the policy is issued for a specific risk which does not continue beyond the period of the policy, or if the insured requests a policy for a term of less than one year.
This section applies to commercial umbrella liability insurance policies, commercial excess liability insurance policies, and commercial excess property insurance policies.
As used in this section:
“Umbrella liability insurance policy” means an insurance policy providing liability coverage per person or per occurrence or per claim, when written over one or more underlying liability policies or over a specified amount of self-insured retention.
“Excess liability insurance policy” means an insurance policy providing liability covrage per person or per occurrence or per claim when written over one or more underlying liability policies. Excess liability policies shall include policies written over umbrella liability policies.
“Excess property insurance policy” means a policy providing property coverage per occurrence or per location when written over one or more underlying property insurance policies or a specified amount of self-insured retention.
After a policy defined in subdivision (b) of this section has been in effect for more than 60 days, or if the policy is a renewal, effective immediately, no notice of cancellation shall be effective unless it complies with Section 677. 2, is based on one or more of the grounds set forth in subdivision (b) of Section 676.2, or is based on one or more of the following:
A notice of nonrenewal shall not be required in any of the following situations:
The policy is for a period of no more than 60 days and the insured is notified at the time of issuance that it may not be renewed.
The named insured requests a change in the terms or conditions or risks covered by the policy within 60 days prior to the end of the policy period.
The insurer has made a written offer to the insured, within the time period specified in subdivision (c), to renew the policy under changed terms or conditions or at a changed premium rate. As used herein, “terms or conditions” includes, but is not limited to, a reduction in limits, elimination of coverages, or an increase in deductibles.
No admitted insurer, licensed to issue and issuing homeowner’s or tenant’s policies, as described in Section 122, shall (1) fail or refuse to accept an application for that insurance or to issue that insurance to an applicant or (2) cancel that insurance, solely on the basis that the applicant or policyholder is engaged in foster home activities in a licensed foster family home or licensed small family home, as defined in Section 1502 of the Health and Safety Code, or an approved resource family, as defined in Section 16519.5 of the Welfare and Institutions Code.
Coverage under policies described in subdivision (a) with respect to a foster child shall be the same as that provided for a natural child. However, unless specifically provided in the policy, there shall be no coverage expressly provided in the policy for any bodily injury arising out of the operation or use of any motor vehicle, aircraft, or watercraft owned or operated by, or rented or loaned to, any foster parent.
It is against public policy for a policy of homeowner’s or tenant’s insurance subject to this section to provide liability coverage for any of the following losses:
Claims of a foster child, or a parent, guardian, or guardian ad litem thereof, of a type payable by the Foster Family Home and Small Family Home Insurance Fund established by Section 1527.1 of the Health and Safety Code, regardless of whether the claim is within the limits of coverage specified in Section 1527.4 of the Health and Safety Code.
An insurer shall not be liable, under a policy of insurance subject to this section, to any governmental agency for damage arising from occurrences peculiar to the foster-care relationship and the provision of foster-care services.
Alienation of affection of a foster child.
Any loss arising out of licentious, immoral, or sexual behavior on the part of a foster parent intended to lead to, or culminating in, any sexual act.
Any loss arising out of a dishonest, fraudulent, criminal, or intentional act.
There shall be no penalty for violations of this section prior to January 1, 1987.
Insurers may provide a special endorsement to a homeowners’ or tenants’ policy covering claims related to foster care that are not excluded by subdivision (c).
Insurers may provide by a separate policy for some or all of the claims related to foster care that are excluded by subdivision (c).
No admitted insurer, licensed to issue and issuing homeowner’s or tenant’s policies, as described in Section 122, shall (1) fail or refuse to accept an application for that insurance or to issue that insurance to an applicant or (2) cancel that insurance, solely on the basis that the applicant or policyholder is engaged in foster home activities in a certified family home, as defined in Section 1506 of the Health and Safety Code.
Coverage under policies described in subdivision (a) with respect to a foster child shall be the same as that provided for a natural child. However, unless specifically provided in the policy, there shall be no coverage expressly provided in the policy for any bodily injury arising out of the operation or use of any motor vehicle, aircraft, or watercraft owned or operated by, or rented or loaned to, any foster parent.
It is against public policy for a policy of homeowner’s or tenant’s insurance subject to this section to provide liability coverage for any of the following losses:
An insurer shall not be liable, under a policy of insurance subject to this section, to any governmental agency for damage arising from occurrences peculiar to the foster care relationship and the provision of foster care services.
Alienation of affection of a foster child.
Any loss arising out of licentious, immoral, or sexual behavior on the part of a foster parent intended to lead to, or culminating in, any sexual act.
Any loss arising out of a dishonest, fraudulent, criminal, or intentional act.
There shall be no penalty for violations of this section prior to January 1, 2013.
Insurers may provide a special endorsement to a homeowner’s or tenant’s policy covering claims related to foster care that are not excluded by subdivision (c).
Insurers may provide by a separate policy for some or all of the claims related to foster care that are excluded by subdivision (c).
This section applies only to policies of workers’ compensation insurance.
After a policy is in effect, a notice of cancellation shall not be effective unless it complies with the notice requirements of this section and is based upon the occurrence, after the effective date of the policy, of one or more of the following:
The policyholder’s failure to make any workers’ compensation insurance premium payment when due.
The policyholder’s failure to report payroll, to permit the insurer to audit payroll as required by the terms of the policy or of a previous policy issued by the insurer, or to pay any additional premium as a result of an audit of payroll as required by the terms of the policy or of a previous policy.
The policyholder’s material failure to comply with federal or state safety orders or written recommendations of the insurer’s designated loss control representative.
A material change in ownership or any change in the policyholder’s business or operations that materially increases the hazard for frequency or severity of loss, requires additional or different classifications for premium calculations, or contemplates an activity excluded by the insurer’s reinsurance treaties.
Material misrepresentation by the policyholder or its agent.
Failure to cooperate with the insurer in the insurer’s investigation of a claim.
A policy shall not be canceled for the conditions specified in paragraph (1), (2), (5), or (6) of subdivision (b) except upon 10 days’ written notice to the policyholder by the insurer. A policy shall not be canceled for the conditions specified in paragraph (3) or (4) of subdivision (b) except upon 30 days’ written notice to the policyholder by the insurer, provided that notice is not required if an insured and insurer consent to the cancellation and reissuance of a policy effective upon a material change in ownership or operations of the insured. The time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if the notice is mailed. If the policyholder remedies the condition to the insurer’s satisfaction within the specified time period, the policy shall not be canceled by the insurer.
Nothing in this section shall preclude, while policies are in force, changes in the premium rate required or authorized by law, regulation, or order of the commissioner, or otherwise agreed to between the policyholder and insurer.
Any policy written for a term longer than one year, or any policy with no fixed expiration date, shall be considered as if written for successive policy periods of one year.
No insurer issuing policies subject to this section shall deny or refuse to accept an application, refuse to insure, refuse to renew, cancel, restrict, or otherwise terminate, or charge a different rate for the same coverage, on the basis that the applicant or insured person is, has been, or may be, a victim of domestic violence.
Nothing in this section shall prevent an insurer subject to this section from taking any of the actions set forth in subdivision (b) on the basis of criteria not otherwise made invalid by this section or any other act, regulation, or rule of law. If discrimination by an insurer is not in violation of this section but is based on any other criteria that are allowable by law, the fact that the applicant or insured is, has been, or may be the subject of domestic violence shall be irrelevant.
For purposes of this section, information that indicates that a person is, has been, or may be a victim of domestic violence is personal information within the meaning of Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2.
No insurer that issues policies subject to this section, and no person employed by or under contract with an insurer that issues policies subject to this section, shall request any information the insurer or person knows or reasonably should know relates to acts of domestic violence or an applicant’s or insured’s status as a victim of domestic violence, or make use of this information however obtained, except for the limited purpose of complying with legal obligations, verifying a person’s claim to be a subject of domestic violence, or cooperating with a victim of domestic violence in seeking protection from domestic violence or facilitating the treatment of a domestic violence-related medical condition. This subdivision does not prohibit an insurer from asking an applicant or insured about a property and casualty claim, even if the claim is related to domestic violence, or from using information thereby obtained in evaluating and carrying out its rights and duties under the policy, to the extent otherwise permitted by this section and other applicable law.
As used in this section, “domestic violence” means domestic violence as defined in Section 6211 of the Family Code.
This section applies to policies covered by Section 675, 675.5, or 676.5 if the insured is a religious organization described in clause (i) of subparagraph (A) of paragraph (1) of subsection (b) of Section 170 of Title 26 of the United States Code, an educational organization described in clause (ii) of subparagraph (A) of paragraph (1) of subsection (b) of Section 170 of Title 26 of the United States Code, or other nonprofit organization described in clause (vi) of subparagraph (A) of paragraph (1) of subsection (b) of Section 170 of Title 26 of the United States Code that is organized and operated for religious, charitable, or educational purposes, or a reproductive health services facility, as defined in subdivision (h) of Section 423.1 of the Penal Code, or its administrative offices.
No insurer issuing policies subject to this section shall cancel or refuse to renew the policy, nor shall any premium be excessive or unfairly discriminatory solely on the basis that one or more claims has been made against the policy during the preceding 60 months for a loss that is the result of a hate crime committed against the person or property of the insured, or an antireproductive rights crime.
As it relates to this section, if determined by a law enforcement agency, a “hate crime” may include any of the following:
By force or threat of force, willfully injure, intimidate, interfere with, oppress, or threaten any other person in the free exercise or enjoyment of any right or privilege secured to him or her by the Constitution or laws of this state or by the Constitution or laws of the United States because of the other person’s race, color, religion, ancestry, national origin, disability, gender, gender identity, gender expression, or sexual orientation, or because he or she perceives that the other person has one or more of those characteristics. However, the foregoing offense does not include speech alone, except upon a showing that the speech itself threatened violence against a specific person or group of persons and that the defendant had the apparent ability to carry out the threat.
Knowingly deface, damage, or destroy the real or personal property of any other person for the purpose of intimidating or interfering with the free exercise or enjoyment of any right or privilege secured to the other person by the Constitution or laws of this state or by the Constitution or laws of the United States, because of the other person’s race, color, religion, ancestry, national origin, disability, gender, gender identity, gender expression, or sexual orientation, or because he or she perceives that the other person has one or more of those characteristics.
As it relates to this section, if determined by a law enforcement agency, “anti-reproductive-rights crime” shall have the meaning set forth in subdivision (a) of Section 13776 of the Penal Code, and shall also include a violation of subdivision (e) of Section 423.2 of the Penal Code, if the crime results in a covered loss under a policy subject to this section.
Upon cancellation of or refusal to renew a policy subject to this section after an insured has submitted a claim to the insurer that is the result of a hate crime committed against the person or property of the insured, or an anti-reproductive-rights crime, the insurer shall report the cancellation or nonrenewal to the commissioner.
A violation of this section shall be an unfair practice subject to Article 6.5 (commencing with Section 790) of Chapter 1 of Division 2.
Nothing in this section shall prevent an insurer subject to this section from taking any of the actions set forth in subdivision (b) on the basis of criteria not otherwise made invalid by this section or any other act, regulation, or law.
All notices of cancellation shall be in writing, mailed to the named insured at the address shown in the policy, or to the insured’s last known address, and shall state, with respect to policies in effect after the time limits specified in Section 676, all of the following:
Which of the grounds set forth in Section 676 is relied upon.
In accordance with the requirements of subdivisions (a) and (e) of Section 791.10, the specific information supporting the cancellation, the specific items of personal and privileged information that support those reasons, if applicable, and corresponding summary of rights.
On or after July 1, 2020, a notification that if the policyholder believes the policy has been wrongfully canceled, the policyholder may have the matter reviewed by the department. The notification shall include the department’s internet website, www.insurance.ca.gov, the department’s telephone number, 1-800-927-HELP (4357), and the mailing address of the department’s Consumer Services Division, 300 South Spring Street, Los Angeles, CA 90013.
For purposes of this section, a lienholder’s copy of those notices shall be deemed mailed if, with the lienholder’s consent, it is delivered by electronic transmittal, facsimile, or personal delivery.
This section applies only to policies covered by Section 675.5.
A notice of cancellation shall be in writing and shall be delivered or mailed to the producer of record, provided that the producer of record is not an employee of the insurer, and to the named insured at the mailing address shown on the policy. The time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if the notice is mailed.
The notice of cancellation shall include the effective date of the cancellation and the reasons for the cancellation.
The notice of cancellation shall be given at least 30 days prior to the effective date of the cancellation, except that in the case of cancellation for nonpayment of premiums or for fraud the notice shall be given no less than 10 days prior to the effective date of the cancellation. Notice of a proposed cancellation pursuant to subdivision (d) of Section 676.2 given prior to a finding of the commissioner shall satisfy the requirements of this section if it is given no less than 30 days prior to the effective date of the cancellation and if it states that cancellation will be effective only upon the approval of the commissioner.
This section applies only to cancellations pursuant to Section 676.2.
A notice of cancellation with respect to a policy covered under Section 675 shall be delivered at least 20 calendar days prior to the effective date of the cancellation, except that in the case of a cancellation for nonpayment of premiums, or for fraud, the notice shall be given at least 10 calendar days prior to the effective date of the cancellation. The time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if the notice is mailed.
At least 45 days before the policy expiration, an insurer shall deliver to the named insured or mail to the named insured at the address shown in the policy, either of the following:
An offer of renewal of the policy contingent upon payment of premium as stated in the offer, stating each of the following:
Any reduction of limits or elimination of coverage. That reduction of limits or elimination of coverage shall identify the specific limits being reduced or coverage being eliminated by the offer of renewal. The elimination of coverage for the previously covered peril of fire shall be subject to subdivision (b) of Section 10103.6.
The telephone number of the insurer’s representatives who handle consumer inquiries or complaints. The telephone number shall be displayed prominently in a font size consistent with the other text of the renewal offer.
A notice of nonrenewal of the policy. That notice shall contain all of the following:
The specific reason or reasons for the nonrenewal.
The telephone number of the insurer’s representatives who handle consumer inquiries or complaints. The telephone number shall be displayed prominently in a font size consistent with the other text of the notice of nonrenewal.
Until July 1, 2020, a brief statement indicating that if the consumer has contacted the insurer to discuss the nonrenewal and remains unsatisfied, the consumer may have the matter reviewed by the department. The statement shall include the telephone number of the unit within the department that responds to consumer inquiries and complaints.
On or after July 1, 2020, a statement that if the consumer has contacted the insurer to discuss the nonrenewal and remains unsatisfied, the consumer may have the matter reviewed by the department. The statement shall include the department’s internet website, www.insurance.ca.gov, the department’s telephone number, (800) 927-HELP (4357), and the mailing address of the department’s Consumer Services Division, 300 S. Spring Street, Los Angeles, CA 90013.
On and after July 1, 2022, the time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if an offer or notice is mailed.
If an insurer fails to give the named insured either an offer of renewal or notice of nonrenewal as required by this section, the existing policy, with no change in its terms and conditions, shall remain in effect for 45 days from the date that either the offer to renew or the notice of nonrenewal is delivered or mailed to the named insured. A notice to this effect shall be provided by the insurer to the named insured with the policy or the notice of renewal or nonrenewal.
Notwithstanding subdivisions (a) and (b), with respect to a notice of nonrenewal for a policy that expires on or after July 1, 2020, the following timelines apply:
At least 75 days before the policy expiration, the insurer shall deliver the notice of nonrenewal to the named insured or mail the notice of nonrenewal to the named insured at the address shown in the policy. The notice shall include the information contained in subparagraph (B) of paragraph (1) of subdivision (a). On and after July 1, 2022, the time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if a notice is mailed.
If an insurer fails to give the named insured a notice of nonrenewal at least 75 days before the policy expiration, as required by paragraph (1), the existing policy, with no change in its terms and conditions, shall remain in effect for 75 days from the date that the notice of nonrenewal is delivered or mailed to the named insured. A notice to this effect shall be provided by the insurer to the named insured with the notice of nonrenewal.
A policy written for a term of less than one year shall be considered as if written for a term of one year. A policy written for a term longer than one year, or a policy with no fixed expiration date, shall be considered as if written for successive policy periods or terms of one year.
A notice of nonrenewal for a residential property insurance policy expiring on or after July 1, 2021, shall be accompanied by the following notice:
The California Department of Insurance has developed the California Home Insurance Finder, an online tool that can assist you in obtaining insurance for your home. The Finder contains names, addresses, telephone numbers, and internet website links of licensed insurance agents, brokers, and insurance companies that may be able to sell insurance to you. The Finder is organized by ZIP Code and the languages in which the agent, broker, or insurance company sells insurance.
The California FAIR Plan (FAIR Plan) provides basic property insurance as the “insurer of last resort” if you cannot find insurance coverage for your property in the normal (voluntary) insurance market. The FAIR Plan provides basic property insurance coverage for residential structures, as well as personal property coverage for residential and business occupancies. However, FAIR Plan policies may not cover liability, theft, or water damage, among other things. There are also optional coverages available for both residential properties. Applications can be made directly with the FAIR Plan (cfpnet.com), although the FAIR Plan strongly encourages use of a licensed agent or broker for assistance in preparing and obtaining a quote. There is no additional cost for using an agent or broker for purchasing a FAIR Plan policy.
California law requires an agent or broker to assist a person seeking a FAIR Plan policy by (1) submitting a coverage application to the FAIR Plan on behalf of the consumer, (2) providing the consumer the FAIR Plan’s internet website address and toll-free telephone number, or (3) obtaining a policy for the consumer through an admitted or nonadmitted insurer.
To supplement a FAIR Plan policy, a Difference in Conditions (DIC) policy should be considered. A DIC policy is sold by some private insurers, and provides coverage for things not covered by the basic property insurance policy provided by the FAIR Plan. A consumer who wants broader coverage than that provided by the FAIR Plan policy should contact an agent, broker, or insurance company that offers a DIC policy to obtain this additional coverage. The Department of Insurance maintains a list of insurance companies that sell DIC policies on its internet website (insurance.ca.gov). Additional assistance may be obtained by contacting an agent or broker listed with the department’s online agent locator.
An insurer may use a notice substantially similar to the notice set forth in subdivision (e) to the extent that the notice provides additional or more detailed information.
This section applies only to policies of insurance specified in Section 675.
A notice of nonrenewal shall be in writing and shall be delivered or mailed to the producer of record and to the named insured at the mailing address shown on the policy. The time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if the notice is mailed.
An insurer, at least 60 days, but not more than 120 days, in advance of the end of the policy period, shall give notice of nonrenewal, and the reasons for the nonrenewal, if the insurer intends not to renew the policy, or to condition renewal upon reduction of limits, elimination of coverages, increase in deductibles, or increase of more than 25 percent in the rate upon which the premium is based.
If an insurer fails to give timely notice required by subdivision (c), the policy of insurance shall be continued, with no change in its terms or conditions, for a period of 60 days after the insurer gives the notice.
With respect to policies defined in subdivision (b) of Section 676.6, in addition to the bases for conditional renewal set forth in subdivision (c), an insurer may also condition renewal upon requirements relating to the underlying policy or policies. If the requirements are not satisfied as of (1) the expiration date of the policy, or (2) 30 days after mailing or delivery of such notice, whichever is later, the conditional renewal notice shall be treated as an effective notice of nonrenewal, provided the insurer has sent written confirmation to the first named insured and the producer of record that the conditions were not met and that coverage ceased at the expiration date shown in the expiring policy.
A notice of nonrenewal shall not be required in any of the following situations.
The transfer of, or renewal of, a policy without a change in its terms or conditions or the rate on which the premium is based between insurers that are members of the same insurance group.
The policy has been extended for 90 days or less, if the notice required in subdivision (c) has been given prior to the extension.
The named insured has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.
The policy is for a period of no more than 60 days and the insured is notified at the time of issuance that it may not be renewed.
The named insured requests a change in the terms or conditions or risks covered by the policy within 60 days prior to the end of the policy period.
The insurer has made a written offer to the insured, within the time period specified in subdivision (c), to renew the policy under changed terms or conditions or at a changed premium rate. As used herein, “terms or conditions” includes, but is not limited to, a reduction in limits, elimination of coverages, or an increase in deductibles.
This section shall become operative on January 1, 2019.
The provisions of subdivisions (c) and (e) of Section 678.1 which prohibit notice of nonrenewal earlier than 120 days in advance of the end of the policy period shall not apply to professional liability policies issued to health care providers.
No policy specified in Section 675 that is issued, amended, or renewed on or after January 1, 1990, may be canceled, and an insurer may not refuse to renew such a policy solely on the grounds of corrosive soil conditions if the policy or renewal policy contains an existing exclusion for payment of loss for that peril.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, any insurer or its authorized representatives, agents, or employees, or any licensed insurance agent or broker, for any statement made, unless shown to have been made in bad faith with malice in fact, by any of them in (a) any written notice of cancellation or in any other oral or written communication specifying the reasons for cancellation, (b) any communication providing information pertaining to such cancellation, or (c) evidence submitted at any court proceeding or informal inquiry in which such cancellation is an issue.
Proof of mailing of a notice of cancellation and the reasons therefor or of intention not to renew to the named insured at the address shown in the policy shall be sufficient proof of the notice required by this chapter.
The commissioner may, after hearing, exempt from the provisions of this chapter insurance in respect to any risk or class of risk that is eligible under Section 1763 for placement with nonadmitted insurers by and through licensed surplus line brokers upon a finding by him that application of this chapter would diminish or tend to diminish the availability, or substantially increase the cost, of such insurance.
Upon receiving a written request from an insured or the agent or broker of record where authorized by the insured, an insurer shall provide a premium and loss history report to the requesting party for the account’s tenure or the three-year period ending with the inception of the current policy period, whichever is shorter, plus loss experience during the current policy period that is in force if any of the following occur:
The policy is canceled or nonrenewed.
The policyholder requests the information within 60 days prior to the renewal date of an existing policy.
The policyholder’s current insurer’s rating is downrated by a nationally recognized insurance rating service to a financial rating below secure or good or to a rating that would negatively impact the ability of the policyholder to conduct its business operations.
The policyholder’s current insurer is conserved by the department under Section 1011, or is ordered to cease writing business under Sections 1065.1 and 1065.2.
The premium and loss history report, and the loss experience information for the current policy period, shall be provided within 10 business days of receiving the request.
This section shall not apply to a policyholder who, through automated or other means, is provided direct, ongoing access to claims information by the insurer.
For purposes of this section, a loss history report includes, but is not limited to, a list of individual claims detailed by date of claim and total incurred and paid losses.
CHAPTER 11.5. Disclosure Requirements for Certain Property Insurance [679.9. - 679.9.]
If an insurer changes the annual premium under a policy specified in Section 675, it shall, within 15 business days of a request by the insured, inform the insured in writing of each of the following:
The amount of the premium increase or decrease in comparison to the premium charged in the previous year.
The reason or reasons for the change, including, but not limited to, the deletion of a loss-free credit, the application of a claim-related surcharge, or any other reason related to a claim or policyholder inquiry.
A brief statement indicating each of the following:
That the consumer may contact their agent or the insurer with any additional questions regarding the premium and providing the telephone number for the insurer’s representatives who are capable of responding, and authorized to respond, to consumer inquiries and complaints.
That if the insured has contacted the insurer to discuss a premium increase and the insured remains unsatisfied, he or she may contact the department with any inquiries or complaints. The statement shall include the telephone number of the unit within the department that responds to consumer inquiries and complaints.
CHAPTER 12. Prohibition of Discriminatory Practices by Certain Admitted Insurers [679.70. - 679.75.]
This chapter shall apply to policies of insurance, other than automobile insurance and workers’ compensation insurance, on risks located or resident in this state which are issued and take effect or which are renewed after the effective date of this chapter and which insure any of the following contingencies:
Loss of or damage to real property which is used predominantly for residential purposes.
Loss of or damage to personal property in which natural persons resident in specifically described real property of the kind described in subdivision (a) have an insurable interest.
Legal liability of a natural person or persons for loss of, damage to, or injury to, persons or property.
No admitted insurer that is licensed to issue any policy of insurance covered by this chapter shall fail or refuse to accept an application for, or to issue a policy to an applicant for, that insurance (unless the insurance is to be issued to the applicant by another insurer under the same management and control), or cancel that insurance, under conditions less favorable to the insured than in other comparable cases, except for reasons applicable alike to persons of every characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code; nor shall any of those characteristics, of itself, constitute a condition or risk for which a higher rate, premium, or charge may be required of the insured for that insurance.
No application for insurance specified in this chapter or insurance investigation report furnished by an insurer to its agents or employees for use in determining the insurability of an applicant shall carry any identification, or any requirement therefor, of any characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code with respect to the applicant.
Nothing in this chapter shall prohibit use in an application for insurance specified in this chapter of a question asking for the birthplace of an applicant if such question is used only to identify the applicant and not to discriminate against the applicant.
An admitted insurer that is licensed to issue a policy of insurance upon real property of the type described in paragraph (1) of subdivision (a) of Section 675 or paragraph (1) of subdivision (b) of Section 675.5, when that real property is used for residential purposes, or property of the type described in subdivision (a) of Section 10087, shall not fail or refuse to accept an application for, or to issue a policy to an applicant for, that insurance unless the insurance is to be issued to the applicant by another insurer under the same management and control, or cancel that insurance, based upon the following characteristics:
The level or source of income of an individual or group of individuals residing or intending to reside upon the property to be insured, if the individual or group of individuals is not the owner of the real property.
The receipt of assistance, intended for housing, from the federal or state government, or from a local public entity, as defined in Section 50079 of the Health and Safety Code, including, but not limited to, federal vouchers issued under Section 8 of the United States Housing Act of 1937 (42 U.S.C. Sec. 1437f), by an individual or group of individuals residing or intending to reside upon the property insured or to be insured.
An application for a policy of insurance upon real property of the type described in subdivision (a), or an insurance investigation report furnished by an insurer to its agents or employees for use in determining the insurability of an applicant under such a policy, shall not carry any identification, or any requirement for identification, of the following characteristics:
The level or source of income of an individual or group of individuals residing or intending to reside upon the property to be insured, if the individual or group of individuals is not the owner of the real property.
The receipt of assistance, intended for housing, from the federal or state government, or from a local public entity, as defined in Section 50079 of the Health and Safety Code, including, but not limited to, federal vouchers issued under Section 8 of the United States Housing Act of 1937 (42 U.S.C. Sec. 1437f), by an individual or group of individuals residing or intending to reside upon the property insured or to be insured.
In the case of real property of the type described in paragraph (1) of subdivision (a) of Section 675, paragraph (1) of subdivision (b) of Section 675.5, or subdivision (a) of Section 10087 that is used for both residential and commercial purposes, the insurer, or its agent or employee, may consider the source of income of a nonresidential tenant of the property in determining the insurability of an applicant.
Nothing in this section prohibits an insurer from failing or refusing to accept an application for, issuing, or canceling or failing to renew, a policy of insurance covered by this chapter as a result of underwriting or assessment of factors other than those characteristics listed in subdivision (a), or as otherwise prohibited by law.
To reduce underwriting risk and ensure solvency, an insurer providing insurance coverage pertaining to a private detention facility, as defined in subdivision (b) of Section 9500 of the Penal Code, may consider whether the private detention facility complies with all of the requirements of Section 9506 of the Penal Code as part of the insurer’s loss control program.
PART 2. THE BUSINESS OF INSURANCE [680. - 1879.8.]
CHAPTER 1. General Regulations [680. - 1113.]
ARTICLE 1. Charter Requirements [680. - 680.]
An insurer shall not transact any class of insurance which is not authorized by its charter.
ARTICLE 1.5. Retaliation [685. - 685.5.]
When by or pursuant to the laws of any other state or foreign country any taxes, licenses and other fees, in the aggregate, and any fines, penalties, deposit requirements or other material obligations, prohibitions or restrictions are or would be imposed upon California insurers, or upon the agents or representatives of those insurers, that are in excess of the taxes, licenses and other fees, in the aggregate, or that are in excess of the fines, penalties, deposit requirements or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of those insurers, of that other state or country under the statutes of this state, so long as the laws of the other state or country continue in force or are so applied, the same taxes, licenses and other fees, in the aggregate, or fines, penalties, deposit requirements or other material obligations, prohibitions, or restrictions, of whatever kind, shall be imposed upon the insurers, or upon the agents or representatives of those insurers, of the other state or country doing business or seeking to do business in California. Any tax, license or other fee or other obligation imposed by any city, county, or other political subdivision or agency of the other state or country on California insurers or their agents or representatives shall be deemed to be imposed by that state or country within the meaning of this article.
On and after January 1, 1994, and before January 1, 1995, every insurer whose annual taxes exceed fifty thousand dollars ($50,000) shall make payment by electronic funds transfer. On and after January 1, 1995, every insurer whose annual taxes exceed twenty thousand dollars ($20,000) shall make payment by electronic funds transfer. The insurer shall choose one of the acceptable methods described in Section 45 for completing the electronic funds transfer.
Payment is deemed complete on the date the electronic funds transfer is initiated, if settlement to the state’s demand account occurs on or before the banking day following the date the transfer is initiated. If settlement to the state’s demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs.
Any insurer required to remit taxes by electronic funds transfer pursuant to this section who remits those taxes by means other than an appropriate electronic funds transfer, shall be assessed a penalty in an amount equal to 10 percent of the taxes due at the time of the payment.
If the department finds that an insurer’s failure to make payment by an appropriate electronic funds transfer in accordance with subdivision (b) is due to reasonable cause or circumstances beyond the insurer’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect, that insurer shall be relieved of the penalty provided in paragraph (1).
Any insurer seeking to be relieved of the penalty provided in paragraph (1) shall file with the department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.
This article shall not apply as to personal income taxes, nor as to ad valorem taxes on real or personal property nor as to special purpose obligations or assessments heretofore imposed by another state or foreign country in connection with particular kinds of insurance, other than property insurance; except that deductions, from premium taxes or other taxes otherwise payable, allowed on account of real estate or personal property taxes paid shall be taken into consideration in determining the propriety and extent of retaliatory action under this article.
For the purposes of this article the domicile of an alien insurer, other than insurers formed under the laws of Canada, shall be that state in which is located its principal place of business in the United States.
In the case of an insurer formed under the laws of Canada or a province thereof, its domicile shall be deemed to be that province in which its head office is situated.
To the extent permitted by the California Constitution there is hereby imposed upon the commissioner the duty to enforce Section 685. It shall be the duty of the commissioner to initiate the enforcement and execution of Section 685 in respect to all matters which by the California Constitution or laws of this state require further or final action by other officials of this state. In respect to any matter initiated by the commissioner, it shall be the duty of the Board of Equalization and the Controller to complete the enforcement and execution of Section 685 in respect to that matter within the scope of the duties and powers of each as set forth in the California Constitution and laws of this state.
The provisions of this article shall also be applicable to reciprocals or interinsurance exchanges and fraternal benefit societies.
The reduction in the gross premiums tax rate made by Section 12202.2 of the Revenue and Taxation Code shall not be considered in any determination by the Insurance Commissioner to impose or enforce a tax under the retaliatory tax provisions of Sections 685 to 685.4, inclusive, and reported pursuant to Sections 12281, 12287, 12288, and 12289 of the Revenue and Taxation Code.
ARTICLE 1.7. Continuity of Management [688. - 688.5.]
The Legislature declares that it is desirable for the general welfare and in particular for the welfare of insurance beneficiaries, policyholders, injured claimants and others that the business of domestic insurers be continued notwithstanding the event of a national emergency.
The specific purpose of this chapter is to facilitate the continued operation of domestic insurers in the event that a national emergency is caused by an attack on the United States or by a nuclear, atomic or other disaster which makes it impossible or impracticable for a company to conduct its business in strict accord with applicable provisions of law, its bylaws, or its charter.
The board of directors of any domestic insurer may at any time adopt emergency bylaws, subject to repeal or change by action of those having power to adopt regular bylaws for the insurer, which shall be operative during such a national emergency and which may, notwithstanding any different provisions of the regular bylaws, or of the applicable statutes, or of the insurer’s charter, make any provision that may be reasonably necessary for the operation of the insurer during the period of such emergency.
In the event that the board of directors of a domestic insurer has not adopted emergency bylaws, the following provisions shall become effective upon the occurrence of such a national emergency:
Three directors shall constitute a quorum for the transaction of business at all meetings of the board.
Any vacancy in the board may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director.
If there are no surviving directors, but at least three vice presidents of the company survive, the three vice presidents with the longest term of service shall be the directors and shall possess all of the powers of the previous board of directors and such powers as are granted herein or by subsequently enacted legislation. By majority vote such emergency board of directors may elect other directors. If there are not at least three surviving vice presidents, the commissioner or duly designated person exercising the powers of the commissioner shall appoint three persons as directors who shall possess all of the powers of the previous board of directors and such powers as are granted herein or by subsequently enacted legislation, and these persons by majority vote may elect other directors.
At any time the board of directors of a domestic insurer may, by resolution, provide that in the event of such a national emergency and in the event of the death or incapacity of the president, the secretary or the treasurer of the company such officers, or any of them, shall be succeeded in the office by the person named or described in a succession list adopted by the board of directors. Such list may be on the basis of named persons or position titles, shall establish the order of priority and may prescribe the conditions under which the powers of the office shall be exercised.
At any time the board of directors of a domestic insurer may, by resolution, provide that in the event of such a national emergency the home office or principal place of business of the insurer shall be at such location as is named or described in the resolution. Such resolution may provide for alternate locations and establish an order of preference.
“Insurer” as used in this article includes insurance corporations and insurer organizations of every type and reciprocal or interinsurance exchanges and the incorporated attorney in fact of a reciprocal or interinsurance exchange, which corporate attorney in fact is either organized under the laws of or has its home office and principal place of business in this State.
“Board of directors” as used in this article includes the policy-determining body of an insurer whether or not it is called by that name.
ARTICLE 2. Capital Structure [690. - 690.]
If any paid in capital of an insurer is, or is to be, represented by shares of stock, such insurer shall not be organized in this State or admitted to transact any class of insurance in this State, unless all of such shares, authorized or issued, have a specified par value.
ARTICLE 3. Certificate of Authority [699. - 728.]
Except as specifically permitted by this code, a certificate of authority shall not be issued to an unincorporated insurer. This section shall not be applicable to an unincorporated insurer now holding a certificate of authority to transact any class of insurance in California, nor shall it affect the right of any such unincorporated insurer to hereafter apply for or be issued a renewal certificate of authority or an amended certificate of authority to transact additional classes of insurance; provided, that any such unincorporated insurer shall continue to comply insofar as applicable with the same requirements as are now or hereafter applicable to corporate insurers; nor shall this section prohibit the issuance of a certificate of exemption to the trustees of a fund established by one employer, or by two or more employers in the same industry, or by one or more labor unions, or by one or more employers and one or more labor unions, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions.
The Public Employees’ Retirement System is exempt from the provisions of this code with respect to the group life insurance program established pursuant to Article 7 (commencing with Section 21400), Chapter 9, Part 3, Title 2 of the Government Code.
The ownership or financial control, in part, direct or indirect, of any domestic, foreign, or alien insurer, by any state of the United States or by a foreign government or by any political subdivision of either, or by an agency of any other state, government, or subdivision thereof, shall not, provided the insurer complies with all other requirements for issuance, renewal, or continuation of a license, restrict the commissioner from issuing, renewing, or continuing in effect the license of that insurer to transact in this state the kinds of insurance business for which that insurer is otherwise qualified under the provisions of this chapter and under its charter, unless the commissioner finds that any of the following is true:
The insurer is subject to any form of subsidy that would enable it to compete unfairly with domestic insurers.
The insurer is subject to governmental practices that discriminate on the basis of any characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code.
The ownership or financial control will create the presence of any sovereign immunity in the insurer.
Appropriate measures and controls do not exist to avoid security problems resulting from an insurer’s access to confidential information and data of its insured.
The ownership or financial control results in substantial or undue influence being asserted over the insurer.
The failure by any applicant for a license to submit the information requested by the commissioner for the purposes of determining whether to make a finding pursuant to subdivision (a) shall be sufficient to deny the application.
Nothing in the amendments to this section enacted during the 1994 portion of the 1993–94 Regular Session of the Legislature shall be interpreted to authorize the issuance of a license to an insurer wholly owned by any governmental entity described in subdivision (a).
A person shall not transact any class of insurance business in this state without first being admitted for that class. Except for the State Compensation Insurance Fund as authorized by Sections 11770 and 11778 to 11780.5, inclusive, admission is secured by procuring a certificate of authority from the commissioner. The certificate shall not be granted until the applicant conforms to the requirements of this code and of the laws of this state prerequisite to its issue.
The unlawful transaction of insurance business in this state in willful violation of the requirement for a certificate of authority is a public offense punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not exceeding one year, or by fine not exceeding one hundred thousand dollars ($100,000), or by both that fine and imprisonment, and shall be enjoined by a court of competent jurisdiction on petition of the commissioner.
After the issuance of a certificate of authority, the holder shall continue to comply with the requirements as to its business set forth in this code and in the other laws of this state, including, but not limited to, Chapter 5 (commencing with Section 1631), with regard to employees or contractors who solicit, negotiate, or effect insurance.
Where a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The commissioner shall either issue or deny an application for a certificate of authority within 180 calendar days after the date of the application.
The commissioner and his or her authorized representative shall be prohibited from seeking a waiver to extend the 180 calendar day period specified in subdivision (e), nor shall the applicant be permitted to waive that period.
In addition to any or all of the classes of insurance which it is permitted to transact by all other applicable provisions of this code, any incorporated insurer admitted or hereafter admitted for one or more of the classes of insurance stated in Section 100, except life, title, mortgage, or mortgage guaranty shall (subject to any limitations contained in its articles of incorporation or charter) be admitted after January 1, 1990, for any or all of the following classes, upon making application therefor and complying with all applicable requirements of law, if its paid-in capital is not less than two million six hundred thousand dollars ($2,600,000) or the aggregate of the amounts hereinafter set forth opposite the classes transacted by it in the United States if an alien insurer, or in any jurisdiction if other than an alien insurer, whichever is lower; provided, that the paid-in capital of incorporated insurers not transacting either fire, marine or surety insurance making application under this section shall be at least three hundred thousand dollars ($300,000) in excess of that aggregate amount. In no event shall any incorporated insurer, as a condition for its admission, be permitted to have a paid-in capital of less than one million dollars ($1,000,000) or be required to have a paid-in capital in excess of two million six hundred thousand dollars ($2,600,000) for any or all of the classes of insurance hereinafter set forth.
This section shall not be applicable to life, title, mortgage, or mortgage guaranty insurance, and an insurer now or hereafter admitted to transact life, title, mortgage, or mortgage guaranty insurance shall not be admitted under the provisions of this section, but its admission is governed by other applicable provisions of this code.
Insurers admitted for one or more classes of insurance on December 31, 1989, shall be governed by the provisions of this section in effect as of December 31, 1989, until December 31, 1999. After December 31, 1999, all insurers governed by this section shall meet the capital requirements of this section as become effective January 1, 1990. Insurers admitted for one or more classes of insurance on December 31, 1989, that thereafter amend their certificate of authority to add a class or classes of insurance shall become subject to the capital requirements of this section.
No insurer shall be issued a certificate of authority other than a renewal certificate of authority for any of the classes set forth in Section 100 unless at the time of such issuance it possesses, in addition to the minimum paid-in capital required by this code a surplus of not less than 100 percent of the minimum paid-in capital required.
As used in this section, surplus means the excess of admitted assets over the sum of (1) liabilities for losses reported, expenses, taxes and all other indebtedness and reinsurance of outstanding risks as provided by law, and (2) paid-in capital, in the case of an insurer issuing or having outstanding shares of capital stock, or (3) the minimum paid-in capital required, in the case of any other insurer.
An insurer, including a reciprocal or interinsurance exchange, admitted on January 1, 1970, to transact automobile liability insurance under class 8 and automobile insurance under class 16, or which had a valid bona fide application to transact both such classes of insurance pending before the commissioner on or before August 1, 1970, shall not be affected by this section.
Any other insurer, including a reciprocal or interinsurance exchange, applying to transact either of such class of insurance in this state, shall possess, at the time of admission for either of such classes, in addition to all minimum paid-in capital required by Section 700.01 and all surplus and paid-in capital required by Sections 700.02 and 700.05, an additional surplus of two hundred thousand dollars ($200,000).
Notwithstanding the requirements of Sections 700.01 and 10511 until June 30, 1955, the minimum paid-in capital required for renewal, for the same classes of insurance, of the certificate of authority of any insurer which was in effect on July 1, 1953, shall be that required by such sections as effective on such date. After June 30, 1955, and until such time as such insurer increases its paid-in capital to the amount required by Sections 700.01 and 10511 as effective on October 1, 1953, the minimum paid-in capital required for such renewal shall continue to be that required by such sections as effective on July 1, 1953, but such insurer shall be required to maintain a surplus, as defined in Section 700.02, in an amount which, when combined with the amount of its paid-in capital, shall equal the minimum amount of paid-in capital required by Sections 700.01 and 10511 as effective on October 1, 1953.
In determining the minimum amount of paid-in capital and surplus required by the applicable provisions of this code for admission of an insurer, there shall be included all of the classes of insurance transacted by it in the United States if an alien insurer, or in any jurisdiction if other than an alien insurer; provided, that life, title, mortgage or mortgage guaranty insurance shall not be included among the classes of insurance in determining the minimum amount of paid-in capital and surplus required if the minimum paid-in capital is two million six hundred thousand dollars ($2,600,000) or more, and if the paid-in capital is less than two million six hundred thousand dollars ($2,600,000) the minimum shall be measured by adding to the amounts set forth in Section 700.01 two million two hundred fifty thousand dollars ($2,250,000) for life insurance, two hundred fifty thousand dollars ($250,000) for mortgage insurance, one million dollars ($1,000,000) for mortgage guaranty insurance and two hundred fifty thousand dollars ($250,000) for title insurance.
In applying such provisions, it shall be conclusively presumed that an insurer transacts all classes of insurance for which it is or seeks to be admitted to transact in this state.
As used in this section, “insurer” includes a reciprocal or interinsurance exchange and its attorney in fact.
Subject to the annual fee provisions of Section 705, every certificate of authority shall be for an indefinite term and shall expire with the expiration or termination of a corporate existence of the holder thereof. Notwithstanding the provisions of this section, whenever the commissioner shall determine, after notice and hearing, that any insurer to whom such certificate has been issued is in arrears to the State, or to any county or city in the State, for fees, licenses, taxes, assessments, fines or penalties, accrued on business transacted in the State, or is otherwise in default for failure to comply with any of the laws of this State regarding the governmental control of such insurer by the State, he may order that such insurer comply with the said requirements within 30 days of such determination. If the insurer fails to comply within such period, the certificate of authority may then be revoked, unless the commissioner’s order is stayed by a court of appropriate jurisdiction.
An insurer that maintains a certificate of authority to transact insurance in this state, advertises insurance on the Internet, and transacts insurance in this state, shall identify all of the following information on the Internet, regardless of whether the insurer maintains its Internet presence or if the presence is maintained on its behalf:
Its name as it appears on its California certificate of authority, and if different, the name approved by the commissioner for doing business in this state.
The state of its domicile and its principal place of business.
The number on its California certificate of authority. In lieu of this number, an insurer may identify all states in which it maintains certificates of authority to transact insurance, provided that the insurer discloses its identification number as assigned by the National Association of Insurance Commissioners.
An Internet presence maintained by or on behalf of an insurer not admitted to transact insurance in this state constitutes an advertisement, and the insurer shall comply with the requirements of Section 703.1 if it transacts insurance as defined in subdivision (c).
A person who advertises on the Internet shall be deemed to be transacting insurance in this state if the person does any of the following:
Provides an insurance premium quote specifically to a California resident.
Accepts an application for coverage from a California resident.
Otherwise communicates with a California resident regarding one or more terms of an agreement to provide insurance or an insurance policy.
This subdivision shall not apply to any lawful placement with a nonadmitted insurer, including when a person conveys a quote, accepts an application, and conducts all communications with a California resident solely through a surplus line broker or special lines’ surplus line broker pursuant to California surplus line laws.
Except when performed by a surplus line broker, the following acts are misdemeanors when done in this state:
Acting as agent for a nonadmitted insurer in the transaction of insurance business in this state for a home state insured as defined in subdivision (f) of Section 1760.1.
In any manner advertising a nonadmitted insurer in this state.
In any other manner aiding a nonadmitted insurer to transact insurance business in this state for a home state insured as defined in subdivision (f) of Section 1760.1.
In addition to any penalty provided for commission of misdemeanors, a person violating any provision of this section shall forfeit to this state the sum of five hundred dollars ($500), together with one hundred dollars ($100) for each month or fraction thereof during which he or she continues the violation. This section shall not apply to advertising authorized by Section 703.1, subdivision (h) of Section 1760.5, or Section 1773.
Any nonadmitted insurer that is an eligible surplus line insurer pursuant to Section 1765.1 may advertise in all media, provided that all of the following apply: (1) the insurer’s unlicensed status in California is disclosed in type of a size no smaller than any telephone number, address, or fax number appearing in the advertisement or solicitation, (2) the advertisement does not contain any assertion, representation, or statement with respect to the business of insurance or with respect to any person in the conduct of his or her insurance business, that is untrue, deceptive, or misleading, and that is known, or that by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading, (3) the advertisement does not contain any information about the nonadmitted insurer’s premiums or rates, and (4) no specific product shall be advertised in a newspaper of general circulation, in a television or radio broadcast, or in a news magazine of general circulation.
Any nonadmitted insurer that is not an eligible surplus line insurer pursuant to Section 1765.1 may advertise in all media, except for media that are targeted primarily at insureds or prospective insureds residing in California, provided that all of the conditions set forth in subdivision (a) are complied with and the advertisement does not contain any information about the insurer’s specific products.
A group of nonadmitted insurers may advertise to the same extent as a nonadmitted insurer, subject to the same requirements set forth in subdivision (a) or (b), as applicable.
An eligible nonadmitted insurer that is a member of a group of insurers may include the name of the group in advertisements that are authorized by this section.
The permission to advertise granted by this section shall not be deemed to authorize an insurer to do business in this state.
Any person, including, but not limited to, persons licensed or certificated under this code or exempted from regulation under this code, who as a part of any business advertises as, or holds himself or herself out as, qualified to advise the public concerning insurance or qualified to administer workers’ compensation for employers and who in connection with or as part of that business also, with or without consideration, (a) suggests or recommends to an employer, or advises an employer, that the employer purchase aggregate excess or aggregate stop-loss workers’ compensation insurance, or (b) names or suggests to an employer, or advises an employer of, a nonadmitted insurer from whom aggregate excess or aggregate stop-loss workers’ compensation insurance might be purchased, is guilty of a misdemeanor. This section does not apply if the employer is a self-insured public entity, including any agency, board, or commission provided for by a joint exercise of powers agreement, or those who have been issued a certificate by the Director of the Department of Industrial Relations to self-insure.
The commissioner may suspend the certificate of authority of an insurer for not exceeding one year whenever he finds, after proper hearing following notice, that such insurer engages in any of the following practices:
Conducting its business fraudulently.
Not carrying out its contracts in good faith.
Habitually and as a matter of ordinary practice and custom compelling claimants under policies, or liability judgment creditors of the insured, to either accept less than the amount due under the terms of the policies or resort to litigation against such insurer to secure the payment of the amount due.
The order of suspension shall prescribe the period of such suspension.
The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The commissioner may decline to grant or may suspend or revoke a certificate of authority of any holder of such certificate authorized to be certificated under this code if any person or persons, directly or indirectly, or any person who as an affiliate or part of any affiliate, directly or indirectly, owning or controlling, in the aggregate, any interest in more than 10 percent of the stock of such holder of the certificate, or its subsidiary, or any company or entity controlling such holder, or if any officer or director of such holder has been convicted on, or pleaded guilty or nolo contendere to, an indictment or information in any jurisdiction charging a felony for theft or larceny, mail fraud, or violation of any corporate securities statute or any insurance statute.
The commissioner, in any proceeding under Section 704 for any of the violations specified in that section, may, by an alternative order, permit the holder of that certificate of authority to elect in writing to pay a specified money penalty, within a specified time, in lieu of the suspension of its certificate of authority. If the holder so elects, the sum of money specified shall be paid to the commissioner for the use of the State of California. The sum specified shall not exceed fifty-five thousand dollars ($55,000). If the holder so electing fails to pay the specified sum within the specified time the commissioner shall, unless his or her order be lawfully stayed, forthwith put in effect the alternative specified in his or her order.
All moneys received by the commissioner pursuant to this section shall, when appropriated for that purpose by the Legislature, be available for expenditure by the commissioner in accordance with law in administration and enforcement of this code and other insurance laws.
The authority vested in the commissioner by this section shall be additional to and not in lieu of any other authority to enforce any penalties, fines or forfeitures, denials, suspensions, restrictions, or revocations of certificates of authority otherwise authorized by law.
The commissioner shall require the payment of one hundred thirty-six dollars ($136), in advance, as a fee for filing an application for each amendment of a certificate of authority authorizing any insurer to transact business in this state. Notwithstanding Section 701, each insurer possessing a certificate of authority of indefinite term pursuant to that section shall owe and pay an annual fee of four hundred twenty-four dollars ($424), in advance, on account of that certificate until its final expiration. That fee shall be for annual periods commencing on July 1 of each year and ending on June 30 of each year and is due on each March 1 and is delinquent on and after each April 1.
The commissioner shall require the payment of four thousand two hundred thirty-three dollars ($4,233), in advance, as a fee for filing an application and all supporting exhibits including articles of incorporation, certificates of organization, certificates of capital and assets, certificates of deposit, financial statements, affidavits, appointments of agents for service of process, bonds, deposit schedules, appraisals, and other papers, in support of each original certificate of authority. That fee shall be in lieu of the fees for filing or receiving those papers in support of an application for an original certificate of authority as specified in Section 940.1 and as specified in the following sections of the Insurance Code as they existed on January 1, 1963: 705, 712, 900.5, 946, 976, 1350, 1590 (but not 1599), 1601, 7034, 9034, and 11090.
Prior to admission each insurer shall file with the commissioner a certified copy of its last annual statement or a verified financial statement exhibiting its condition and affairs.
The commissioner, in addition to any other proper ground for denying a certificate of authority to a nonadmitted insurer, may deny such certificate whenever, in his judgment, the investments of such insurer are not so made as to make available within a reasonable time sufficient moneys to meet promptly any demand which might in the ordinary course of events be properly made against the insurer. In the case of an admitted insurer, whenever the commissioner finds such a condition to exist, he may order such insurer to cease to effect new contracts of insurance until its financial circumstances are changed sufficiently to remove such condition. The commissioner may suspend or revoke the certificate of authority of any admitted insurer which fails to comply with such order.
The commissioner shall not issue such order under this section to any solvent admitted insurer if 25 per cent or more in value of the assets thereof is in cash or invested in the securities specified by sections 1171, 1172, 1173, 1174 and 1175, or in securities specified in sections 1191 and 1192 if such securities are listed on a securities exchange, subject to regulation, supervision, or control under a statute of the United States of America. The provisions of this section likewise apply to reciprocal or interinsurance exchanges.
As used in this section, the term “reciprocal state” means a state the laws of which prohibit an insurer domiciled therein from insuring the lives or persons of residents of, or property or operations located in, the State of California unless it then holds a valid and subsisting certificate of authority issued by the Insurance Commissioner of this state. This prohibition may be subject to the exceptions herein set forth.
Subject to the exceptions herein set forth, a domestic insurer shall not enter into a contract of insurance upon the life or person of a resident of, or property or operations located in, a reciprocal state unless it is authorized pursuant to the laws of that state to transact such insurance therein. The commissioner shall, every four years, mail notice to every domestic insurer, specifying the reciprocal states.
The exceptions to the provisions of this section are the following:
Contracts entered into where the prospective insurant is personally present in the state in which the insurer is authorized to transact insurance when he or she signs the application.
The issuance of certificates under a lawfully transacted group life or group disability policy, where the master policy was entered into in a state in which the insurer was then authorized to transact insurance.
The renewal or continuance in force, with or without modification, of contracts otherwise lawful and which were not originally executed in violation of this section.
A domestic insurer shall, prior to admission, file with the commissioner a copy of its articles of incorporation and certificate of any increase or diminution of its capital stock, certified by the Secretary of State to be a copy of that which is filed in his office.
A foreign insurer shall, prior to admission, file with the commissioner the following:
If organized in a jurisdiction which requires articles to be filed, a copy of its articles of incorporation, duly certified by the officer having the custody of such articles.
If organized in a jurisdiction which does not require articles to be filed, a copy of the law, charter, or deed of settlement under which the insurer is organized, duly certified by the proper custodian thereof, or proved by affidavit to be a copy.
A certificate under the hand and seal of the officer, if any, having supervision of insurance business in the jurisdiction of its organization, stating that the insurer is organized under the laws of such jurisdiction, and has the amount of capital stock or assets required by this code.
If the insurer is organized in any other State, it shall, prior to admission, file with the commissioner a certificate setting forth:
The nature and character of its business.
The location of its principal office.
The names of the following parties:
If the insurer is not incorporated, and there are more than ten owners of interests therein, the names of the ten persons who own the largest interests; if there are ten or less such owners, the names of all such owners.
If the insurer is incorporated, the names of all officers and persons by whom the business is managed.
The amount of actual capital to be employed therein.
The certificate must be verified by the affidavit of the chief officer, secretary, agent, or manager of the company.
Any insurer that is organized under the laws of any other state and is admitted to do business in this state for the purpose of writing insurance may become a domestic insurer by designating its principal place of business at a place in this state and redomesticate by filing articles of incorporation as authorized by subdivision (a) of Section 201.6 of the Corporations Code. The domestic insurer shall be entitled to like certificates and licenses to transact business in this state and shall be subject to the authority and jurisdiction of this state.
Any domestic insurer may, upon the prior approval of the commissioner, transfer its domicile to any other state in which it is admitted to transact the business of insurance and redomesticate by filing a statement and designation as authorized by Section 2105 of the Corporations Code and a statement of redomestication as authorized by subdivision (c) of Section 201.6 of the Corporations Code, and upon the transfer shall cease to be a domestic insurer, and shall be admitted to this state if qualified as a foreign insurer. The commissioner shall approve any proposed transfer unless he or she determines that the transfer is not in the interest of the policyholders of this state. An insurer seeking to transfer its domicile shall provide the commissioner with information and documentation reasonably necessary to make this determination. The commissioner shall either approve or disapprove the transfer within 90 calendar days after the date of the request. The commissioner and his or her authorized representative shall be prohibited from seeking a waiver to extend the 90-calendar-day period, nor shall the insurer be permitted to waive that period.
The certificate of authority, agent and broker appointments and licenses, rates, and other items that the commissioner allows in his or her discretion, that are in existence at the time any insurer licensed to transact the business of insurance in this state transfers its corporate domicile to this or any other state by merger, consolidation, or any other lawful method shall continue in full force and effect upon that transfer if the insurer remains duly qualified to transact the business of insurance in this state. All outstanding policies of any transferring insurer shall remain in full force and effect and need not be endorsed as to the new name of the company or its new location unless so ordered by the commissioner. Every transferring insurer shall file new policy forms with the commissioner on or before the effective date of the transfer, but may use existing policy forms with appropriate endorsements if allowed by, and under those conditions as approved by, the commissioner. However, every transferring insurer shall notify the commissioner of the details of the proposed transfer, and shall file promptly all resulting amendments to corporate documents filed or required to be filed with the commissioner.
An insurer seeking qualification under this section shall pay to the commissioner a filing fee of six thousand three hundred fifty dollars ($6,350). Except for an insurer that is a wholly owned subsidiary of a domestic holding company, an insurer seeking qualification shall file with the Secretary of State a statement of redomestication as prescribed by subdivision (c) of Section 201.6 of the Corporations Code and shall also file with the commissioner a designation of an agent for service of process. The commissioner may write a letter to the insurer confirming the redomestication has been approved.
Notwithstanding any other law, this section provides the exclusive means for an admitted insurer to change its domicile to, or transfer its domicile from, this state.
If there are any written articles of agreement or association, a copy thereof shall accompany such certificates.
An insurer organized out of the United States shall also file such certificate and articles, but the certificate need not contain the names of any officers or managers other than those resident within the United States, nor any statement of capital not employed within the United States, and the affidavit shall be made by the chief executive officer or manager in the United States.
Upon request, a foreign or alien insurer shall file any change proved by certificates of custodian of the original, or by affidavit.
The commissioner shall require the payment of seventy-two dollars ($72), in advance, as a fee for filing papers required under Section 713, on account of change or changes made at one time.
The commissioner shall have no authority to issue a certificate of authority, other than a renewal certificate of authority, to any domestic insurer, whether organized and promoted directly or by means of a holding company, where the commissioner’s examination shows that the expense of organization and promotion, exclusive of attorney fees, accountant fees, and actuary fees, exceeds 12 percent of the total amount actually paid on its capital stock.
No certificate of authority shall be granted to a foreign or alien applicant that has not actively transacted for three years the classes of insurance for which it seeks to be admitted.
This section shall not apply to any of the following:
An applicant 51 percent or more of whose voting shares are owned by a reputable insurer admitted to this state for at least three years.
An applicant which is the successor in interest, by merger, transformation, consolidation, purchase, or other transaction, of substantially all the insurance business and going concern value of a reputable insurer which was, and still is, the dominant factor in such transaction, and could itself have been admitted.
An applicant 51 percent or more of whose voting shares are owned by a noninsurance corporation, or a corporation authorized as an insurer but not actively engaged in the insurance business, which corporation, directly or indirectly, owns 51 percent or more of the voting shares of one or more insurers all of which, except the applicant and those which are alien insurers, are reputable insurers admitted to this state for at least three years.
An applicant which meets the conditions established by the commissioner for exemption from this section.
Before granting a certificate of authority or amended certificate of authority to any applicant, the commissioner shall consider the qualifications of said applicant in respect to the following subjects: (a) capital and surplus; (b) lawfulness and quality of investments; (c) financial stability; (d) reinsurance arrangements; (e) competency, character, and integrity of management; (f) ownership and control of issued and outstanding shares in the case of a capital stock insurer; (g) whether claims under policies are promptly and fairly adjusted and are promptly and fully paid in accordance with law and the terms of policies; (h) fairness and honesty of methods of doing business; (i) method by which said applicant was promoted if any of its promoters remain as stockholders or in management; and (j) hazard to policyholders or creditors.
Upon consideration of all relevant qualifications the commissioner shall issue a certificate of authority to such applicant, unless the commissioner shall have made a finding, or findings, that the applicant is materially deficient in respect to one or more of the items as outlined in (a) through (j), above.
Where the applicant is a wholly owned domestic subsidiary of an admitted domestic insurer the commissioner shall issue a certificate of authority to such applicant within 180 days of application unless the commissioner shall have made a finding that the applicant is substantially deficient in respect to one or more of the items set forth in Section 717.
On and after January 1, 2007, for purposes of Section 717, the commissioner shall consider, with respect to any application for a certificate of authority or amended certificate of authority to transact health insurance, as defined in subdivision (b) of Section 106, in this state, any available evidence regarding any one or more of the following:
Any prior history of providing, or arranging to provide for, health care coverage, services, or benefits in this state and the applicant’s history of substantial compliance with applicable state and federal laws, regulations, and requirements.
Any prior history in this state or any other state, of providing, or arranging to provide for, health care coverage, services, or benefits for which the applicant is authorized to receive Medicare Program reimbursement or Medicaid Program reimbursement, and the applicant’s history of substantial compliance with applicable state and federal laws, regulations, and requirements.
Any prior history on the part of the applicant’s management of providing, or arranging to provide for, health services as a licensed health professional or an individual or entity contracting with a health care service plan or insurer, and the applicant’s history of substantial compliance with state requirements, and applicable federal law, regulations, and requirements.
The commissioner may also require the applicant to provide information or documents for the purposes of this section. The commissioner shall consider any other relevant information concerning misconduct.
For purposes of Sections 700 and 717, the commissioner may determine that an insurer admitted and domiciled in this state, or an insurer applying to become admitted and domiciled in this state, including an applicant pursuant to subdivision (a) of Section 709.5, is qualified to be designated as a professional reinsurer, if the commissioner determines that the insurer is all of the following:
Principally engaged in the business of reinsurance.
Does not conduct significant amounts of direct insurance as percentage of its net premiums.
Is not engaged, on an ongoing basis, in the business of soliciting direct insurance.
The commissioner may consider any information relevant to this determination. An insurer that holds, or is applying for qualification as, a professional reinsurer, shall provide the commissioner with information or documentation regarding the determinations under this section, upon request. The commissioner may prescribe terms and conditions applicable to the certificate of authority, as appropriate under this section.
A domestic, professional reinsurer shall continue to be qualified as long as it continues to meet the requirements set forth in this section.
The commissioner may, after notice and an opportunity to be heard, revoke a reinsurer’s qualification, if the reinsurer no longer qualifies under this section.
A domestic insurer that is qualified as a professional reinsurer may include that designation in its name, solicitations, and advertisements.
An insurer seeking qualification under this section shall pay a filing fee of three thousand three hundred twenty-eight dollars ($3,328), in advance, to the commissioner.
The commissioner may adopt regulations in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code or otherwise prescribe requirements consistent with this section.
The commissioner may post prescribed requirements, consistent with this section, on the department’s Internet Web site.
If upon due investigation the commissioner shall find that any applicant for a certificate of authority, or amended certificate of authority, will not conduct its business in conformity with all applicable provisions of the laws of this state, he shall not grant any certificate of authority, or amended certificate of authority, to such applicant.
Where the applicant is a wholly owned subsidiary of or under the management and control of an admitted insurer, or is the successor in interest by merger, consolidation, sale and purchase, or otherwise, of such an admitted insurer, and the applicant is without substantial prior operating history, the commissioner may reasonably rely on the known characteristics and reputation of the admitted insurer to the extent relevant and appropriate under the circumstances.
The commissioner may after notice and hearing promulgate such reasonable rules and regulations, and amendments and additions thereto, as are necessary or convenient to carry out the purposes and provisions of this code governing the issuance, suspension and revocation of certificates of authority. Any such rule or regulation shall be promulgated in accordance with the procedure provided in Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.
As used in Sections 704.5, 716, 717 and 718, the term “applicant” includes the attorney-in-fact of a reciprocal or interinsurance exchange. Wherever reference therein is made to an officer, director, or management of the applicant, such reference is deemed to include the officers, directors, and management of the attorney-in-fact of a reciprocal or interinsurance exchange, and the members of the board of governors or other governing committee of the reciprocal itself.
Any person otherwise qualified may be a director of two or more insurers, but no such interlocking directorate shall be used as a means of substantially lessening competition in the business of insurance or of creating a monopoly.
Whenever the commissioner has reason to believe that there is a violation of this section, he shall serve upon the insurer or insurers and the director or directors, as the case may be, a notice pursuant to Section 38 of a hearing before the commissioner to be held not less than thirty days after the service of such notice, and requiring such insurer or insurers and such director or directors, as the case may be, to show cause why an order should not be made by the commissioner directing such insurer or insurers and such director or directors, as the case may be, to cease and desist from such violation.
If, after a hearing in accordance with the procedure provided in Section 704, the commissioner finds that there has been a violation of this section he shall issue and cause to be served upon such insurer or insurers and such director or directors, as the case may be, an order reciting the facts found by him, and setting forth the respects in which there has been a violation of this section, and directing such insurer or insurers and such director or directors, as the case may be, to cease and desist from such violation.
Any such cease and desist order of the commissioner shall be subject to judicial review. Subject to said judicial review, any person violating any such cease and desist order shall be guilty of a misdemeanor and the commissioner may, after a hearing in accordance with the procedure provided in Section 704, decline to grant or renew or may suspend or revoke a certificate of authority of any insurer or insurers violating any such cease and desist order.
The commissioner shall notify the Secretary of State of any refusal to issue a certificate of authority to transact insurance to an applicant therefor.
For the purposes of this section, the following definitions are applicable:
“Subject person” means any director, officer, or employee or other natural person who participates in the management, direction, or control of an insurer.
“Insurer” means any domestic insurer, and any insurer which is admitted to transact insurance in this state, provided that if a subject person of an insurer is not a resident of California, or operating out of a place of business within California, then the subject person shall be engaged in the direct management, direction, or control of the insurer in California in order to come within the provisions of this section.
If, after notice and a hearing, the commissioner finds all of the following, the commissioner may issue an order removing a subject person from his or her office or employment with the insurer and prohibiting the subject person from further participating in any manner in the conduct of the business of the insurer, except with the prior consent of the commissioner:
The subject person has engaged in repeated acts of misconduct with respect to the operations of an insurer which have resulted in substantial financial loss to an insurer.
The misconduct which forms the pattern is fraudulent, or consists of willful acts or omissions involving personal dishonesty in the acceptance, custody, or payment of money or property on the part of the subject person which has endangered or is likely to endanger the solvency of the insurer.
The pattern of misconduct is relevant in that it demonstrates unfitness to continue as a subject person.
Within 10 days after a subject person has been served with an order of suspension pursuant to subdivision (c), the person may apply to the superior court of the county in which the principal office of the insurer is located for a stay of the order pending completion of the proceedings pursuant to subdivision (b), and the court shall have jurisdiction to issue an order staying the suspension. Nothing in this subdivision shall be deemed to authorize the court to issue a stay order on an ex parte basis.
If the commissioner finds both of the following, he or she may immediately issue an order suspending a subject person from his or her office or employment with an insurer and prohibiting the subject person from further participating in any manner in the conduct of the business of an insurer, except with the prior consent of the commissioner: (A) the subject person has been charged in an indictment issued by a grand jury, or in an information, complaint, or similar pleading issued by a United States Attorney, district attorney, or other governmental official or agency authorized to prosecute crimes, with a crime punishable by imprisonment for a term exceeding one year and which involves as one of its necessary elements a fraudulent act or an act of dishonesty in the acceptance, custody, or payment of money or property; and (B) that a failure to immediately issue the order threatens the financial solvency of the insurer, or may otherwise cause immediate and irreparable financial injury to the insurer.
In the event the criminal proceedings are terminated other than by judgment of conviction, an order issued pursuant to paragraph (1) of this subdivision shall be deemed rescinded as if it had not been issued.
If the commissioner finds both of the following, he or she may immediately issue an order removing a subject person from his or her office or employment with an insurer and prohibiting the subject person from further participating in any manner in the conduct of the business of the insurer, except with the prior consent of the commissioner: (A) the person has been convicted during the preceding five years of a crime that is punishable by imprisonment for a term exceeding one year and that has as one of its necessary elements a fraudulent act or an act of dishonesty in the accepting, custody, or payment of money or property; and (B) that a failure to immediately issue the order threatens the financial solvency of the insurer, or may otherwise cause immediate and irreparable financial injury to the insurer.
The fact that any subject person charged with a crime involving as one of its necessary elements a fraudulent act or any act of dishonesty in the acceptance, custody, or payment of money or property is not convicted of that crime shall not preclude the commissioner from issuing an order regarding the subject person pursuant to other provisions of this code.
Within 30 days after an order is issued pursuant to subdivision (c) or (e), the person to whom the order is issued may choose to do either of the following: (A) file with the commissioner an application for a hearing on the order. The commissioner shall, upon written request of the person, extend the 30-day period by an additional 30 days provided the request is filed with the commissioner within 30 days after the order is issued. If the commissioner fails to commence the hearing within 15 business days after the application is filed, or within a longer period of time to which the person consents, the order shall be deemed rescinded as if it had not been issued. Within 30 days after the hearing, the commissioner shall affirm, modify, or rescind the order; otherwise, the order shall be deemed rescinded as if it had not been issued, or (B) petition for judicial review of the order pursuant to Section 1085 of the Code of Civil Procedure, where the court shall exercise its independent judgment on the evidence.
The right of any person to whom an order is issued pursuant to subdivision (c) or (e) to petition for judicial review of the order shall not be affected by the failure of that person to apply to the commissioner for a hearing on the order as provided by this subdivision.
Any person to whom an order is issued pursuant to subdivision (b), (c), or (e) may apply to the commissioner to modify or rescind the order. The commissioner shall not grant the application unless he or she finds that it is reasonable to believe that the person will, if and when he or she becomes a subject person, comply with all of the applicable provisions of this code and of any regulation or order issued thereunder.
The right of any person to whom an order is issued pursuant to subdivision (b), (c), or (e) to petition for judicial review of the order shall not be affected by the failure of that person to apply to the commissioner pursuant to paragraph (1).
It is unlawful for any subject person or former subject person to whom an order is issued pursuant to subdivision (b), (c) or (e) to do any of the following as long as the order is effective, except with the prior consent of the commissioner: (A) to serve or act as a subject person for or in any insurer; or (B) to directly or indirectly solicit, procure, or transfer or attempt to transfer or vote any proxy, consent or authorization with respect to any shares or other securities of any insurer having voting rights.
If, after notice and a hearing, the commissioner finds that any person has violated paragraph (1) of this subdivision, the commissioner may order that person to pay to the commissioner a civil penalty in an amount the commissioner may specify; provided however, that the amount of the civil penalty shall not exceed one thousand dollars ($1,000) for each violation or, in the case of a continuing violation, one thousand dollars ($1,000) for each day for which the violation continues, which may be recovered in a civil action.
In determining the amount of civil penalty to be paid to the commissioner under this paragraph, the commissioner shall consider the financial resources and good faith of the person charged, the gravity of the violation, the history of previous violations by the person, and such other factors as in the opinion of the commissioner may be relevant.
If, after notice and a hearing, the commissioner finds that any insurer has knowingly aided and abetted a subject person in a violation of paragraph (1) of this subdivision, the commissioner may order that insurer to pay to the commissioner a civil penalty in an amount the commissioner may specify; provided however, that the amount of the civil penalty shall not exceed ten thousand dollars ($10,000) for each violation, or in the case of a continuing violation, ten thousand dollars ($10,000) for each day for which the violation continues up to a maximum of one hundred thousand dollars ($100,000), which may be recovered in a civil action. Continuation of the subject person’s salary or other employee benefits pending final disposition shall not be considered aiding and abetting a subject person.
In determining the amount of civil penalty to be paid to the commissioner under this paragraph, the commissioner shall consider the financial resources and good faith of the person charged, the gravity of the violation, the history of previous violations by the person, and such other factors as in the opinion of the commissioner may be relevant.
Except as otherwise provided by this section any hearing required by this section shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, subject to the following:
If the Office of Administrative Hearings cannot schedule the commencement of a hearing within 15 business days as provided by paragraph (1) of subdivision (f), and the subject person does not waive his or her right to a hearing commencing within 15 days, the hearings may be conducted by administrative law judges appointed by the commissioner. In the event the subject person chooses to accept a hearing before an administrative law judge appointed by the commissioner, the hearing shall be completed within 45 days of commencement unless additional time is requested by the subject person. If the hearing is not completed within 45 days, the order shall be deemed rescinded as if it had not been issued.
Nothing in this section is intended to or shall be construed to create a private cause of action against an offending subject person or an insurer or production agency that aids and abets a subject person, based on the standards established by this section or the commissioner’s findings or orders pursuant to this section.
Notwithstanding this section, or any other authority of the commissioner, the commissioner shall not have the power to remove or replace either the Board of Directors or the President of the State Compensation Insurance Fund.
ARTICLE 4. Examination by Commissioner [729. - 738.]
As used in this article, the following terms have the following meanings:
“Company” means any person engaging in, or proposing or attempting to engage in, any transaction or kind of insurance or surety business and any person or group of persons who may otherwise be subject to the administrative, regulatory, or taxing authority of the commissioner.
“Examiner” means any individual or firm authorized by the commissioner to conduct an examination under this article.
“Person” means any person, association, organization, business trust, partnership, limited liability company, or corporation, or any affiliate thereof.
The commissioner, whenever he or she deems necessary or whenever he or she is requested by verified petition, signed by 25 persons interested as shareholders, policyholders, or creditors of any admitted insurer showing that the insurer is insolvent under this code, or upon information that any insurer has violated any provision of Article 7 (commencing with Section 800), shall examine the business and affairs of the insurer. The commissioner shall so examine every domestic insurer before issuing to it a certificate of authority other than a renewal.
The commissioner may conduct an examination under this article of any company as often as the commissioner in his or her discretion deems appropriate but shall, at a minimum, conduct an examination of every insurer admitted in this state not less frequently than once every five years. In scheduling and determining the nature, scope, and frequency of the examinations, the commissioner shall consider the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants, market analysis results, including consumer complaint analysis, evaluation of ongoing regulatory activities, analysis of data derived from industry surveys or interrogatories, and other criteria as set forth in the Examiner’s Handbook or in the Market Regulation Handbook adopted by the National Association of Insurance Commissioners that are in effect when the commissioner exercises discretion under this section.
For purposes of completing an examination of any company under this article, the commissioner may examine or investigate any person, or the business of any person, insofar as the examination or investigation is, in the discretion of the commissioner, necessary or material to the examination of the company.
In lieu of an examination under this article of any foreign or alien insurer admitted in this state, the commissioner may accept an examination report on the company as prepared by the insurance department of the company’s state of domicile or port-of-entry state until January 1, 1994. Thereafter, these reports may only be accepted if (1) the insurance department was at the time of the examination accredited under the National Association of Insurance Commissioner’s Financial Regulation Standards and Accreditation Program, or (2) the examination is performed under the supervision of an accredited insurance department or with the participation of one or more examiners who are employed by an accredited state insurance department and who, after a review of the examination work papers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their insurance department.
The commissioner may postpone a market conduct examination otherwise required by this article for a period of up to three years if information derived from a market analysis indicates all of the following:
The prior examination of the insurer resulted in no significant negative findings.
The number of consumer complaints received by the insurer is in the lowest quartile of complaints, on a ratio basis, for insurers in that line of business.
The market analysis identifies no other issues of significant concern.
An admitted insurer shall maintain all records necessary to determine its financial condition for the current year plus the five previous years.
Whenever any foreign insurer applies for admission the commissioner may make, or cause to be made by the insurance authority of the State where the insurer is organized, an examination of its insurance business and affairs.
An insurer organized or existing under the laws of any country outside of the United States shall be deemed to be organized, within the meaning of this article, in any State wherein such insurer maintains the deposits to protect policyholders as required by this code.
In making such examination the commissioner:
Shall have free access to all the books and papers of the company.
Shall thoroughly inspect and examine all its affairs.
Shall ascertain its condition and ability to fulfill its obligations.
Shall ascertain if it has complied with all laws applicable to its insurance transactions.
May appraise or cause to be appraised by competent appraisers appointed by him or her all property in which the insurer has or claims an interest, or which is security, in any form, for the payment of any debt or obligation to the insurer. All such appraisals of real property shall be in writing.
Shall, in conducting the examination, observe those guidelines and procedures set forth in the Examiner’s Handbook adopted by the National Association of Insurance Commissioners. The commissioner may also employ other guidelines or procedures which the commissioner may deem appropriate.
May retain attorneys, appraisers, independent actuaries, independent certified public accountants, or other professionals and specialists as examiners, or any of the employees of the department assigned by the commissioner to carry out the purposes of this article, the cost of which shall be borne by the company subject to examination.
Every company or person from whom information is sought, and its officers, directors, employees, and agents, shall provide to the examiners appointed pursuant to this article, timely, convenient, and free access at all reasonable hours at its offices to all books, records, accounts, papers, documents, and any or all computer or other recordings relating to the property, assets, business, and affairs of the company being examined. The officers, directors, employees, and agents of the company or person shall assist the examiners and aid in the examination so far as it is in their power to do so. The commissioner shall have the power to issue subpoenas, to administer oaths, and to examine under oath any person as to any matter pertinent to the examination. If he or she finds the books to be carelessly or improperly kept or posted, he or she shall employ sworn experts to rewrite, post, and balance the books at the insurer’s expense.
No later than 60 days following completion of the examination, the examiner in charge shall file with the department a verified written report of the examination under oath. Upon receipt of the verified report, the department shall transmit the report to the company examined, together with a notice that the company has 30 days to make a written submission or rebuttal with respect to any matters contained in the examination report.
Within 30 days of the end of the period allowed for the receipt of written submissions or rebuttals, the commissioner shall fully consider and review the report, together with any written submissions or rebuttals and any relevant portions of the examiner’s workpapers, and shall either adopt the report as filed or with modifications or corrections, or reject the report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation, or information, and refiling pursuant to subdivision (a).
Nothing contained in this article shall be construed to limit the commissioner’s authority to terminate or suspend any examination in order to pursue other legal or regulatory action pursuant to the insurance laws of this state.
If the commissioner terminates or suspends an examination that includes an examination of claims practices, the commissioner shall within 10 days of the termination or suspension transmit a copy of the complete examination file to the State Bureau of Audits. The State Auditor shall audit the file pursuant to Section 10527 of the Government Code to determine the propriety of the termination or suspension.
The hereinafter designated officer of each domestic insurer shall inform the members present at the next meeting of its governing body of the receipt from the office of the commissioner of the report of every examination of such insurer, both in the form first formally prepared by the examiners and in the form as finally settled and officially filed by the commissioner or a deputy designated by him. Such officer shall also inform such members that a copy of such report is available for inspection of any member of such governing body. There shall be entered in the minutes of each such meeting the fact that such officer did so inform the members present.
The officer above referred to, in the case of a stock or mutual insurer, shall be its secretary or comparable officer if there is no secretary. This section shall specifically apply to reciprocals and interinsurance exchanges and in that case the officer above referred to shall be the principal individual, partner or officer of its attorney-in-fact, and “governing body” shall have reference to the body exercising the subscribers’ rights provided for in Section 1308.
Nothing contained in this article shall be construed to limit the commissioner’s authority to use and, if appropriate, to make public, any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the commissioner may, in his or her discretion, deem appropriate.
Nothing contained in this code shall prevent or be construed as prohibiting the commissioner from disclosing the content of an examination report, preliminary examination report or results, market analysis data, or any matter relating thereto, to the insurance department of this or any other state or country, or to law enforcement officials of this or any other state or agency of the federal government at any time, or to the National Association of Insurance Commissioners, provided the recipient of the report or matters relating thereto agrees in writing to hold it confidential and in a manner consistent with this article, unless the prior written consent of the company to which it pertains has been obtained.
All working papers, recorded information, documents, and copies thereof produced by, obtained by, or disclosed to the commissioner or any other person in the course of an examination made pursuant to this article shall be given confidential treatment and are not subject to subpoena and shall not be made public by the commissioner or any other person, except to the extent provided in subdivision (a) or (b).
All examinations and analyses performed pursuant to Section 730 shall be at the expense of the insurer, organization, or person examined, except that special examinations which are in addition to regular examinations may be at the expense of the state in the discretion of the commissioner. The costs and expenses of all of those examinations shall be paid from the support appropriation for the Department of Insurance current at the time of the examination but shall be charged to and collected from the insurer, organization or person examined. If any insurer, organization, or person refuses to pay those costs and expenses promptly when due, the commissioner may refuse to issue its certificate of authority, certificate of exemption, or license, as the case may be, and may revoke any existing certificate of authority, certificate of exemption, or license.
No cause of action shall arise nor shall any liability be imposed against the commissioner, the commissioner’s authorized representatives, or any examiner appointed by the commissioner for any statements made or conduct performed in good faith while carrying out the provisions of this article.
No cause of action shall arise, nor shall any liability be imposed against any person for the act of communicating or delivering information or data to the commissioner or the commissioner’s authorized representative or examiner pursuant to an examination made under this article, if the act of communication or delivery was performed in good faith and without fraudulent intent or the intent to deceive.
This section shall not abrogate or modify in any way any common law or statutory privilege or immunity previously enjoyed by any person identified in subdivision (a).
A person identified in subdivision (a) shall be entitled to an award of attorney’s fees and costs if he or she is the prevailing party in a civil cause of action for libel, slander, or any other relevant tort arising out of activities engaged in while carrying out the provisions of this article and the party bringing the action was not substantially justified in doing so. For purposes of this section, a proceeding is substantially justified if it had a reasonable basis in law or fact at the time that it was initiated.
The commissioner shall have the same powers and authority to examine the State Compensation Insurance Fund as are conferred upon him by law relative to the examination of other insurers except where the fund is specifically exempted by reference.
ARTICLE 4.1. Risk-Based Capital for Insurers [739. - 739.12.]
As used in this article, these terms shall have the following meanings:
“Adjusted RBC Report” means a Risk-Based Capital (RBC) report that has been adjusted by the commissioner in accordance with subdivision (b) or (c) of Section 739.2.
“Corrective Order” means an order issued by the commissioner specifying corrective actions that the commissioner has determined are required.
“Domestic insurer” means any life or health insurer or property and casualty insurer organized in this state.
“Foreign insurer” means any life or health insurer or property and casualty insurer that is licensed to do business in this state but is not domiciled in this state.
“Life or health insurer” means any admitted insurer issuing insurance subject to Part 2 (commencing with Section 10110) of Division 2, or a licensed property and casualty insurer writing only disability insurance.
“NAIC” means the National Association of Insurance Commissioners.
“Negative trend” means, with respect to a life or health insurer, a negative trend over a period of time, as determined in accordance with the “Trend Test Calculation” included in the RBC Instructions defined in subdivision (i).
“RBC Instructions” means the RBC Report, including risk-based capital instructions adopted by the NAIC, and as the RBC Instructions may be amended by the NAIC from time to time in accordance with the procedures adopted by the NAIC.
“RBC Level” means an insurer’s Company Action Level RBC, Regulatory Action Level RBC, Authorized Control Level RBC, or Mandatory Control Level RBC where:
“Company Action Level RBC” means, with respect to any insurer, the product of 2.0 and its Authorized Control Level RBC.
“Regulatory Action Level RBC” means the product of 1.5 and its Authorized Control Level RBC.
“Authorized Control Level RBC” means the number determined under the risk-based capital formula in accordance with the RBC Instructions.
“Mandatory Control Level RBC” means the product of .70 and the Authorized Control Level RBC.
“RBC Plan” means a comprehensive financial plan containing the elements specified in subdivision (b) of Section 739.3. If the commissioner rejects the RBC Plan, and it is revised by the insurer, with or without the commissioner’s recommendation, the plan shall be called the “Revised RBC Plan.”
“RBC Report” means the report required in Section 739.2.
“Total Adjusted Capital” means the sum of:
An insurer’s statutory capital and surplus.
Other items, if any, that the RBC Instructions may provide.
Every domestic insurer shall, on or prior to each March 15 (the “filing date”), prepare and submit to the commissioner a report of its RBC Levels as of the end of the calendar year just ended, in a form and containing such information as is required by the RBC Instructions. In addition, every domestic insurer shall file its RBC Report:
With the NAIC in accordance with the RBC Instructions.
With the insurance commissioner in any state in which the insurer is authorized to do business, if the insurance commissioner has notified the insurer of its request in writing, in which case the insurer shall file its RBC Report not later than the later of:
Fifteen days from the receipt of notice to file its RBC Report with that state.
The filing date.
A life or health insurer’s RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take into account, and may adjust for the covariance between, the following:
The risk with respect to the insurer’s assets.
The risk of adverse insurance experience with respect to the insurer’s liabilities and obligations.
The interest rate risk with respect to the insurer’s business.
All other business risks and such other relevant risks as are set forth in the RBC Instructions.
In each case, these shall be determined by applying the factors in the manner set forth in the RBC Instructions.
A property and casualty insurer’s RBC shall be determined in accordance with the formula set forth in the RBC Instructions. The formula shall take into account and may adjust for the covariance between the following:
An excess of capital over the amount produced by the risk-based capital requirements contained in this article and the formulas, schedules, and instructions referenced in this article is desirable in the business of insurance. Accordingly, insurers shall seek to maintain capital above the RBC levels required by this article. Additional capital is used and useful in the insurance business and helps to secure an insurer against various risks inherent in, or affecting, the business of insurance and not accounted for or only partially measured by the risk-based capital requirements contained in this article.
If a domestic insurer files an RBC Report that in the judgment of the commissioner is inaccurate, then the commissioner shall adjust the RBC Report to correct the inaccuracy and shall notify the insurer of the adjustment. The notice shall contain a statement of the reason for the adjustment. An RBC Report as so adjusted is referred to as an Adjusted RBC Report.
“Company Action Level Event” means any of the following events:
The filing of an RBC Report by an insurer that indicates any of the following:
The insurer’s Total Adjusted Capital is greater than or equal to its Regulatory Action Level RBC but less than its Company Action Level RBC.
If a life or health insurer, the insurer has Total Adjusted Capital that is greater than or equal to its Company Action Level RBC but less than the product of its Authorized Control Level RBC and 3.0, and has a negative trend.
If a property and casualty insurer, the insurer has Total Adjusted Capital that is greater than or equal to its Company Action Level RBC but less than the product of its Authorized Control Level RBC and 3.0, and triggers the trend test determined in accordance with the trend test calculation included in the Property and Casualty RBC instructions.
The notification by the commissioner to the insurer of an Adjusted RBC Report that indicates the event in paragraph (1), provided that the insurer does not challenge the Adjusted RBC Report under Section 739.7.
If the insurer challenges, under Section 739.7, an Adjusted RBC Report that indicates the event in paragraph (1), the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer’s challenge.
In the event of a Company Action Level Event, the insurer shall prepare and submit to the commissioner a comprehensive financial plan that shall do all of the following:
Identify the conditions in the insurer that contribute to the Company Action Level Event.
Contain proposals of corrective actions that the insurer intends to take and would be expected to result in the elimination of the Company Action Level Event.
Provide projections of the insurer’s financial results in the current year and at least the four succeeding years, both in the absence of proposed corrective actions and giving effect to the proposed corrective actions, including projections of statutory operating income, net income, capital, or surplus, or a combination. The projections for both new and renewal business may include separate projections for each major line of business and separately identify each significant income, expense, and benefit component.
Identify the key assumptions impacting the insurer’s projections and the sensitivity of the projections to the assumptions.
Identify the quality of, and problems associated with, the insurer’s business, including, but not limited to, its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business, and use of reinsurance in each case, if any.
The RBC Plan shall be submitted as follows:
Within 60 days after the submission by an insurer of an RBC Plan to the commissioner, the commissioner shall notify the insurer whether the RBC Plan shall be implemented or is, in the judgment of the commissioner, unsatisfactory. If the commissioner determines that the RBC Plan is unsatisfactory, the notification to the insurer shall set forth the reasons for the determination, and may set forth proposed revisions that will render the RBC Plan satisfactory, in the judgment of the commissioner. Upon notification from the commissioner, the insurer shall prepare a Revised RBC Plan, which may incorporate by reference revisions proposed by the commissioner, and shall submit the Revised RBC Plan to the commissioner as follows:
In the event of a notification by the commissioner to an insurer that the insurer’s RBC Plan or Revised RBC Plan is unsatisfactory, the commissioner may, at his or her discretion, subject to the insurer’s right to a hearing under Section 739.7, specify in the notification that the notification constitutes a Regulatory Action Level Event.
Every domestic insurer that files an RBC Plan or Revised RBC Plan with the commissioner shall file a copy of the RBC Plan or Revised RBC Plan with the insurance commissioner in any state in which the insurer is authorized to do business if both of the following apply:
That state has an RBC provision substantially similar to subdivision (a) of Section 739.8.
The insurance commissioner of that state has notified the insurer of its request for the filing in writing, in which case the insurer shall file a copy of the RBC Plan or Revised RBC Plan in that state no later than the later of:
Fifteen days after the receipt of notice to file a copy of its RBC Plan or Revised RBC Plan with the state.
The date on which the RBC Plan or Revised RBC Plan is filed under subdivision (c) of Section 739.7.
“Regulatory Action Level Event” means, with respect to any insurer, any of the following events:
The filing of an RBC Report by the insurer that indicates that the insurer’s Total Adjusted Capital is greater than or equal to its Authorized Control Level RBC but less than its Regulatory Action Level RBC.
The notification by the commissioner to an insurer of an Adjusted RBC Report that indicates the event in paragraph (1), provided the insurer does not challenge the Adjusted RBC Report under Section 739.7.
If the insurer challenges an Adjusted RBC Report that indicates the event in paragraph (1) under Section 739.7, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer’s challenge.
The failure of the insurer to file an RBC Report by the filing date, unless the insurer has provided an explanation for such failure that is satisfactory to the commissioner and has cured the failure within 10 days after the filing date.
The failure of the insurer to submit an RBC Plan to the commissioner within the time period set forth in subdivision (c) of Section 739.3.
Notification by the commissioner to the insurer of the following:
The RBC Plan or revised RBC Plan submitted by the insurer is, in the judgment of the commissioner, unsatisfactory.
That notification constitutes a Regulatory Action Level Event with respect to the insurer, provided the insurer has not challenged the determination under Section 739.7.
If the insurer challenges a determination by the commissioner under paragraph (6) pursuant to Section 739.7, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected such challenge.
Notification by the commissioner to the insurer that the insurer has failed to adhere to its RBC Plan or Revised RBC Plan, but only if such failure has a substantial adverse effect on the ability of the insurer to eliminate the Regulatory Action Level Event in accordance with its RBC Plan or Revised RBC Plan and the commissioner has so stated in the notification, provided the insurer has not challenged the determination under Section 739.7.
If the insurer challenges a determination by the commissioner under paragraph (8) pursuant to Section 739.7, the notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the challenge, unless the failure of the insurer to adhere to its RBC Plan or Revised RBC Plan has no substantial adverse effect on the ability of the insurer to eliminate the Regulatory Action Level Event with respect to the insurer.
In the event of a Regulatory Action Level Event the commissioner shall do all of the following:
Require the insurer to prepare and submit an RBC Plan or, if applicable, a Revised RBC Plan.
Perform such examination or analysis as the commissioner deems necessary of the assets, liabilities, and operations of the insurer, including a review of its RBC Plan or Revised RBC Plan.
Subsequent to the examination or analysis, issue a corrective order specifying such corrective actions as the commissioner shall determine are required.
In determining corrective actions, the commissioner may take into account such factors as are deemed relevant with respect to the insurer based upon the commissioner’s examination or analysis of the assets, liabilities, and operations of the insurer, including, but not limited to, the results of any sensitivity tests undertaken pursuant to the RBC Instructions. The RBC Plan or Revised RBC Plan shall be submitted as follows:
The commissioner may retain actuaries and investment experts and other consultants as may be necessary in the judgment of the commissioner to review the insurer’s RBC Plan or Revised RBC Plan, examine or analyze the assets, liabilities, and operations of the insurer and formulate the Corrective Order with respect to the insurer. The fees, costs, and expenses relating to consultants shall be borne by the affected insurer or such other party as directed by the commissioner.
“Authorized Control Level Event” means any of the following events:
The filing of an RBC Report by the insurer that indicates that the insurer’s Total Adjusted Capital is greater than or equal to its Mandatory Control Level RBC but less than its Authorized Control Level RBC.
The notification by the commissioner to the insurer of an Adjusted RBC Report that indicates the event in paragraph (1), provided the insurer does not challenge the Adjusted RBC Report under Section 739.7.
If the insurer challenges an Adjusted RBC Report that indicates the event in paragraph (1) under Section 739.7, notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer’s challenge.
The failure of the insurer to respond, in a manner satisfactory to the commissioner, to a Corrective Order, provided the insurer has not challenged the Corrective Order under Section 739.7.
If the insurer has challenged a Corrective Order under Section 739.7 and the commissioner has, after a hearing, rejected the challenge or modified the Corrective Order, the failure of the insurer to respond, in a manner satisfactory to the commissioner, to the Corrective Order subsequent to rejection or modification by the commissioner.
In the event of an Authorized Control Level Event with respect to an insurer, the commissioner shall do the following:
Take such actions as are required under Section 739.4 regarding an insurer with respect to which a Regulatory Action Level Event has occurred.
If the commissioner deems it to be in the best interests of the policyholders and creditors of the insurer and of the public, take such actions as are necessary to cause the insurer to be placed under regulatory control under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), Article 14.5 (commencing with Section 1065.1), and Article 15.5 (commencing with Section 1077). In the event the commissioner takes those actions, the Authorized Control Level Event shall be deemed sufficient grounds for the commissioner to take that action, and the commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth in those provisions. In the event the commissioner takes actions under this paragraph pursuant to an Adjusted RBC Report, the insurer shall be entitled to such protections as are afforded to insurers under the provisions pertaining to summary proceedings.
In the event of an Authorized Control Level Event with respect to the State Compensation Insurance Fund, the commissioner shall also issue a report to the Governor, the President pro Tempore of the Senate, and the Speaker of the Assembly setting forth the conditions that exist.
Upon a determination of the commissioner that an Authorized Control Level Event has occurred, the Governor, in consultation with the Legislature, may replace the President of the State Compensation Insurance Fund and appoint a recovery administrator. The recovery administrator shall be responsible for developing a plan of recovery for the State Compensation Insurance Fund, and for implementing the plan. The recovery administrator shall be a person who, through professional credentials or job experience, or both, has a demonstrated understanding of insurance law, insurer finances, experience in the rehabilitation of insurance companies, claims administration, and any other factors as are needed to create and execute a plan of recovery. The cost of the recovery administrator shall be borne by the State Compensation Insurance Fund. The administration shall remain until the commissioner conveys to the Governor his or her opinion that the fund has improved its finances to the extent that it is no longer at the Authorized Control Level or above, at which point the Governor may dismiss the recovery administrator and appoint a new President of the State Compensation Insurance Fund. During the time that the recovery administrator is acting, the board of the State Compensation Insurance Fund shall act in an advisory capacity to the recovery administrator and the Governor.
“Mandatory Control Level Event” means any of the following events:
The filing of an RBC Report that indicates that the insurer’s Total Adjusted Capital is less than its Mandatory Control Level RBC.
Notification by the commissioner to the insurer of an Adjusted RBC Report that indicates the event in paragraph (1), provided the insurer does not challenge the Adjusted RBC Report under Section 739.7.
If the insurer challenges an Adjusted RBC Report that indicates the event in paragraph (1) under Section 739.7, notification by the commissioner to the insurer that the commissioner has, after a hearing, rejected the insurer’s challenge.
With respect to a life or health insurer, in the event of a Mandatory Control Level Event, the commissioner shall take actions as are necessary to cause the insurer to be placed under regulatory control under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), Article 14.5 (commencing with Section 1065.1), and Article 15.5 (commencing with Section 1077). In that event, the Mandatory Control Level Event shall be deemed sufficient grounds for the commissioner to take action under those acts, and the commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth therein. In the event the commissioner takes actions pursuant to an Adjusted RBC Report, the insurer shall be entitled to protections as are afforded to insurers under those provisions. Notwithstanding any of the foregoing, the commissioner may forego action for up to 90 days after the Mandatory Control Level Event if he or she finds there is a reasonable expectation that the Mandatory Control Level Event may be eliminated within the 90-day period.
With respect to a property and casualty insurer, the commissioner shall take those actions as are necessary to place the insurer under regulatory control, or, in the case of an insurer which is writing no business and that is running-off its existing business, may allow the insurer to continue its runoff under the supervision of the commissioner. In either event, the Mandatory Control Level Event shall be deemed sufficient grounds for the commissioner to take action and the commissioner shall have the rights, powers, and duties with respect to the insurer as are set forth in Article 14 (commencing with Section 1010). If the commissioner takes actions pursuant to an Adjusted RBC Report, the insurer shall be entitled to the protections of Article 14 (commencing with Section 1010) pertaining to summary proceedings. Notwithstanding any of the foregoing, the commissioner may forego action for up to 90 days after the Mandatory Control Level Event if the commissioner finds there is a reasonable expectation that the Mandatory Control Level Event may be eliminated within the 90-day period.
In the event of a Mandatory Control Level Event with respect to the State Compensation Insurance Fund, the commissioner shall also issue a report to the Governor, the President pro Tempore of the Senate, and the Speaker of the Assembly setting forth the conditions that exist.
Upon any of the events described in subdivision (a), (b), (c), or (d), the insurer shall have the right to a departmental hearing, on the record, at which the insurer may challenge any determination or action by the commissioner. The insurer shall notify the commissioner of its request for a hearing within five days after the notification by the commissioner under subdivision (a), (b), (c), or (d). Upon receipt of the insurer’s request for a hearing, the commissioner shall set a date for the hearing, which date shall be no less than 10 nor more than 30 days after the date of the insurer’s request.
Notification to an insurer by the commissioner of an Adjusted RBC Report.
Notification to an insurer by the commissioner that:
The insurer’s RBC Plan or Revised RBC Plan is unsatisfactory.
That notification constitutes a Regulatory Action Level Event with respect to the insurer.
Notification to any insurer by the commissioner that the insurer has failed to adhere to its RBC Plan or Revised RBC Plan and that such failure has a substantial adverse effect on the ability of the insurer to eliminate the Company Action Level Event with respect to the insurer in accordance with its RBC Plan or Revised RBC Plan.
Notification to an insurer by the commissioner of a Corrective Order with respect to the insurer.
All RBC Reports, to the extent the information within those reports is not required to be set forth in a publicly available annual statement schedule, and RBC Plans, including the results or report of any examination or analysis of an insurer performed pursuant to those plans, and any Corrective Order issued by the commissioner pursuant to examination or analysis, with respect to any domestic insurer or foreign insurer, that are filed with the commissioner constitute information that might be damaging to the insurer if made available to its competitors, and therefore shall be kept confidential by the commissioner. This information shall not be made public or be subject to subpoena, other than by the commissioner and then only for the purpose of enforcement actions taken by the commissioner pursuant to this chapter or any other provision of the insurance laws of this state.
It is the judgment of the Legislature that the comparison of an insurer’s Total Adjusted Capital to any of its RBC Levels is a regulatory tool that may indicate the need for possible corrective action with respect to the insurer, and is not intended as a means to rank insurers generally. Therefore, except as otherwise required under this article, the making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio or television station, or in any other way, an advertisement, announcement, or statement containing an assertion, representation, or statement with regard to the RBC Levels of any insurer, or of any component derived in the calculation, by any insurer, agent, broker, or other person engaged in any manner in the insurance business would be misleading and is therefore prohibited; provided, however, that if any materially false statement with respect to the comparison regarding an insurer’s Total Adjusted Capital to its RBC Levels (or any of them) or an inappropriate comparison of any other amount to the insurers’ RBC Levels is published in any written publication and the insurer is able to demonstrate to the commissioner with substantial proof the falsity of such statement, or the inappropriateness, as the case may be, then the insurer may publish an announcement in a written publication if the sole purpose of the announcement is to rebut the materially false statement.
It is the further judgment of the Legislature that the RBC Instructions, RBC Reports, Adjusted RBC Reports, RBC Plans, and Revised RBC Plans are intended solely for use by the commissioner in monitoring the solvency of insurers and the need for possible corrective action with respect to insurers, and shall not be used by the commissioner for ratemaking nor considered or introduced as evidence in any rate proceeding, nor used by the commissioner to calculate or derive any elements of an appropriate premium level or rate of return for any line of insurance that an insurer or any affiliate is authorized to write. This subdivision does not affect the validity of any action taken before its effective date.
The provisions of this article are supplemental to any other provisions of the laws of this state, and shall not preclude or limit any other powers or duties of the commissioner under such laws.
The commissioner may adopt reasonable rules necessary for the implementation of this article.
The commissioner may exempt from the application of this article any domestic property and casualty insurer that does all of the following:
Writes direct business only in this state.
Writes direct annual premiums of five million dollars ($5,000,000) or less.
Assumes no reinsurance in excess of 5 percent of direct premiums written.
Any foreign insurer shall, upon the written request of the commissioner, submit to the commissioner an RBC Report as of the end of the calendar year just ended the later of:
The date an RBC Report would be required to be filed by a domestic insurer under this chapter.
Fifteen days after the request is received by the foreign insurer.
Any foreign insurer shall, at the written request of the commissioner, promptly submit to the commissioner a copy of any RBC Plan that is filed with the insurance commissioner of any other state.
In the event of a Company Action Level Event or Regulatory Action Level Event with respect to any foreign insurer as determined under the RBC statute applicable in the state of domicile of the insurer, or, if no RBC provision is in force in that state, under the provisions of this chapter, if the insurance commissioner of the state of domicile of the foreign insurer fails to require the foreign insurer to file an RBC Plan in the manner specified under the RBC statute, or, if no RBC provision is in force in the state, under Section 739.3, the commissioner may require the foreign insurer to file an RBC Plan with the commissioner. In such event, the failure of the foreign insurer to file an RBC Plan with the commissioner shall be grounds to order the insurer to cease and desist from writing new insurance business in this state.
In the event of a Mandatory Control Level Event with respect to any foreign insurer, if no domiciliary receiver has been appointed with respect to the foreign insurer under the rehabilitation and liquidation statute applicable in the state of domicile of the foreign insurer, the commissioner may make application to the superior court with respect to the liquidation of property of foreign insurers found in this state, and the occurrence of the Mandatory Control Level Event shall be considered adequate grounds for the application.
If any provision of this article, or the application thereof to any person or circumstance, is held invalid, such determination shall not affect the provisions or applications of this article that can be given effect without the invalid provision or application, and to that end the provisions of this article are severable.
All notices by the commissioner to an insurer that may result in regulatory action hereunder shall be effective upon dispatch if transmitted by registered or certified mail, or in the case of any other transmission shall be effective upon the insurer’s receipt of such notice.
Copies of all notices from the commissioner to the State Compensation Insurance Fund under this article shall be sent to the Governor.
ARTICLE 4.5. Special Provisions Regarding Health Coverage [740. - 742.1.]
Notwithstanding any other provision of law, and except as provided herein, any person or other entity that provides coverage in this state for medical, surgical, chiropractic, physical therapy, speech pathology, audiology, professional mental health, dental, hospital, or optometric expenses, whether the coverage is by direct payment, reimbursement, or otherwise, shall be presumed to be subject to the jurisdiction of the department unless the person or other entity shows that while providing the services it is subject to the jurisdiction of another agency of this or another state or the federal government.
A person or entity may show that it is subject to the jurisdiction of another agency of this or another state or the federal government by providing to the commissioner the appropriate certificate or license issued by the other governmental agency that permits or qualifies it to provide those services for which it is licensed or certificated.
Any person or entity that is unable to show that it is subject to the jurisdiction of another agency of this or another state or the federal government, shall submit to an examination by the commissioner to determine the organization and solvency of the person or the entity, and to determine whether the person or entity is in compliance with the applicable provisions of this code, and shall be required to obtain a certificate of authority to do business in California and be required to meet all appropriate reserve, surplus, capital, and other necessary requirements imposed by this code for all insurers.
Any person or entity unable to show that it is subject to the jurisdiction of another agency of this or another state or the federal government shall be subject to all appropriate provisions of this code regarding the conduct of its business.
The department shall prepare and maintain for public inspection a list of those persons or entities described in subdivision (a) that are not subject to the jurisdiction of another agency of this or another state or the federal government and that the department knows to be operating in this state. There shall be no liability of any kind on the part of the state, the department, and its employees for the accuracy of the list or for any comments made with respect to it.
Any administrator licensed by the department who advertises or administers coverage in this state described in subdivision (a), that is provided by any person or entity described in subdivision (c), and where the coverage does not meet all pertinent requirements specified in this code and that is not provided or completely underwritten, insured or otherwise fully covered by an admitted life or disability insurer, hospital service plan or health care service plan, shall advise and disclose to any purchaser, prospective purchaser, covered person or entity, and any production agency licensed by the department involved in the transaction, all financial and operational information relative to the content and scope of the plan and, specifically, as to the lack of insurance or other coverage.
Any production agency obtaining knowledge of any coverage relative to the content and scope of a hospital service plan or health care service plan, as required under this subdivision, shall advise and disclose to any purchaser, prospective purchaser, covered person or entity, the knowledge regarding the content and scope of the plan and, specifically, as to the lack of insurance by an admitted carrier or other qualified plan.
A health care service plan, as defined in Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code, shall not be subject to this section.
The department shall notify, in writing, the Director of the Department of Managed Health Care whenever it determines that a multiple employer trust qualifies as a health care service plan subject to Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code.
Any health care service plan, including a self-insured reimbursement plan that pays for or reimburses any part of the cost of health care services, operated by any city, county, city and county, public entity, or political subdivision, or a public joint labor management trust as described in subdivision (c) of Section 1349.2 of the Health and Safety Code, that is exempt pursuant to Section 1349.2 of the Health and Safety Code from the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code), is also exempt from this code.
Any person or other entity that provides coverage in this state for medical, surgical, chiropractic, physical therapy, speech pathology, audiology, professional mental health, dental, hospital, or optometric services, whether this coverage is by direct payment, reimbursement, or otherwise, and that enters into an arrangement or contract with, or underwrites, a preferred provider organization or arrangement subject to Section 10133 is subject to the jurisdiction of the Department of Insurance.
Any person or entity subject to regulation under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code shall not be subject to this section.
Any person or other entity or arrangement in this state that is organized for the purpose of offering or providing coverage in this state, for the benefit of employees of two or more employers, for medical, surgical, chiropractic, physical therapy, speech pathology, audiology, professional mental health, dental, hospital, or optometric services, whether that coverage is by direct payment, reimbursement, or otherwise, is subject to the jurisdiction of the department.
Any person or entity subject to regulation under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code shall not be subject to the provisions of this section.
ARTICLE 4.7. Multiple Employer Welfare Arrangements [742.20. - 742.43.]
The Legislature finds and declares the following:
An alternative to insurance programs, health care maintenance organizations, and panel provider organizations was established by Congress in 1974 through the Employee Retirement Income Security Act (ERISA). Among the various employee benefit programs established and governed by ERISA are multiple employer welfare arrangements (MEWA), which are subject as well to state regulatory and fiscal standards not inconsistent with ERISA. MEWAs permit employer members of trade associations to create trust funds for the purpose of offering and providing health care benefits to their employees. MEWAs can be created as fully insured or self-funded or partially self-funded benefit programs.
The Legislature recognizes that some MEWAs provide an alternative mechanism to traditional health insurance for small employers. It is the intent of the Legislature to ensure the financial integrity of those MEWA programs that are already in existence by requiring self-funded or partially self-funded MEWAs to obtain a certificate of compliance from the Department of Insurance. In order for the Department of Insurance to grant a certificate of compliance, the MEWA must adhere to standards set forth in this act which are not inconsistent with the provisions of ERISA. Further, it is the intent of the Legislature to provide the Department of Insurance with the authority to levy monetary penalties and to revoke certificates of compliance from MEWAs that violate the provisions of this act.
The Legislature has passed significant reforms in the area of small group health insurance. This article, in no manner, circumvents these reforms nor is it intended to be a precedent to do so. Therefore, the small group reform legislation applies to MEWAs to the extent it is not inconsistent with ERISA.
The provisions of this article are consistent with and authorized by ERISA, which confers upon the states limited authority to regulate MEWAs.
“Multiple employer welfare arrangement” as used in this article has the same meaning as that contained in Section 1002(40)(A) of Title 29 of the United States Code. “Employee welfare benefit plan,” as used in this article, has the same meaning as that contained in Section 1002(1) of Title 29 of the United States Code. A multiple employer welfare arrangement shall comply with the criteria set forth for an employee welfare benefit plan in order to qualify to obtain a certificate of compliance.
As used in this article, “self-funded” means a multiple employer welfare arrangement that undertook at all times and for a continuous period of five years to reimburse health benefit costs incurred by covered persons pursuant to the benefits and coverages provided by their plan exclusively from plan assets. “Partially self-funded” means a multiple employer welfare arrangement that undertook at all times and for a continuous period of five years to reimburse health benefit costs incurred by covered persons pursuant to the benefits and coverages provided by their plan exclusively from plan assets, provided, however, that these benefits are reimbursable to the multiple employer welfare arrangement by stop loss insurance only to the extent that the benefits exceed fifty thousand dollars ($50,000) per claim.
It is the intent of the Legislature in enacting this article to allow a self-funded or partially self-funded multiple employer welfare arrangement to meet the requirements for a certificate of compliance to do business in California. If the self-funded or partially self-funded multiple employer welfare arrangement obtains and maintains a certificate of compliance under these sections, it shall not be considered an unauthorized insurer.
After December 31, 1995, a self-funded or partially self-funded multiple employer welfare arrangement shall not provide any benefits for any resident of this state without first obtaining a certificate of compliance pursuant to this article, provided, however, that if the commissioner has not issued or denied an application for a certificate of compliance within 180 calendar days of the date of the filing of the completed application, the commissioner shall not take any action against the applicant solely on the basis that the department has not granted the certificate of compliance.
The department may take regulatory action against a MEWA pursuant to all applicable provisions of this code during the period beginning on the effective date of this act and ending on the date on which the MEWA is certified under this article, at which time the provisions of this article shall apply.
To be eligible for a certificate of compliance, a self-funded or partially self-funded multiple employer welfare arrangement shall meet all of the following requirements:
Be nonprofit.
Be established and maintained by a trade association, industry association, professional association, or by any other business group or association of any kind that has a constitution or bylaws specifically stating its purpose, and have been organized and maintained in good faith with at least 200 paid members and operated actively for a continuous period of five years, for purposes other than that of obtaining or providing health care coverage benefits to its members. An association is a California mutual benefit corporation comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria, which do not condition membership directly or indirectly on the health or claims history of any person, and which uses membership dues solely for and in consideration of the membership and membership benefits.
Be organized and maintained in good faith with at least 2,000 employees and 50 paid employer members and operated actively for a continuous period of five years.
Have been operating in compliance with ERISA on a self-funded or partially self-funded basis for a continuous period of five years pursuant to a trust agreement by a board of trustees that shall have complete fiscal control over the multiple employer welfare arrangement, and that shall be responsible for all operations of the multiple employer welfare arrangement. The trustees shall be selected by vote of the participating employers and shall be owners, partners, officers, directors, or employees of one or more employers participating in the multiple employer welfare arrangement. A trustee may not be an owner, officer, or employee of the insurer, administrator, or service company providing insurance or insurance-related services to the association. The trustees shall have authority to approve applications of association members for participation in the multiple employer welfare arrangement and to contract with an authorized administrator or service company to administer the day-to-day affairs of the multiple employer welfare arrangement.
Benefits shall be offered only to association members.
Benefits may be offered only through life agents, as defined in Section 1622, licensed in the state whose names, addresses, and telephone numbers have been filed with the commissioner as licensed life agents for the multiple employer welfare arrangement.
Be operated in accordance with sound actuarial principles and conform to the requirements of Section 742.31.
File an application with the department for a certificate of compliance no later than November 30, 1995.
The multiple employer welfare arrangement shall at all times maintain aggregate stop loss insurance providing the arrangement with coverage with an attachment point which is not greater than 125 percent of annual expected claims. The commissioner may, by regulation, define “expected claims” for purposes of this subdivision and provide for adjustments in the amount of the percentage in specified circumstances in which the arrangement specifically provides for and maintains reserves in accordance with sound actuarial principles as provided in Section 742.31.
The multiple employer welfare arrangement shall establish and maintain specific stop loss insurance providing the arrangement with coverage with an attachment point that is not greater than 5 percent of annual expected claims. The commissioner may, by regulation, define “expected claims” for purposes of this subdivision and provide for adjustments in the amount of that percentage as may be necessary to carry out the purposes of this subdivision determined by sound actuarial principles as provided in Section 742.31.
The multiple employer welfare arrangement shall establish and maintain appropriate loss and loss adjustment reserves determined by sound actuarial principles as provided in Section 742.31.
The association has within its own organization adequate facilities and competent personnel to serve the multiple employer welfare arrangement, or has contracted with a licensed third-party administrator to provide those services.
The association has established a procedure for handling claims for benefits in the event of the dissolution of the multiple employer welfare arrangement.
On and after January 1, 2003, in addition to the requirements of this article, maintain a surplus of not less than one million dollars ($1,000,000), and that this amount be increased as follows: one million seven hundred fifty thousand dollars ($1,750,000) by January 1, 2004; two million five hundred thousand dollars ($2,500,000) by January 1, 2005; three million two hundred fifty thousand dollars ($3,250,000) by January 1, 2006; and four million dollars ($4,000,000) by January 1, 2007.
Submit all proposed rate levels to the department for informational purposes no later than 45 days prior to their implementation. The proposed rates shall contain an aggregate benefit structure which has a loss ratio experience of not less than 80 percent. The loss ratio experience shall be calculated as claims paid during the contract period plus a reasonable estimate of claims liability for the contract period at the end of the current year divided by contributions paid or collected for the contract period minus unearned contributions at the end of the current year.
Comply with the investment requirements of Section 724.245.
A self-funded or partially self-funded multiple employer welfare arrangement shall maintain at least 25 percent of the surplus required by subdivision (n) of Section 742.24 in investments specified in Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1 and in Section 1192.5.
The balance of the assets of a self-funded or partially self-funded multiple employer welfare arrangement may be invested in the following:
An open-ended diversified management company, as defined in the federal Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), that meets all of the following requirements:
It is registered with, and reports to, the Securities and Exchange Commission.
It is domiciled in the United States.
Substantially all of its investments consist of investment grade debt instruments and cash.
All of its assets are held in the United States by a bank, trust company, or other custodian chartered by the United States, its states, or territories.
An amount not to exceed 75 percent of any excess of invested assets over the sum of the reserves and related actuarial items held in support of policies and contracts, plus the surplus required by subdivision (n) of Section 742.24, may be invested in the following:
An open-ended diversified management company, as defined in the federal Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), that meets all of the following requirements:
It is registered with, and reports to, the Securities and Exchange Commission.
It is domiciled in the United States.
Its investments consist of common and preferred stocks and cash.
All of its assets are held in the United States by a bank, trust company, or other custodian chartered by the United States, its states, or territories.
Corporate notes, bonds, and preferred stocks that meet all of the following requirements:
The issuer is domiciled in the United States or Canada.
The investments are rated investment grade or better by at least two of the following rating agencies, or their successors:
Standard & Poor’s.
(II) Moody’s.
(III) Fitch.
The investments are exchange-traded. “Exchange-traded” as used in this clause means listed and traded on the National Market System of the NASDAQ Stock Market or on a securities exchange subject to regulation, supervision, or control under a statute of the United States and acceptable to the commissioner.
An investment in a single issuer made pursuant to subparagraph (B) shall not exceed in the aggregate 10 percent of the multiple employer welfare arrangement’s funds described in this paragraph.
An investment made pursuant to paragraph (1) or subparagraph (A) of paragraph (2) shall be made in, at minimum, three of the companies described in those provisions.
An office building or buildings that will be used for the multiple employer welfare arrangement’s principal operations and business if both of the following requirements are met:
The multiple employer welfare arrangement obtains prior written approval from the commissioner.
The office building or buildings are treated on the financial statements filed with the commissioner pursuant to Section 742.31 as nonadmitted assets.
The commissioner may, in his or her discretion and after a hearing, require by written order disposal of an investment made either in violation of, or no longer in compliance with, this section. The commissioner may also, after a hearing, require the disposal of any investment made pursuant to paragraph (2) of subdivision (b) if the multiple employer welfare arrangement has failed to maintain cash or liquid assets sufficient to meet its claims and any other contractual obligations. The commissioner may also for good cause and after a hearing, by written order require the disposal of an investment described in subdivision (b).
In determining the qualification of a multiple employer welfare arrangement, the commissioner will consider, among other things:
The history of the multiple employer welfare arrangement.
The competency, character, integrity, responsibility, and general fitness of the management and administration.
Financial stability.
Whether claims were promptly and fairly adjusted and are promptly and fully paid in accordance with the law and the terms of the plan.
Fairness and honesty of methods of doing business.
Hazard to covered employees or creditors.
The multiple employer welfare arrangement shall issue to each covered employee a certificate evidencing coverage and a summary plan description of benefits and coverages provided. This evidence of the benefits and coverage provided shall contain the following statement: “The benefits and coverages described herein are provided through a trust fund established and funded by the ____ Plan, sponsored by the ____ Association. The trust is a self-funded plan established under ERISA (29 U.S.C. 1001 et seq.). This is not an insurance contract and the plan and trust is not acting as, or deemed to be an insurance company.”
The department shall have the authority to revoke a certificate of compliance to any self-funded or partially self-funded multiple employer welfare arrangement if the department determines any of the following:
The multiple employer welfare arrangement has failed, after written request by the commissioner, to remove or discharge any officer, director, trustee, or other employee who has been convicted of any crime involving fraud, dishonesty, or moral turpitude.
The multiple employer welfare arrangement has unreasonably failed or refused to furnish any report or statement or has unreasonably refused the department access to its books or records as required by this article.
The multiple employer welfare arrangement has failed for an unreasonable period to pay any judgment rendered against it by a court or other applicable regulatory agency or body.
The multiple employer welfare arrangement is conducting business fraudulently or is not meeting its contractual obligations in good faith.
The multiple employer welfare arrangement fails to comply with the provisions of Section 790.03.
The multiple employer welfare arrangement fails to comply with Chapter 14 (commencing with Section 10700) of Part 2 of Division 2.
The multiple employer welfare arrangement fails to comply with Article 3.1 (commencing with Section 1357) of Chapter 2.2 of Division 2 of the Health and Safety Code.
The multiple employer welfare arrangement fails to establish, or at all times maintain, compliance with the requirements of this article, or other laws made applicable to the multiple employer welfare arrangement by this article.
A self-funded or partially self-funded multiple employer welfare arrangement authorized by this article shall be limited to providing the following benefits:
Medical, dental, optical, surgical, or other hospital care benefits.
Benefits in the event of sickness, accident, or disability.
Flexible benefits under Section 125 of the Internal Revenue Code. These benefits shall not include loss from liability imposed by law upon employers to compensate employees and their dependents for injury sustained by the employees arising out of and in the course of the employment, irrespective of negligence or the fault of either party.
An association seeking to establish an employee welfare benefit plan by the use of a self-funded or partially self-funded multiple employer welfare arrangement shall apply for a certificate of compliance on a form prescribed by the commissioner. The application shall be completed and submitted to the commissioner along with all of the following:
Copies of all articles, bylaws, agreements, or other documents or instruments describing the rights and obligations of the employers, employees, and beneficiaries of the association with respect to the multiple employer welfare arrangement.
Current audited financial statements of the association and the multiple employer welfare arrangement, and Internal Revenue Service Form number 5500 for the last five years.
Proof of a fidelity bond in an amount equal to 10 percent of the funds handled annually by the multiple employer welfare arrangement. In no case may the amount of the bond be less than fifty thousand dollars ($50,000) nor more than five hundred thousand dollars ($500,000).
A fiduciary liability policy with limits of not less than five hundred thousand dollars ($500,000).
A statement showing in full detail the benefit plan upon which the association has established and maintained the multiple employer welfare arrangement.
A copy of all contracts or other instruments that it makes with or issues to the association members, together with a copy of its plan description and the printed material which was used in enrolling members during 1993 and 1994.
Proof of aggregate and specific stop loss insurance with an insurer licensed to do business in this state.
A copy of all contracts or other instruments that were used with administrators and producers during 1993 and 1994.
Biographical affidavits for the trustees, plan administrators of the multiple employer welfare arrangement, officers and directors of the association, other persons acting in a fiduciary capacity and any third-party administrators performing services on behalf of the multiple employer welfare arrangement.
The commissioner shall not issue a certificate of compliance to a self-funded or partially self-funded multiple employer welfare arrangement unless the employers participating in the multiple employer welfare arrangement are members of a bona fide trade, industrial, or professional association as described in subdivision (b) of Section 742.24.
Each self-funded or partially self-funded multiple employer welfare arrangement transacting business in the state shall file all of the following with the commissioner:
No later than May 15th of each calendar year or four months and 15 days after the end of each fiscal year not on a calendar year basis, financial statements audited by a certified public accountant, and no later than March 1 of each calendar year or 60 days after the end of each fiscal year not on a calendar year basis, an actuarial opinion rendered by a qualified actuary that satisfies the requirements of Section 10489.15. The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board and on any additional standards that the commissioner may, by regulation, prescribe. For the purposes of this section, “qualified actuary” means a member in good standing of the American Academy of Actuaries who meets the requirements set forth in regulations of the commissioner. The qualified actuary shall be liable for damages to any person caused by his or her negligence or other tortious conduct.
Within 60 days after the end of each fiscal quarter, unaudited financial statements, affirmed by an appropriate officer or agent of the multiple employer welfare arrangement.
Within 60 days after the end of each fiscal quarter, a report certifying that the multiple employer welfare arrangement maintains cash or liquid assets in a claim reserve account sufficient to meet its contractual obligations and that it maintains a policy of aggregate and specific stop loss insurance.
The commissioner or any persons designated by the commissioner shall have the power to examine the affairs of any self-funded or partially self-funded multiple employer welfare arrangement and the association which established and maintains it, and for that purpose shall have access to all books, records, and documents that relate to the business of the multiple employer welfare arrangement, and may examine under oath its trustees, officers, agents, and employees in relation to the affairs, transactions, and condition of the multiple employer welfare arrangement.
Books, records, and documents pertaining to the business of the multiple employer welfare arrangement shall be maintained by the administrator for a period of five years. “Administrator,” as used in this section, has the same meaning as that contained in Section 1002(16)(A) of Title 29 of the United States Code.
The following notice shall be provided to employers and employees who obtain coverage from a multiple employer welfare arrangement:“NOTICE
THE MULTIPLE EMPLOYER WELFARE ARRANGEMENT IS NOT AN INSURANCE COMPANY AND DOES NOT PARTICIPATE IN ANY OF THE GUARANTEE FUNDS CREATED BY CALIFORNIA LAW. THEREFORE, THESE FUNDS WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF A MULTIPLE EMPLOYER WELFARE ARRANGEMENT BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED.
THE HEALTH CARE BENEFITS THAT YOU HAVE PURCHASED OR ARE APPLYING TO PURCHASE ARE BEING ISSUED BY A MULTIPLE EMPLOYER WELFARE ARRANGEMENT THAT IS LICENSED BY THE STATE OF CALIFORNIA.
FOR ADDITIONAL INFORMATION ABOUT THE MULTIPLE EMPLOYER WELFARE ARRANGEMENT YOU SHOULD ASK QUESTIONS OF YOUR TRUST ADMINISTRATOR OR YOU MAY CONTACT THE CALIFORNIA DEPARTMENT OF INSURANCE AT ________.”
Each multiple employer welfare arrangement should include the department’s current “800” consumer service telephone number and Internet Web site in the blank provided in paragraph (C) of this notice.
This section shall become operative on January 1, 2017.
The department may conduct an examination of the financial condition of a self-funded or partially self-funded multiple employer welfare arrangement, and if it determines that the multiple employer welfare arrangement’s financial condition does not comply with the requirements of this article, the department may apply any remedies authorized by this code.
Subject to the annual fee provisions of Section 742.39, every certificate of compliance shall be for an indefinite term and shall expire with the expiration or termination of the existence of the holder thereof. Notwithstanding the provisions of this section, whenever the commissioner shall determine, after notice and hearing, that any person to whom the certificate has been issued is in arrears to the state or to any county or city in the state for fees, licenses, taxes, assessments, fines, or penalties, accrued on business transacted in the state, or is otherwise in default for failure to comply with any of the laws of this state regarding the governmental control of the person by the state, the commissioner may order the certificate holder to comply with those requirements within 30 days of that determination. If the certificate of compliance holder fails to comply within that period, the certificate of compliance may then be revoked, unless the commissioner’s order is stayed by a court of appropriate jurisdiction.
The commissioner may suspend the certificate of compliance of a holder thereof for not exceeding one year whenever he or she finds, after proper hearing following notice, that the person engages in any of the following practices:
Conducting its business fraudulently.
Not carrying out its contracts in good faith.
Habitually and as a matter of ordinary practice and custom compelling claimants under policies, or liability judgment creditors of the certificate of compliance holder, to either accept less than the amount due under the terms of its contracts or resort to litigation against the certificate of compliance holder to secure the payment of the amount due.
The order of suspension shall prescribe the period of each suspension.
Proceedings under this section shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearings shall be conducted by administrative law judges chosen under Section 11502 or appointed by the commissioner.
The commissioner, in any proceeding under Section 742.37 for any of the violations specified in that section, may by alternative order permit the holder of that certificate of compliance to elect in writing to pay a specified money penalty, within a specified time, in lieu of the suspension of its certificate of compliance. If the holder so elects, the sum of money specified shall be paid to the commissioner for use of the state, and shall not exceed fifty-five thousand dollars ($55,000). If the holder so electing fails to pay the specified sum within the specified time, the commissioner shall, unless his or her order is stayed, put in effect the alternatives specified in his or her order.
All money received by the commissioner pursuant to this section shall, when appropriated for that purpose by the Legislature, be available for expenditure by the commissioner in accordance with law in administration and enforcement of this code and other insurance laws.
The authority vested in the commissioner by this section shall be additional to and not in lieu of any other authority to enforce any penalties, fines or forfeitures, denials, suspensions, restrictions, or revocations of certificates of compliance unless otherwise authorized by law.
The commissioner shall require the payment of five thousand two hundred twenty-nine dollars ($5,229), in advance, as a fee for filing an application for each certificate of compliance. Notwithstanding Section 742.36, each holder of a certificate of compliance of indefinite term shall owe and pay an annual fee of four hundred twenty-four dollars ($424), in advance, on account of the certificate until final expiration. In addition, each holder of a certificate of compliance of indefinite term shall owe and pay an annual fee of four hundred twenty dollars ($420) for filing of financial information. These fees shall be for annual periods commencing on July 1 of each year and ending on June 30 of each year, and shall be due on each March 1 and be delinquent on and after April 1.
A multiple employer welfare arrangement shall offer health care coverage benefits to any new eligible person and his or her dependents under terms and conditions no less favorable to those offered to their employers’ existing employees and their dependents, if the newly eligible person had health care benefit coverage with either the same or a different multiple employer welfare arrangement within 31 days. The new coverage shall comply with existing eligibility rules of the multiple employer welfare arrangement.
Notwithstanding any other provision of law, commencing January 1, 2014, a multiple employer welfare arrangement shall not offer, market, represent, or sell any product, contract, or discount arrangement as minimum essential coverage or as compliant with the essential health benefits requirement under the federal Patient Protection and Affordable Care Act, unless it meets the applicable requirements under that act.
No multiple employer welfare arrangement shall refuse to enroll any person or accept any person as a subscriber or renew any person as a subscriber after appropriate application on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring. No multiple employer welfare arrangement shall require a higher rate or charge, or offer or provide different terms, conditions, or benefits, on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring than is at that time required of any other individual in an otherwise identical classification, nor shall any multiple employer welfare arrangement make or require any rebate, discrimination, or discount upon the amount to be paid or the service to be rendered under the arrangement because the person carries those traits.
No multiple employer welfare arrangement shall seek information about a person’s genetic characteristics for any nontherapeutic purpose.
No discrimination shall be made in the fees or commissions of a solicitor or solicitor firm for an enrollment or a subscription or the renewal of an enrollment or subscription of any person on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring.
“Genetic characteristics” as used in this section shall have the same meaning as defined in Section 10123.3.
This section shall apply to the disclosure of genetic test results contained in an applicant or enrollee’s medical records by a multiple employer welfare arrangement.
Any person who negligently discloses results of a test for a genetic characteristic to any third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), shall be assessed a civil penalty in an amount not to exceed one thousand dollars ($1,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully discloses the results of a test for a genetic characteristic to any third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), shall be assessed a civil penalty in an amount not less than one thousand dollars ($1,000) and no more than five thousand dollars ($5,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully or negligently discloses the results of a test for a genetic characteristic to a third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), that results in economic, bodily, or emotional harm to the subject of the test, is guilty of a misdemeanor punishable by a fine not to exceed ten thousand dollars ($10,000).
In addition to the penalties listed in subdivisions (b) and (c), any person who commits any act described in subdivision (b) or (c) shall be liable to the subject for all actual damages, including damages for economic, bodily, or emotional harm which is proximately caused by the act.
Each disclosure made in violation of this section is a separate and actionable offense.
The applicant’s “written authorization,” as used in this section, shall satisfy the following requirements:
Is written in plain language.
Is dated and signed by the individual or a person authorized to act on behalf of the individual.
Specifies the types of persons authorized to disclose information about the individual.
Specifies the nature of the information authorized to be disclosed.
States the name or functions of the persons or entities authorized to receive the information.
Specifies the purposes for which the information is collected.
Specifies the length of time the authorization shall remain valid.
Advises the person signing the authorization of the right to receive a copy of the authorization. Written authorization is required for each separate disclosure of the test results, and the authorization shall set forth the person or entity to whom the disclosure would be made.
This section shall not apply to disclosures required by the Department of Health Services necessary to monitor compliance with Chapter 1 (commencing with Section 124975) of Part 5 of Division 106 of the Health and Safety Code, nor to disclosures required by the Department of Managed Health Care necessary to administer and enforce compliance with Section 1374.7 of the Health and Safety Code.
All employer groups who have health care coverage benefits provided by a multiple employer welfare arrangement for their employees and their dependents, regardless of individual condition or history of that employee and their dependents, shall continue to provide coverage thereunder pursuant to the terms and conditions of their multiple employer welfare arrangement, subject to only cancellation for nonpayment of contribution, or in the event of the termination of the multiple employer welfare arrangement.
The provisions of this code governing domestic incorporated insurers, their business, and their contracts shall, so far as applicable and not inconsistent, govern multiple employer welfare arrangements subject to this article and the business and contracts of these multiple employer welfare arrangements, except that these multiple employer welfare arrangements, their business, and their contracts shall not be subject to Article 14.7 (commencing with Section 1067) of Chapter 1 of Part 2 of Division 1. There shall be a rebuttable presumption that any provision of this code is applicable to multiple employer welfare arrangements.
The provisions of this article shall not apply to multiple employer welfare arrangements as defined in Section 1144(b)(6)(D) of Title 29 of the United States Code.
The commissioner may adopt reasonable rules and regulations for the implementation and administration of this article.
ARTICLE 5. Unlawful Referrals [750. - 754.]
Except as provided in Section 750.5, any person acting individually or through his or her employees or agents, who engages in the practice of processing, presenting, or negotiating claims, including claims under policies of insurance, and who offers, delivers, receives, or accepts any rebate, refund, commission, or other consideration, whether in the form of money or otherwise, as compensation or inducement to or from any person for the referral or procurement of clients, cases, patients, or customers, is guilty of a crime.
A violation of subdivision (a) is punishable upon a first conviction by imprisonment in a county jail for not more than one year, or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine not exceeding fifty thousand dollars ($50,000), or by both that imprisonment and fine. A second or subsequent conviction is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code or by that imprisonment and a fine of fifty thousand dollars ($50,000).
Nothing in this section shall prohibit a licensed collection or lien agency from receiving a commission on the collection of delinquent debts nor prohibits the agency from paying its employees a commission for obtaining clients seeking collection on delinquent debts.
Nothing in this section is intended to limit, restrict, or in any way apply to, the rebating of commissions by insurance agents or brokers, as authorized by Proposition 103, enacted by the people at the November 8, 1988, general election.
On behalf of an insurer or self-insured person, company, association, or group.
Dividing fees for legal services with a lawyer under circumstances expressly permitted by Rule 2-200 of the Rules of Professional Conduct of the State Bar.
Offering or giving an incidental nonmonetary gift or gratuity to a person who has made a recommendation resulting in the employment of the attorney or law firm, provided that the gift or gratuity was not offered in consideration of any promise, agreement, or understanding that the gift or gratuity would be forthcoming or that referrals would be made or encouraged in the future.
Offering or giving a bonus to an employee who has made a referral or recommendation resulting in the employment of the attorney or law firm, provided that the bonus was not offered in consideration of any promise, agreement, or understanding that the bonus would be forthcoming or that referrals or recommendations would be made or encouraged in the future.
It is unlawful for any insurance agent or broker, or any insurance solicitor employed thereby, to receive any financial benefit from an automobile repair facility or any other form of direct or indirect consideration from any person for referring insureds to that person or that person’s designee for vehicle repairs covered under the automobile comprehensive coverage, property damage coverage, or automobile collision coverage, of an insurance policy issued through the insurance agent or broker or by an insurer represented by the insurance agent.
Subdivision (a) applies with respect to commercial and noncommercial policies of automobile insurance.
For purposes of this section, “financial benefit” means the receiving of any commission or gratuity, discount on repair costs, free repairs, or employment by a repair facility.
It is unlawful for any person to solicit, receive, offer, or pay any referral fee for the referral of an individual for the furnishing of services or goods for which the person knows or should have known whole or partial reimbursement is or may be made, directly or indirectly, by any insurer. As used in this section, a referral fee is a fee paid by a person furnishing goods or services to another in return for the referral of an individual to that person for the furnishing of services or goods. It includes any referral fee, kickback, bribe, or rebate, whether made directly or indirectly, overtly or covertly, or in cash or in kind. This subdivision does not apply to any of the following:
Discounts or similar reductions in prices.
Referral fees between attorneys if legal services are provided pursuant to a contingency fee arrangement if any referral fee is consistent with the Rules of Professional Conduct of the State Bar of California.
This section applies to all forms of insurance covering a motor vehicle, including commercial and personal lines, and comprehensive coverage, property damage coverage, collision coverage, and liability coverage.
A violation of this section is a misdemeanor punishable by a fine not to exceed one thousand dollars ($1,000) for each violation. Proceedings to enforce this section may be brought by any district attorney or other prosecuting attorney.
ARTICLE 5.1. Unlawful Practices [755. - 758.7.]
If at the time of the solicitation and issuance of a policy of life or disability insurance, or of a surety bond which by its terms continues until canceled, a person may lawfully receive commissions on it, that person, or in the event of that person’s death, his or her estate or heirs may continue to receive commissions on it during the continuance in force or renewal of the policy or bond without being licensed under the provisions of Chapter 5 (commencing with Section 1621) of Part 2 if all of the following requirements are met:
The recipient does not transact insurance in connection with the policy or bond while not so licensed.
The payment is made pursuant to a contract entered into, before that solicitation and issuance, between the insurer paying or allowing the commission and that person.
When the premium on a policy insuring an employer is based upon the amount or segregation of the employer’s payroll, and the employer, personally or knowingly through his or her employee, procures a lower premium by willfully misrepresenting the amount or segregation, that misrepresentation is an unlawful act as to the employer.
In addition to any penalty provided by law, the employer in that case is liable to the state in an amount 10 times the difference between the lower premium paid and the premium properly payable. The commissioner shall collect the amount so payable and may bring a civil action in his or her name as commissioner to enforce collection unless the misrepresentation is made to, and the lower premium procured from the State Compensation Insurance Fund. In the latter case the liability to the state under this section shall be enforced in a civil action in the name of the State Compensation Insurance Fund and any amount so collected shall become a part of that fund.
When a statement of the amount or segregation of a payroll is materially false, and an insurer, through a person employed by it in a managerial capacity, accepts the statement as the basis for the premium on a policy, the acceptance is an unlawful act if the accepting employee knows of the falsity.
It is unlawful for an insurer to require an auto body repair shop registered pursuant to Sections 9884 and 9889.52 of the Business and Professions Code, as a condition of participation in the insurer’s direct repair program, to pay for the cost of an insured’s rental vehicle that is replacing an insured vehicle damaged in an accident, or to pay for the towing charges of the insured with respect to that accident. However, the insurer and the auto body repair shop may agree in writing to terms and conditions under which the rental vehicle charges become the responsibility of the auto body repair shop when the shop fails to complete work within the agreed-upon time for repair of the damaged vehicle.
A registered auto body repair shop that is denied participation in an insurer’s direct repair program may report a denial to the department, which shall maintain a record of all those denials for the purposes of gathering market conduct information. An insurer, upon the request of the department, shall disclose the fact that a denial was made.
Any insurer that conducts an auto body repair labor rate survey to determine and set a specified prevailing auto body rate in a specific geographic area shall report the results of that survey to the department, which shall make the information available upon request. The survey information shall include the names and addresses of the auto body repair shops and the total number of shops surveyed.
No insurer shall require that an automobile be repaired at a specific automotive repair dealer, as defined in Section 9880.1 of the Business and Professions Code.
No insurer shall suggest or recommend that an automobile be repaired at a specific automotive repair dealer unless either of the following applies:
A referral is expressly requested by the claimant.
The claimant has been informed in writing of the right to select the automotive repair dealer.
An insurer may provide the claimant with specific truthful and nondeceptive information regarding the services and benefits available to the claimant during the claims process. This may include, but is not limited to, information about the repair warranties offered, the type of replacement parts to be used, the anticipated time to repair the damaged vehicle, and the quality of the workmanship available to the claimant.
If an insurer’s recommendation of an automotive repair dealer is accepted by the claimant, the insurer shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as is otherwise allowed by law. If the recommendation of an automotive repair dealer is done orally, and if the oral recommendation is accepted by the claimant, the insurer shall provide the information contained in this paragraph, as noted in the statement below, to the claimant at the time the recommendation is made. The insurer shall mail or provide the notice required by this paragraph within five calendar days from the acceptance of the recommendation. The written notice required by this paragraph shall include the following statement plainly printed in no less than 10-point type in a separate and freestanding document:
“WE ARE PROHIBITED BY LAW FROM REQUIRING THAT REPAIRS BE DONE AT A SPECIFIC AUTOMOTIVE REPAIR DEALER. YOU ARE ENTITLED TO SELECT THE AUTO BODY REPAIR SHOP TO REPAIR DAMAGE COVERED BY US. WE HAVE RECOMMENDED AN AUTOMOTIVE REPAIR DEALER THAT WILL REPAIR YOUR DAMAGED VEHICLE. WE RECOMMEND YOU CONTACT ANY OTHER AUTOMOTIVE REPAIR DEALER YOU ARE CONSIDERING TO CLARIFY ANY QUESTIONS YOU MAY HAVE REGARDING SERVICES AND BENEFITS. IF YOU AGREE TO USE OUR RECOMMENDED AUTOMOTIVE REPAIR DEALER, WE WILL CAUSE THE DAMAGED VEHICLE TO BE RESTORED TO ITS CONDITION PRIOR TO THE LOSS AT NO ADDITIONAL COST TO YOU OTHER THAN AS STATED IN THE INSURANCE POLICY OR AS OTHERWISE ALLOWED BY LAW. IF YOU EXPERIENCE A PROBLEM WITH THE REPAIR OF YOUR VEHICLE, PLEASE CONTACT US IMMEDIATELY FOR ASSISTANCE.”
Except as provided in subparagraph (A) of paragraph (1) of subdivision (b), or as to information of the kind authorized by paragraph (2) of subdivision (b), after the claimant has chosen an automotive repair dealer, the insurer shall not suggest or recommend that the claimant select a different automotive repair dealer.
Any insurer that, by the insurance contract, suggests or recommends that an automobile be repaired at a particular automotive repair dealer shall also do both of the following:
For purposes of this section, “claimant” means a first-party claimant or insured, or a third-party claimant who asserts a right of recovery for automotive repairs under an insurance policy.
The powers of the commissioner to enforce this section shall include those granted in Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1.
The changes to this section made by the act enacted during the 2009–10 Regular Session that amended this section shall only apply to actions filed on or after January 1, 2010.
Insurers shall not engage in capping. For the purposes of this section, “capping” means offering or paying an amount that is unrelated to a methodology used in determining paint and materials charges that is accepted by automobile repair shops and insurers.
An insurer, upon receiving notice from an insured, shall reimburse any fees and extra premium charged to an insured due to a late premium payment or a lapse in coverage under the policy if the late payment or lapse in coverage was the result of fraud committed by an agent or broker licensed pursuant to this code and one of the following has occurred:
The agent or broker has been convicted of fraudulent activity in court.
An administrative penalty has been imposed on the agent or broker for fraudulent activity.
The agent or broker has been charged with fraud in court or in an administrative action and has agreed to plead guilty to a lesser charge for the fraudulent activity of which he or she is accused.
ARTICLE 5.2. Consumer Protection in Sales of Insurance by or Through Depository Institutions [759. - 765.]
This article establishes consumer protections in connection with retail sales practices, solicitations, advertising, or offers of any insurance product or annuity to a consumer by either of the following:
Any depository institution, as defined in subdivision (b) of Section 760.
Any person who is engaged in those activities at an office of a depository institution or on behalf of a depository institution.
As used in this article, the following terms have the following meanings:
“Affiliate” has the same meaning as defined in Section 1215.
“Depository institution” means any of the following:
National banks, operating subsidiaries of a national bank, and federal branches or agencies of a foreign bank, as defined in Section 1 of the International Banking Act of 1978 (12 U.S.C. Sec. 3101 et seq.), in the case of institutions supervised by the Office of the Comptroller of the Currency.
State member banks in the case of the Board of Governors of the Federal Reserve System.
State nonmember banks in the case of the Federal Deposit Insurance Corporation (FDIC).
Savings associations and operating subsidiaries of savings associations, in the case of the Office of the Comptroller of the Currency.
“Company” means any corporation, partnership, business trust, association, or similar organization, or any other trust, other than a trust that by its terms must terminate within 25 years or not later than 21 years and 10 months after the death of individuals living on the effective date of the trust. “Company” does not include any corporation the majority of the shares of which are owned by the United States or by any state, or a qualified family partnership, as defined in paragraph (10) of subsection (o) of Section 2 of the federal Bank Holding Company Act of 1956, as amended (12 U.S.C. Sec. 1841(o)(10)).
“Consumer” means an individual who purchases, applies to purchase, or is solicited to purchase from a covered person insurance products or annuities primarily for personal, family, or household purposes.
“Control” has the same meaning as defined in Section 1215.
“Covered person” means either of the following:
A depository institution.
Another person only when the person sells, solicits, advertises, or offers an insurance product or annuity to a consumer at an office of a depository institution, or on behalf of a depository institution.
For purposes of this definition, activities on behalf of a depository institution include activities pursuant to which a person, whether at an office of the depository institution or at another location, sells, solicits, advertises, or offers an insurance product or annuity and where at least one of the following applies:
The person represents to a consumer that the sale, solicitation, advertisement, or offer of any insurance product or annuity is by or on behalf of the depository institution.
The depository institution refers a consumer to a seller of insurance products or annuities and the institution has a contractual arrangement to receive commissions or fees derived from a sale of an insurance product or annuity resulting from that referral.
Documents evidencing the sale, solicitation, advertising, or offer of an insurance product or annuity identify or refer to the depository institution.
“Electronic media” includes any means for transmitting messages electronically between a covered person and a consumer in a format that allows visual text to be displayed on equipment such as a personal computer monitor.
“Office” means the premises of a depository institution where retail deposits are accepted from the public.
“Subsidiary” has the same meaning as defined in Section 1215.
A covered person shall not engage in any practice that would lead a consumer to believe that an extension of credit, in violation of subsection (b) of Section 106 of the federal Bank Holding Company Act Amendments of 1970 (12 U.S.C. Sec. 1972), is conditional upon either of the following:
The purchase of an insurance product or annuity from the depository institution or any of its affiliates.
An agreement by the consumer not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an affiliated entity.
A covered person shall not engage in any practice or use any advertisement at any office of, or on behalf of, the depository institution or a subsidiary of the depository institution that could mislead any person or otherwise cause a reasonable person to reach an erroneous belief with respect to any of the following:
The fact that any insurance product or annuity sold or offered for sale by a covered person or any subsidiary of the depository institution is not backed by the federal government or the depository institution, or the fact that the insurance product or annuity is not insured by the Federal Deposit Insurance Corporation.
In the case of an insurance product or annuity that involves investment risk, the fact that there is an investment risk, including the potential that principal may be lost and that the product may decline in value.
In the case of a depository institution or subsidiary of the depository institution at which insurance products or annuities are sold or offered for sale, the fact that:
The approval of an extension of credit to the consumer by the depository institution or subsidiary may not be conditioned on the purchase of an insurance product or annuity by the consumer from the depository institution or a subsidiary of the depository institution.
The consumer is free to purchase the insurance product or annuity from another source.
In connection with the initial purchase of an insurance product or annuity by a consumer from a covered person, a covered person shall disclose to the consumer, except to the extent the disclosure would not be accurate, all of the following:
That the insurance product or annuity is not a deposit or other obligation of, or guaranteed by, the depository institution or an affiliate of the depository institution.
That the insurance product or annuity is not insured by the Federal Deposit Insurance Corporation or any other agency of the United States, the depository institution, or, if applicable, an affiliate of the depository institution.
In the case of an insurance product or annuity that involves an investment risk, that there is investment risk associated with the product, including the possible loss of value.
In the case of an application for credit in connection with which an insurance product or annuity is solicited, offered, or sold, a covered person shall disclose that the depository institution may not condition an extension of credit on either of the following:
The consumer’s purchase of an insurance product or annuity from the depository institution or any of its affiliates.
The consumer’s agreement not to obtain, or a prohibition on the consumer from obtaining, an insurance product or annuity from an unaffiliated entity.
If the sale of an insurance product or annuity is conducted by telephone, a covered person shall provide the written disclosure required by subdivision (a) by mail within three business days, beginning on the first business day after the sale, but excluding Sundays and the legal public holidays specified in subsection (a) of Section 6103 of Title 5 of the United States Code.
Subject to the requirements of subsection (c) of Section 101 of the federal Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec. 7001(c)), a covered person may provide the written disclosures required by subdivisions (a) and (b) through electronic media instead of paper, if the consumer affirmatively consents to receiving the disclosures electronically and if the disclosures are provided in a format that the consumer may retain or obtain later, for example, through printing or storing electronically by downloading. Any disclosures required by subdivision (a) or (b) that are provided by electronic media are not required to be provided orally.
The disclosures provided shall be conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided. For example, a covered person may use the following disclosures in visual media, including television, broadcasting, ATM screens, billboards, signs, posters, and written advertisements and promotional materials, as appropriate and consistent with subdivisions (a) and (b):
“NOT A DEPOSIT.”
“NOT FDIC-INSURED.”
“NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY.”
“NOT GUARANTEED BY THE BANK (OR SAVINGS ASSOCIATION).”
“MAY GO DOWN IN VALUE.”
A covered person shall provide the disclosures required by subdivisions (a) and (b) in a meaningful form. Examples of the types of methods that could call attention to the nature and significance of the information provided include all of the following:
A plain language heading to call attention to the disclosure.
A typeface and type size that are easy to read.
Wide margins and ample line spacing.
Boldface or italics for key words.
Distinctive type style, and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.
The disclosures required by subdivisions (a) and (b) shall be in the same language as principally used in any oral solicitation leading to the execution of the purchase by the consumer of the insurance product or annuity.
A covered person has not provided the disclosures in a meaningful form if the covered person merely states to the consumer that the required disclosures are available in printed material, but does not provide the printed material when required and does not orally disclose the information to the consumer when required.
With respect to disclosures made through electronic media for which paper or oral disclosures are not required, the disclosures are not meaningfully provided if the consumer may bypass the visual text of the disclosures before purchasing an insurance product or annuity.
A covered person shall obtain from the consumer, at the time the consumer receives the disclosures required by subdivisions (a) and (b), or at the time of initial purchase by the consumer of the insurance product or annuity, a written acknowledgment by the consumer that the consumer received the disclosures. A covered person may permit a consumer to acknowledge receipt of the disclosures electronically or in paper form. If the disclosures required under subdivisions (a) and (b) are provided in connection with a transaction that is conducted by telephone, a covered person shall do the following:
Obtain an oral acknowledgment of receipt of the disclosures and maintain sufficient documentation to show that the acknowledgment was given.
Make reasonable efforts to obtain a written acknowledgment from the consumer.
The disclosures described in subdivision (a) are required in advertisements and promotional material for insurance products or annuities unless the advertisements or promotional material are of a general nature describing or listing the services or products offered by the depository institution.
A depository institution shall, to the extent practicable, keep the area where the depository institution conducts transactions involving insurance products or annuities physically segregated from areas where retail deposits are routinely accepted from the general public, identify the areas where insurance products or annuity sales activities occur, and clearly delineate and distinguish, with appropriate signage, those areas from the areas where the depository institution’s retail deposit-taking activities occur.
Any person who accepts deposits from the public in an area where those transactions are routinely conducted in the depository institution may refer a customer who seeks to purchase an insurance product or an annuity to a qualified person who sells that product only if the person making the referral receives no more than a one-time nominal fee of a fixed dollar amount for each referral that does not depend on whether the referral results in a transaction.
A depository institution may not permit any person to sell or offer for sale any insurance product or annuity in any part of its office or on its behalf, unless the person is at all times appropriately qualified and licensed as required by this code with regard to the specific products being sold or recommended.
The commissioner may adopt reasonable regulations necessary to administer this article.
ARTICLE 5.3. Agents and Brokers [769. - 769.56.]
After a written agency or written brokerage contract, where the broker-agent represents the insurer, has been in effect for at least one year, it shall not be terminated or amended by an insurer, except by mutual agreement, unless 120 days’ advance written notice has been given by the insurer to the broker-agent.
The advance notice required by this section does not apply if the broker-agent has done any of the following:
Exceeded his or her binding authority under the agency or brokerage contract.
Violated the written underwriting rules or regulations of the insurer, a copy of which has been provided to the broker-agent, which misleads the insurer concerning the nature or extent of a risk.
Failed, either within 10 days after written notice upon failure to remit funds within the time limits set forth in the agency or brokerage contract or within 30 days after written demand if the agency or brokerage contract does not set forth time limits, to remit funds due and owing to the insurer.
Had his or her license suspended or revoked by the commissioner.
Engaged in fraudulent acts affecting his or her relationship with the insurer or its insureds.
Transferred ownership, control, or servicing of policies written with the insurer to another insurer, or to an entity directly or indirectly owned or controlled by an insurer or to an entity directly or indirectly owning or controlling an insurer.
When a broker-agent’s contract is terminated as provided by this section, the rights, duties, and obligations set forth in the terminated contract of the broker-agent having property rights in renewals shall continue solely with respect to policies then in force or renewed as provided by this section until those policies are canceled in accordance with law, placed by the broker-agent with another insurer, or have expired. The broker-agent’s authority during the period following notice of termination of his or her contract shall be governed by the written contract between the broker-agent and the insurer, except that, after the receipt of the notice of termination, the broker-agent shall not bind new risks on behalf of the insurer, renew policies except as permitted by this section, or otherwise increase the obligation of the insurer, without the express approval of the insurer or in accordance with the terms of an existing policy.
If a terminated broker-agent is unable, after making a good faith effort, to place existing policies with another insurer, the insurer then insuring the risk shall, at the broker-agent’s request, renew any insurance contract written by the broker-agent for the insurer for one policy term or a period of one year, whichever is shorter. Where the insurer is prohibited by subdivision (c) of Section 1861.03 from nonrenewing the risk, the insurer shall continue to compensate the broker-agent for servicing the policies written by the insurer prior to termination of the broker-agent relationship until the insurer can cancel or nonrenew the policyholder pursuant to statute or the broker-agent moves the policyholder to another insurer but, in no event, shall the insurer’s obligation to compensate the broker-agent exceed three years after termination of the broker-agent’s contract, unless otherwise provided by terms of the contract. The renewal shall be at the insurer’s premium rates in effect on the date of renewal and at prevailing commission rates for that class or line of business in effect on the date of renewal for broker-agents whose contracts are not terminated. An insurer shall not be precluded from paying a commission to a terminated broker-agent pursuant to this section at a level the insurer is paying at the time it provides notice to the broker-agent that it is terminating the contract or as set forth in the written agreement, providing that there has not been any unilateral change in the commission paid by the insurer within 180 days of the notice of the broker-agent’s termination. An insurer shall be allowed to subtract from the three-year time period provided to a broker-agent upon termination, the time period that elapsed during which the broker-agent is involved in a rehabilitation program with an insurer.
Notwithstanding any other provision of this section, no insurer shall be required to renew any policy of insurance or compensate a terminated broker-agent pursuant to the provisions of this section if any of the following apply:
The broker-agent is no longer the broker-agent of record with respect to the policy, or the broker-agent has transferred ownership, control, or servicing of policies written with the insurer to another insurer or an entity owned or controlled, directly or indirectly, by another insurer or to an entity owning or controlling, directly or indirectly, another insurer.
The broker-agent has died or has become unable to conduct his or her business affairs.
The broker-agent has failed, either within 10 days after written demand upon failure to remit funds within the time limits set forth in the agency or brokerage contract or within 30 days after written demand if the agency or brokerage contract does not set forth time limits, to remit funds due and owing to the insurer.
The broker-agent has failed to follow the written instructions of the insurer, a copy of which has been provided to the broker-agent, generally applicable to the renewal of policies.
The commissioner has determined that the renewal of the policy would threaten the solvency of the insurer.
The insurer suffers the withdrawal of reinsurance covering all or part of the risk and this withdrawal of reinsurance is likely to threaten, in the opinion of the commissioner, the financial integrity or solvency of the insurer.
This section shall not apply to a life insurer, an agent of a life insurer, a disability insurer, a nonprofit hospital service plan, an agent of a disability insurer or nonprofit hospital service plan, an agent who is the employee of an insurer, or to an agent who, by contractual agreement either represents only one insurer or group of affiliated insurers or who is required by contract to submit risks to a specified insurer or group of affiliated insurers prior to submitting them to other insurers.
This section does not apply to any management contract of a managing general agent as defined in Section 1735, but it shall continue to apply to any agency or brokerage contract of a managing general agent or any portion of a management contract authorizing a managing general agent to act in his or her capacity as an insurance agent as defined in Section 1621, or an insurance broker as defined in Section 1623.
For purposes of this section, a “rehabilitation program” shall include, but not be limited to, all of the following:
Written communication to the broker-agent outlining the fact that the broker-agent is on rehabilitation status.
Identification by the company of problem areas.
Mutual agreement on performance objectives and specific dates for accomplishment.
Length of rehabilitation plan to be negotiated, but not less than six months.
For purposes of subdivision (d), a good faith effort is satisfied by a terminated broker-agent who markets his or her book of business to other insurers that underwrite the same or similar lines of insurance, consistent with the interests of the policyholders. An insurer who terminates a broker-agent shall be entitled to be informed of the marketing activity and to obtain copies of any correspondence reflecting these efforts. However, nothing in this section shall be interpreted to allow the insurer to require the terminated broker-agent to obtain written rejections of an agency appointment from other insurers, or written rejections from individual policyholders.
An insurer that takes action, other than terminating the written agency or brokerage contract, solely for the purpose of avoiding the provisions of subdivision (a) shall be required to extend existing policies pursuant to the applicable provision of subdivision (d) if both of the following apply:
This section shall apply to written agency contracts becoming effective on or after January 1, 1987. The amendments to this section by the act adding this sentence also apply to any written agency contract amended after January 1, 1988.
The amendments to this section made by the act adding this subdivision shall apply to any written brokerage contract becoming effective, or amended, on or after January 1, 1996.
A commission payable to a broker-agent shall be at the rate and in accordance with the terms agreed to in writing between the insurer and the broker-agent. There is a rebuttable presumption that a commission is lawful if it complies with the requirements of subdivisions (c) and (d) of Section 769 and subdivision (a) of Section 1861.16 and if it is paid in accordance with the written agreement. The written agreement shall be consistent with Part 2 (commencing with Section 1549) of Division 3 of the Civil Code. The presumption established by this section is a presumption affecting the burden of producing evidence. This section applies to a written agreement entered into or modified on or after January 1, 2019.
In determining the amount of an insurer’s rollback obligation pursuant to Section 1861.01 or any regulations promulgated to implement this section, each insurer shall be given full credit for all premium taxes, commissions, and brokerage expenses that the insurer actually paid during the rollback period. No insurer shall be required or permitted to seek, directly or indirectly, reimbursement from the state of any premium taxes paid on premiums earned during the rollback period or reimbursement from any employee or third-party contractor of an insurer of any compensation paid to them for services rendered during the rollback period.
The provisions of this section and the findings and declarations in support thereof take effect immediately upon enactment and apply to any order, settlement agreement, consent decree, or any other resolution of an insurer’s rollback obligation pursuant to Section 1861.01 that occurs after the effective date of this section.
Nothing in this section shall be deemed in any regulatory or judicial proceeding or for any other purpose to constitute legislative intent to endorse or approve any regulations on the issue of Proposition 103 rollback refunds.
Notwithstanding any other provision of this code, for the purposes of Chapter 6 (commencing with Section 520) through Chapter 11 (commencing with Section 675), inclusive of Part 1 of Division 1, the obligation of an insurer to furnish any notice to its insured required by law may be carried out by an insurer’s general agent, provided, however, that an insurer’s delegation of a notice obligation to a general agent shall not limit or negate the insurer’s responsibility or liability if the general agent fails to provide the required notice.
As used in this section, “general agent” means an individual licensed as a property broker-agent and licensed as a casualty broker-agent who, pursuant to a written contract with an admitted insurer, manages the transaction of one or more classes of insurance written by the insurer and has the power to (1) appoint, supervise, and terminate local agents, (2) accept or decline risks, and (3) collect premium moneys from producing broker-agents.
Nothing in this section shall provide an exemption from Article 5.4 (commencing with Section 769.80) to any property broker-agent and casualty broker-agent who is otherwise subject to that article.
A material change made by a health insurer, as defined in subdivision (b) of Section 106, to the terms and conditions of a contract between the health insurer and a life and accident and health or sickness agent shall not become effective until the health insurer has delivered to the life and accident and health or sickness agent, at least 45 days prior to the effective date of the change, written or electronic notice indicating the change or changes to the contract. For purposes of this section, a “material change” is a change made to a provision of the contract affecting any of the following:
Commissions, bonuses, and incentives paid to the life and accident and health or sickness agent.
Right of survivorship.
Indemnification of the life and accident and health or sickness agent by the health insurer.
Errors and omissions coverage requirements for the life and accident and health or sickness agent.
Subdivision (a) shall not apply under either of the following circumstances:
The change to the contract is mutually agreed upon by the health insurer and the life and accident and health or sickness agent.
The change to the contract is required by state or federal law.
ARTICLE 5.4. Managing General Agents [769.80. - 769.87.]
This act shall be known and may be cited as the Managing General Agents Act.
As used in this article:
“Actuary” means a person who is a member in good standing of the American Academy of Actuaries, the Casualty Actuarial Society, or the Society of Actuaries, and is qualified to sign a statement of actuarial opinion on loss reserves.
“Insurer” means any person, firm, association, or corporation duly licensed as an insurer and operating under a certificate of authority in this state.
“Managing General Agent” (MGA) means any person, firm, association, partnership, or corporation who negotiates and binds ceding reinsurance contracts on behalf of an insurer or manages all or part of the insurance business of an insurer (including the management of a separate division, department or underwriting office) and acts as an agent for that insurer whether known as an MGA, manager, or other similar term, who, with or without the authority, either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than 5 percent of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following: (1) adjusts or pays claims in excess of an amount determined by the commissioner, or (2) negotiates reinsurance on behalf of the insurer.
Notwithstanding the above, the following persons shall not be considered as MGAs for the purposes of this act:
An employee of the insurer.
A United States manager of the United States branch of an alien insurer.
An underwriting manager which, pursuant to contract, manages the insurance operations of the insurer, is under common control with the insurer, subject to the holding company regulatory act, and whose compensation is not based on the volume of premiums written.
The attorney-in-fact authorized by and acting for the subscribers of a reciprocal insurer or interinsurance exchange under powers of attorney.
“Underwrite” means the authority to accept or reject risk on behalf of the insurer.
No producer shall act in the capacity of an MGA with respect to risks located in this state for an insurer that holds a certificate of authority unless that producer is licensed as a property broker-agent and casualty broker-agent, or as a life agent in this state.
No producer shall act in the capacity of an MGA representing an insurer domiciled in this state with respect to risks located outside this state unless that producer is licensed as a property broker-agent and casualty broker-agent, or as a life agent in this state.
The commissioner may require a fidelity bond in an amount acceptable to him or her for the protection of the insurer.
The commissioner may require the MGA to maintain an errors and omissions policy. If a policy is not generally available at a reasonable cost, the commissioner may, by rule, suspend the requirement of this subdivision until that coverage becomes generally available at a reasonable cost.
No producer acting in the capacity of an MGA shall place business with an insurer unless there is in force a written contract between the parties which sets forth the responsibilities of each party and where both parties share responsibility for a particular function, specifies the division of such responsibilities, and which contains the following minimum provisions:
The insurer may terminate the contract for cause upon written notice to the MGA. The insurer may suspend the underwriting authority of the MGA during the pendency of any dispute regarding the cause for termination.
The MGA shall render accounts to the insurer detailing all transactions and remit all funds due under the contract to the insurer on not less than a monthly basis.
All funds collected for the account of an insurer shall be held by the MGA in a fiduciary capacity in a bank or savings association the deposits of which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation. This account shall be used for all payments on behalf of the insurer. The MGA may retain no more than three months estimated claims payments and allocated loss adjustment expenses. The requirements of this subdivision shall be in addition to the requirements of Sections 1734 and 1735.
Separate records of business written by the MGA shall be maintained. The insurer shall have access to and the right to copy all accounts and records related to its business in a form usable by the insurer and the commissioner shall have access to all books, bank accounts, and records of the MGA in a form usable to the commissioner. Those records shall be retained by the MGA, and shall be the joint property of the insurer and MGA.
The contract may not be assigned in whole or part by the MGA.
Appropriate underwriting guidelines including:
The maximum annual premium volume.
The basis of the rates to be charged.
The types of risks which may be written.
Maximum limits of liability.
Applicable exclusions.
Territorial limitations.
Policy cancellation provisions.
The maximum policy period.
The insurer shall have the right to cancel or nonrenew any policy of insurance, except as limited by any other provision of this code.
If the contract permits the MGA to settle claims on behalf of the insurer:
All claims shall be reported to the insurer in a timely manner.
A copy of the claim file shall be sent to the insurer at its request or as soon as it becomes known that the claim is subject to any of the following:
Has the potential to exceed an amount determined by the commissioner or exceeds the limit set by the company, whichever is less.
Involves a coverage dispute.
May exceed the MGA’s claims settlement authority.
Is open for more than six months.
Is closed by payment of an amount set by the commissioner or an amount set by the insurer, whichever is less.
All claim files shall be the joint property of the insurer and MGA. However, upon an order of liquidation of the insurer such files shall become the sole property of the insurer or its estate; the MGA shall have reasonable access to and the right to copy the files on a timely basis.
Any settlement authority granted to the MGA may be terminated for cause upon the insurer’s written notice to the MGA or upon the termination of the contract. The insurer may suspend the settlement authority during the pendency of any dispute regarding the cause for termination.
Where electronic claims files are in existence, the contract shall address the timely transmission of the data.
If the contract provides for a sharing of interim profits by the MGA, and the MGA has the authority to determine the amount of the interim profits by establishing loss reserves or controlling claim payments, or in any other manner, interim profits will not be paid to the MGA until one year after they are earned for property insurance business and five years after they are earned on casualty business and not until the profits have been verified pursuant to Section 769.84.
The MGA shall not do any of the following:
Bind reinsurance or retrocessions on behalf of the insurer, except that the MGA may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules. This paragraph shall not operate to prohibit transactions which are subject to Chapter 6.5 (commencing with Section 1781.1) of Part 2 of Division 1, if the MGA has complied with all of the requirements of that chapter.
Commit the insurer to participate in insurance or reinsurance syndicates.
Appoint any agent without assuring that the agent is lawfully licensed to transact the type of insurance for which he or she is appointed.
Without prior approval of the insurer, pay or commit the insurer to pay a claim over a specified amount, net of reinsurance, which shall not exceed 1 percent of the insurer’s policyholder’s surplus as of December 31 of the last completed calendar year.
Collect any payment from a reinsurer or commit the insurer to any claim settlement with a reinsurer, without prior approval of the insurer. If prior approval is given, a report shall be promptly forwarded to the insurer.
Permit any agent appointed pursuant to paragraph (3) to serve on the insurer’s board of directors.
Jointly employ an individual who is employed with the insurer.
Appoint a sub-MGA.
The insurer shall have on file an independent financial examination, in a form acceptable to the commissioner, of each MGA with which it has done business.
If an MGA establishes loss reserves, the insurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the MGA. This is in addition to any other required loss reserve certification.
The insurer shall periodically (at least semiannually) conduct an onsite review of the underwriting and claims processing operations of the MGA.
Binding authority for all reinsurance contracts or participation in insurance or reinsurance syndicates shall rest with an officer of the insurer, who shall not be affiliated with the MGA.
Within 30 days of entering into or termination of a contract with an MGA, the insurer shall provide written notification of such appointment or termination to the commissioner. Notices of appointment of an MGA shall include a statement of duties which the applicant is expected to perform on behalf of the insurer, the lines of insurance for which the applicant is to be authorized to act, and any other information the commissioner may request.
An insurer shall review its books and records each quarter to determine if any producer has become, by operation of Section 769.81, an MGA as defined in that section. If the insurer determines that a producer has become an MGA pursuant to the above, the insurer shall promptly notify the producer and the commissioner of that determination and the insurer and the producer shall fully comply with this article within 30 days.
An insurer shall not appoint to its board of directors an officer, director, employee, any agent appointed pursuant to paragraph (3) of subdivision (j) of Section 769.83, or controlling shareholder of its MGAs. This subdivision shall not apply to relationships governed by Article 4.7 (commencing with Section 1215) of Chapter 2 of Part 2 of Division 1.
The acts of the MGA are considered to be the acts of the insurer on whose behalf it is acting. An MGA may be examined as if it were the insurer.
If the commissioner finds after hearing that any person has violated any provision of this article he or she may order any of the following:
For each separate violation, a penalty in an amount not to exceed twenty-five thousand dollars ($25,000).
Revocation or suspension of the producer’s license.
Hearings held pursuant to subdivision (a) shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearings shall be conducted by administrative law judges chosen under Section 11502 or appointed by the commissioner.
The decision, determination, or order of the commissioner pursuant to subdivision (a) shall be subject to judicial review.
Nothing contained in this section shall affect the right of the commissioner to impose any other penalties provided for in this code, nor limit any other authority required or authorized by this code to be exercised by the commissioner.
Nothing contained in this article is intended to or shall in any manner limit or restrict the rights of policyholders, claimants, and auditors.
The commissioner may adopt reasonable rules and regulations for the implementation and administration of this article.
ARTICLE 5.5. Insurance in Connection With Sales and Loans [770. - 776.]
No person engaged in the business of financing the purchase of real or personal property or of lending money on the security of real or personal property and no trustee, director, officer, agent or other employee, or affiliate of, any such person shall require, as a condition precedent to financing the purchase of such property or to loaning money upon the security thereof, or as a condition prerequisite for the renewal or extension of any such loan or for the performance of any other act in connection therewith, that the person for whom such purchase is to be financed or to whom the money is to be loaned or for whom such extension, renewal or other act is to be granted or performed negotiate any insurance or renewal thereof covering such property through a particular insurance agent or broker.
No person making a loan of money on the security of real property shall use or make available to any person information contained in a policy of fire or casualty insurance for the purpose of soliciting either type of insurance coverage if the borrower has filed with the lender a statement signed by the borrower that the policy information shall not be so used or made available. The statement may be included by the borrower in his or her letter of authorization designating an insurance agent or broker to the lender. The statement or letter of authorization shall be effective until superseded or revoked by the borrower. This section shall not apply to any person authorized or licensed to make loans pursuant to Division 7 (commencing with Section 18000), Division 9 (commencing with Section 22000), Division 10 (commencing with Section 24000), or Division 11 (commencing with Section 26000) of the Financial Code.
No state department or agency shall negotiate any life or disability insurance or require the placing of that insurance through particular agents, brokers, or companies, except to the extent that the state has a direct financial interest in the subject of the insurance. The state has no financial interest in an annuity purchased for an employee if the premium therefor is paid from a deduction from or reduction in the employee’s salary, and any annuity paid for through a deduction or reduction shall not be deemed to have been provided by the state for its employees for purposes of this section, and the state shall not negotiate or require the placing of the annuity through particular agents, brokers, or companies. Nothing contained in this section shall affect the program of life and disability insurance in connection with veterans’ farm and home purchases through the Department of Veterans Affairs except that the total life insurance benefit under that program shall in no event exceed 120 percent of the unpaid contract balance. Except in those cases where the premium for an annuity is paid entirely from a deduction from or reduction in an employee’s salary, nothing contained in this section shall affect life or disability insurance programs which may be provided by the state for its employees.
Notwithstanding anything in this section to the contrary, in any case in which a tax-sheltered annuity under an annuity plan which meets the requirements of Section 403(b) of the Internal Revenue Code of 1954 is to be placed or purchased for an employee, the employee shall have the right to designate the licensed agent, broker, or company through whom the employee’s employer shall arrange for the placement or purchase of the tax-sheltered annuity. In any case in which the employee has designated an agent, broker, or company, the employer shall comply with that designation, except in the case of a designation subject to Section 1153 or Section 12420.2 of the Government Code, or Section 24950 of the Education Code.
As used in this section, “state department or agency” shall include, but not be limited to, school districts.
This section shall apply to all local governmental agencies, as well as state departments and agencies.
The exercise by any person engaged in that business of that person’s right to approve or disapprove, for reasonable cause, as determined by appropriate regulatory authority, of the insurer selected to underwrite the insurance, nor of that person’s right to furnish insurance or to renew any insurance required by the contract of sale or trust deed or other loan agreement if the borrower or purchaser shall have failed to furnish the insurance or renewal thereof within a reasonable time or form as may be specified in the sale or loan agreement. The lender shall not refuse to accept insurance provided by an acceptable insurer on the ground that the insurance provides more coverage than is required in the sale or loan agreement, unless the additional coverage consists of automobile, life, or disability insurance.
The Commissioner of Financial Protection and Innovation, in conjunction with the Insurance Commissioner, shall issue appropriate regulations defining “reasonable cause.”
Any lender from recommending to any borrower or prospective borrower the placing of insurance with a specified insurer or through a specified insurance agent or broker as long as the recommendation, with respect to a sale of real property or a loan upon the security of real property, clearly sets forth both the name and the mailing address of the recommended insurer or insurance agent or broker and does not violate the provisions of Section 770 or of any other section of this code. On and after July 1, 1972, the recommendation clearly setting forth the name and the mailing address of the recommended insurer or insurance agent or broker shall be in writing.
The free choice of insurance agent or broker by any borrower or purchaser at any time, and the borrower or purchaser may revoke any designation of insurance agent or broker at any time irrespective of the provisions of any loan or purchase agreement or trust deed.
The exercise of any person engaged in that business of that person’s right to furnish insurance or to renew insurance, and to charge the account of the borrower or purchaser with the costs thereof, if the borrower or purchaser fails to deliver to the lender the insurance at least 30 days prior to the expiration of the policy. If an insurance policy renewing or replacing, at expiration time, the policy then in force is received by the lender less than 15 days prior to the expiration of the policy held by the lender, or if an insurance policy procured by the borrower or purchaser is subsequently substituted for that then in force, the lender may impose a reasonable service charge as determined by the Insurance Commissioner for the transaction, the payment of which charge by the agent or broker is not a violation of any other provision of this code. No service charges shall be imposed for normal insurance changes made during the term of the policy.
The commissioner is authorized to adopt a uniform statewide schedule of permissive maximum charges for the substitution of policies authorized in subdivision (d).
No person making a loan of money on the security of residential real property shall reject or refuse to accept a policy of fire and casualty insurance underwritten by an insurer chosen by the borrower for any reason that the lender would not impose on an insurer chosen by the lender when the borrower requests the lender to obtain the insurance. This section applies to a lender’s rejection or refusal to accept a policy of fire and casualty insurance due to, but not limited to, terms of coverage, conditions of payment, or financial rating of the insurer.
When a lender or purchaser of a mortgage on real property has required and obtained a copy of the insurance policy covering that real property, it shall be responsible for providing a copy of that insurance policy or other evidence of insurance acceptable to the purchaser to a subsequent purchaser of the mortgage, servicing agent, or insurance tracking service with whom the lender or purchaser of the mortgage subsequently contracts. A copy of the policy or other evidence of insurance shall be provided so that the subsequent purchaser, servicing agent, or insurance tracking service may verify that the borrower has obtained or is maintaining insurance required by the mortgage. This section does not abrogate the responsibility of an insurer, agent, or broker to provide annually, if requested, a copy of the insurance policy directly to the lender or purchaser of the mortgage named as an additional loss payee or lienholder at an address provided by the lender or purchaser of the mortgage.
A copy of the insurance policy or other evidence of insurance acceptable to the purchaser may be provided electronically to the subsequent purchaser of the mortgage, servicing agent, or insurance tracking service with whom the lender or purchaser of the mortgage subsequently contracts, if that party agrees to electronic service.
Nothing in this article shall prevent any person licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code from recommending, soliciting, negotiating or effecting home protection contracts issued by a company qualified under Part 7 (commencing with Section 12740) of Division 2, in connection with his or her licensed function authorized by Sections 10131 or 10131.6 of the Business and Professions Code, notwithstanding that such person is not a fire and casualty licensee as defined in Section 1625.
In any trial, hearing or proceeding to determine a violation of this article a written statement signed by the person for whom any purchase is financed, to whom any money is loaned or for whom any extension, renewal or other act in connection with a loan is to be granted or performed, declaring that such person voluntarily chooses the insurance agent or broker through whom the insurance or its renewal was transacted, and that the choice of such insurance agent, or broker was not made a condition precedent to such purchase, loan, extension, renewal or other act shall be prima facie evidence that no violation of Section 770 has occurred, if the borrower or purchaser in his own handwriting shall have written the name of his chosen insurance agent or broker into an authorization of such insurance agent or broker.
The commissioner may suspend or revoke any license held by any person who violates Section 770, pursuant to Article 13 of Chapter 5 of this part.
The commissioner, after hearing upon notice, may issue a cease and desist order to any person if he finds that such person has, in more than one transaction, violated Section 770. The violation of such a cease and desist order is a misdemeanor.
The commissioner may investigate any person, whether licensed or not, for the purpose of determining if there has been any violation of this article, however, if such investigation be upon a complaint, the complainant must be a party to the contract of sale, trust deed, or loan agreement and must make such complaint within three months of the execution or any modification thereof.
No person who sells real property shall require, as a condition precedent to the sale of such real property, that the person buying the real property negotiate any insurance or renewal thereof covering such property through a particular insurance agent, insurance broker, or insurance solicitor.
ARTICLE 5.7. Free Insurance [777.1. - 777.3.]
No insurer shall participate in any plan to offer or effect any kind or kinds of insurance or annuities in this state as an inducement to the purchase or rental by the public of any property, real or personal or mixed, or services, without any separate charge to the insured for such insurance, nor shall any agent, broker, or solicitor arrange the sale of any such insurance. The provisions of this article shall not be applicable to insurance written in connection with subscriptions to newspapers of general circulation; nor shall it apply to insurance issued to credit unions or to members of credit unions in connection with the purchase of shares in such a credit union; nor shall it apply to insurance offered as a guarantee of the performance of goods, which insurance is designed to protect the purchasers or users of such goods; nor shall it be applicable to any title insurance or life or disability insurance written in connection with an indebtedness, the purpose of which insurance is to pay the balance of the indebtedness in the event of the death or disability of the person insured; nor shall it be applicable to any of the provisions of Part 5 (commencing at Section 12140), Division 2 of this code; nor shall it be applicable to insurance provided incidentally to the sale of services if the cost of the insurance to the seller of the services does not exceed the sum of one dollar ($1) per annum for each purchaser of those services.
If any insurer, agent, broker or solicitor wilfully violates the provisions of this article, the Insurance Commissioner may suspend or revoke his certificate or license or other authority to do business or engage in his occupation for a period not exceeding one year. The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
As used in this article “insurer” includes any person or organization to which Article 4 (commencing with Section 730), Chapter 1, Part 2, Division 1 is applicable.
ARTICLE 5.8. Premium Financing [778. - 778.4.]
As used in this article, “premium financing” means engaging in the business of advancing money, directly or indirectly, to an insurer or producer at the request of an insured pursuant to the terms of a premium finance agreement, wherein the insured has assigned the unearned premiums, accrued dividends, or loss payments as security for such advancement in payment of premiums on insurance contracts only, and does not include the financing of insurance contract premiums purchased in connection with the financing of goods and services.
As used in this article, “premium finance agreement” means a loan contract, note, agreement, or obligation by which an insured agrees to pay to a lender in installments the principal amount advanced by the lender to an insurer or producer in payment of premium on an insurance contract or contracts, plus charges, with the assignment, as security therefor, of the unearned premiums, accrued dividends, or loss payments.
Any person engaged in business as an insurance agent or broker and who participates in the arrangement of a premium financing agreement shall, if he accepts compensation for arranging, directing, or performing services in connection with the premium financing agreement, disclose to the insured, in a manner and form established by the commissioner, the amount of compensation he is to receive from the premium financer and maintain for three years and make available to the commissioner a list of accounts in connection with which he has accepted compensation for premium financing services showing the amount of such compensation with respect to each premium financing agreement and with respect to each financing schedule used by the agent or broker. The requirements of this subdivision shall not apply with respect to interest paid to the broker or agent by the premium financer based upon delay in payment of the premium due the insurer as permitted under subdivision (a) or (b) of Section 18628 of the Financial Code.
The commissoner shall hold a hearing and adopt by regulation a standard procedure and form for making the disclosure to the insured required by subdivision (a).
The amount of the periodic finance charges, if any, imposed for the premium financing purchased and the annual percentage rate associated with those charges shall be disclosed in the policy itself, or if arranged pursuant to a separate premium financing agreement in the premium financing agreement itself, and in the premium finance billings. If the finance charge is a fixed fee, regardless of the amount of the loan or the balance due, the disclosure is not required to include the annual percentage rate associated with those charges. This section shall not apply to any insurance policy or premium finance billing if the same information is otherwise disclosed to the insured as required by any other provision of state or federal law.
Every property broker-agent and every casualty broker-agent shall, prior to arranging premium financing for any new or renewal policy of insurance specified in Section 660, do all of the following:
Provide the applicant or prospective insured with any information that is required by the federal Truth in Lending Act (15 U.S.C. Sec. 1601 et seq.).
Obtain the signature of the applicant or prospective insured on the following disclosure, which shall be in 10-point boldface type on a separate form or sheet of paper:
Some insurance companies and the California Automobile Assigned Risk Plan (CAARP) provide the opportunity to make payments on insurance premiums. Your agent or broker is required to disclose these options, if any are available for the insurance you are purchasing. If you choose to enter into a contract that provides for premium financing, your agent is required by law to make certain disclosures concerning interest, fees, or other charges. If your insurance has been financed by any person or business other than your insurance company, and your insurance is canceled for any reason, your loan may be subject to continued interest charges, or other charges that may result from delays by your insurance company in repaying the premium finance company. You should understand all of the charges associated with your financing plan. If you are uncertain about how the financing plan works, you should ask your insurance agent or broker.
Every property broker-agent and every casualty broker-agent shall comply with the requirements of the Consumer Contract Awareness Act of 1990 (Title 1.86 (commencing with Section 1799.200) of Part 4 of Division 3 of the Civil Code) to the extent that its provisions are applicable to any transaction subject to this section.
If a transaction subject to subdivision (a) is conducted over the telephone, the property broker-agent and the casualty broker-agent shall be deemed to have complied with the requirements of subdivision (a) if, within 72 hours after transacting the contract or agreement, the disclosure form and other information required by subdivision (a) is mailed to the applicant or insured at the address provided by the applicant or insured. Proof of mailing shall be established by the method described in Section 38.
ARTICLE 5.9. Credit Life and Disability Insurance [779.1. - 779.36.]
The purpose of this article is to promote the public welfare by regulating credit life insurance and credit disability insurance. Nothing in this article is intended to prohibit or discourage reasonable competition.
All life insurance and all disability insurance sold in connection with loans or other credit transactions shall be subject to the provisions of this article, except (a) such insurance sold in connection with a loan or other credit transaction of more than 10 years duration, and (b) such insurance where its issuance is an isolated transaction on the part of the insurer not related to an agreement or a plan or regular course of conduct for insuring debtors of the creditor. Nothing in this article shall be construed to relieve any person from compliance with any other applicable law of this state, including, but not limited to, Article 6.5 (commencing with Section 790), nor shall anything in this article be construed so as to alter, amend, or otherwise affect existing case law.
For the purpose of this article:
“Credit life insurance” means insurance on the life of a debtor pursuant to or in connection with a specific loan or other credit transaction, exclusive of any such insurance procured at no expense to the debtor. Insurance shall be deemed procured at no expense to the debtor unless the cost of the credit transaction to the debtor varies depending on whether or not the insurance is procured.
“Credit disability insurance” means insurance on a debtor to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is disabled as defined in the policy, exclusive of any insurance procured at no expense to the debtor. Insurance shall be deemed to have been procured at no expense to the debtor unless the cost of the credit transaction to the debtor varies depending on whether or not the insurance is procured.
“Creditor” means the lender of money or vendor or lessor of goods, services, property, rights or privileges, for which payment is arranged through a credit transaction or any successor to the right, title or interest of any such lender, vendor or lessor, and an affiliate, associate or subsidiary of any of them or any director, officer or employee of any of them or any other person in any way associated with any of them.
“Debtor” means a borrower of money or a purchaser or lessee of goods, services, property, rights or privileges for which payment is arranged through a credit transaction.
“Indebtedness” means the total amount payable by a debtor to a creditor in connection with a loan or other credit transaction.
Credit life insurance and credit disability insurance shall be issued only in the following forms:
Individual policies of life insurance issued to debtors on the term plan;
Individual policies of disability insurance issued to debtors on a term plan or disability benefit provisions in individual policies of credit life insurance;
Group policies of life insurance issued to creditors providing insurance upon the lives of debtors on the term plan;
Group policies of disability insurance issued to creditors on a term plan insuring debtors or disability benefit provisions in group credit life insurance policies to provide such coverage.
The amount of credit life insurance and credit disability insurance shall not exceed, but, except as provided in subdivision (b), may be less than, the following:
Credit Life Insurance. The initial amount of credit life insurance shall at no time exceed the unpaid amount financed plus earned interest. Where an indebtedness is repayable in substantially equal installments, the amount of insurance shall at no time exceed the greater of the scheduled or the actual unpaid amount financed plus earned interest. In the case of revolving loan or revolving charge accounts the insurance shall not at any time exceed the unpaid amount financed plus earned interest.
Notwithstanding the provisions of the above paragraph, the amount of insurance on agricultural or horticultural loan commitments may be equal to the amount of the loan commitment.
Credit Disability Insurance. The total amount of periodic indemnity payable by credit disability insurance in the event of disability, as defined in the policy, shall not exceed the aggregate of the periodic scheduled unpaid installments of indebtedness, and the amount of each periodic indemnity shall not exceed the original indebtedness divided by the number of periodic installments.
The amount of credit life and credit disability insurance may be less than the amounts specified in subdivision (a) except as provided by subdivision (a) of Section 18291, subdivision (e) of Section 22458.1, or subdivision (e) of Section 24458.1 of the Financial Code, or by any other provision of law specifically prohibiting credit life or credit disability insurance in some lesser amount.
The term of any credit life insurance or credit disability insurance shall, subject to acceptance by the insurer, commence on the date when the debtor becomes obligated to the creditor or the date the debtor applies for such insurance, whichever is later, except that, where a group policy provides coverage with respect to existing obligations, the insurance on a debtor with respect to such indebtedness shall commence on the effective date of the policy. Where evidence of insurability is required and such evidence is furnished more than thirty (30) days after the date when the debtor becomes obligated to the creditor, the term of the insurance may commence on the date on which the insurance company determines the evidence to be satisfactory, and in such event there shall be an appropriate refund or adjustment of any charge to the debtor for insurance. The term of such insurance shall not extend more than 15 days beyond the scheduled maturity date of the indebtedness except when extended without additional cost to the debtor. If the indebtedness is discharged due to renewal or refinancing prior to the scheduled maturity date, the insurance in force shall be terminated before any new insurance may be issued in connection with the renewed or refinanced indebtedness. In all cases of termination prior to scheduled maturity, a refund shall be paid or credited as provided in Section 779.14.
Notwithstanding the provisions of Section 10203.5, all credit life insurance and credit disability insurance subject to this article shall be evidenced by an individual policy, or in the case of group insurance by a certificate of insurance, which individual policy or group certificate of insurance shall be delivered to the debtor.
Each individual policy or group certificate of credit life insurance or of credit disability insurance or any combination thereof shall, in addition to other requirements of law, set forth the name and home office address of the insurer, the identity by name or otherwise of the person or persons insured the premium or amount of payment, if any, by the debtor separately for credit life insurance and credit disability insurance, a description of the coverage including the amount and term thereof, and any exceptions, limitations or restrictions, and shall state that the benefits shall be paid to the creditor holding the indebtedness to reduce or extinguish the unpaid indebtedness and, wherever the amount of insurance may exceed the unpaid indebtedness, that any such excess shall be payable to a beneficiary, other than the creditor, named by the debtor or to his estate. Said individual policy or group certificate of insurance shall be delivered to the insured debtor at the time the insurance commences except as hereinafter provided.
Notwithstanding the provisions of the above paragraph, a certificate issued under a group policy in cases where the debtor obligates himself to pay the insurance premium or payment periodically with the debt payments on the decreasing amount of the insurance or where the indebtedness is a revolving loan or revolving charge account the rate of insurance premium or payment per unit of coverage may be set forth in lieu of “the premium or amount of payment, if any, by the debtor”.
If a creditor requires a debtor to make any payment for credit life insurance or credit disability insurance, and an individual policy or group certificate of insurance is not delivered to the debtor at the time the insurance commences, a copy of the application for such policy or a notice of proposed insurance, signed by the debtor and setting forth the name and home office address of the insurer, the name or names of the debtor, the premium or amount of payment by the debtor separately for credit life insurance and credit disability insurance, the amount, term and a brief description of the coverage provided, shall be delivered to the debtor at the time such indebtedness is incurred, or at the time the debtor applies for such insurance, whichever is later. The copy of the application for, or notice of proposed insurance shall refer exclusively to insurance coverage, and shall be separate and apart from the loan, sale or other credit statement of account, instrument or agreement, unless the information required by this subsection is prominently set forth therein. Upon acceptance of the insurance by the insurer and within thirty (30) days of the date upon which (1) the indebtedness is incurred, (2) the application for such insurance is received by the insurer, or (3) the insurer determines the evidence of insurability, if required, to be satisfactory, the insurer shall cause the individual policy or group certificate of insurance to be delivered to the debtor. Said application or notice of proposed insurance shall state that upon acceptance by the insurer, the insurance shall become effective either as of the date the indebtedness is incurred or the date of application for such insurance, whichever is applicable; provided that where evidence of insurability is required and such evidence is furnished more than thirty (30) days after either the date when the debtor becomes obligated to the creditor or the date the debtor applies for such insurance, which ever is applicable, the term of the insurance shall commence on the date on which the insurance company determines the evidence to be satisfactory, and in such event there shall be an appropriate refund or adjustment of any charge to the debtor for insurance. A debtor shall not be deemed to be required to make any payment for credit life insurance or credit disability insurance unless the cost of the credit transaction to the debtor varies depending upon whether or not such insurance is procured.
All policies, certificates of insurance, notices of proposed insurance, applications for insurance, endorsements and riders delivered or issued for delivery in this state and the schedules of premium rates pertaining thereto shall be filed with the commissioner.
The commissioner shall within 30 days after the filing of any such policies, certificates of insurance, notices of proposed insurance, applications for insurance, endorsements and riders, disapprove any such form if the benefits provided therein are not reasonable in relation to the premium charge, or if it contains provisions which are unjust, unfair, inequitable, misleading, deceptive or encourage misrepresentation of the coverage, or are contrary to any provision of the Insurance Code or of any rule or regulation promulgated thereunder.
The provisions of subdivisions (f) and (g) of Section 10291.5 shall be applicable to the withdrawal of the approval of forms, whether of life or disability insurance, required by this article to be filed with or approved by the commissioner.
If a group policy of credit life insurance or credit disability insurance (1) has been delivered in this State before September 18, 1959, or (2) has been or is delivered in another state before or after such date, the insurer shall be required to file only the group certificate and notice of proposed insurance delivered or issued for delivery in this State as specified in Sections 779.6 and 779.7 of this article, and such forms shall be approved by the commissioner if, (a) they conform with the requirements specified in said Sections 779.6 and 779.7; (b) they are accompanied by a certification in a form satisfactory to the commissioner that the substance of such forms are in substantial conformity with the master policy; and (c) the schedules of premium rates applicable to the insurance evidenced by any such certificate or notice are not in excess of the insurer’s schedules of premium rates filed with the commissioner; provided, however, the premium rate in effect on existing group policies may be continued until the first policy anniversary date following October 1, 1963.
Any insurer may revise its schedules of premium rates from time to time, and shall file such revised schedules with the commissioner. No insurer shall issue any credit life insurance policy or credit disability insurance policy for which the premium rate exceeds that determined by the schedules of such insurer as then on file with the commissioner.
Each individual policy, group certificate, or notice of proposed insurance shall provide that in the event of termination of the insurance prior to the scheduled maturity date of the indebtedness, any refund of an amount paid by the debtor for insurance shall be paid promptly to the person entitled thereto or credited to the next payment or payments due on the indebtedness. However, the commissioner shall prescribe a minimum refund and no refund that would be less than that minimum need be made. The formula to be used in computing that refund shall be filed with and approved by the commissioner.
An individual policy or group certificate of credit life insurance or of credit disability insurance or a combination thereof, or a notice of proposed insurance, shall allow an insured to rescind the insurance within 30 days of receipt of the policy or certificate or notice of proposed insurance issued pursuant to Section 779.7 and to receive a full refund, or credit if financed, of any premium that has been paid. The right to rescind shall be disclosed on the face of the individual policy, group certificate, or notice of proposed insurance in at least 14-point type and shall include the disclosure of the department’s toll-free telephone number and other disclosures set forth in Section 510.
No statement, disclosure, or notice made in accordance with Section 779.14 or 779.35 shall be construed to cause the policy forms, certificates of insurance, or notices of proposed insurance, by themselves, to be considered as nonstandard forms as described in Article 6.9 (commencing with Section 2249) of Subchapter 2 of Chapter 5 of Title 10 of the California Code of Regulations.
This section applies to all policies issued or delivered in this state on or after January 1, 1999. All policies subject to this section that are in effect on January 1, 1999, shall be construed to be in compliance with this section, and any provision in any policy which is in conflict with this section shall be of no force or effect.
If a creditor requires a debtor to make any payment for credit life insurance or credit disability insurance and an individual policy or group certificate of insurance is not issued, the creditor shall immediately give written notice to such debtor and shall promptly make an appropriate credit to the next payments due on the account.
The amount charged to a debtor for any credit life or credit disability insurance shall not exceed the premium rates filed with the commissioner for the coverage provided or the premiums charged by the insurer, as computed at the time the charge to the debtor is determined, whichever is less.
Nothing in this act shall be construed to authorize any charge now prohibited under any statute or rule governing credit transactions, irrespective of whether the same is contained in this code or made pursuant thereto.
All policies of credit life insurance and credit disability insurance shall be delivered or issued for delivery in this State only by an admitted insurer, and shall be issued only through holders of certificates, licenses or authorizations issued by the commissioner. This article is hereby specifically made applicable to reciprocal or interinsurance exchanges and fraternal benefit societies.
All claims shall be promptly reported to the insurer or its designated claim representative, and the insurer shall maintain adequate claim files. All claims shall be settled as soon as possible and in accordance with the terms of the insurance contract.
All claims shall be paid either by draft drawn upon the insurer, by check of the insurer, or, with consent of the insured, by an electronic funds transfer to the order of the claimant to whom payment of the claim is due pursuant to the policy provisions, or upon direction of such claimant to one specified.
No plan or arrangement shall be used whereby any person, firm or corporation other than the insurer or its designated claim representative shall be authorized to settle or adjust claims. The creditor shall not be designated as claim representative for the insurer in adjusting claims; provided, that a group policyholder may, by arrangement with the group insurer, draw drafts or checks in payment of claims due to the group policyholder subject to audit and review by the insurer.
When credit life insurance or credit disability insurance is required as additional security for any indebtedness, the debtor shall, upon request to the creditor, have the option of furnishing the required amount of insurance through existing policies of insurance owned or controlled by him or of procuring and furnishing the required coverage through any insurer authorized to transact an insurance business within this State. This section shall not prevent the creditor from exercising his right to approve or disapprove of the insurer furnishing the credit insurance.
The commissioner may adopt, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, reasonable rules and regulations necessary to carry out this article.
The commissioner, in his discretion, may revoke or suspend the license or certificate of authority of any person guilty of a violation of any provisions of this article or any rules and regulations adopted pursuant thereto. In addition to any other penalty provided by law, any person who violates an order of the commissioner after it has become final, and while such order is in effect, shall, upon proof thereof to the satisfaction of the court, forfeit and pay to the State of California a sum not to exceed two hundred fifty dollars ($250) which may be recovered in a civil action, except that if such violation is found to be willful, the amount of such penalty shall be a sum not to exceed one thousand dollars ($1,000).
Whenever the commissioner finds that there has been a violation by an insurer of this article or any rules or regulations issued pursuant thereto, he shall proceed as provided in Section 701. Whenever the commissioner finds that there has been such a violation by any licensee other than an insurer, he shall proceed as provided in Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code.
Any party affected by an order of the commissioner shall be entitled to judicial review in accordance with the provisions of Section 12940.
If any provision of this article, or the application of such provision to any person or circumstances, shall be held invalid, the remainder of the article, and the application of such provision to any person or circumstances other than those as to which it is held invalid, shall not be affected thereby.
Credit life insurance and credit disability insurance within the scope of this article, where the form of policy including the premium rates pertaining thereto have been filed with the commissioner and not disapproved by him or the premiums charged have been in accordance with those provided by any law of this state or regulation of the commissioner promulgated thereunder, are not subject to the provisions of Section 10214 or Section 10270.65 of the Insurance Code.
In accordance with this article and the regulations adopted pursuant to Section 779.21, the commissioner shall, after notice and public hearing, promulgate regulations setting forth standard forms of credit life and disability insurance policies, certificates of insurance, notices of proposed insurance, applications for insurance, endorsements, and riders. The use of such forms shall be mandatory, except that commissioner may approve the use of nonstandard forms which are in accord with this article and the regulations adopted pursuant to Section 779.21.
For purposes of establishing the fact of disability in credit disability insurance, chiropractors’ certifications of disability when made within the scope of their license shall be accepted by insurers as equally valid as physicians and surgeons’ certifications of disability when made within the scope of their license.
An individual policy or group certificate may exclude from credit disability insurance coverage only those preexisting illnesses, diseases, or physical conditions for which the debtor actually received medical advice, consultation, or treatment both within six months before and six months after the effective date of the debtor’s coverage and which result in disability commencing within two years of the effective date. This provision shall not preclude the exclusion of other preexisting diseases or physical conditions by name or specific description.
An individual policy or group certificate may exclude from credit life insurance coverage only those preexisting illnesses, diseases, or physical conditions for which the debtor actually received medical advice, consultation, or treatment both within six months before and six months after the effective date of the debtor’s coverage and that result in death within six months after the effective date.
Preexisting condition provisions on revolving accounts for credit disability insurance shall be subject to the limitations of subdivision (a), and for credit life insurance shall be subject to the limitations of subdivision (b).
In the case of revolving accounts, any preexisting condition provision may be applied separately to each charge or advance, in which case the time periods in the applicable subdivision shall be measured from the date of each separate charge or advance.
If any preexisting condition provision is applied to a subsequent charge or advance on a revolving account the consumer shall be given the following notice at least annually:
“NOTICE: THIS INSURANCE MAY NOT COVER AN ADVANCE OR CHARGE UNDER YOUR CREDIT LINE IF YOUR DISABILITY OR DEATH RESULTS FROM A CONDITION FOR WHICH YOU HAVE SEEN A DOCTOR OR CHIROPRACTOR IN THE SIX MONTHS BEFORE THE ADVANCE OR CHARGE.”
The notice required by subdivision (d) may be printed on a periodic billing statement or given separately.
Subdivision (d) does not apply to a credit card as defined in Section 1747.02 of the Civil Code.
The debtor shall have the right to terminate credit life insurance or credit disability insurance at any time for any reason upon notice to the creditor. A refund shall be paid or credited as provided in Section 779.14 or by the regulation of the commissioner. If the premium refund is paid to the creditor, the creditor shall credit the debtor’s account with the refund and any interest or finance charge adjustment as provided in the credit agreement.
The term “compensation,” for the purpose of this article means any valuable consideration including, but not limited to, all paid or credited commissions, contingent commissions, service fees, fees, consulting fees paid or credited within or outside this state in relation to business produced or to be produced or written or to be written in this state, electronic data process equipment or services, supplies (other than forms approved by the commissioner and the usual claims and reporting forms and envelopes for transmitting the claims and brochures, rate books, and rate charts), rental equipment of any type, advertising, telephone provided by an insurer, its agent, or any related person without charge of actual charge or at a charge less than the usual cost, profit sharing plans, experience rating refunds, experience rating credits, dividends, expense allowances, stock plans or bonuses, and any other form of credit, including moneys assumed, or expenditures in any form whatsoever, direct or indirect, paid by or on behalf of the insurer, or by any subsidiary or parent, or subsidiary of the parent of the insurer, or by any other person to or on behalf of any group policyholder, agent, general agent, or disability broker or withheld by any group policyholder, agent, general agent, or disability broker.
The maximum amount of total compensation, as defined in subdivision (a), payable by any insurer shall not exceed 35 percent of the prima facie credit life insurance rates and 30 percent of the prima facie disability insurance rates. Of the maximum total compensation allowable, the creditor shall be limited to a compensation rate of 27.5 percent of the prima facie credit life insurance rates and 23.75 percent of the prima facie credit disability insurance rates. The general agent’s maximum total compensation allowable shall be limited to 7.5 percent of the prima facie credit life insurance rates and 6.25 percent of the prima facie credit disability insurance rates. A creditor may not receive both the creditor’s and the general agent’s compensation on its own produced insurance. A general agent may also receive additional primary compensation deducted from the maximum primary compensation allowable to the creditor.
If the commissioner has reason to believe that compensation is in fact or is contracted to be in excess of the maximum amount specified in this section, the commissioner may conduct a hearing or investigation, including the right to examine any contracts relating to the direct or indirect payment of compensation, to determine whether the insurer, general agent, or any other person is paying or whether an agent, general agent, or broker is receiving any form of compensation in excess of the applicable maximum amount of compensation specified in this section.
On and after January 1, 1988, no contract of credit life or credit disability insurance shall be issued in this state unless, if applicable, the maker first ascertains, using reasonable diligence, that any nonadmitted reinsurer possesses capital and surplus of at least one million dollars ($1,000,000).
Nothing in this article shall be construed to authorize the payment of any form of compensation to any creditor or to any person otherwise prohibited from receiving that form of compensation. Nor shall this article be construed to authorize the payment of experience rating refunds prior to the anniversary date of the policy. Those refunds shall be computed annually based on premiums earned to that anniversary date.
The use of compensating balances or special deposit accounts in connection, either directly or indirectly, with a credit life insurance program or a credit disability insurance program of a credit institution, whether on a group or an individual basis, is prohibited.
Compensating balances or special deposit accounts include, but not to the exclusion of other types of balances and accounts, the following:
The deposit of premiums to the account of the insurer in the financial institution for which the insurer provides the credit insurance program, when the account is either noninterest bearing or at a rate of interest less than usual or is controlled by the institution.
Remitting premiums to the insurer after the expiration of the grace period on a regular basis so that the arrearage period is constant.
The retention of premiums by an agent or broker to whom the financial institution remits premiums for a period of time which is not reasonably related to the time normally expected to be needed for the agent or broker to remit the premium to the insurer, if that delay is a continuing feature of the premium paying process.
Any other practice which unduly delays receipt of premiums by the insurer on a regular basis, or which is followed by an insurer when the practice involves use of the financial resources of the insurer for the benefit of the credit institution.
The foregoing criteria apply regardless of whether premiums are due the insurer on the single premium in advance system or on the monthly outstanding balance system. Nothing herein shall prevent the insurer from making deposits in a financial institution which are not related to a credit insurance program if it is in fact not related to whether the insurer is the insurer which insures the credit insurance program.
The commissioner shall adopt regulations that become effective no later than January 1, 2001, specifying prima facie rates based upon presumptive loss ratios, with rates which would be expected to result in a target loss ratio of 60 percent, or any other loss ratio as may be dictated after applying the factors contained in this subdivision, for each class of credit disability, credit unemployment, credit property, and credit life insurance. The prima facie rates shall be based upon loss experience filed with the commissioner, aggregated by class.
If any rate established under the commissioner’s ratemaking authority produces actual loss ratios that are lower than the presumptive loss ratio, prospective rates may be adjusted, but no retroactive refunds shall be required. In order to provide insurers an opportunity to earn a fair and reasonable rate of return, the commissioner in the ratemaking process shall consider the following factors: acquisition costs, including commissions and other forms of compensation, expenses, profits, loss ratios, reserves, and other reasonable actuarial considerations.
The commissioner shall provide for rate deviations. Upward and downward deviations shall be considered by the commissioner upon initiation by the department, or at the insurer’s request at the time of review of annual experience reports filed by insurers, or as provided by regulations pursuant to Section 779.21. Requested deviation rates shall be deemed approved if not disapproved within 120 days after submission to the department for approval. Creditor and agent compensation shall be based upon the prima facie rate, and shall not be affected by a deviated rate pursuant to this subdivision. This subdivision does not prohibit an insurer from paying compensation that is less than the prima facie rate.
The commissioner shall adopt regulations that become effective no later than January 1, 2001, specifying prima facie rates based upon presumptive loss ratios, with rates which would be expected to result in a target loss ratio of 60 percent, or any other loss ratio as may be dictated after applying the factors contained in this subdivision, for each class of joint life insurance, joint disability insurance, joint credit unemployment insurance, and joint credit property insurance. Those rates shall be expressed as a multiple of the prima facie rate for each class of insurance subject to subdivision (a), and shall be based upon loss experience filed with the commissioner, aggregated by class.
If any rate established under the commissioner’s ratemaking authority produces actual loss ratios that are lower than the presumptive loss ratio, prospective rates may be adjusted, but no retroactive refunds shall be required. In order to provide insurers an opportunity to earn a fair and reasonable rate of return, the commissioner in the ratemaking process shall consider the following factors: acquisition costs, including commissions and other forms of compensation, expenses, profits, loss ratios, reserves, and other reasonable actuarial considerations.
Loss ratios shall consist of the ratio of incurred losses to earned premiums in a specified reporting period.
The commissioner shall, on an annual basis, make actual annual loss ratios under subdivisions (a) and (c) available to the public.
ARTICLE 6. Misrepresentation of Policies [780. - 784.]
An insurer or officer or agent thereof, or an insurance broker or solicitor shall not cause or permit to be issued, circulated or used, any statement that is known, or should have been known, to be a misrepresentation of the following:
The terms of a policy issued by the insurer or sought to be negotiated by the person making or permitting the misrepresentation.
The benefits or privileges promised thereunder.
The future dividends payable thereunder.
A person shall not make any statement that is known, or should have been known, to be a misrepresentation (1) to any other person for the purpose of inducing, or tending to induce, such other person either to take out a policy of insurance, or to refuse to accept a policy issued upon an application therefor and instead take out any policy in another insurer, or (2) to a policyholder in any insurer for the purpose of inducing or tending to induce him or her to lapse, forfeit or surrender his or her insurance therein.
A person shall not make any representation or comparison of insurers or policies to an insured which is misleading, for the purpose of inducing or tending to induce him or her to lapse, forfeit, change or surrender his or her insurance, whether on a temporary or permanent plan.
Any person who violates the provisions of Section 780 or 781 is punishable by a fine not exceeding twenty-five thousand dollars ($25,000), or in a case in which the loss of the victim exceeds ten thousand dollars ($10,000), by a fine not exceeding three times the amount of the loss suffered by the victim, by imprisonment in a county jail for a period not to exceed one year, or by both a fine and imprisonment. Restitution to the victim ordered pursuant to Section 1202.4 of the Penal Code shall be satisfied before any fine imposed by this section is collected.
If an insurer knowingly violates any provision of Sections 780 or 781, or knowingly permits any officer, agent, or employee so to do, the commissioner, after a hearing in accordance with the procedure provided in Section 704, may suspend the insurer’s certificate of authority to do the class of insurance in respect to which the violation occurred.
Any person may be compelled to testify and produce books and writings at the trial or hearing of any person charged with violating any provision of sections 780 or 781 even though such testimony or evidence may incriminate him. A person shall not be prosecuted for any act concerning which he is compelled so to testify or produce evidence, except for perjury committed in so testifying.
ARTICLE 6.3. Senior Insurance [785. - 789.10.]
All insurers, brokers, agents, and others engaged in the transaction of insurance owe a prospective insured who is 65 years of age or older, a duty of honesty, good faith, and fair dealing. This duty is in addition to any other duty, whether express or implied, that may exist.
Conduct of an insurer, broker, or agent, or other person engaged in the transaction of insurance, during the offer and sale of a policy or certificate previous to the purchase is relevant to any action alleging a breach of the duty of good faith and fair dealing.
Except where explicitly provided to the contrary, this article shall not apply to any of the following:
Medicare supplement insurance as defined in subdivision (m) of Section 10192.4.
Long-term care insurance as defined in Section 10231.2.
Disability coverage provided through the insured’s employer or former employer.
Disability insurance policies or certificates principally designed to provide coverage for accidents or expenses incurred while traveling if the premium for the policy or certificate is ten dollars ($10) or less.
Blanket disability insurance as defined in Section 10270.3.
Credit disability insurance as defined in Section 779.2.
Accidental death insurance.
Until January 1, 2002, disability policies or certificates that are sold through direct response methods of delivery.
Disability income insurance as defined in subdivision (c) of Section 799.01.
Provided that the requirements of Section 10296 are met, this article shall not apply to transportation ticket policies and baggage insurance policy types allowable for sale by travel agents pursuant to Section 1753.
An insurance broker or agent shall not participate in, be associated with, or employ any party that participates in, or is associated with, the origination of a reverse mortgage, unless the insurance agent or broker maintains procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder or prospective policyholder to a reverse mortgage lender.
Except as provided in subdivision (b), individuals transacting insurance shall not receive compensation, commission, or direct incentive for providing reverse mortgage borrowers with a noncasualty insurance product that is connected to or a result of the reverse mortgage.
This section does not prevent an agent or broker from offering title insurance, hazard, flood, or other peril insurance, or other similar products that are customary and normal under a reverse mortgage loan.
It shall be unlawful for any insurance agent who is not licensed as an attorney to deliver to a person who is 65 years of age or older, a living trust or other legal document, other than an insurance contract or other insurance product document, if a purpose of the delivery is to sell an insurance product.
It shall be unlawful for any insurance agent who is licensed as an attorney to deliver to a person who is 65 years of age or older, a living trust or other legal document, other than an insurance contract or other insurance product document, unless the insurance agent complies with Section 6175.3 of the Business and Professions Code.
An insurance broker or agent shall not participate in, be associated with, or employ any party that participates in, or is associated with, obtaining veterans benefits for a senior, unless the insurance agent or broker maintains procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder, or prospective policyholder, to any veterans benefits program offered through the government.
All individual and group disability insurance policies and certificates, and all group life insurance policies and certificates offered for sale to individuals age 65 or older in California shall provide an examination period of 30 days after the receipt of the policy or certificate for purposes of review of the contract. If the policyholder or certificate holder chooses to cancel the policy or certificate and returns the policy or certificate for cancellation, by mail or other delivery method, within the 30-day examination period, the return shall void the policy or certificate from the beginning, and the parties shall be in the same position as if a policy or certificate had not been issued. All premiums paid and any policy or membership fee paid shall be fully refunded to the policyholder or certificate holder by the insurer or entity in a timely manner.
For the purposes of this section, a timely manner is no later than 30 days after the insurer or entity issuing the policy or certificate receives the returned policy or certificate.
If the insurer or entity issuing the policy or certificate fails to refund all of the premiums and any policy or membership fee paid, in a timely manner, the policyholder or certificate holder shall receive interest on the paid premium and policy or membership fee at the legal rate of interest on judgments as provided in Section 685.010 of the Code of Civil Procedure. The interest shall be paid from the date the insurer or entity received the returned policy or certificate.
Each policy or certificate shall have a notice prominently printed in no less than 12-point bold print, on the front of the policy jacket or on the cover page of the policy or certificate and the outline of coverage, stating that the policyholder or certificate holder, as applicable, has the right to return the policy or certificate, by mail or other delivery method, within 30 days after its receipt, and to have the full premium and any policy or membership fee paid refunded.
If, at the time of application or at the time of delivery of a group term life insurance policy or certificate, an insurer, its agent, group master policyowner, or association collects more than one month’s premium from an individual who is 60 years of age or older on the date he or she purchased coverage, the insurer shall provide the individual with a prorated refund of the premium if the individual delivers a cancellation request to the insurer during the first 30 days of the policy period.
This section shall become operative on July 1, 2015.
All brokers, agents, or other entities offering a contract of disability insurance to persons 65 years of age or older in this state shall provide the prospective insured with a full and accurate written comparison with existing health coverage, and shall explain the relationship of the proposed coverage to any existing health benefits provided by Medicare, Medi-Cal, or any other health benefits available to the applicant. The written comparison shall be maintained in accordance with Section 10508.5. Disability insurers marketing through direct response to persons 65 years of age or older shall include in the application form questions to ascertain whether the prospective insured is currently 65 years of age or older, and whether the prospective insured is covered by Medi-Cal or a Medicare supplement policy. These direct response insurers shall provide the required comparison as early in the transaction as possible, but not later than the delivery of the insurance contract.
The commissioner may prescribe a standard comparison form and an informational brochure that shall be distributed to every prospective insured at the time insurance is offered for sale by an agent, broker, or other producer. In the case of a transportation ticket policy, the informational brochures shall be delivered to the prospective insured not later than delivery of the insurance contract. Disability insurers marketing through direct response to persons 65 years of age or older shall provide the informational brochure as early in the transaction as possible, but not later than the delivery of the insurance contract.
The amendments to this section made by Assembly Bill 1178 of the 2001–02 Regular Session shall become operative January 1, 2002.
Any advertisement or other device designed to produce leads based on a response from a potential insured that is directed towards persons 65 years of age or older shall prominently disclose that an agent may contact the applicant if that is the fact. In addition, an agent who makes contact with a person as a result of acquiring that person’s name from a lead generating device shall disclose that fact in the initial contact with the person.
An insurer, agent, broker, solicitor, or other person or other entity shall not solicit persons 65 years of age and older in this state for the purchase of disability insurance, life insurance, or annuities through the use of a true name or fictitious name that is deceptive or misleading with regard to the status, character, or proprietary or representative capacity of the entity or person, or to the true purpose of the advertisement.
For the purposes of this section, an advertisement includes envelopes, stationery, business cards, worksheets, questionnaires, or other materials designed to describe and encourage the purchase of a policy or certificate of disability insurance, life insurance, or an annuity, or to collect personal or financial information about a prospective insured or purchaser of an annuity.
Advertisements shall not employ words, letters, initials, symbols, or other devices that are so similar to those used by governmental agencies, a nonprofit or charitable institution, veterans organization or agency, senior organization, or other insurer that they could have the capacity or tendency to mislead the public. Examples of misleading materials include, but are not limited to, those which imply any of the following:
The advertised coverages are somehow provided by or are endorsed by any governmental agencies, nonprofit or charitable institutions, veterans organizations or agencies, or senior organizations.
The advertiser is the same as, is connected with, or is endorsed by governmental agencies, nonprofit or charitable institutions, veterans organizations or agencies, or senior organizations.
An advertisement may not use the name of a state or political subdivision thereof in a policy name or description.
An advertisement may not use any name, service mark, slogan, symbol, or any device in any manner that implies that the insurer, or the policy or certificate advertised, or that any agency that may call upon the consumer in response to the advertisement, is connected with a governmental agency, such as the federal Social Security Administration or the United States Department of Veterans Affairs.
An advertisement may not imply that the reader may lose a right, or privilege, or benefits under federal, state, or local law if he or she fails to respond to the advertisement.
An insurer, agent, broker, or other entity may not use an address so as to mislead or deceive as to the true identity, location, or licensing status of the insurer, agent, broker, or other entity.
An insurer may not use, in the trade name of its insurance policy or certificate, any terminology or words so similar to the name of a governmental agency, governmental program, or veterans organization or agency as to have the capacity or the tendency to confuse, deceive, or mislead a prospective purchaser.
All advertisements used by agents, producers, brokers, solicitors, or other persons for a policy of an insurer shall have written approval of the insurer before they may be used.
An insurer, agent, broker, or other entity may not solicit a particular class by use of advertisements which state or imply that the occupational or other status as members of the class entitles them to reduced rates on a group or other basis when, in fact, the policy or certificate being advertised is sold on an individual basis at regular rates.
In addition to any other prohibition on untrue, deceptive, or misleading advertisements, no advertisement for an event where insurance products will be offered for sale at, or as a result of, the event may use the terms “seminar,” “class,” “informational meeting,” “benefits assistance,” “qualification information,” or substantially equivalent terms to characterize the purpose of the public gathering or event unless it adds the words “and insurance sales presentation” immediately following those terms in the same type size and font as those terms.
Any advertisement for an event, presentation, seminar, workshop, or other public gathering regarding veterans’ benefits or entitlements is required to comply with the requirements of paragraph (25) of subdivision (a) of Section 1770 of the Civil Code.
The following definitions apply to this section:
“Senior designation” means any degree, title, credential, certificate, certification, accreditation, or approval, that expresses or implies that a broker or agent possesses expertise, training, competence, honesty, or reliability with regard to advising seniors in particular on finance, insurance, or risk management.
“Use” means utilizing a word, phrase, acronym, or logo, in any oral or written communication from which a sale of insurance to a senior may directly or indirectly result, that states or suggests, alone or in context, that a broker or agent holds a senior designation.
A broker or agent may not use a senior designation unless all of the following conditions have been met:
The broker or agent has been granted the right to use the senior designation by the organization that issues the senior designation, and the broker or agent is currently authorized by the organization to use the designation.
The senior designation has been approved by the commissioner for use by brokers and agents in the sale of insurance to seniors.
The broker or agent has been licensed for at least four years in any state or United States territory to sell the types of insurance with which the designation is used.
A broker or agent may not use a senior designation in a manner that misleads a person as to the significance of the senior designation. Each time a broker or agent uses a senior designation in a writing, the writing shall also contain the words “California” or “CA” next to “Insurance Agent” or “Insurance Broker Agent” and “License,” and these words shall be located immediately prior to the broker’s license number or the agent’s license number, in type that is in the same font and at least the same size as the type used for the senior designation. The requirements set forth in this subdivision are in addition to the requirements of Section 1725.5 and shall apply regardless of whether the broker or agent is an insurance agent, as defined in Section 1621. For purposes of this paragraph, “writing” means business cards, written price quotations, and print advertisements distributed exclusively in this state.
The commissioner shall approve a senior designation only if the organization that issues the designation satisfies all of the following requirements with respect to the designation:
The organization requires California candidates for the designation to demonstrate superior expertise in advising seniors in particular in finance, insurance, or risk management by passing examinations that are based on applicants with no prior insurance education or experience completing at least 75 hours of study covering at least the following topics: aspects of aging, health care coverage, long-term care insurance, financial planning for retirement, investments, estate planning, and ethics. Textbooks or other study materials may use chapter and subchapter titles that differ from those general topics as long as the essential content is the same. No part of the examinations, textbooks, or other study materials may concern techniques on how to increase the amount of insurance or financial products one sells, or recommend the selling of products offered by specific companies.
A written procedure to receive, log, and conduct a preliminary review of complaints alleging improper, illegal, or unethical conduct.
Written standards for determining when a complaint warrants further investigation into the merits of the allegations contained therein.
Written standards and procedures to ensure that, once a complaint is determined to warrant further investigation, the investigation is diligently conducted.
Written standards for determining when to file disciplinary charges based on the results of an investigation.
Written standards and procedures to ensure due process in the adjudication of disciplinary charges by adjudicators who are fair, knowledgeable, and otherwise qualified.
Written standards and procedures for the imposition of appropriate sanctions, including, when warranted, revocation of the designation.
A word, phrase, acronym, or logo shall be deemed a senior designation if it contains the word “senior,” “Medicare,” “Medi-Cal,” “retire,” “mature,” “gerontology,” or “elder,” or any variation or synonym of one of these words within several words of the word “certified,” “chartered,” “registered,” “adviser,” “specialist,” “consultant,” “agent,” “broker,” “insurance,” “planner,” “professional,” “enrolled,” “accredited,” “analyst,” or “fellow,” or any variation or synonym of one of these words. A word, phrase, acronym, or logo may constitute a senior designation if it meets the definition in paragraph (1) of subdivision (a) regardless of whether it contains one of the words recited in this subdivision.
A word, phrase, acronym, or logo shall not constitute a senior designation if it is a job title or description of an employee of a governmental entity, or of an organization with a contract with that governmental entity to provide free counseling to seniors.
No exemption exists under this section for use of a senior designation that constitutes a job title or description or part of a job title or description, except as provided in paragraph (2).
An advanced academic degree, such as a Ph.D., M.B.A., or M.S., may be used without compliance with subdivision (d), if the degree was awarded by an institution of higher education that has been accredited by an organization that is on the United States Department of Education’s list entitled “Accrediting Agencies Recognized for Title IV Purposes.”
A violation of subdivision (b) by a broker or agent shall be grounds for suspension or revocation of the broker’s or agent’s license pursuant to Sections 1668 and 1738. Such a violation also shall be grounds for a cease and desist order and monetary penalty pursuant to Section 12921.8, as if the broker or agent had acted in a capacity for which a license was required but not possessed.
Any person who grants to a California resident the right to use a senior designation that has not been approved by the commissioner, without reasonably attempting to determine whether California is one of the designee’s residences, shall be subject to a cease and desist order and monetary penalty pursuant to Section 12921.8, as if the person had acted in a capacity for which a license was required but not possessed.
The disciplinary and remedial authority recited in this subdivision shall be in addition to any other disciplinary and remedial authority included in this code.
The commissioner shall maintain a list of senior designations approved pursuant to subdivisions (c), (d), and (e) and shall publish the current list on the Internet Web site of the Department of Insurance.
The commissioner may, upon receipt of a petition from an organization, issue written confirmation that a designation issued by that organization is exempt from the requirement of approval pursuant to this section. The commissioner may issue confirmation if the designation, according to its title or curriculum, or in its actual use, concerns almost exclusively subject matters other than insurance or financial services sold to seniors in particular.
The commissioner may rescind approval of a designation whenever there has been a material change in the management or operation of the organization that issues the designation, or in the procedures or criteria for issuance of the designation, such that if the organization were to apply for approval of the designation subsequent to the change, approval would be denied.
Any rescission of the approval of a designation shall be after notice and a hearing conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, as if the approval were a license, and the commissioner shall have all of the powers granted therein.
An insurer, agent, broker, or other person engaged in the transaction of insurance shall not knowingly recommend for sale, or sell, disability insurance providing health benefits directly to a Medi-Cal beneficiary who is age 65 or older. For disability insurance providing health benefits sold to a person age 65 or older, the application or other supplemental record signed by the applicant shall contain a question designed to determine if the applicant is receiving Medi-Cal benefits.
No insurer, broker, agent, or other person shall cause an insured aged 65 years or older to replace a disability insurance policy or certificate unnecessarily.
No insurer, broker, agent, or other entity within the jurisdiction of the department shall promote or cause overloading of disability coverage to persons aged 65 years or older. For purposes of this section, “overloading” means possession by an insured of functionally identical coverages that overlap or duplicate benefits to the extent that a reasonable person would not consider their ownership to be cost-effective.
It shall be presumed that the sale of disability insurance that is the subject of this article, sold to a person aged 65 years or older, is overloading, as defined in subdivision (a), if the insured is already covered by Medicare Parts A and B as well as one Medicare supplement policy, certificate, or contract and coverage for excess charges under Part B.
The application for disability insurance for a person age 65 years or older shall contain a question or questions designed to elicit information regarding all other existing health and disability coverage in force by type and company.
No insurer, broker, agent, or other person shall knowingly recommend for purchase or sell disability insurance to a person age 65 or older which results in the insured having coverage, for medical benefits, for more than 100 percent of actual medical expenses.
The commissioner shall have the administrative authority to assess penalties against insurers, brokers, agents, and other entities engaged in the transaction of insurance or any other person or entity for violations of this article.
Upon a showing of a violation of this article in any civil action, a court may also assess the penalties prescribed in this article.
Whenever the commissioner has reasonable cause to believe or determines after a public hearing that any insurer, agent, broker, or other person or entity engaged in the transaction of insurance, has violated this article the commissioner shall make and serve upon the insurer, broker, agent, or other person or entity a notice of hearing. The notice shall state the commissioner’s intent to assess the administrative penalties, the time and place of the hearing, and the conduct, condition, or ground upon which the commissioner is holding the hearing, and assessing the penalties. The hearing shall occur within 30 days after the notice is served. Within 30 days after the hearing the commissioner shall issue an order specifying the amount of the penalties to be paid. The penalties resulting from the hearing shall be paid to the Insurance Fund.
The powers vested in the commissioner by this section shall be in addition to any and all powers and remedies vested in the commissioner by law.
Actions for injunctive relief, penalties specified in Section 789.3, damages, restitution, and all other remedies in law, may be brought in superior court by the Attorney General, district attorney, or city attorney on behalf of the people of California. The court shall award reasonable attorney’s fees and court costs to the prevailing plaintiff who establishes a violation of this article.
Any broker, agent, or other person or other entity engaged in the transactions of insurance, other than an insurer, who violates this article is liable for an administrative penalty of no less than one thousand dollars ($1,000) for the first violation.
Any broker, agent, other person, or other entity engaged in the business of insurance, other than an insurer, who engages in practices prohibited by this article a second or subsequent time or who commits a knowing violation of this article, is liable for an administrative penalty of no less than five thousand dollars ($5,000) and no more than fifty thousand dollars ($50,000) for each violation.
If the commissioner brings an action against a licensee pursuant to subdivision (a) or (b) and determines that the licensee may reasonably be expected to cause significant harm to seniors, the commissioner may suspend his or her license pending the outcome of the hearing described in subdivision (c) of Section 789.
Any insurer who violates this article is liable for an administrative penalty of ten thousand dollars ($10,000) for the first violation.
Any insurer who violates this article with a frequency as to indicate a general business practice or commits a knowing violation of this article, is liable for an administrative penalty of no less than thirty thousand dollars ($30,000) and no more than three hundred thousand dollars ($300,000) for each violation.
The commissioner may require rescission of any contract found to have been marketed, offered, or issued in violation of this article.
If any provision of this article or the application thereof to any person or circumstances is held invalid, that invalidity shall not affect other provisions or applications of the article which can be given effect, without the invalid provision or application, and to this end the provisions of the article are severable.
Insurance policies or certificates of disability insurance sold to persons age 65 or older shall return to policyholders or certificate holders benefits that have a minimum loss ratio of 60 percent for individual policies and 75 percent for group policies. The loss ratio shall be on the basis of incurred claims experience and earned premiums.
The commissioner shall require every entity providing insurance policies or certificates of disability insurance sold to persons age 65 or older in this state to maintain detailed experience data for policies and certificates subject to this section and require them to make an annual filing with the commissioner disclosing the loss ratio for each policy form or certificate subject to this section. The annual filing shall, at a minimum, include rates, rating schedules, and supporting documentation including ratios of incurred losses to earned premiums by number of years of policy duration. That information shall demonstrate that each policy form or certificate is in compliance with the applicable loss ratio standards.
The commissioner shall assure that reserves are reasonable and based on sound actuarial principles with respect to the aggregate dollar amount of reserves for claims that are incurred but not yet paid, and for claims that are incurred but not yet reported.
Policy forms or certificates shall be deemed to comply with the purposes of this section if the expected losses in relation to premiums over the entire period for which the policy form or certificate is rated comply with the requirements of this section and either of the following applies:
For policies or certificates that have been in force for three years or more, for the most recent year the ratio of incurred losses to earned premiums is greater than or equal to the minimum loss ratios established by this section.
For policies or certificates that have been in force for three years or less, the expected third year loss ratio can be demonstrated to be greater than or equal to the minimum loss ratio.
If the annual filing or other information received by the commissioner indicates that the actual loss ratio for a policy or certificate is less than the minimum loss ratio established by this section, the commissioner shall require that the insurer or entity providing the insurance file and implement a corrective plan. This plan shall include the utilization of premium reductions, dividends, benefit increases, or any combination of these or other methods so that the minimum loss ratio can be reasonably expected to be achieved. Any corrective plan shall be reviewed and approved by the commissioner prior to implementation.
If, in the opinion of the commissioner, a policy’s or certificate’s failure to meet the minimum loss ratio requirements is due to unusual reserve fluctuations, economic conditions, or other nonrecurring conditions, the commissioner may exempt the policy or certificate from the need for a corrective plan for that year. Any exemption shall be in writing and shall specify the reasons for the granting of the exemption.
If the insurer or other entity providing disability insurance to persons 65 years of age or older in this state fails to file and implement a corrective plan in a timely manner, the commissioner shall withdraw approval of the policy or certificate according to the procedures set forth in Section 10293. This remedy is in addition to any remedy available in that section or under other laws of this state. Any report, plan, exemption, or other document prepared pursuant to this section shall be accessible to the public as a public record.
The commissioner may adopt regulations to implement or administer this article.
Sales of disability insurance regulated by this article, as well as Medicare supplement insurance and long-term care insurance sold to persons aged 65 years or older, shall be registered by the insurer with the commissioner. The commissioner shall provide facilities for the computerized recordkeeping of all registered policies and certificates. The commissioner shall adopt regulations to implement and administer registration pursuant to this section. Regulations shall include, but need not be limited to, a system for assessing insurers in accordance with each insurer’s market share in order to finance the cost of registration, an appropriate method and schedule for the filing of data with the commissioner, the content and format required for each filing in accordance with subdivision (d), appropriate sanctions for failure to comply with this section or with regulations promulgated under this section, and criteria for releasing the registered information to parties outside the department.
Access to the registered information, including the identity of policyholders, shall be strictly limited to the department, with the exception that the Attorney General, a district attorney, or city attorney may be granted access upon request for the purpose of investigating or prosecuting suspected unlawful practices or for purposes of this article. The commissioner may, at his or her discretion, allow access to the registered information to the Health Insurance Counseling and Advocacy Program in the Department of Aging.
Access to registered information in a purely statistical format, which neither identifies nor enables identification of a particular policyholder, may be released at the discretion of the commissioner to any party who demonstrates that the information will be used only for other than commercial purposes.
The content of the filing shall contain no more than the following information:
Policyholder’s Medicare identification number or social security number. The policyholder’s name shall be specifically excluded from the filing.
A description of the policy as being Medicare supplemental insurance; long-term care insurance; or disability insurance.
Date of sale.
Date of lapse.
Whether the policy is in force as of the date of the filing.
The policy form number, if applicable.
The name of any insurer, broker, agent, or other person engaged in the transaction of insurance who was responsible for the sale of the policy.
“Elder” for purposes of this section means any person residing in this state who is 65 years of age or older.
If a life agent offers to sell to an elder any life insurance or annuity product, the life agent shall advise an elder or elder’s agent in writing that the sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund the purchase of this product may have tax consequences, early withdrawal penalties, or other costs or penalties as a result of the sale or liquidation, and that the elder or elder’s agent may wish to consult independent legal or financial advice before selling or liquidating any assets and prior to the purchase of any life or annuity products being solicited, offered for sale, or sold. This section does not apply to a credit life insurance product as defined in Section 779.2.
A life agent who offers for sale or sells a financial product to an elder on the basis of the product’s treatment under the Medi-Cal program may not negligently misrepresent the treatment of any asset under the statutes and rules and regulations of the Medi-Cal program, as it pertains to the determination of the elder’s eligibility for any program of public assistance.
A life agent who offers for sale or sells any financial product on the basis of its treatment under the Medi-Cal program shall provide, in writing, the following disclosure to the elder or the elder’s agent:
“NOTICE REGARDING STANDARDS FOR MEDI-CAL ELIGIBILITY AND RECOVERY
If you or your spouse are considering purchasing a financial product based on its treatment under the Medi-Cal program, read this important message!
You or your spouse do not have to use up all of your savings before applying for Medi-Cal.
RECOVERY
An annuity purchased on or after September 1, 2004, shall be subject to recovery by the state upon the annuitant’s death under the regulations of the Medi-Cal Recovery Program. Income derived from the annuity must be used to meet the annuitant’s share of costs and, if the annuitant is married, the income derived from the annuity may impact the minimum monthly maintenance needs of the annuitant’s community spouse. An annuity purchased by a community spouse on or after September 1, 2004, may also be subject to recovery if that spouse is the recipient of past or future Medi-Cal benefits.
UNMARRIED RESIDENT
An unmarried resident may be eligible for Medi-Cal benefits if he or she has less than (insert amount of individual’s resource allowance) in countable resources.
The Medi-Cal recipient is allowed to keep from his or her monthly income a personal allowance of (insert amount of personal needs allowance) plus the amount of any health insurance premiums paid. The remainder of the monthly income is paid to the nursing facility as a monthly share of cost.
MARRIED RESIDENT
COMMUNITY SPOUSE RESOURCE ALLOWANCE: If one spouse lives in a nursing facility, and the other spouse does not live in a facility, the Medi-Cal program will pay some or all of the nursing facility costs as long as the couple together does not have more than (insert amount of community countable assets).
MINIMUM MONTHLY MAINTENANCE NEEDS ALLOWANCE: If a spouse is eligible for Medi-Cal payment of nursing facility costs, the spouse living at home is allowed to keep a monthly income of at least his or her individual monthly income or (insert amount of the minimum monthly maintenance needs allowance), whichever is greater.
FAIR HEARINGS AND COURT ORDERS
Under certain circumstances, an at-home spouse can obtain an order from an administrative law judge or court that will allow the at-home spouse to retain additional resources or income. The order may allow the couple to retain more than (insert amount of community spouse resource allowance plus individual’s resource allowance) in countable resources. The order also may allow the at-home spouse to retain more than (insert amount of the monthly maintenance needs allowance) in monthly income.
REAL AND PERSONAL PROPERTY EXEMPTIONS
Many of your assets may already be exempt. Exempt means that the assets are not counted when determining eligibility for Medi-Cal.
REAL PROPERTY EXEMPTIONS
ONE PRINCIPAL RESIDENCE: One property used as a home is exempt. The home will remain exempt in determining eligibility if the applicant intends to return home someday.
The home also continues to be exempt if the applicant’s spouse or dependent relative continues to live in it.
Money received from the sale of a home can be exempt for up to six months if the money is going to be used for the purchase of another home.
REAL PROPERTY USED IN A BUSINESS OR TRADE: Real estate used in a trade or business is exempt regardless of its equity value and whether it produces income.
PERSONAL PROPERTY AND OTHER EXEMPT ASSETS
IRAs, KEOGHs, AND OTHER WORK-RELATED PENSION PLANS: These funds are exempt if the family member whose name it is in does not want Medi-Cal. If held in the name of a person who wants Medi-Cal and payments of principal and interest are being received, the balance is considered unavailable and is not counted. It is not necessary to annuitize, convert to an annuity, or otherwise change the form of the assets in order for them to be unavailable.
PERSONAL PROPERTY USED IN A TRADE OR BUSINESS.
ONE MOTOR VEHICLE.
IRREVOCABLE BURIAL TRUSTS OR IRREVOCABLE PREPAID BURIAL CONTRACTS.
THERE MAY BE OTHER ASSETS THAT MAY BE EXEMPT.
This is only a brief description of the Medi-Cal eligibility rules. For more detailed information, you should call your county welfare department. Also, you are advised to contact a legal services program for seniors or an attorney who is not connected with the sale of this product.
I have read the above notice and have received a copy.
Dated: _______________ Signature: ________________”
The statement required in this subdivision shall be printed in at least 12-point type, shall be clearly separate from any other document or writing, and shall be signed by the prospective purchaser and that person’s spouse, and legal representative, if any.
The State Department of Health Services shall update this form to ensure consistency with state and federal law and make the disclosure available to agents and brokers through its Internet Web site.
Nothing in this section allows or is intended to allow the unlawful practice of law.
Subdivisions (b) and (d) shall become operative on July 1, 2001.
In addition to any other reasons that a sale of an individual annuity to a senior may violate any provision of law, an annuity shall not be sold to a senior in any of the following circumstances:
The senior’s purpose in purchasing the annuity is to affect Medi-Cal eligibility and either of the following is true:
The purchaser’s assets are equal to or less than the community spouse resource allowance established annually by the State Department of Health Services pursuant to the Medi-Cal Act (Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code).
The senior would otherwise qualify for Medi-Cal.
The senior’s purpose in purchasing the annuity is to affect Medi-Cal eligibility and, after the purchase of the annuity, the senior or the senior’s spouse would not qualify for Medi-Cal.
In the event that a fixed annuity specified in subdivision (a) is issued to a senior, the issuer shall rescind the contract and refund to the purchaser all premiums, fees, any interest earned under the terms of the contract, and costs paid for the annuity. This remedy shall be in addition to any other remedy that may be available.
This section applies to the sale, offering for sale, or generation of leads for the sale of life insurance, including annuities, to senior insureds or prospective insureds by any person.
A person who meets with a senior in the senior’s home is required to deliver a notice in writing to the senior no less than 24 hours and no more than 14 days prior to that individual’s initial meeting in the senior’s home. If the senior has an existing insurance relationship with an agent and requests a meeting with the agent in the senior’s home the same day, a notice shall be delivered to the senior prior to the meeting. The notice shall be a stand-alone document, with the appropriate information inserted and without any attachments. It shall be written in 16-point bold type and include all of the following, but no other, information:
The agent’s full name as it appears on his or her California insurance license.
The agent’s license number.
The agent’s mailing address and telephone number listed on his or her California insurance license.
The following disclosure:
“I am a licensed insurance agent. My purpose for coming to your home is to sell, discuss, and/or deliver one of the following [indicate all that apply]:
( ) Life insurance, including annuities.
( ) Other insurance products [specify]: _________________.
You have the right to have other persons present at the meeting, including family members, financial advisors, or attorneys.
You have the right to end the meeting at any time.
You have the right to contact the Department of Insurance for information, or to file a complaint. [The notice shall include the consumer assistance telephone numbers at the department]
The following individuals will be coming to your home: [list all attendees, and insurance license information, if applicable]”
Upon contacting the senior in the senior’s home, the person shall, before making any statement other than a greeting, or asking the senior any other questions, state that the purpose of the contact is to talk about insurance, or to gather information for a followup visit to sell insurance, if that is the case, and state all of the following information:
Each person attending a meeting with a senior shall provide the senior with a business card or other written identification stating the person’s name, business address, telephone number, and any insurance license number.
The persons attending a meeting with a senior shall end all discussions and leave the home of the senior immediately after being asked to leave by the senior.
A person may not solicit a sale or order for the sale of an annuity or life insurance policy at the residence of a senior, in person or by telephone, by using any plan, scheme, or ruse that misrepresents the true status or mission of the contact.
ARTICLE 6.5. Unfair Practices [790. - 790.15.]
The purpose of this article is to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the Act of Congress of March 9, 1945 (Public Law 15, Seventy-ninth Congress), by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.
This article applies to reciprocal and interinsurance exchanges, Lloyds insurers, fraternal benefit societies, fraternal fire insurers, grants and annuities societies, insurers holding certificates of exemptions, motor clubs, nonprofit hospital associations, life agents, broker-agents, surplus line brokers and special lines surplus line brokers as well as all other persons engaged in the business of insurance.
No person shall engage in this State in any trade practice which is defined in this article as, or determined pursuant to this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.
The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.
Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular, or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon, or making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies, or making any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates, or using any name or title of any policy or class of policies misrepresenting the true nature thereof, or making any misrepresentation to any policyholder insured in any company for the purpose of inducing or tending to induce the policyholder to lapse, forfeit, or surrender his or her insurance.
Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to the business of insurance or with respect to any person in the conduct of his or her insurance business, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading.
Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance.
Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public any false statement of financial condition of an insurer with intent to deceive.
Making any false entry in any book, report, or statement of any insurer with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom the insurer is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to the business of the insurer in any book, report, or statement of the insurer.
Making or permitting any unfair discrimination between individuals of the same class and equal expectation of life in the rates charged for any contract of life insurance or of life annuity or in the dividends or other benefits payable thereon, or in any other of the terms and conditions of the contract.
This subdivision shall be interpreted, for any contract of ordinary life insurance or individual life annuity applied for and issued on or after January 1, 1981, to require differentials based upon the sex of the individual insured or annuitant in the rates or dividends or benefits, or any combination thereof. This requirement is satisfied if those differentials are substantially supported by valid pertinent data segregated by sex, including, but not limited to, mortality data segregated by sex.
However, for any contract of ordinary life insurance or individual life annuity applied for and issued on or after January 1, 1981, but before the compliance date, in lieu of those differentials based on data segregated by sex, rates, or dividends or benefits, or any combination thereof, for ordinary life insurance or individual life annuity on a female life may be calculated as follows: (A) according to an age not less than three years nor more than six years younger than the actual age of the female insured or female annuitant, in the case of a contract of ordinary life insurance with a face value greater than five thousand dollars ($5,000) or a contract of individual life annuity; and (B) according to an age not more than six years younger than the actual age of the female insured, in the case of a contract of ordinary life insurance with a face value of five thousand dollars ($5,000) or less. “Compliance date” as used in this paragraph shall mean the date or dates established as the operative date or dates by future amendments to this code directing and authorizing life insurers to use a mortality table containing mortality data segregated by sex for the calculation of adjusted premiums and present values for nonforfeiture benefits and valuation reserves as specified in Sections 10163.1 and 10489.2 or successor sections.
Notwithstanding the provisions of this subdivision, sex-based differentials in rates or dividends or benefits, or any combination thereof, shall not be required for (A) any contract of life insurance or life annuity issued pursuant to arrangements which may be considered terms, conditions, or privileges of employment as these terms are used in Title VII of the Civil Rights Act of 1964 (Public Law 88-352), as amended, and (B) tax sheltered annuities for employees of public schools or of tax-exempt organizations described in Section 501(c)(3) of the Internal Revenue Code.
Making or disseminating, or causing to be made or disseminated, before the public in this state, in any newspaper or other publication, or any other advertising device, or by public outcry or proclamation, or in any other manner or means whatever, whether directly or by implication, any statement that a named insurer, or named insurers, are members of the California Insurance Guarantee Association, or insured against insolvency as defined in Section 119.5. This subdivision shall not be interpreted to prohibit any activity of the California Insurance Guarantee Association or the commissioner authorized, directly or by implication, by Article 14.2 (commencing with Section 1063).
Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:
Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.
Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.
Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.
Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.
Attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
Attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker.
Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made.
Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.
Directly advising a claimant not to obtain the services of an attorney.
Misleading a claimant as to the applicable statute of limitations.
Delaying the payment or provision of hospital, medical, or surgical benefits for services provided with respect to acquired immune deficiency syndrome or AIDS-related complex for more than 60 days after the insurer has received a claim for those benefits, where the delay in claim payment is for the purpose of investigating whether the condition preexisted the coverage. However, this 60-day period shall not include any time during which the insurer is awaiting a response for relevant medical information from a health care provider.
Canceling or refusing to renew a policy in violation of Section 676.10.
Holding oneself out as representing, constituting, or otherwise providing services on behalf of the California Health Benefit Exchange established pursuant to Section 100500 of the Government Code without a valid agreement with the California Health Benefit Exchange to engage in those activities.
The requirements of subdivision (b) of Section 790.034, and Sections 2071.1 and 10082.3 shall apply only to policies of residential property insurance as defined in Section 10087, policies and endorsements containing those coverages prescribed in Chapter 8.5 (commencing with Section 10081) of Part 1 of Division 2, policies issued by the California Earthquake Authority pursuant to Chapter 8.6 (commencing with Section 10089.5) of Part 1 of Division 2, policies and endorsements that insure against property damage and are issued to common interest developments or to associations managing common interest developments, as those terms are defined in Sections 4080 and 4100 or Sections 6528 and 6534 of the Civil Code, and to policies issued pursuant to Section 120 that insure against property damage to residential units or contents thereof owned by one or more persons located in this state.
Regulations adopted by the commissioner pursuant to this article that relate to the settlement of claims shall take into consideration settlement practices by classes of insurers.
Upon receiving notice of a claim, every insurer shall immediately, but no more than 15 calendar days after receipt of the claim, provide the insured with a legible reproduction of subdivisions (h) and (i) of Section 790.03 along with a written notice containing the following language in at least 10-point type:
“In addition to Section 790.03 of the Insurance Code, Fair Claims Settlement Practices Regulations govern how insurance claims must be processed in this state. These regulations are available at the Department of Insurance Internet Web site, www.insurance.ca.gov, or by calling the department’s consumer information line at 1-800-927-HELP(4357). You may also obtain a copy of this law and these regulations free of charge from this insurer.”
Every insurer shall provide, when requested orally or in writing by an insured, a legible reproduction of Section 790.03 of the Insurance Code and copies of Sections 2695.5, 2695.7, 2695.8, and 2695.9 of Subchapter 7.5 of Chapter 5 of Title 10 of the California Code of Regulations, unless the regulations are inapplicable to that class of insurer. This law and these regulations shall be provided to the insured within 15 calendar days of request.
This section shall become operative on January 1, 2017.
Any person who engages in any unfair method of competition or any unfair or deceptive act or practice defined in Section 790.03 is liable to the state for a civil penalty to be fixed by the commissioner, not to exceed five thousand dollars ($5,000) for each act, or, if the act or practice was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each act. The commissioner shall have the discretion to establish what constitutes an act. However, when the issuance, amendment, or servicing of a policy or endorsement is inadvertent, all of those acts shall be a single act for the purpose of this section.
The penalty imposed by this section shall be imposed by and determined by the commissioner as provided by Section 790.05. The penalty imposed by this section is appealable by means of any remedy provided by Section 12940 or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
It is an unfair and deceptive act or practice in the business of insurance for an insurer to advertise insurance that it will not sell.
Nothing in this section shall be construed to prohibit any insurer from advertising insurance products for which it is licensed to sell in this state where the product is not available for sale so long as the unavailability is disclosed in the advertisement.
A violation of this section is subject to the sanctions provided for by this article.
An intentional violation of this section is a misdemeanor punishable by a fine not exceeding ten thousand dollars ($10,000).
This section does not apply to any insurer that refuses to sell a policy of insurance on the basis of its underwriting guidelines.
This section does not apply to advertisements by an insurer where the advertisements are broadcast and originate from outside this state. As used in this subdivision, “broadcast” includes electronic media, television, and radio. As used in this subdivision, “originate from outside this state” includes cable transmittal of programs broadcast by stations located outside California.
It is an unfair business practice for a health insurance agent or broker to sell, solicit, or negotiate the purchase of health insurance by any of the following methods:
The use of a marketing technique known as cold lead advertising when marketing a Medicare product. As used in this section, “cold lead advertising” means making use directly or indirectly of a method of marketing that fails to disclose in a conspicuous manner that a purpose of the marketing is health insurance sales solicitation and that contact will be made by a health insurance agent or broker.
The use of an appointment that was made to discuss a particular Medicare product or to solicit the sale of a particular Medicare product in order to solicit the sale of another Medicare product or other health insurance products, unless the consumer specifically agrees in advance of the appointment to discuss that other Medicare product or other types of health insurance products during the same appointment.
As used in this section, “Medicare product” includes Medicare Parts A, B, C, and D, and Medicare supplement plans.
The commissioner shall have power to examine and investigate into the affairs of every person engaged in the business of insurance in the State in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice prohibited by Section 790.03 or determined pursuant to this article to be an unfair method of competition or an unfair or deceptive practice in the business of insurance. Such investigation may be conducted pursuant to Article 2 (commencing at Section 11180) of Chapter 2, Part 1, Division 3, Title 2 of the Government Code.
Whenever the commissioner shall have reason to believe that a person has been engaged or is engaging in this state in any unfair method of competition or any unfair or deceptive act or practice defined in Section 790.03, and that a proceeding by the commissioner in respect thereto would be to the interest of the public, he or she shall issue and serve upon that person an order to show cause containing a statement of the charges in that respect, a statement of that person’s potential liability under Section 790.035, and a notice of a hearing thereon to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the commissioner should issue an order to that person to, pay the penalty imposed by Section 790.035, and to cease and desist those methods, acts, or practices or any of them.
If the charges or any of them are found to be justified the commissioner shall issue and cause to be served upon that person an order requiring that person to pay the penalty imposed by Section 790.035 and to cease and desist from engaging in those methods, acts, or practices found to be unfair or deceptive.
The hearing shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing at Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearings may be conducted by an administrative law judge in the administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other Insurance Code sections that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted under the Administrative Procedure Act.
The person shall be entitled to have the proceedings and the order reviewed by means of any remedy provided by Section 12940 of this code or by the Administrative Procedure Act.
Whenever the commissioner shall have reason to believe that any person engaged in the business of insurance is engaging in this state in any method of competition or in any act or practice in the conduct of the business that is not defined in Section 790.03, and that the method is unfair or that the act or practice is unfair or deceptive and that a proceeding by him or her in respect thereto would be in the interest of the public, he or she may issue and serve upon that person an order to show cause containing a statement of the methods, acts or practices alleged to be unfair or deceptive and a notice of hearing thereon to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the alleged methods, acts or practices or any of them should be declared to be unfair or deceptive within the meaning of this article. The order shall specify the reason why the method of competition is alleged to be unfair or the act or practice is alleged to be unfair or deceptive.
The hearings provided by this section shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that the hearings may be conducted by an administrative law judge in the administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other Insurance Code sections that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted under the Administrative Procedure Act. If the alleged methods, acts, or practices or any of them are found to be unfair or deceptive within the meaning of this article the commissioner shall issue and service upon that person his or her written report so declaring.
If the report charges a violation of this article and if the method of competition, act or practice has not been discontinued, the commissioner may, through the Attorney General of this state, at any time after 30 days after the service of the report cause a petition to be filed in the superior court of this state within the county wherein the person resides or has his or her principal place of business, to enjoin and restrain the person from engaging in the method, act or practice. The court shall have jurisdiction of the proceeding and shall have power to make and enter appropriate orders in connection therewith and to issue any writs as are ancillary to its jurisdiction or are necessary in its judgment to prevent injury to the public pendente lite.
A transcript of the proceedings before the commissioner, including all evidence taken and the report and findings shall be filed with the petition. If either party shall apply to the court for leave to adduce additional evidence and shall show, to the satisfaction of the court, that the additional evidence is material and there were reasonable grounds for the failure to adduce the evidence in the proceeding before the commissioner, the court may order the additional evidence to be taken before the commissioner and to be adduced upon the hearing in the manner and upon the terms and conditions as to the court may seem proper. The commissioner may modify his or her findings of fact or make new findings by reason of the additional evidence so taken, and shall file modified or new findings with the return of the additional evidence.
If the court finds that the method of competition complained of is unfair or that the act or practice complained of is unfair or deceptive, that the proceeding by the commissioner with respect thereto is to the interest of the public and that the findings of the commissioner are supported by the weight of the evidence, it shall issue its order enjoining and restraining the continuance of the method of competition, act or practice.
Whenever the commissioner shall have reason to believe that any person has violated a cease and desist order issued pursuant to Section 790.05 or a court order issued pursuant to Section 790.06, after the order has become final, and while the order is still in effect, the commissioner may, after a hearing at which it is determined that the violation was committed, order that person to forfeit and pay to the State of California a sum not to exceed five thousand dollars ($5,000) plus any penalty due under Section 790.05, which may be recovered in a civil action, except that, if the violation is found to be willful, the amount of the penalty may be a sum not to exceed fifty-five thousand dollars ($55,000) plus the penalty due under Section 790.05.
For the purposes of this section, the failure to pay any penalty imposed pursuant to Section 790.035 which has become final shall constitute a violation of the cease and desist order.
For any subsequent violation of the cease and desist order or of the court order or the order to pay the penalty, while the order is still in effect, the commissioner may, after hearing, suspend or revoke the license or certificate of that person for a period not exceeding one year; provided, however, no proceeding shall be based upon the subsequent violation unless the same was committed or continued after the date on which the order imposing the penalty pursuant to the preceding paragraph became final.
The hearings provided by this section shall be conducted in accordance with the Administrative Procedure Act, except that the hearings may be conducted by an administrative law judge in the administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other Insurance Code sections that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted under the Administrative Procedure Act.
The person shall be entitled to have the proceedings and the order of the commissioner therein reviewed by means of any remedy provided by Section 12940 or by the Administrative Procedure Act.
The powers vested in the commissioner in this article shall be additional to any other powers to enforce any penalties, fines or forfeitures, denials, suspensions or revocations of licenses or certificates authorized by law with respect to the methods, acts and practices hereby declared to be unfair or deceptive.
No order to cease and desist issued under this article directed to any person or subsequent administrative or judicial proceeding to enforce the same shall in any way relieve or absolve such person from any administrative action against the license or certificate of such person, civil liability or criminal penalty under the laws of this State arising out of the methods, acts or practices found unfair or deceptive.
The commissioner shall, from time to time as conditions warrant, after notice and public hearing, promulgate reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this article.
If an insurer or any affiliate of an insurer has failed to pay any valid claim from Holocaust survivors, the certificate of authority of the insurer shall be suspended until the insurer, or its affiliates, pays the claim or claims.
As used in this section:
“Holocaust survivor” means any person who is the beneficiary of an insurance policy, if the insurance policy insured a person’s life, property, or other interest, and the insured person was killed, died, was displaced, or was otherwise a victim of persecution of Jewish and other peoples preceding and during World War II by Germany, its allies, or sympathizers.
“Beneficiary” means any person or entity entitled to recover under any policy of insurance, including any named beneficiary, any heir of a named beneficiary, and any other person entitled to recover under the policy.
“Claim” means any claim submitted by a Holocaust survivor or other beneficiary arising under an insurance policy for any loss or damage caused by or arising because of discriminatory practices or persecution by the Nazi-controlled German government or its allies, or by insurers that refused to pay claims because of a claim that policies of insurance or records were missing or confiscated because of actions by the Nazi-controlled German government or its agents or allies. Claim also includes any claim by Holocaust survivors or beneficiaries to collect proceeds from dowry or education policies or from annuities.
An “affiliate” of, or person “affiliated” with, a specific person, means a person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
“Control” includes the terms “controlling,” “controlled by,” and “under common control with,” and means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, more than 10 percent of the voting securities of any other person.
An action to suspend a certificate of authority under this section shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that (1) if the Office of Administrative Hearings is unable to assign an administrative law judge to preside over a hearing that commences within 30 days of the filing of an accusation or order initiating an action under this section, the administrative law judge may be appointed by the commissioner; and (2) if the commissioner determines that it is necessary to protect the interests of Holocaust survivors, he or she may issue an order of suspension pursuant to this section prior to holding a hearing.
If the commissioner issues an order pursuant to paragraph (2) of subdivision (c), he or she shall immediately issue and serve upon the insurer a statement of reasons for the immediate action, as well as a copy of the accusation or order containing the allegations that support the order. Any order issued pursuant to this subdivision shall include a notice stating the time and place of a hearing on the order, which shall not be less than 20, nor more than 30 days after the order is served.
When considering an action to suspend a certificate of authority under this section, the commissioner shall include consideration of whether the insurer has participated in good faith in an international commission on Holocaust survivor insurance claims, and whether the commission is making meaningful and expeditious progress toward paying claims to survivors and righting the historic wrong done to Holocaust victims.
ARTICLE 6.6. Insurance Information and Privacy Protection Act [791. - 791.29.]
The purpose of this article is to establish standards for the collection, use and disclosure of information gathered in connection with insurance transactions by insurance institutions, agents or insurance-support organizations; to maintain a balance between the need for information by those conducting the business of insurance and the public’s need for fairness in insurance information practices, including the need to minimize intrusiveness; to establish a regulatory mechanism to enable natural persons to ascertain what information is being or has been collected about them in connection with insurance transactions and to have access to such information for the purpose of verifying or disputing its accuracy; to limit the disclosure of information collected in connection with insurance transactions; and to enable insurance applicants and policyholders to obtain the reasons for any adverse underwriting decision.
The obligations imposed by this article shall apply to those insurance institutions, agents or insurance-support organizations which, on or after October 1, 1981:
In the case of life or disability insurance:
Collect, receive or maintain information in connection with insurance transactions which pertains to natural persons who are residents of this state, or
Engage in insurance transactions with applicants, individuals or policyholders who are residents of this state.
In the case of property or casualty insurance:
Collect, receive or maintain information in connection with insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state, or
Engage in insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state.
The rights granted by this article shall extend to:
In the case of life or disability insurance, the following persons who are residents of this state:
Natural persons who are the subject of information collected, received or maintained in connection with insurance transactions.
Applicants, individuals or policyholders who engage in or seek to engage in insurance transactions.
In the case of property or casualty insurance, the following persons:
Natural persons who are the subject of information collected, received or maintained in connection with insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state, and
Applicants, individuals or policyholders who engage in or seek to engage in insurance transactions involving policies, contracts or certificates of insurance delivered, issued for delivery or renewed in this state.
For purposes of this section, a person shall be considered a resident of this state if the person’s last known mailing address, as shown in the records of the insurance institution, agent, or insurance-support organization, is located in this state.
This article shall not apply to any person or entity engaged in the business of title insurance as defined in Section 12340.3.
This article shall not apply to a person or entity engaged in the business of a home protection company, as defined in Section 12740, which does not obtain or maintain personal information, as defined in this article, of its policyholders and applicants.
Insurance institutions, agents, insurance support organizations or any insurance transaction subject to this article shall be exempt from Part 2.6 (commencing with Section 56) of Division 1 of, and Sections 1785.20 and 1786.40 of, the Civil Code.
As used in this act:
“Adverse underwriting decision” means any of the following actions with respect to insurance transactions involving insurance coverage that is individually underwritten:
A declination of insurance coverage.
A termination of insurance coverage.
Failure of an agent to apply for insurance coverage with a specific insurance institution that the agent represents and that is requested by an applicant.
In the case of a property or casualty insurance coverage:
Placement by an insurance institution or agent of a risk with a residual market mechanism, with an unauthorized insurer, or with an insurance institution that provides insurance to other than preferred or standard risks, if in fact the placement is at other than a preferred or standard rate. An adverse underwriting decision, in case of placement with an insurance institution that provides insurance to other than preferred or standard risks, shall not include placement if the applicant or insured did not specify or apply for placement as a preferred or standard risk or placement with a particular company insuring preferred or standard risks, or
The charging of a higher rate on the basis of information which differs from that which the applicant or policyholder furnished.
In the case of a life, health, or disability insurance coverage, an offer to insure at higher than standard rates.
Notwithstanding paragraph (1), any of the following actions shall not be considered adverse underwriting decisions but the insurance institution or agent responsible for their occurrence shall nevertheless provide the applicant or policyholder with the specific reason or reasons for their occurrence:
The termination of an individual policy form on a class or statewide basis.
A declination of insurance coverage solely because coverage is not available on a class or statewide basis.
The rescission of a policy.
“Affiliate” or “affiliated” means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another person.
“Applicant” means any person who seeks to contract for insurance coverage other than a person seeking group insurance that is not individually underwritten.
“Consumer report” means any written, oral, or other communication of information bearing on a natural person’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living that is used or expected to be used in connection with an insurance transaction.
“Consumer reporting agency” means any person who:
Regularly engages, in whole or in part, in the practice of assembling or preparing consumer reports for a monetary fee.
Obtains information primarily from sources other than insurance institutions.
Furnishes consumer reports to other persons.
“Control,” including the terms “controlled by” or “under common control with,” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person.
“Declination of insurance coverage” means a denial, in whole or in part, by an insurance institution or agent of requested insurance coverage.
“Individual” means any natural person who is any of the following:
In the case of property or casualty insurance, is a past, present, or proposed named insured or certificate holder.
In the case of life or disability insurance, is a past, present, or proposed principal insured or certificate holder.
Is a past, present, or proposed policyowner.
Is a past or present applicant.
Is a past or present claimant.
Derived, derives, or is proposed to derive insurance coverage under an insurance policy or certificate subject to this act.
“Institutional source” means any person or governmental entity that provides information about an individual to an agent, insurance institution, or insurance-support organization, other than any of the following:
An agent.
The individual who is the subject of the information.
A natural person acting in a personal capacity rather than in a business or professional capacity.
“Insurance institution” means any corporation, association, partnership, reciprocal exchange, interinsurer, Lloyd’s insurer, fraternal benefit society, or other person engaged in the business of insurance. “Insurance institution” shall not include agents, insurance-support organizations, or health care service plans regulated pursuant to the Knox-Keene Health Care Service Plan Act, Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code.
“Insurance-support organization” means:
Any person who regularly engages, in whole or in part, in the business of assembling or collecting information about natural persons for the primary purpose of providing the information to an insurance institution or agent for insurance transactions, including either of the following:
The furnishing of consumer reports or investigative consumer reports to an insurance institution or agent for use in connection with an insurance transaction.
The collection of personal information from insurance institutions, agents, or other insurance-support organizations for the purpose of detecting or preventing fraud, material misrepresentation, or material nondisclosure in connection with insurance underwriting or insurance claim activity.
Notwithstanding paragraph (1), the following persons shall not be considered “insurance-support organizations”: agents, governmental institutions, insurance institutions, medical care institutions, medical professionals, and peer review committees.
“Insurance transaction” means any transaction involving insurance primarily for personal, family, or household needs rather than business or professional needs that entails either of the following:
“Investigative consumer report” means a consumer report or portion thereof in which information about a natural person’s character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with the person’s neighbors, friends, associates, acquaintances, or others who may have knowledge concerning those items of information.
“Medical care institution” means any facility or institution that is licensed to provide health care services to natural persons, including, but not limited to, hospitals, skilled nursing facilities, home health agencies, medical clinics, rehabilitation agencies, and public health agencies.
“Medical professional” means any person licensed or certified to provide health care services to natural persons, including, but not limited to, a physician, dentist, nurse, optometrist, physical or occupational therapist, psychiatric social worker, clinical dietitian, clinical psychologist, chiropractor, pharmacist, or speech therapist.
“Medical record information” means personal information that is both of the following:
Relates to an individual’s physical or mental condition, medical history, or medical treatment.
Is obtained from a medical professional or medical care institution, from the individual, or from the individual’s spouse, parent, or legal guardian.
“Person” means any natural person, corporation, association, partnership, limited liability company, or other legal entity.
“Personal information” means any individually identifiable information gathered in connection with an insurance transaction from which judgments can be made about an individual’s character, habits, avocations, finances, occupation, general reputation, credit, health, or any other personal characteristics. “Personal information” includes an individual’s name and address and “medical record information” but does not include “privileged information.”
“Policyholder” means any person who is any of the following:
In the case of individual property or casualty insurance, is a present named insured.
In the case of individual life or disability insurance, is a present policyowner.
In the case of group insurance, which is individually underwritten, is a present group certificate holder.
“Pretext interview” means an interview whereby a person, in an attempt to obtain information about a natural person, performs one or more of the following acts:
Pretends to be someone they are not.
Pretends to represent a person they are not in fact representing.
Misrepresents the true purpose of the interview.
Refuses to identify who they are upon request.
“Privileged information” means any individually identifiable information that both:
“Termination of insurance coverage” or “termination of an insurance policy” means either a cancellation or nonrenewal of an insurance policy, in whole or in part, for any reason other than the failure to pay a premium as required by the policy.
“Unauthorized insurer” means an insurance institution that has not been granted a certificate of authority by the director to transact the business of insurance in this state.
“Commissioner” means the Insurance Commissioner.
(aa) “Confidential communications request” means a request by an insured covered under a health insurance policy that insurance communications containing medical information be communicated to the insured at a specific mail or email address or specific telephone number, as designated by the insured.
(ab) “Protected individual” means any adult insured covered under a health insurance policy or a minor who can consent to a health care service without the consent of a parent or legal guardian, pursuant to state or federal law. “Protected individual” does not include an individual that lacks the capacity to give informed consent for health care pursuant to Section 813 of the Probate Code.
(ac) “Sensitive services” means all health care services related to mental or behavioral health, sexual and reproductive health, sexually transmitted infections, substance use disorder, gender affirming care, and intimate partner violence, and includes services described in Sections 6924, 6925, 6926, 6927, 6928, 6929, and 6930 of the Family Code, and Sections 121020 and 124260 of the Health and Safety Code, obtained by a patient of any age at or above the minimum age specified for consenting to the service specified in the section.
(ad) “Medical information” means any individually identifiable information, in electronic or physical form, in possession of or derived from a provider of health care, health insurer, pharmaceutical company, or contractor regarding a patient’s medical history, mental or physical condition, or treatment. “Individually identifiable” means that the medical information includes or contains any element of personal identifying information sufficient to allow identification of the individual, such as the patient’s name, address, electronic mail address, telephone number, or social security number, or other information that, alone or in combination with other publicly available information, reveals the individual’s identity.
No insurance institution, agent or insurance-support organization shall use or authorize the use of pretext interviews to obtain information in connection with an insurance transaction; provided, however, that a pretext interview may be undertaken to obtain information from a person or institution that does not have a generally or statutorily recognized privileged relationship with the person to whom the information relates for the purpose of investigating a claim where there is a reasonable basis for suspecting criminal activity, fraud, material misrepresentation or material nondisclosure in connection with a claim.
An insurance institution or agent shall provide a notice of information practices to all applicants or policyholders in connection with insurance transactions as provided below:
In the case of a written application for insurance, a notice shall be provided no later than:
At the time of the delivery of the insurance policy or certificate when personal information is collected only from the applicant, an insured under the policy, or from public records; or
At the time the collection of personal information is initiated when personal information is collected from a source other than the applicant, an insured under the policy, or public records.
In the case of a policy renewal, a notice shall be provided no later than the policy renewal date or the date upon which policy renewal is confirmed, except that no notice shall be required in connection with a policy renewal if either of the following applies:
Personal information is collected only from the policyholder, an insured under the policy, or from public records.
A notice meeting the requirements of this section has been given within the previous 24 months.
In the case of a policy reinstatement or change in insurance benefits, a notice shall be provided no later than the time a request for a policy reinstatement or change in insurance benefits is received by the insurance institution, except that no notice shall be required if personal information is collected only from the policyholder, an insured under the policy, or from public records or if a notice meeting the requirements of this section has been given within the previous 24 months.
The notice required by subdivision (a) shall be in writing and shall state all of the following:
Whether personal information may be collected from persons other than the individual or individuals proposed for coverage.
The types of personal information that may be collected and the types of sources and investigative techniques that may be used to collect such information.
The types of disclosures identified in subdivisions (b), (c), (d), (e), (f), (i), (k), (l), and (n) of Section 791.13 and the circumstances under which the disclosures may be made without prior authorization, except that only those circumstances need be described which occur with such frequency as to indicate a general business practice.
That information obtained from a report prepared by an insurance-support organization may be retained by the insurance-support organization and disclosed to other persons.
In lieu of the notice prescribed in subdivision (b), the insurance institution or agent may provide an abbreviated notice informing the applicant or policyholder of the following:
The obligations imposed by this section upon an insurance institution or agent may be satisfied by another insurance institution or agent authorized to act on its behalf.
In addition to the notice required by Section 791.04, an insurance institution or agent shall provide a clear and conspicuous notice to customers that accurately reflects its privacy policies and practices not less than annually during the continuation of the customer relationship. For purposes of this section, “annually” means at least once in any period of 12 consecutive months during which that relationship exists. An insurance institution or agent may define the period of 12 consecutive months, but shall apply it to the customer on a consistent basis.
A notice required pursuant to this section shall comply with Section 2689.7 of Title 10 of the California Code of Regulations.
The notices required pursuant to Section 791.04 and this section may be combined into a single notice or provided as separate notices, as long as the requirements of Section 791.04 and this section are met.
If the insurance institution or agent uses a separate, standard privacy notice in addition to the notices required pursuant to Section 791.04 and this section, the notices required pursuant to Section 791.04 and this section shall clearly state that any rights a consumer, claimant, or beneficiary may have as described in these are not limited by the standard privacy notice that the insurance institution or agent also uses.
An insurance institution or agent shall be deemed to be in compliance with this section if all of the following conditions are met:
The right to submit a written request to access, correct, amend, or delete the consumer’s personal information and the manner in which the right may be exercised, including the contact information and the mailing address, internet website address, or both, where the consumer may submit a request.
The right to receive a response within 30 business days of the consumer submitting a request to access, correct, amend, or delete their personal information.
If the insurance institution refuses the consumer’s request, the right to file a statement regarding what the consumer believes to be accurate and fair information and why the consumer disagrees with the insurance institution’s refusal.
The insurance institution’s or agent’s policies and practices about disclosing personal or privileged information have not changed from the previous notice provided pursuant to subdivision (a).
An insurance institution or agent is not required to provide a notice pursuant to subdivision (a) to a former customer with whom it no longer has a continuing relationship.
The terms used in this section have the same meaning as defined in Section 2689.4 of Title 10 of the California Code of Regulations.
An insurance institution or agent shall clearly specify those questions designed to obtain information solely for marketing or research purposes from an individual in connection with an insurance transaction.
Notwithstanding any other provision of law, no insurance institution, agent or insurance-support organization may utilize as its disclosure authorization form in connection with insurance transactions a form or statement which authorizes the disclosure of personal or privileged information about an individual to the insurance institution, agent, or insurance-support organization unless the form or statement:
Is written in plain language.
Is dated.
Specifies the types of persons authorized to disclose information about the individual.
Specifies the nature of the information authorized to be disclosed.
Names the insurance institution or agent and identifies by generic reference representatives of the insurance institution to whom the individual is authorizing information to be disclosed.
Specifies the purposes for which the information is collected.
Specifies the length of time the authorization shall remain valid, which shall be no longer than:
In the case of authorizations signed for the purpose of collecting information in connection with an application for an insurance policy, a policy reinstatement or a request for change in policy benefits:
Thirty months from the date the authorization is signed if the application or request involves life, health or disability insurance; or
One year from the date the authorization is signed if the application or request involves property or casualty insurance.
In the case of authorizations signed for the purpose of collecting information in connection with a claim for benefits under an insurance policy:
The term of coverage of the policy if the claim is for a health insurance benefit; or
The duration of the claim if the claim is not for a health insurance benefit; or
The duration of all claims processing activity performed in connection with all claims for benefits made by any person entitled to benefits under a nonprofit hospital service contract.
Advises the individual or a person authorized to act on behalf of the individual that the individual or the individual’s authorized representative is entitled to receive a copy of the authorization form.
This section shall not be construed to require any authorization for the receipt of personal or privileged information about an individual.
No insurance institution, agent or insurance-support organization may prepare or request an investigative consumer report about an individual in connection with an insurance transaction involving an application for insurance, a policy renewal, a policy reinstatement or a change in insurance benefits unless the insurance institution or agent informs the individual of the following:
That he or she may request to be interviewed in connection with the preparation of the investigative consumer report, and
That upon a request pursuant to Section 791.08, he or she is entitled to receive a copy of the investigative consumer report.
If an investigative consumer report is to be prepared by an insurance institution or agent, the insurance institution or agent shall institute reasonable procedures to conduct a personal interview requested by an individual.
If an investigative consumer report is to be prepared by an insurance-support organization, the insurance institution or agent desiring such report shall inform the insurance-support organization whether a personal interview has been requested by the individual. The insurance-support organization shall institute reasonable procedures to conduct such interviews, if requested.
If any individual, after proper identification, submits a written request to an insurance institution, agent or insurance-support organization for access to recorded personal information about the individual which is reasonably described by the individual and reasonably locatable and retrievable by the insurance institution, agent or insurance-support organization, the insurance institution, agent or insurance-support organization shall within 30 business days from the date such request is received:
Inform the individual of the nature and substance of such recorded personal information in writing, by telephone or by other oral communication, whichever the insurance institution, agent or insurance-support organization prefers;
Permit the individual to see and copy, in person, such recorded personal information pertaining to him or her or to obtain a copy of such recorded personal information by mail, whichever the individual prefers, unless such recorded personal information is in coded form, in which case an accurate translation in plain language shall be provided in writing;
Disclose to the individual the identity, if recorded, of those persons to whom the insurance institution, agent or insurance-support organization has disclosed such personal information within two years prior to such request, and if the identity is not recorded, the names of those insurance institutions, agents, insurance-support organizations or other persons to whom such information is normally disclosed; and
Provide the individual with a summary of the procedures by which he or she may request correction, amendment or deletion of recorded personal information.
Any personal information provided pursuant to subdivision (a) above shall identify the source of the information if such source is an institutional source.
Medical record information supplied by a medical care institution or medical professional and requested under subdivision (a), together with the identity of the medical professional or medical care institution which provided such information, shall be supplied either directly to the individual or to a medical professional designated by the individual and licensed to provide medical care with respect to the condition to which the information relates, whichever the individual prefers. Mental health record information shall be supplied directly to the individual, pursuant to this section, only with the approval of the qualified professional person with treatment responsibility for the condition to which the information relates. If it elects to disclose the information to a medical professional designated by the individual, the insurance institution, agent or insurance-support organization shall notify the individual, at the time of the disclosure, that it has provided the information to the medical professional.
Except for personal information provided under Section 791.10, an insurance institution, agent or insurance-support organization may charge a reasonable fee to cover the costs incurred in providing a copy of recorded personal information to individuals.
The obligations imposed by this section upon an insurance institution or agent may be satisfied by another insurance institution or agent authorized to act on its behalf. With respect to the copying and disclosure of recorded personal information pursuant to a request under subdivision (a), an insurance institution, agent or insurance-support organization may make arrangements with an insurance-support organization or a consumer reporting agency to copy and disclose recorded personal information on its behalf.
The rights granted to individuals in this section shall extend to all natural persons to the extent information about them is collected and maintained by an insurance institution, agent or insurance-support organization in connection with an insurance transaction. The rights granted to all natural persons by this subdivision shall not extend to information about them that relates to and is collected in connection with or in reasonable anticipation of a claim or civil or criminal proceeding involving them.
For purposes of this section, the term “insurance-support organization” does not include “consumer reporting agency”.
Within 30 business days from the date of receipt of a written request from an individual to correct, amend or delete any recorded personal information about the individual within its possession, an insurance institution, agent or insurance-support organization shall either:
Correct, amend or delete the portion of the recorded personal information in dispute; or
Notify the individual of:
Its refusal to make such correction, amendment or deletion.
The reasons for the refusal.
The individual’s right to file a statement as provided in subdivision (c).
If the insurance institution, agent or insurance-support organization corrects, amends or deletes recorded personal information in accordance with paragraph (1) of subdivision (a), the insurance institution, agent or insurance-support organization shall so notify the individual in writing and furnish the correction, amendment or fact of deletion to:
Any person specifically designated by the individual who may have, within the preceding two years, received such recorded personal information.
Any insurance-support organization whose primary source of personal information is insurance institutions if the insurance-support organization has systematically received such recorded personal information from the insurance institution within the preceding seven years; provided, however, that the correction, amendment or fact of deletion need not be furnished if the insurance-support organization no longer maintains recorded personal information about the individual.
Any insurance-support organization that furnished the personal information that has been corrected, amended or deleted.
Whenever an individual disagrees with an insurance institution’s, agent’s or insurance-support organization’s refusal to correct, amend or delete recorded personal information, the individual shall be permitted to file with the insurance institution, agent or insurance-support organization:
In the event an individual files either statement as described in subdivision (c), the insurance institution, agent or support organization shall:
The rights granted to individuals in this section shall extend to all natural persons to the extent information about them is collected and maintained by an insurance institution, agent or insurance-support organization in connection with an insurance transaction. The rights granted to all natural persons by this subdivision shall not extend to information about them that relates to and is collected in connection with or in reasonable anticipation of a claim or civil or criminal proceeding involving them.
For purposes of this section, the term “insurance-support organization” does not include “consumer reporting agency”.
In the event of an adverse underwriting decision the insurance institution or agent responsible for the decision shall:
Either provide the applicant, policyholder, or individual proposed for coverage with the specific reason or reasons for the adverse underwriting decision in writing or, except as provided in subdivision (e), advise the person that upon written request he or she may receive the specific reason or reasons in writing.
Upon receipt of a written request within 90 business days from the date of the mailing of notice or other communication of an adverse underwriting decision to an applicant, policyholder or individual proposed for coverage, the insurance institution or agent shall furnish to such person within 21 business days from the date of receipt of such written request:
The specific reason or reasons for the adverse underwriting decision, in writing, if such information was not initially furnished in writing pursuant to paragraph (1) of subdivision (a).
The specific items of personal and privileged information that support those reasons; provided, however:
The insurance institution or agent shall not be required to furnish specific items of privileged information if it has a reasonable suspicion, based upon specific information available for review by the commissioner, that the applicant, policyholder or individual proposed for coverage has engaged in criminal activity, fraud, material misrepresentation or material nondisclosure.
Specific items of medical record information supplied by a medical care institution or medical professional shall be disclosed either directly to the individual about whom the information relates or to a medical professional designated by the individual and licensed to provide medical care with respect to the condition to which the information relates, whichever the individual prefers.
Mental health record information shall be supplied directly to the individual, pursuant to this subdivision, only with the approval of the qualified professional person with treatment responsibility for the condition to which the information relates.
The names and addresses of the institutional sources that supplied the specific items of information given pursuant to paragraph (2) of subdivision (b); provided, however, that the identity of any medical professional or medical care institution shall be disclosed either directly to the individual or to the designated medical professional, whichever the individual prefers.
The obligations imposed by this section upon an insurance institution or agent may be satisfied by another insurance institution or agent authorized to act on its behalf.
When an adverse underwriting decision results solely from an oral request or inquiry, the explanation of reasons and summary of rights required by subdivision (a) or (e) may be given orally to the extent that such information is available.
Except as provided in subdivision (d), with respect to a declination, cancellation, or nonrenewal of a property insurance policy covered by Section 675 or an automobile insurance policy covered by Section 660, or an individual life, health, or disability insurance policy, the insurance institution or agent responsible for the decision shall provide the specific reason or reasons in writing at the time of the decision. The communication of medical record information for a life or health insurance policy shall be subject to the disclosure requirements of subparagraph (B) of paragraph (2) of subdivision (a). This subdivision shall become operative on July 1, 2006.
No insurance institution, agent or insurance-support organization may seek information in connection with an insurance transaction concerning:
Any previous adverse underwriting decision experienced by an individual, or
Any previous insurance coverage obtained by an individual through a residual market mechanism, unless such inquiry also requests the reasons for any previous adverse underwriting decision or the reasons why insurance coverage was previously obtained through a residual market mechanism.
No insurance institution or agent may base an adverse underwriting decision in whole or in part on the following:
On the fact of a previous adverse underwriting decision or on the fact that an individual previously obtained insurance coverage through a residual market mechanism; provided, however, an insurance institution or agent may base an adverse underwriting decision on further information obtained from an insurance institution or agent responsible for a previous adverse underwriting decision. The further information, when requested, shall create a conclusive presumption that the information is necessary to perform the requesting insurer’s function in connection with an insurance transaction involving the individual and, when reasonably available, shall be furnished the requesting insurer and the individual, if applicable.
On personal information received from an insurance-support organization whose primary source of information is insurance institutions; provided, however, an insurance institution or agent may base an adverse underwriting decision on further personal information obtained as the result of information received from an insurance-support organization.
On the fact that an individual has previously inquired and received information about the scope or nature of coverage under a residential fire or property insurance policy, if the information is received from an insurance-support organization whose primary source of information is insurance institutions and the inquiry did not result in the filing of a claim.
On the fact that an accident involving a peace officer, member of the Department of the California Highway Patrol, or firefighter has been reported and the insurer retains no liability pursuant to Section 488.5 and subdivision (b) of Section 557.5.
An insurance institution, agent, or insurance-support organization shall not disclose any personal or privileged information about an individual collected or received in connection with an insurance transaction unless the disclosure is:
With the written authorization of the individual, and meets either of the conditions specified in paragraph (1) or (2):
If the authorization is submitted by another insurance institution, agent, or insurance-support organization, the authorization meets the requirement of Section 791.06.
If the authorization is submitted by a person other than an insurance institution, agent, or insurance-support organization, the authorization is:
Dated.
Signed by the individual.
Obtained one year or less prior to the date a disclosure is sought pursuant to this section.
To a person other than an insurance institution, agent, or insurance-support organization, provided the disclosure is reasonably necessary:
To enable the person to perform a business, professional, or insurance function for the disclosing insurance institution, agent, or insurance-support organization or insured and the person agrees not to disclose the information further without the individual’s written authorization unless the further disclosure:
Would otherwise be permitted by this section if made by an insurance institution, agent, or insurance-support organization; or
Is reasonably necessary for the person to perform its function for the disclosing insurance institution, agent, or insurance-support organization.
To enable the person to provide information to the disclosing insurance institution, agent or insurance-support organization for the purpose of:
Determining an individual’s eligibility for an insurance benefit or payment; or
Detecting or preventing criminal activity, fraud, material misrepresentation or material nondisclosure in connection with an insurance transaction.
To an insurance institution, agent, insurance-support organization or self-insurer, provided the information disclosed is limited to that which is reasonably necessary under either paragraph (1) or (2):
To a medical-care institution or medical professional for the purpose of any of the following:
Conducting operations or services audit, provided the only information disclosed is reasonably necessary to accomplish the foregoing purposes.
To an insurance regulatory authority; or
To a law enforcement or other governmental authority pursuant to law.
Otherwise permitted or required by law.
In response to a facially valid administrative or judicial order, including a search warrant or subpoena.
Made for the purpose of conducting actuarial or research studies, provided:
No individual may be identified in any actuarial or research report.
Materials allowing the individual to be identified are returned or destroyed as soon as they are no longer needed.
The actuarial or research organization agrees not to disclose the information unless the disclosure would otherwise be permitted by this section if made by an insurance institution, agent, or insurance-support organization.
To a party or a representative of a party to a proposed or consummated sale, transfer, merger, or consolidation of all or part of the business of the insurance institution, agent, or insurance-support organization, provided:
Prior to the consummation of the sale, transfer, merger, or consolidation the only information disclosed is reasonably necessary to enable the recipient to make business decisions about the purchase, transfer, merger, or consolidation.
The recipient agrees not to disclose the information unless the disclosure would otherwise be permitted by this section if made by an insurance institution, agent, or insurance-support organization.
To a person whose only use of the information will be in connection with the marketing of a product or service, provided:
No medical-record information, privileged information, or personal information relating to an individual’s character, personal habits, mode of living, or general reputation is disclosed, and no classification derived from the information is disclosed; or
The individual has been given an opportunity to indicate that the individual does not want personal information disclosed for marketing purposes and has given no indication that the individual does not want the information disclosed; and
The person receiving the information agrees not to use it except in connection with the marketing of a product or service.
To an affiliate whose only use of the information will be in connection with an audit of the insurance institution or agent or the marketing of an insurance product or service, provided the affiliate agrees not to disclose the information for any other purpose or to unaffiliated persons.
By a consumer reporting agency, provided the disclosure is to a person other than an insurance institution or agent.
To a group policyholder for the purpose of reporting claims experience or conducting an audit of the insurance institution’s or agent’s operations or services, provided the information disclosed is reasonably necessary for the group policyholder to conduct the review or audit.
To a professional peer review organization for the purpose of reviewing the service or conduct of a medical-care institution or medical professional.
To a governmental authority for the purpose of determining the individual’s eligibility for health benefits for which the governmental authority may be liable.
To a certificate holder or policyholder for the purpose of providing information regarding the status of an insurance transaction.
To a lienholder, mortgagee, assignee, lessor, or other person shown on the records of an insurance institution or agent as having a legal or beneficial interest in a policy of insurance. The information disclosed shall be limited to that which is reasonably necessary to permit the person to protect that person’s interest in the policy and shall be consistent with Article 5.5 (commencing with Section 770).
To an insured or the insured’s lawyer when the information disclosed is from an accident report, supplemental report, investigative report, or the actual report from a government agency or is a copy of an accident report or other report that the insured is entitled to obtain under Section 20012 of the Vehicle Code or Article 1 (commencing with Section 7923.600) of Chapter 1 of Part 5 of Division 10 of Title 1 of the Government Code.
The commissioner shall have power to examine and investigate into the affairs of every insurance institution or agent doing business in this state to determine whether the insurance institution or agent has been or is engaged in any conduct in violation of this article.
The commissioner shall have the power to examine and investigate into the affairs of every insurance-support organization acting on behalf of an insurance institution or agent which either transacts business in this state or transacts business outside this state that has an effect on a person residing in this state in order to determine whether such insurance-support organization has been or is engaged in any conduct in violation of this article.
Whenever the commissioner has reason to believe that an insurance institution, agent or insurance-support organization has been or is engaged in conduct in this state which violates this article, or if the commissioner believes that an insurance-support organization has been or is engaged in conduct outside this state which has an effect on a person residing in this state and which violates this article, the commissioner shall issue and serve upon such insurance institution, agent or insurance-support organization a statement of charges and notice of hearing to be held at a time and place fixed in the notice. The date for such hearing shall be not less than 30 days after the date of service.
At the time and place fixed for such hearing the insurance institution, agent or insurance-support organization charged shall have an opportunity to answer the charges against it and present evidence on its behalf. Upon good cause shown, the commissioner shall permit any adversely affected person to intervene, appear and be heard at such hearing by counsel or in person.
At any hearing conducted pursuant to this section the commissioner may administer oaths, examine and cross-examine witnesses and receive oral and documentary evidence. The commissioner shall have the power to subpoena witnesses, compel their attendance and require the production of books, papers, records, correspondence and other documents which are relevant to the hearing. A stenographic record of the hearing shall be made upon the request of any party or at the discretion of the commissioner. If no stenographic record is made and if judicial review is sought, the commissioner shall prepare a statement of the evidence for use on review. Hearings conducted under this section shall be governed by the same rules of evidence and procedure applicable to administrative proceedings conducted under the laws of this state.
Statements of charges, notice, orders and other processes of the commissioner under this article may be served by anyone duly authorized to act on behalf of the commissioner. Service of process may be completed in the manner provided by law for service of process in civil actions or by registered mail or by a mailing service offered by a third party mailing service with tracking capability that is not more expensive than registered mail. A copy of the statement of charges, notice, order or other process shall be provided to the person or persons whose rights under this article have been allegedly violated. A verified return setting forth the manner of service, the return postcard receipt in the case of registered mail, or signed receipt documentation, shall be sufficient proof of service.
For the purpose of this article, an insurance-support organization transacting business outside this state that has an effect on a person residing in this state shall be deemed to have appointed the commissioner to accept service of process on its behalf, provided the commissioner causes a copy of the service to be mailed immediately by registered mail, or by a mailing service offered by a third party mailing service with tracking capability that is not more expensive than registered mail, to the insurance-support organization at its last known principal place of business. The return postcard receipt or signed receipt documentation for the mailing shall be sufficient proof that the same was properly mailed by the commissioner.
If, after a hearing pursuant to Section 791.15, the commissioner determines that the insurance institution, agent or insurance-support organization charged has engaged in conduct or practices in violation of this article, the commissioner shall reduce his or her findings to writing and shall issue and cause to be served upon such insurance institution, agent or insurance-support organization a copy of such findings and an order requiring such insurance institution, agent or insurance-support organization to cease and desist from the conduct or practices constituting a violation of this article.
If, after a hearing pursuant to Section 791.15, the commissioner determines that the insurance institution, agent or insurance-support organization charged has not engaged in conduct or practices in violation of this article, the commissioner shall prepare a written report which sets forth findings of fact and conclusions of law. Such report shall be served upon the insurance institution, agent or insurance-support organization charged and upon the person or persons, if any, whose rights under this article were allegedly violated.
Until the expiration of the time allowed under Section 791.18 for filing a petition for review or until such petition is actually filed, whichever occurs first, the commissioner may modify or set aside any order or report issued under this section. After the expiration of the time allowed under Section 791.18 for filing a petition for review, if no such petition has been duly filed, the commissioner may, after notice and opportunity for hearing, alter, modify or set aside, in whole or in part, any order or report issued under this section whenever conditions of fact or law warrant such action or if the public interest so requires.
Any person subject to an order of the commissioner under Section 779.17 or Section 791.20 or any person whose rights under this article were allegedly violated may obtain a review of any order or report of the commissioner by filing in a court of competent jurisdiction, within 30 days from the date of the service of such order or report, pursuant to Section 1094.5 of the Code of Civil Procedure. The court shall have jurisdiction to make and enter a decree modifying, affirming or reversing any order or report of the commissioner, in whole or in part.
An order or report issued by the commissioner under Section 791.17 shall become final:
Upon the expiration of the time allowed for the filing of a petition for review, if no such petition has been duly filed; except that the commissioner may modify or set aside an order or report to the extent provided in subdivision (c) of Section 791.17; or
Upon a final decision of the court if the court directs that the order or report of the commissioner be affirmed or the petition for review dismissed.
No order or report of the commissioner under this article or order of a court to enforce the same shall in any way relieve or absolve any person affected by such order or report from any liability under any law of this state.
Any person who violates a cease and desist order of the commissioner under Section 791.17 may, after notice and hearing and upon order of the commissioner, be subject to one or more of the following penalties, at the discretion of the commissioner:
A monetary fine of not more than ten thousand dollars ($10,000) for each violation; or
A monetary fine of not more than fifty thousand dollars ($50,000) if the commissioner finds that violations have occurred with such frequency as to constitute a general business practice; or
Suspension or revocation of an insurance institution’s or agent’s license if the insurance institution or agent knew or reasonably should have known it was in violation of this article.
If any insurance institution, agent or insurance-support organization fails to comply with Section 791.08, 791.09 or 791.10 with respect to the rights granted under those sections, any person whose rights are violated may apply to any court of competent jurisdiction, for appropriate equitable relief.
An insurance institution, agent or insurance-support organization which discloses information in violation of Section 791.13 shall be liable for damages sustained by the individual about whom the information relates. However no individual shall be entitled to a monetary award which exceeds the actual damages sustained by the individual as a result of a violation of Section 791.13.
In any action brought pursuant to this section, the court may award the cost of the action and reasonable attorney’s fees to the prevailing party.
An action under this section shall be brought within two years from the date the alleged violation is or should have been discovered.
Except as specifically provided in this section, there shall be no remedy or recovery available to individuals, in law or in equity, for occurrences constituting a violation of any provision of this act.
No cause of action in the nature of defamation, invasion of privacy or negligence shall arise against any person for disclosing personal or privileged information in accordance with this chapter, nor shall such a cause of action arise against any person for furnishing personal or privileged information to an insurance institution, agent or insurance-support organization; provided, however, this section shall provide no immunity for disclosing or furnishing false information with malice or willful intent to injure any person.
Any person who knowingly and willfully obtains information about an individual from an insurance institution, agent or insurance-support organization under false pretenses shall be fined not more than ten thousand dollars ($10,000) or imprisoned for not more than one year, or both.
Where an authorization from the individual was granted to a nonprofit hospital service plan prior to October 1, 1981, such authorization shall be deemed to be in compliance with this article.
A disability insurer that provides coverage for hospital, medical, or surgical expenses shall not release any information to an employer that would directly or indirectly indicate to the employer that an employee is receiving or has received services from a health care provider covered by the plan unless authorized to do so by the employee. An insurer that has, pursuant to an agreement, assumed the responsibility to pay compensation pursuant to Article 3 (commencing with Section 3750) of Chapter 4 of Part 1 of Division 4 of the Labor Code, shall not be considered an employer for the purposes of this section.
Nothing in this section prohibits a disability insurer from releasing relevant information described in this section for the purposes set forth in Chapter 12 (commencing with Section 1871) of Part 2 of Division 1.
Nothing in this section prohibits a disability insurer from releasing relevant information described in this section for the purposes set forth in Section 10181.10.
An insurer under a personal lines residential property insurance policy, if it reports the claims history or loss experience of insureds under those policies to an insurance-support organization, shall provide the insured with the following additional disclosure at the time that it provides the disclosure required pursuant to paragraph (1) of subdivision (b) of Section 790.034:
“This insurer reports claim information to one or more claims information databases. The claim information is used to furnish loss history reports to insurers. If you are interested in obtaining a report from a claims information database, you may do so by contacting:
(Insert the name, toll-free telephone number, and, if applicable, Internet Web site address of each claims information database to which the insurer reports the information covered by this section)”
This section shall become operative on July 1, 2006.
Notwithstanding any other law, and to the extent permitted by federal law, a health insurer shall take the following steps to protect the confidentiality of an insured’s medical information:
A health insurer shall not require a protected individual to obtain the policyholder’s authorization to receive sensitive services or to submit a claim for sensitive services if the protected individual has the right to consent to care.
A health insurer shall recognize the right of a protected individual to exclusively exercise rights granted under this section regarding medical information related to sensitive services that the protected individual has received.
A health insurer shall direct all communications regarding a protected individual’s receipt of sensitive health care services directly to the protected individual receiving care as follows:
If the protected individual has designated an alternative mailing address, email address, or telephone number pursuant to subdivision (b), the health insurer shall send or make all communications related to the protected individual’s receipt of sensitive services to the alternative mailing address, email address, or telephone number designated.
If the protected individual has not designated an alternative mailing address, email address, or telephone number pursuant to subdivision (b), the health insurer shall send or make all communications related to the protected individual’s receipt of sensitive services in the name of the protected individual at the address or telephone number on file.
Communications subject to this paragraph shall include the following written, verbal, or electronic communications:
Bills and attempts to collect payment.
A notice of adverse benefits determinations.
An explanation of benefits notice.
A health insurer’s request for additional information regarding a claim.
A notice of a contested claim.
The name and address of a provider, description of services provided, and other information related to a visit.
Any written, oral, or electronic communication from a health insurer that contains protected health information.
A health insurer shall not disclose medical information related to sensitive health care services provided to a protected individual to the policyholder or any insureds other than the protected individual receiving care, absent an express written authorization of the protected individual receiving care.
A health insurer shall permit an insured to request, and shall accommodate requests for, confidential communication in the form and format requested by the insured, if it is readily producible in the requested form and format, or at alternative locations.
A health insurer may require the insured to make a request for a confidential communication described in paragraph (1) in writing or by electronic transmission.
The confidential communication request shall apply to all communications that disclose medical information or provider name and address related to receipt of medical services by the individual requesting the confidential communication.
The confidential communication request shall be valid until the insured submits a revocation of the request, or a new confidential communication request is submitted.
For the purposes of this section, a confidential communications request shall be implemented by the health insurer within 7 calendar days of the receipt of an electronic transmission, telephonic request, or request submitted through the health insurer’s internet website, or within 14 calendar days of receipt by first-class mail. The health insurer shall acknowledge receipt of the confidential communications request and advise the insured of the status of implementation of the request if an insured contacts the insurer.
In a conspicuously visible location in the evidence of coverage.
On the health insurer’s internet website, accessible through a hyperlink on the internet website’s home page and in a manner that allows insureds, prospective insureds, and members of the public to easily locate the information.
Notwithstanding subdivision (b), a provider of health care may make arrangements with the insured for the payment of benefit cost sharing and communicate that arrangement with the insurer.
A health insurer shall not condition coverage on the waiver of rights provided in this section.
If the commissioner determines that an insurer has violated this section, the commissioner may, after appropriate notice and opportunity for hearing in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), by order, assess a civil penalty not to exceed five thousand dollars ($5,000) for each violation, or, if a violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation. The commissioner shall have the discretion to determine the acts or omissions that constitute a violation of this section.
This section shall become operative on July 1, 2022.
ARTICLE 6.7. Joint Activities [795. - 795.7.]
It is the purpose of this article to provide a means of more adequately meeting the needs of persons who are 65 years of age or older and their spouses for insurance coverage against financial loss from accident or disease through the combined resources and experience of a number of insurers; to make possible the fullest extension of such coverage by encouraging insurers to combine their resources and experience and to exercise their collective efforts in the development and offering of policies of such insurance to all such applicants at costs lower than those generally available through individual insurers; and to regulate the joint activities herein authorized in accordance with the intent of Congress as expressed in the Act of Congress of March 9, 1945 (Public Law 15, 79th Congress), as amended.
Wherever used in this article, the following terms shall have the meanings hereinafter set forth or indicated, unless the context otherwise requires:
“Association” means a voluntary unincorporated association formed for the purpose of enabling co-operative action to provide disability insurance in accordance with this article in this or any other state having legislation enabling the issuance of insurance of the type provided in this article.
“Insurer” means any insurance company which is authorized to transact disability insurance in this State.
“Extended health insurance” means hospital, surgical and medical expense insurance provided by a policy issued as provided by this article.
Notwithstanding any other provision of this code or any other law which may be inconsistent herewith, any insurer may join with one or more other insurers to plan, develop, underwrite, and offer and provide to any person who is 65 years of age or older and to the spouse of such person, extended health insurance against financial loss from accident or disease, or both. Such insurance may be offered, issued and administered jointly by two or more insurers by a group policy issued to a policyholder through an association formed for the purpose of offering, selling, issuing and administering such insurance. The policyholder may be an association, a trustee, or any other person. Any such policy may provide, among other things, that the benefits payable thereunder are subject to reduction if the individual insured has any other coverage providing hospital, surgical or medical benefits whether on an indemnity basis or a provision of service basis resulting in such insured being eligible for more than 100 percent of covered expenses which he is required to pay, and any insurer issuing individual policies providing extended hospital, surgical or medical benefits to persons 65 years of age and older and their spouses may also use such a policy provision. A master group policy issued to an association or to a trustee or any person appointed by an association for the purpose of providing the insurances described in this article shall be another form of group disability insurance.
Any form of policy approved by the commissioner for an association shall be offered throughout California to all persons 65 and older and their spouses, and the coverage of any person insured under such a form of policy shall not be cancelable except for nonpayment of premiums unless the coverage of all persons insured under such form of policy is also canceled.
Any association, organized in accordance with this article, may offer, issue and administer a policy, or policies, designed to specifically meet the requirements of any federal or state program for provision of health care to segments of the population over 65 years of age. In any case where such a federal or state program is designed to also meet the health care needs of segments of the population under age 65, including, but without limitation, the health care needs of families with dependent children, the blind, the disabled, and the otherwise medically indigent, insurance under such policy or policies may be made available to beneficiaries of such program under age 65. Such an association may also perform administrative services in connection with any such program under contract with the federal government, the state, any agency of either, or any other entity.
Notwithstanding the provisions of Section 755.5 of this code, any person licensed to transact disability insurance as an insurance agent, insurance broker, insurance solicitor or life agent may transact extended health insurance and may be paid a commission thereon in accordance with commission schedules filed with the commissioner as required by Section 795.5 of this code.
Any association formed for the purposes of this article may hold title to property, may enter into contracts, and may limit the liability of its members to their respective pro rata shares of the liability of such association. Any such association may sue and be sued in its associate name and for such purpose only shall be treated as a domestic corporation. Service of process against such association, made upon a managing agent, any member thereof or any agent authorized by appointment to receive service of process, shall have the same force and effect as if such service had been made upon all members of the association. Such association’s books and records shall also be subject to examination under the provisions of Sections 730–738, inclusive, either separately or concurrently with examination of any of its member insurers.
The forms of the policies, applications, certificates or other evidence of insurance coverage, commission schedules and applicable premium rates relating thereto shall be filed with the commissioner. No such policy, contract, certificate or other evidence of insurance, application or other form shall be sold, issued or used and no endorsement shall be attached to or printed or stamped thereon unless the form thereof shall have been approved by the commissioner or 30 days shall have expired after such filing without written notice from the commissioner of disapproval thereof. The commissioner shall disapprove the forms for such insurance if he finds that they are unjust, unfair, inequitable, misleading or deceptive or that the rates are by reasonable assumptions excessive in relation to the benefits provided. In determining whether such rates by reasonable assumptions are excessive in relation to the benefits provided, the commissioner shall give due consideration to past and prospective claim experience, within and outside this State, and to fluctuations in such claim experience, to a reasonable risk charge, to contribution to surplus and contingency funds, to past and prospective expenses, both within and outside this State, and to all other relevant factors within and outside this State including any differing operating methods of the insurers joining in the issue of the policy. In exercising the powers conferred upon him by this section, the commissioner shall not be bound by any other requirement of this code with respect to standard provisions to be included in disability policies or forms.
The commissioner may, after hearing upon written notice, withdraw an approval previously given, upon such grounds as in his opinion would authorize disapproval upon original submission thereof. Any such withdrawal of approval after hearing shall be by notice in writing specifying the ground thereof and shall be effective at the expiration of such period, not less than 90 days after the giving of notice of withdrawal, as the commissioner shall in such notice prescribe.
If and when a program of hospital, surgical and medical benefits is enacted by the federal government or the State of California, the extended health insurance benefits provided by policies issued under this article shall be adjusted to avoid any duplication of benefits offered by the federal or state programs and the premium rates applicable thereto shall be adjusted to conform with the adjusted benefits.
The association shall submit an annual report to the Insurance Commissioner which shall become public information and shall provide information as to the number of persons insured, the names of the insurers participating in the association with respect to insurance offered under this article and the calendar year experience applicable to such insurance offered under this article, including premiums earned, claims paid during the calendar year, the amount of claims reserve established, administrative expenses, commissions, promotional expenses, taxes, contingency reserve, other expenses, and profit and loss for the year. The commissioner shall require the association to provide any and all information concerning the operations of the association deemed relevant by him for inclusion in the report.
The articles of association of any association formed in accordance with this article, all amendments and supplements thereto, a designation in writing of a resident of this State as agent for the service of process, and a list of insurers who are members of the association and all supplements thereto shall be filed with the commissioner.
The name of any association or any advertising or promotional material used in connection with extended health insurance to be sold, offered, or issued, pursuant to this article shall not be such as to mislead or deceive the public.
No act done, action taken or agreement made pursuant to the authority conferred by this article shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance.
ARTICLE 6.8. Claims Reviewers [796.01. - 796.04.]
Disability insurers and nonprofit hospital service plans shall, upon rejecting a claim from a health care provider or a patient, and upon their demand, disclose the specific rationale used in determining why the claim was rejected. Nothing in this section is intended to expand or restrict the ability of a health care provider or a patient from having health care coverage approved in advance of services.
Compensation of a person retained by a disability insurer to review claims for health care services shall not be based on either of the following:
A percentage of the amount by which a claim is reduced for payment.
The number of claims or the cost of services for which the person has denied authorization or payment.
This article does not apply to services or benefits provided pursuant to Medi-Cal, including services or benefits provided under Chapters 7 (commencing with Section 14000) and 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code.
A health insurer that provides coverage for hospital, medical, or surgical expenses that authorizes a specific type of treatment for services covered under a policyholder’s contract or plan by a provider shall not rescind or modify this authorization after the provider renders the health care service in good faith and pursuant to the authorization for any reason, including, but not limited to, the insurer’s subsequent rescission, cancellation, or modification of the insured’s or policyholder’s contract or the insurer’s subsequent determination that it did not make an accurate determination of the insured’s eligibility. This section shall not be construed to expand or alter the benefits available or the terms and conditions of the contract as may be agreed upon between a policyholder, certificate holder, or trust, and the insurer. The Legislature finds and declares that by adopting the amendments made to this section by Assembly Bill 1324 of the 2007–08 Regular Session it does not intend to instruct a court as to whether or not the amendments are existing law.
ARTICLE 6.9. The Equal Insurance HIV Act [799. - 799.11.]
The Legislature finds and declares all of the following:
Article 6.9 (commencing with Section 799) of Chapter 1 of Part 2 of Division 1 of the Insurance Code was originally enacted in 1988 and was last amended in 1997. These laws require an update to reflect advancements in testing and medical treatments for individuals living with the human immunodeficiency virus (HIV).
When the HIV/AIDS epidemic began in the United States, HIV was considered a life-threatening condition because relatively little was known at the time about HIV detection, transmission, or treatment. Today, however, just as with other chronic health conditions, HIV can be effectively managed.
According to data collected by the Antiretroviral Therapy Cohort Collaboration from 1996 to 2013, inclusive, modern antiretroviral therapy (ART) is more sophisticated than original treatments, causes fewer adverse effects, and results in a life expectancy similar to people not living with HIV.
The National Institutes of Health notes that ART can suppress an individual’s viral load to a point where HIV is undetectable in the blood, and the chance of HIV developing into AIDS is reduced.
Research shows that in recent years, people living with HIV who are receiving treatment have a life expectancy of approximately 70 to 78 years or more, depending on other determinants of health and how early treatment was commenced, compared to a life expectancy of 39 years in 1996. The risk of death due to AIDS-related causes has declined dramatically.
It is now possible for HIV-positive individuals to have an average life expectancy. They should have the same opportunities as other individuals with chronic medical conditions to purchase life insurance and disability income insurance.
It is, therefore, the intent of the Legislature to ensure the equitable health and well-being of all people living in California.
The purposes of this article are to do all of the following:
Establish standards that prevent life or disability income insurers from making or permitting unfair distinctions between individuals of the same class in underwriting life insurance or disability income insurance for individuals living with HIV.
Require the maintenance of strict confidentiality for personal information obtained through testing.
Require informed consent before a life or disability income insurer tests for HIV.
As used in this article, the following terms have the following meanings:
“AIDS” means acquired immunodeficiency syndrome.
“Certificate” means a certificate of group life insurance or a certificate of group disability income insurance delivered in this state, regardless of the situs of the group master policy. A certificate of life insurance benefits or disability income insurance benefits issued or delivered in this state by a fraternal benefit society is a “policy” as defined in subdivision (h).
“Disability income insurance” means insurance against loss of occupational earning capacity arising from injury, sickness, or disablement.
“HIV” or “human immunodeficiency virus” means the etiologic virus of AIDS.
“HIV test” means any clinical test, laboratory or otherwise, used to identify HIV, a component of HIV, or antibodies or antigens to HIV.
“Life or disability income insurer” means an insurer licensed to transact life insurance or disability insurance in this state that is transacting life insurance or disability income insurance in this state, or a fraternal benefit society licensed in this state that is transacting life insurance or disability income insurance in this state.
“Life insurance” means the class of coverage described in Section 101, but, as used in this article, excludes annuities.
“Policy” means an individual life insurance policy or individual disability income insurance policy issued or delivered in this state, or a certificate of life insurance benefits or disability income insurance benefits issued or delivered in this state by a fraternal benefit society.
A life or disability income insurer shall not decline an application or an enrollment request for coverage under a policy or certificate for life insurance or disability income insurance based solely on the results of a positive HIV test, regardless of when or at whose direction the test was performed.
Notwithstanding any other law, this article does not prevent or otherwise restrict a life or disability income insurer from refusing to insure an applicant that is HIV positive, limiting the amount, extent, or kind of coverage for an applicant that is HIV positive, or charging a different rate to an applicant that is HIV positive, if the refusal, limitation, or charge is based on sound actuarial principles and actual or reasonably anticipated experience.
Transferring an applicant from a simplified, expedited, accelerated, or algorithmic underwriting process to a traditional medical underwriting process, based solely on the results of a positive HIV test, does not constitute a denial of the application or a violation of this section.
This section applies if coverage is contingent upon medical review for other diseases or medical conditions.
A life or disability income insurer shall not require a test for HIV or for the presence of antibodies to HIV for the purpose of determining insurability other than pursuant to the informed consent, counseling, and privacy protection provisions of this article and Article 6.6 (commencing with Section 791). Notwithstanding any other law, this constitutes the exclusive requirements for counseling, informed consent, and privacy protection for that testing.
A life or disability income insurer that asks an applicant to undergo an HIV test shall obtain the applicant’s written informed consent for the test. Written informed consent shall include a description of the test to be performed, including its purpose, potential uses, and limitations, the meaning of its results, procedures for notifying the applicant of the results, and the right to confidential treatment of the results. Before the applicant signs the consent, the insurer shall provide the applicant with both of the following, on paper or electronically, whichever the applicant chooses:
Material describing HIV, its causes and symptoms, the manner in which it is spread, the test or tests used to detect HIV or the HIV antibody, and what a person can do whose test results are positive or negative.
A list of counseling resources available, where the applicant can obtain assistance in understanding the meaning of the test and its results. The list shall be provided from publicly available information or internet websites, and shall include resources available from the State Department of Public Health and the federal Centers for Disease Control and Prevention.
The life or disability income insurer that asks an applicant to undergo an HIV test shall notify an applicant of a positive test result by notifying the applicant’s designated physician. If the applicant tested has not given written consent authorizing a physician to receive the test results, the applicant shall be urged, at the time the applicant is informed of the positive test results, to contact a private physician, the county department of health, the State Department of Public Health, local medical societies, or alternative test sites for appropriate counseling.
A life or disability income insurer shall not require an applicant to undergo an HIV test unless the cost of the test is borne by the insurer.
A life or disability income insurer shall not consider the marital status, actual or perceived sexual orientation, gender, gender identity, gender expression, race, color, religion, national origin, ancestry, living arrangements, occupation, beneficiary designation, or ZIP Codes or other territorial classification within this state, or any combination thereof, of an applicant for life insurance or disability income insurance in determining whether to require an HIV test of that applicant.
All underwriting activities undertaken by life or disability income insurers pursuant to this article shall be subject to all applicable provisions of Article 6.6 (commencing with Section 791). An application or enrollment request for life insurance or disability income insurance shall not contain a question pertaining to prior HIV tests unless the question is limited in scope to prior testing for the purpose of obtaining insurance.
If an applicant has had a positive HIV test, a life or disability income insurer shall not report a code to an insurance support organization as defined in Section 791.02 or another insurer unless a nonspecific test result code is used that does not indicate that the individual was subject to an HIV test.
A life or disability income insurer shall not require an applicant to take an HIV test if the results of the test would be used exclusively or nonexclusively for the purpose of determining eligibility for hospital, medical, or surgical insurance coverage or eligibility for coverage under a nonprofit hospital service plan or health care service plan.
This section applies to the disclosure of the results of HIV tests requested by a life or disability income insurer pursuant to this article and, notwithstanding Section 120980 of the Health and Safety Code, Section 120980 of the Health and Safety Code does not apply to the disclosure of the results of HIV tests conducted pursuant to this article.
A person who negligently discloses results of an HIV test to a third party, in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization, as described in subdivision (g), or except as provided in this article or in Section 1603.1, 1603.3, or 121022 of the Health and Safety Code, or in any other law that expressly provides an exemption to this section, shall be assessed a civil penalty in an amount not to exceed two thousand five hundred dollars ($2,500) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
A person who willfully or maliciously discloses the results of an HIV test to a third party, in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization, as described in subdivision (g), or except as provided in this article or in Section 1603.1, 1603.3, or 121022 of the Health and Safety Code, or in any other law that expressly provides an exemption to this section, shall be assessed a civil penalty in an amount not less than five thousand dollars ($5,000) and not more than ten thousand dollars ($10,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
A person who willfully, maliciously, or negligently discloses the results of an HIV test to a third party, in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization, as described in subdivision (g), or except as provided in this article or in Section 1603.1, 1603.3, or 121022 of the Health and Safety Code, or in any other law that expressly provides an exemption to this section, that results in economic, bodily, or psychological harm to the subject of the test, is guilty of a misdemeanor punishable by imprisonment in a county jail for a period not to exceed 364 calendar days, or by a fine not to exceed twenty-five thousand dollars ($25,000), or by both that fine and imprisonment.
A person who commits any act described in subdivision (b) or (c) shall be liable to the subject for all actual damages, including damages for economic, bodily, or psychological harm that is proximately caused by the act.
Each disclosure made in violation of this section is a separate and actionable offense.
“Written authorization,” as used in this section, applies only to the disclosure of test results by a person responsible for the care and treatment of the person subject to the test. Written authorization is required for each separate disclosure of the test results, and shall include to whom the disclosure would be made.
This article shall become operative on January 1, 2023.
ARTICLE 7. Restrictions on Underwriting [800. - 805.]
This article shall not apply to:
Insurers made exempt therefrom by other provisions of this code.
Insurance upon the interests of common carriers engaged in interstate trade, or upon property in their custody.
Insurance contracts executed without this state, but which during the term thereof temporarily cover subject matter within this state.
Bid bonds issued by any admitted insurer in connection with any public or private contract.
Any admitted insurer may, by means of temporary binders, execute contracts of insurance at offices outside this state upon subject matter located in this state if policies therefor are thereafter issued by it.
No admitted insurer shall assume or reinsure the liabilities of a nonadmitted insurer upon subject matter located in this state for the purpose of circumventing the rate and form provisions of this code, or the nonadmitted insurer provisions in Chapter 6 (commencing with Section 1760) of Part 2, and their implementing regulations. Notwithstanding Section 804, if, after notice and hearing, the commissioner determines that a reinsurance agreement was entered into in violation of this section, then the insurer shall be subject to a fine not to exceed five thousand dollars ($5,000), for each such reinsurance agreement, and the commissioner may enter any other corrective order he or she deems necessary.
The commissioner shall issue a bulletin to govern the reporting to the department by admitted insurers of their reinsurance transactions with nonadmitted insurers. The bulletin shall specify the types of reinsurance subject to reporting, the amounts which shall be reported, and the manner in which that information shall be reported. The bulletin shall require reporting of sufficient information to enable the department to evaluate compliance with subdivision (a).
Any insurer willfully violating any provision of this article is guilty of a misdemeanor and is punishable by a fine not exceeding one thousand dollars ($1,000) for each violation thereof, or the commissioner may suspend the certificate of authority of such insurer for the remainder of the term thereof.
The license of any licensee that is suspended by the Secretary of State shall become inactive. The inactive licensee shall not conduct any activity for which a license, issued by the commissioner, is required until the licensee is no longer suspended by the Secretary of State.
ARTICLE 7.3. Servicing of Insurance Contracts [810. - 810.]
An admitted insurer, without first obtaining the written consent of the commissioner, shall not enter into any agreement or arrangement with any nonadmitted insurer by way of sale, reinsurance, merger, consolidation, assumption, or in any other manner which results in the admitted insurer ceasing to service in this state any group insurance contract or 10 or more individual insurance contracts entered into in this state or issued for delivery in this state insuring the life or person of any resident of this state or any property in this state.
Service as used in this section includes but is not limited to:
Adjustment and payment of losses.
Appropriate amendment of insurance contracts as called for therein to keep the coverage consistent with current conditions.
Collection of premiums.
Issuance of policies, certificates and other documents, in fulfillment of prior agreements.
Returning unearned premiums.
Payment of cash values.
No admitted insurer shall in whole or in part or in any manner so cease to so service such insurance business without such written consent from the commissioner unless it has by valid contract arranged for an admitted insurer to perform such servicing.
This section shall not affect or modify any of the provisions of this code relating to statement credit allowed for reinsurance.
Violation of this section constitutes a failure to comply with the laws of this state regarding the governmental control of insurers within the meaning of Section 701.
ARTICLE 7.5. Restrictions on Compensation of Adjusters [815. - 816.]
No insurer shall pay any representative given discretion as to the settlement or adjustment of claims under life or disability policies, whether in direct negotiation with the claimant or in supervision of the person negotiating, a compensation which in any way is contingent upon the amount of settlement of such claims.
No insurer shall pay any person given discretion as to settlement of claims under any policy of insurance, or surety bond, whether in direct negotiation with the claimant or in supervision of the person negotiating, a compensation which in any way is contingent upon the amount of settlement of such claims, except as in this section otherwise expressly provided.
This section shall apply equally to a single claim, a number of specified claims, an aggregate of claims during a specified period of time or an aggregate of claims under any contract, agreement or arrangement.
This section shall not affect the interpretation or provisions of Section 815.
The word “person” as used in this section includes, but is not limited to: employees, agents, brokers, representatives, general agents, managing general agents, surplus line brokers, insureds, coinsureds, adjusters and independent contractors but does not include attorneys in fact or other exclusive managers of an insurer.
This section does not apply to:
Compensation of a producer, managing general agent, surplus line broker or general agent under any arrangement, agreement or contract whereby the producer or general agent is not granted discretion in the actual adjustment or settlement of any or all individual claims settled for an amount exceeding five hundred dollars ($500).
A producer, managing general agent, surplus line broker or general agent who is compensated by a contingent commission arrangement based wholly or partly on underwriting results, unless the arrangement guarantees an agreed return to the insurer which may exceed the underwriting profit actually earned by the insurer on business written through the producer, managing general agent, surplus line broker or general agent.
Contracts of reinsurance between insurers.
An arrangement, schedule of charges, agreement or contract, express or implied, for the adjustment of claims under which the compensation for the services of the person making the adjustment (exclusive of reimbursement for actual expenses) consistently increases, in reasonable brackets, as the amount paid in settlement of a claim increases.
An insurer which in any other jurisdiction is making payments which would be in violation of this section if made in respect to insurance business done in this state shall not be admitted to this state until it presents evidence satisfactory to the commissioner that it will not make such payments in this state and that it will within one year after admission to this state cease to make any such payments in any other jurisdiction and, within the same period, terminate any contract or arrangement under which such payments are to be paid. Failure to so cease such payments and to so terminate such contracts and arrangements within such period of one year shall constitute grounds for revocation of the insurer’s certificate of authority.
ARTICLE 8. Issue of Securities [820. - 860.]
The terms used in this article shall be given the meanings herein set forth, but such meanings shall not, merely by reason of enactment in this article, govern the interpretation of any other provision of this code.
“Security” means every instrument commonly known by that term, except:
Commercial paper when issued, given or acquired in a bona fide way in the ordinary course of legitimate business, trade or commerce.
Promissory notes, whether secured or unsecured, if not offered to the public, and if not sold to an underwriter of the sale for the purpose of resale.
Mortgage participation certificates issued under and in accordance with the provisions of Chapter 2, Part 6, Division 2.
Policies of insurance issued by an insurer.
Without in any manner affecting the scope of the term “security” as set forth in section 821, and with the exceptions therein set forth, the following instruments are particularly specified as securities within the meaning of that section: every stock, bond, note, treasury stock, debenture, evidence of indebtedness, certificate evidencing a contribution, certificate of interest or participation, certificate of interest in a profit sharing agreement, collateral trust certificate, any transferable share, investment contract, or beneficial interest in title to property, contracts or earnings.
Except as otherwise provided by this article, “sale” or “sell” means every disposition, or attempt or arrangement to dispose, of a security or interest in a security for value, whether done by direct or indirect means. A security is conclusively presumed to be sold for value if given with any purchase of any nature or if given as a bonus on account of a purchase. “Sale” or “sell” shall also mean a contract of sale, an exchange, any change in the rights, preferences, privileges, or restrictions on outstanding securities, an attempt to sell, an option of sale, a solicitation of a sale, a subscription or an offer to sell directly or by a stock agent, or a circular letter, advertisement or otherwise.
A privilege pertaining to a security giving the holder the privilege to convert such security into another security of the same insurer is not a sale of such other security.
A right pertaining to a security and entitling the holder of such right to subscribe to another security of the same insurer is not a sale of such other security, but the sale of such other security upon the exercise of such right shall be subject to the provisions of this article.
“Broker” means every person, other than a stock agent, who in this state engages either wholly or in part in the business of (a) dealing in any security issued by others, (b) underwriting any issue of such securities, (c) purchasing such securities with the purpose of reselling them, or (d) offering such securities for sale to the public. Authority to act as a broker shall not be implied from an appointment executed by an insurer appointing a stock agent of that insurer.
“Stock agent” means every person employed or appointed by an insurer or broker who, within this state and for a compensation, sells any security.
“Insurer” for the purposes of this article includes every organization organized for the purpose of assuming the risk of loss under contracts of insurance or reinsurance, and also includes any of the following organizations:
An admitted insurer,
A nonadmitted domestic insurer,
A nonadmitted foreign insurer,
A nonadmitted alien insurer,
An underwritten title company, or an organization organized for the purpose of doing an underwritten title business, whether licensed or not, and
An attorney in fact of a reciprocal or interinsurance exchange, whether it be admitted or not, or an organization organized for the purpose of acting as the attorney in fact of a reciprocal, or interinsurance exchange, whether the same be admitted or not.
“Insurer” shall not include, unless specified in subdivisions (a) through (f), inclusive, an organization, which though required to obtain a certificate or license from the commissioner, is organized or to be organized primarily for purposes other than assuming the risk of loss under contracts or agreements of insurance.
The amendments of this section by the Legislature at the 1965 Regular Session, except as they relate to underwritten title companies, attorneys in fact, and exclusive managers, shall be construed as a restatement and continuation of the law existing prior to such amendment. Every permit issued by the commissioner or the Commissioner of Corporations to an insurer as defined in this section prior to its amendment by the Legislature at 1965 Regular Session shall be valid and effective for all purposes stated therein, from the date of its issuance until the date of expiration stated therein.
Every permit issued by the commissioner under the authority of former subdivision (g) of this section from the date such subdivision became effective in 1965 until the effective date of the amendment to this section at the 1970 Regular Session of the Legislature shall be valid and effective for all purposes stated therein, from the date of its issuance until the expiration date specified therein.
An insurer shall not sell in this state, except upon a sale for delinquent assessment made in accordance with the provisions of Section 423 of the Corporations Code, or offer for sale, negotiate for the sale of, or take subscriptions for any security of its own issue until it shall have first applied for and secured from the commissioner a permit authorizing it so to do.
As used in this section, the term “insurer” means an insurer which is domestic and admitted.
The transactions of an insurer set out in subdivisions (c) and (d) are exempt from Section 827 if they meet all of the following requirements:
They are not accompanied by an advertisement and no selling expenses have been given, paid, or incurred in connection therewith.
No consideration has been given, paid, or incurred in connection with them.
Within 30 days after the transaction, the insurer notifies the commissioner in writing of its occurrence. The notice shall describe the transaction, including the transaction date, the number and par value of shares issued, and the purpose of the transaction. The notice shall be executed under penalty of perjury.
Par value increases resulting from a transfer of gross paid-in surplus to capital.
Shares issued or distributed by an insurer as dividends to existing holders of shares of the insurer, on a pro rata basis according to the shares previously held by each holder, provided the new shares are of the same class and par value and have the same rights, preferences, privileges, and restrictions as the outstanding shares.
Any transfer of surplus to paid-up capital pursuant to subsection (d) shall not be deemed consideration for purposes of this section.
Notwithstanding this section, the applicable notice provisions, contained in subdivision (e) of Section 1215.4, shall apply to those transactions set forth in subdivision (d).
Any negotiations or agreements prior to general solicitation for the approval of the shareholders of said insurer and subject to such approval, of a change in the rights, preferences, privileges or restrictions of or on outstanding securities or a merger, consolidation or sale of corporate assets in consideration of the issuance of securities.
Any change in the rights, preferences, privileges, or restrictions of or on outstanding securities of such insurer, unless the holders of at least 25 percent of the outstanding shares or units of any class of securities which will be directly or indirectly affected substantially and adversely by such change have addresses in this state according to the records of such insurer; or
Any exchange incident to a merger, a consolidation, an acquisition of outstanding stock, or a sale of corporate assets in consideration of the issuance of securities of another insurer or corporation, unless at least 25 percent of the outstanding shares of any class, the holders of which are to receive securities in the exchange of the surviving, consolidated, or purchasing corporation or insurer, are held by persons who have addresses in this state according to the records of such corporation or insurer of which they are shareholders.
For the purposes of subdivision (b) and subdivision (c) of this section, (1) any securities held to the knowledge of the issuer in the names of a broker as defined in Section 824 or nominees of such broker and (2) any securities controlled by any one person who is not a resident of the State of California who controls directly or indirectly 50 percent or more of the outstanding securities of that class, shall not be considered outstanding. The determination of whether 25 percent of the outstanding securities are held by persons having addresses in this state, for the purposes of subdivision (b) and subdivision (c) of this section, shall be made as of the record date for the determination of the security holders entitled to vote on or consent to the action, if approval of such holders is required, or if not as of the date of directors’ approval of such action.
Any change (other than a stock split or reverse stock split) in the rights, preferences, privileges, or restrictions of or on outstanding shares, except the following if they materially and adversely affect any class of shareholders: (1) to add, change, or delete assessment provisions; (2) to change the rights to dividends thereon; (3) to change the redemption provisions; (4) to make them redeemable; (5) to change the amount payable on liquidation; (6) to change, add, or delete conversion rights; (7) to change, add, or delete voting rights; (8) to change preemptive rights; (9) to change, add, or delete sinking fund provisions; (10) to rearrange the relative priorities of outstanding shares; (11) to impose, change, or delete restrictions upon the transfer of shares in the articles of incorporation or bylaws; (12) to change the right of shareholders with respect to the calling of special meetings of shareholders; or (13) to change, add, or delete any rights, preferences, privileges, or restrictions of, or on, the outstanding shares or memberships of a mutual water company or other corporation organized primarily to provide services or facilities to its shareholders or members.
Any stock split or reverse stock split, except the following: (1) any stock split or reverse stock split if the corporation has more than one class of shares outstanding and the split would have a material effect on the proportionate interests of the respective classes as to voting, dividends or distributions; (2) any stock split of a stock which is traded in the market and its market price as of the date of directors’ approval of the stock split adjusted to give effect to the split was less than two dollars ($2) per share; or (3) any reverse stock split if the corporation has the option of paying cash for any fractional shares created by such reverse split and as a result of such action the proportionate interests of the shareholders would be substantially altered. Any shares issued upon a stock split or reverse stock split exempted by this subdivision shall be subject to any conditions previously imposed by the commissioner applicable to the shares with respect to which they are issued.
Any change in the rights of outstanding debt securities, except the following if they substantially and adversely affect any class of securities: (1) to change the rights to interest thereon; (2) to change their redemption provisions; (3) to make them redeemable; (4) to extend the maturity thereof or to change the amount payable thereon at maturity; (5) to change their voting rights; (6) to change their conversion rights; (7) to change sinking fund provisions; or (8) to make them subordinate to other indebtedness.
Any offer or sale of voting common stock by an insurer incorporated in this state shall be exempt from the provisions of this article if, immediately after the proposed sale and issuance, there will be only one class of stock of such insurer outstanding which is owned beneficially by no more than one domestic insurer, providing all of the following requirements have been met:
All such stock shall be evidenced by certificates which have been stamped or printed prominently on their face a legend in a form to be prescribed by rule of the commissioner restricting the transfer of such stock in such manner as the rule provides.
The offer and sale of such stock is not accompanied by the publication of any advertisement, and no selling expenses have been given, paid, or incurred in connection therewith.
The consideration to be received by the issuer for the stock to be issued shall consist of only cash or cancellation of indebtedness for money borrowed or both upon the initial organization of the issuer, provided all such stock is issued for the same price per share.
No promotional consideration has been given, paid, or incurred in connection with such issuance. Promotional consideration means any consideration paid directly or indirectly to a person who, acting alone or in conjunction with one or more other persons, takes the initiative in founding and organizing the business or enterprise of the issuer, for services rendered in connection with such founding or organizing.
Where required by this article the commissioner is authorized to issue subscription and preorganization permits of and pertaining to insurers or proposed insurers. Applications for such permits shall set forth such of the matters described in Sections 834, 835, 836 and 837 as the commissioner deems appropriate or requires.
An offer or sale of voting common stock or preferred stock of and by a foreign or alien insurer to property broker-agents or casualty broker-agents, as defined in Section 33.5, shall be exempt from the requirements of this article if all of the following requirements are met:
The sale shall not be made to more than 35 property broker-agents and casualty broker-agents in the State of California.
Each property broker-agent and each casualty broker-agent to whom an offer is made is an “accredited investor” as defined in Regulation D under the Federal Securities Act of 1933, as amended.
Each property broker-agent and each casualty broker-agent to whom an offer is made meets all of the following requirements:
The broker-agent shall have been appointed by the admitted insurer for a period of at least one year and that admitted insurer shall meet all of the following requirements:
Have at least four hundred million dollars ($400,000,000) of statutory capital and surplus.
Hold a certificate of authority in good standing with this state and have no regulatory action relating to financial hazard or fraud against the company in the last three years from states, including this state, where the insurer is authorized as an admitted insurer to do business.
Is currently reinsuring or has definite plans to reinsure business produced by that broker-agent with the same foreign or alien insurer offering securities to the broker-agent.
The broker-agent generates five million dollars ($5,000,000) in premiums per year and plans on transferring or writing at least one million dollars ($1,000,000) per year with the admitted insurer.
The broker-agent shall pay at least fifty thousand dollars ($50,000) for the securities purchased in the transaction but not in excess of five hundred thousand dollars ($500,000).
The broker-agent shall have a net worth of at least five million dollars ($5,000,000).
The offer and sale of stock is accompanied by the prospectus, private placement memorandum, together with any other information required pursuant to Regulation D of the Federal Securities Act of 1933.
The consideration received by the issuer for the stock to be issued consists solely of cash.
No promotional consideration or selling expenses have been given, paid, or incurred in connection with the issuance of stock, and the offer and sale of stock is not accompanied by the publication of any advertisement.
All stock issued shall be evidenced by a certificate that shall have a notice printed prominently on its face restricting the transfer of the stock solely to the issuer or investors who have been shareholders of the issuer for at least three years and who are approved by at least 51 percent of the members of the board of directors of the issuer.
The issuer of both the common and preferred stock shall be all of the following:
A foreign or alien insurer that does not transact insurance directly in California, but is solely a reinsurer.
A reinsurer that only reinsures commercial lines property and casualty insurance, as specified in subparagraph (A) of paragraph (1) of subdivision (c).
Except in the case of a broker holding a broker’s certificate issued by the commissioner under this code or by the Commissioner of Financial Protection and Innovation under the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code) and then in effect, a person, desiring or proposing to sell a security to be issued by any insurer, shall not issue, circulate, or publish any advertisement, pamphlet, prospectus, or circular concerning that security until the insurer secures from the commissioner a permit authorizing it to sell the security.
A person shall not issue, circulate, or publish any advertisement or writing concerning any security sold by him, unless either his name is subscribed thereto, and a true copy thereof is filed in the office of the commissioner at least one day prior to the issue, publication, or circulation, or the commissioner first authorizes or consents to the issuance, circulation or publication.
A person shall not issue, circulate, or publish any such advertisement or writing after receipt of notice in writing from the commissioner that, in his opinion, the same contains any statement that is false or misleading or otherwise likely to deceive a reader thereof.
Every security issued by any insurer without a permit of the commissioner authorizing the same in effect at the time of the issue, shall be void. Every security issued by any insurer under a permit of the commissioner shall be void unless its provisions conform to the provisions, if any, required by the permit.
Every security of a home protection company issued or authorized to be issued prior to December 31, 1978, shall be valid even though it has been issued without a permit of the commissioner authorizing the same if, at the time of the issue or authorization, the security was qualified or exempt from qualification under the Corporate Securities Law of 1968 (Title 4, Division 1 of the Corporations Code).
Any sale, transfer, hypothecation, or other distribution of a security whose issuance is validated by this section, whether such transaction takes place before or after the effective date of this section is not prohibited by the provisions of this article.
Every insurer that commits any of the following acts is guilty of a public offense and punishable by fine not exceeding ten thousand dollars:
Selling or causing to be issued a security contrary to the provisions of this article or not in conformity with the permit of the commissioner.
Applying any of the proceeds of sale of a security to any purpose other than as specified in the permit, or to a purpose specified in the permit, but in excess of the amount limited for that purpose.
Every person who commits any of the acts specified in this section is guilty of a public offense and punishable by a fine not exceeding ten thousand dollars ($10,000), or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not exceeding one year, or by both that fine and imprisonment.
Knowingly authorizing, directing, aiding, causing, or assisting in causing the issuance, execution, or sale of, any security, in nonconformity with a permit of the commissioner then in effect and authorizing such issuance, or contrary to the provisions of this article.
Knowingly making any false statement or representation in any application to the commissioner, or in any proceeding before him, or in any examination, audit, or investigation made by him, or by his authority.
With knowledge of the falsity, causing to be filed in the office of the commissioner any false statement or representation concerning an insurer, the property which the insurer then holds or proposes to acquire, the insurer’s officers, the insurer’s financial condition or other affairs, or the insurer’s proposed plan of business.
With knowledge of the falsity of any such statement or representation, causing any security to be issued, executed, or sold without first informing the commissioner of the falsity of such statement in writing.
Directly or indirectly, knowingly causing or assisting in causing any part of the proceeds from the sale of any security to be applied to any purpose contrary to the provisions of the permit authorizing the issuance of such security, or to any purpose in excess of the amount specified in such permit for such purpose.
Selling a security with knowledge that it has been issued or executed in violation of any of the provisions of this article.
Causing a writing concerning a security to be issued, circulated, or published while having knowledge that such matter contains any statement that is false, misleading, or otherwise likely to deceive a reader thereof.
In any respect, willfully violating or failing to comply with any of the provisions of this article.
In any other respect, willfully violating or neglecting to comply with any part of an order or permit of the commissioner under the provisions of this article.
Conspiring with one or more other persons to violate any permit or order issued by the commissioner, or any of the provisions of this article.
The application for a permit to issue or sell securities shall be verified as provided in the Code of Civil Procedure for the verification of pleadings, and shall be filed on 812 x 11 inch size paper in the office of the commissioner. In the application the applicant shall set forth:
The names and addresses of its officers.
The location of its office.
An itemized account of its financial condition, including the amount and character of its assets and liabilities.
A detailed statement of the plan upon which it proposes to transact business.
A copy of any security it proposes to issue.
A copy of any contract it proposes to make concerning the same.
A copy of any prospectus or advertisement, or other description of such securities, then prepared by it for distribution or publication.
Such additional information concerning the company, its condition and affairs as the commissioner requires.
If the applicant is a partnership, unincorporated association, or joint stock company, it shall file with its application a copy of its articles of partnership or association, and all other papers pertaining to its organization.
If the applicant is a corporation, it shall file with its application a copy of all minutes of any proceedings of its directors, stockholders, or members, relating to or affecting the issue of such securities, and also a copy of its articles of incorporation, by-laws, and any amendments to either thereof.
If the applicant is a foreign corporation or association, it shall also file with its application:
A certificate of the proper officer of the jurisdiction in which it is organized, executed not more than 30 days before the filing of such application, showing that the applicant is authorized to transact business in that jurisdiction.
In such form as the commissioner prescribes, its written instrument, irrevocably appointing the commissioner and his successor in office its true and lawful attorney upon whom all process in any action or proceeding against it can be served. Such service shall have the same effect as if the applicant was a domestic insurer lawfully served with process in this State.
Upon the filing of such application, the commissioner shall examine it and the other papers and documents filed therewith. He may, if he deems it advisable, cause to be made a detailed examination, audit, and investigation of the applicant and its affairs.
Pursuant to this code, the commissioner has been and is authorized, in the instance of an application for a permit to issue securities in exchange for one or more bona fide outstanding securities, claims or property interest, or partly in such exchange and partly for cash, to approve the terms and conditions of such issuance and exchange and the fairness of such terms and conditions, after a hearing upon the fairness of such terms and conditions, to which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear.
The commissioner shall issue a permit if he finds that:
The proposed plan of business of the applicant and the proposed issuance of securities are fair, just, and equitable.
The applicant intends fairly and honestly to transact its business, and
The securities the applicant proposes to issue and the methods to be used by it in issuing or disposing of them are such as, in his opinion, will not work a fraud upon the purchaser thereof, or upon policyholders or other security holders of applicant.
Otherwise, he shall deny the application and notify the applicant in writing of his decision.
In any case where a domestic insurer is directly affected by the total transaction for some part of which the permit applied for is needed, and the commissioner in his discretion determines that reasonable grounds exist for contentions that such total transaction or any part thereof:
Is a combination of capital, skill, or acts to create or carry out restrictions on or to prevent competition in the insurance business; or
Is a combination (in the form of a trust or otherwise) in restraint of the insurance business; or
Is an attempt to monopolize the insurance business; or
Is a conspiracy to create any of the foregoing; or
That such total transaction, or any part thereof, if consummated will create or result in any of the foregoing or will substantially lessen competition in the insurance business.
Then, in such event, the Insurance Commissioner may make findings with respect to whether such total transaction, or any part thereof, would or would not do or be any of the foregoing.
In the event the Insurance Commissioner makes affirmative findings as provided in subdivision (a) of this section, he may deny the permit applied for.
The commissioner shall not issue a permit for the sale of any securities of a domestic insurer in any case where he finds that the expense of organization, exclusive of attorney fees, accountant fees, and actuary fees, will exceed 12 percent of the total amount actually paid for the capital stock.
The commissioner may prescribe in the permit the amounts, considerations, terms, and conditions governing the issue and disposal of the securities and the permit authorizes such issue and disposal only in accordance with its provisions.
Every permit shall recite in bold type that the issuance thereof is permissive only and does not constitute a recommendation or endorsement of the securities permitted to be issued.
The commissioner may impose conditions requiring the deposit in escrow of securities and the impoundment of the proceeds from the sale thereof, limiting the expense in connection with the sale thereof, and otherwise requiring such method of dealing as he deems reasonable and either necessary or advisable to insure the disposition of the proceeds of such securities in the manner and for the purposes provided in the permit.
The commissioner may, from time to time and for cause, amend, alter or revoke any permit issued by him hereunder, or temporarily suspend the rights thereunder of the applicant. He also may establish such rules and regulations as are reasonable or necessary to carry out the purposes and provisions of this article.
In establishing any such rules and regulations the commissioner is expressly authorized, irrespective of the other provisions of this section or this article, to specify different and simplified forms for both applications and permits where a foreign insurer, whether admitted or not, is seeking to sell or issue securities of its own issue to persons in this state and meets all the following standards:
It has, prior to filing the application, made a filing with the Securities and Exchange Commission;
It (or a predecessor) has been lawfully engaged in the insurance business for at least five years and currently is admitted to transact insurance in at least five states;
It currently has admitted assets of at least five million dollars ($5,000,000); and
It has, prior to filing the application, obtained a written permit or consent to issue such securities from the authority in its domiciliary state having jurisdiction over issuances of its securities and the statutory standards for obtaining such permit or consent are comparable to the like standards of this state.
Every insurer authorized by the commissioner to sell securities shall thereafter, at such times and in such form as he requires, make and file in his office a report, setting forth:
The securities sold by it under the authority of any permit issued by him.
The proceeds derived therefrom.
The disposition of such proceeds.
Such other information concerning its property, officers, or affairs, and relating to or affecting the value of such securities, as the commissioner requires.
A person shall not sell or resell any security of a domestic, foreign, or alien insurer:
As an insurer with respect to securities of its own issue without securing the permit of the commissioner as provided in this article.
As a stock agent of that insurer except under authority of a certificate issued by the commissioner under this code.
As a broker or as a stock agent for a broker except under authority of a certificate or license issued by the Commissioner of Financial Protection and Innovation under the provisions of the Corporations Code and in full conformity with all provisions of the Corporations Code.
Subdivision (a) shall not prohibit a bona fide owner of securities of an insurer from selling or reselling those securities if:
The securities were originally issued under the authority of a permit of the commissioner and the sale or resale is made in conformity with the conditions, if any, in the permit effective at the time of sale or resale; or
The securities were originally issued in a jurisdiction other than California in full conformity with the applicable laws, if any, governing the issuance in that jurisdiction.
A sale or resale of securities of an insurer by the owner of the securities which is made for the purpose of evading the provisions of this article requiring an insurer to secure a permit from the commissioner or for any other fraudulent purpose shall, however, be null and void and a violation of the criminal provisions of this article.
A sale or resale permitted by this section is subject to the stop power of the commissioner under Section 854 and the similar powers of the Commissioner of Financial Protection and Innovation pursuant to the provisions of the Corporations Code.
A violation of this section is subject to the penalties provided in Section 833.
The certificate required by Section 845 to act as a stock agent of an insurer shall be secured as provided in Section 846 and shall expire on the first day of July after its issue, unless sooner suspended or revoked.
The permission granted by Section 845 to persons holding certificates or licenses issued by the Commissioner of Financial Protection and Innovation does not affect the provisions of this article requiring that an insurer and that a stock agent appointed by an insurer secure a permit or certificate from the commissioner to issue, sell, or resell securities and the issue, sale, or resale and the advertising thereof is subject to the provisions of this article, nor does that section permit an owner of securities to sell or resell the same except in conformity with that section and this article.
To secure such certificate, the applicant shall make and file in the office of the commissioner an application therefor in writing, verified by or in behalf of the applicant. Such application shall set forth:
The name and address of the applicant.
1. In the case of an applying corporation, association, or joint stock company, the name and address of each of its managing officers and managing stock agents.
2. In the case of an applying partnership, the name and address of each of the partners.
A succinct statement of facts showing possession of a good business reputation:
1. By the applicant.
2. In the case of an applicant corporation, association, or joint stock company, by its managing officers and managing stock agents.
3. In the case of an applicant partnership, by its members.
If the applicant is a broker, the general plan and character of the business of the applicant.
Such other information as the commissioner requires.
At the time of filing an application for a broker’s certificate, the applicant shall file with the commissioner a bond for five thousand dollars ($5,000), payable to the people of the State of California, for the use and benefit of any interested person, to be approved by the commissioner. The bond shall be conditioned upon the following conduct by the broker, the broker’s stock agents, and employees:
Strict compliance with the provisions of this article.
Honest and faithful application of all funds received.
Honest and faithful performance of all obligations and undertakings in the purchase or sale of securities.
Payment of all damages suffered by any person damaged or defrauded by reason of the violation of any of the provisions of this article, or by reason of any fraud connected with or growing out of any transaction contemplated by the provisions of this article.
If the applicant is a foreign corporation or association, it shall file with its application:
A copy of its articles of incorporation or association.
A certificate of the proper officer of the jurisdiction in which it is organized, executed not more than thirty days before the filing of such application, showing that the applicant is authorized to transact business in that jurisdiction.
In such form as the commissioner prescribes, its written instrument irrevocably appointing the commissioner and his successor in office its true and lawful attorney upon whom all process in any action or proceeding against it, arising out of or founded upon the fraud of such applicant in the sale of securities within this State, or in any action upon any bond provided by this article, can be served. Such service shall have the same effect as if the applicant was a domestic corporation or association lawfully served with process in this State.
The commissioner shall examine such application, and shall make such further investigation of the applicant and its affairs as he deems advisable. He shall issue the certificate if, from such examination, the commissioner is satisfied that:
The business reputation of the applicant and, in the case of a firm or corporation, its officers or members, is good.
The sale of the securities proposed to be sold by it would not be unfair, unjust or inequitable to the purchasers thereof.
Neither it nor its officers or members have violated any of the provisions of this article.
Neither it nor its officers or members have engaged or are about to engage in any fraudulent transaction.
Otherwise, he shall deny the application and notify the applicant of his decision.
Where a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The commissioner may at any time in accordance with the procedure provided in Section 1738 suspend or revoke any broker’s or stock agent’s certificate issued by the commissioner if the commissioner finds that the holder thereof is of bad business repute, has violated this article, or has engaged, or is about to engage, in any fraudulent transaction.
Every broker shall, at such times as the commissioner requires, make and file in the office of the commissioner a true and correct statement concerning any security sold or offered for sale by the broker. The statement shall show:
The name and location of the principal office of the issuer of such security.
The names of the issuer’s managing officers if it is a corporation, or of its members if it is a partnership.
The issuer’s assets, liabilities, and issued capital stock, at the close of its fiscal year then last ended, or at a later date.
The issuer’s gross income, expenses, and fixed charges for the year next preceding such date, or for such time as such issuer of such security has transacted business, if for less than one year.
The approximate price at which the broker has sold or proposes to sell such security.
Such other information, of which the broker has knowledge, as the commissioner requires.
After receipt of notice in writing from the commissioner, stating that the sale of a security would, in the commissioner’s opinion, be unfair, unjust, or inequitable to the purchaser, no broker shall sell such security until and unless the commissioner in writing withdraws the objection.
All writings filed with the commissioner under this article shall be open to public inspection except where, in his judgment, the public welfare or the welfare of any insurer demands that any portion of such information be not made public. In such cases he may, in his discretion, withhold such information from public inspection for such time as in his judgment is necessary.
The commissioner may at any time give or make public any information concerning any insurer, if in the commissioner’s judgment, the giving or publishing of the information will be of public interest.
The commissioner may at any time give or make public any information concerning securities purchased or sold within this state by an insurer, if in the commissioner’s judgment, the giving or publishing of the information is in the public interest or it will tend to prevent the fraudulent purchase or sale of the securities.
The commissioner shall charge and collect the following fees:
For filing an original or supplemental application, or any amendments thereto, for a permit to issue securities, four thousand two hundred thirty-three dollars ($4,233) except for applications for a permit to issue securities evidencing any change in rights, preferences, privileges, or restrictions on outstanding securities, or for applications for a permit to issue securities evidencing only a share dividend or a share split.
For filing an application for a permit to issue securities evidencing any change in the rights, preferences, privileges, or restrictions on outstanding securities, five hundred sixty-seven dollars ($567).
For filing an application for a permit to issue securities evidencing a share dividend or a share split, one thousand four hundred ten dollars ($1,410).
For filing an application for any other kind of permit, such as an application, for the issuance of a preorganizational or a negotiating permit, an application for a permit to issue options for securities, but not for the securities themselves, or any application for an amendment to an existing permit to issue securities, two hundred eighty-three dollars ($283).
An original or supplemental application shall not be amended after the permit sought thereby or by amendment thereto has been issued or denied.
The commissioner shall also collect the following fees:
For filing any application for a broker’s certificate, two hundred eighty-three dollars ($283) for the first office or location plus one hundred thirty-six dollars ($136) for each additional office or location.
For filing any application for a stock agent’s certificate, one hundred thirty-six dollars ($136).
For an examination, audit, or investigation, the actual amount of expenses reasonably incurred in the performance of the work, plus the following:
If made by an employee of the commissioner, the actual amount of the compensation paid to that employee for that time.
The amount of the usual cost to the state of typing, transcribing, or otherwise preparing any written report of that examination, audit, or investigation that may reasonably be needed in the discharge of the commissioner’s duties.
No fees shall be charged or collected for copies of papers, records, or official documents furnished to public officers for use in their official capacity or for the reports of the commissioner in the ordinary course of distribution.
ARTICLE 9. Registration of Insurers’ Names [880. - 886.]
Except as provided in this article, every insurer shall conduct its business in this State in its own name.
The commissioner shall require the name or any changed name of every insurer (including reciprocal or interinsurance exchanges), every attorney in fact, every motor club, and every underwritten title company to be submitted to him or her by written application and approved by him or her before the name is used in this state for business purposes. If approved, the commissioner shall issue his or her official certificate approving the name, and when appropriate, reserving the name for the following time periods, which shall commence on the date of the approval:
One year if the applicant is newly formed, or if the application is filed on behalf of an entity to be formed, under the laws of this state.
One hundred eighty days and during the pendency in good faith of an application for certificate of authority in the case of a foreign or alien applicant.
Ninety days in the case of an admitted entity requesting authority to change the name under which it will conduct its business with the public in this state.
Except in the case in which an applicant has already paid a fee on a pending application for admission, the commissioner shall collect a one-hundred-thirty-six-dollar ($136) fee for filing each application for name approval and reservation. An application for name approval may contain not more than three names in the order of applicant’s preference and the commissioner’s approval shall be limited to only one name submitted by any one application.
The certificate of approval shall be attached to the articles of incorporation before the Secretary of State shall file the articles or any amended articles. The commissioner may reject any name submitted when it is an interference with, or too similar to one already appropriated, or when it is likely to mislead the public in any respect. In the event of a rejection, the applicant shall legally change its name to one approved by the commissioner or, if a foreign or alien insurer, may arrange to conduct any business it may do with the public in California under an approved name as an operating name, identifying itself under both its true name and operating name in the conduct of all official business with the commissioner.
Notwithstanding Section 1282, this section shall apply to reciprocal insurers, including their attorneys in fact, and shall apply to motor clubs.
Notwithstanding the provisions of Section 881 or any other provision of law, neither the commissioner or the Secretary of State shall reject a name proposed by an entity seeking admission as a home protection company if such name was used by such entity for conduct of a home protection or home warranty business in this state for at least one year prior to May 3, 1978. Every such name, upon the commissioner’s determination of such use, shall be approved upon submission of application therefor.
Notwithstanding Section 5652 of the Financial Code, use of the term “savings bank” in a name or title may be approved for use by the commissioner if the remaining words in the name or title show that the insurer is engaged in the business of insurance and is not a savings bank.
Upon approval of an applicant’s name by the commissioner, and the issuance of a certificate approving the same, the applicant may apply to the Secretary of State for the issuance of a certificate of reservation of corporate name for the same periods specified in Section 881.
If through inadvertance or otherwise a corporation does not comply with Section 881 of the Insurance Code, or with Sections 201.5, 202, 2105, 2106, 2106.5, and 2107 of the Corporations Code when any of such sections is applicable, any corporation lawfully engaged in the insurance business in this state may bring an action for judicial relief against such corporation by means of any remedy afforded by law. Such action may be based upon any of the grounds by reason of which the commissioner could or would have denied application for approval of the corporate name of the noncomplying corporation. In such an action the court may order such corporate defendant to adopt a new name or an operating name, when permissible, acceptable to both the Secretary of State and the commissioner, by filing a certificate of amendment or by filing an amended statement and designation with the Secretary of State.
When two or more insurers propose to issue an underwriter’s policy, each insurer shall first file an application with the commissioner for approval and registration of the name or title under which the policy is to be issued. The commissioner may reject any name submitted when it is an interference with, or too similar to, one already appropriated or when it is likely to mislead the public in any respect. In that case the application may be amended to submit another or other names.
The commissioner shall charge and collect in advance a fee of seventy-two dollars ($72) from each insurer filing an application for approval and registration of that name or title, or for filing any amendment thereto.
A home protection company proposing to issue a contract bearing the name of itself as well as another name which is the name of a person, persons, or organization of persons licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code, or a franchised name therefor, shall first file an application with the commissioner for approval of the other name. The commissioner may reject any name so submitted when it is an interference with, or too similar to, one already appropriated or when it is likely to mislead the public in any respect. However, the name shall not be rejected, except pursuant to subdivision (b), if the name was used by the same entity for a similar offering in this state prior to May 3, 1978. In case of any rejection of a name pursuant to this subdivision, the application may be amended to submit another or other names.
No such name shall be approved unless all power to transact home protection business (except as authorized in Section 771.1) and other powers specified by the commissioner by regulation, are specifically retained by the home protection company and the home protection contracts prominently disclose that fact.
The commissioner, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, may adopt reasonable regulations to implement this section.
An underwriter’s policy may be issued under a name thus registered and shall clearly show:
The names of the insurers guaranteeing it.
The severalty of the contract.
The proportion of the premium to be paid to each insurer.
The proportion of liability which each assumes.
Unless renewed, the approval and registration of all underwriters’ names shall expire at 12:01 a.m. July 1 of each even-numbered year. Renewal may be secured by filing with the commissioner an application therefor, together with a fee of twenty-five dollars ($25). An application shall be filed during the month of May preceding that July 1. The commissioner shall furnish the application forms for the renewal. The commissioner shall, upon receipt of a proper renewal application and payment of the filing fee therefor, renew the approval and registration of the underwriter’s name unless he or she finds any of the following:
The insurer has abandoned use of the underwriter’s name.
The insurer is actually using or publicizing the name in any manner after it has discontinued the issuance of underwriter’s policies bearing that name.
The insurer has used that underwriter’s name in a manner that has resulted in misrepresentation or fraud.
The insurer has used that underwriter’s name in a manner that would violate any provision of law relating to the conduct of its business.
The insurer has secured that underwriter’s name through misrepresentation or concealment of material information.
Reasons exist that would warrant refusal of approval or registration if the same were being initially requested.
If the commissioner so finds he or she shall advise all insurers using that underwriter’s name in writing that the renewal application is denied and set forth with particularity the reasons for the denial. That denial shall be effective 30 days after mailing of that advice to the insurer unless within those 30 days the insurer requests a hearing. In this event the advice of denial shall constitute the commissioner’s opening pleading for the purpose of the hearing, which shall be deemed denied by the insurer. The insurer if it elects may, within 10 days, file an additional written response. The hearing shall be noticed and commenced within a reasonable time. During those 30 days, and, if a request for hearing is filed, until the termination of that proceeding, the insurer may continue the use of the underwriter’s name and the issuance of policies thereunder provided timely renewal application has been filed and the filing fee paid.
The commissioner may at any time institute proceedings for the revocation of approval and registration of an underwriter’s name upon any of the grounds set forth in Section 884 by following the procedure prescribed in that section.
Termination of approval and registration of an underwriter’s name, whether through denial of a renewal application or revocation, shall have no effect on the validity or the retention in force to normal expiration of any underwriter’s policies issued on or prior to the date of such termination with an effective date not more than sixty (60) days after its issue date provided that if any such policy is continuous in form it shall not be continued in force beyond its annual renewal date first occurring after such date of termination.
ARTICLE 10. Financial Statements of Insurers [900. - 925.4.]
On or before the first day of March of each year every insurer doing business in this state shall make and file with the commissioner, in the number, form, and by the methods prescribed by the commissioner, statements exhibiting its condition and affairs as of the previous December 31. If the first day of March falls on a day other than a business day, the filing is due to the commissioner by the first business day preceding the first day of March.
Each year, on or before the following dates, every insurer doing business in this state shall make and file with the commissioner, in the number, form, and methods prescribed by the commissioner, statements exhibiting its condition and affairs for the period beginning on January 1 of the current calendar year through the end of each quarter of the current year as described below. These quarterly filings shall cover the period of time beginning January 1 of the current year through and including the last day of the quarter for which the report is being made. The first quarter filing shall be filed with the commissioner on or before May 15th of every year. The second quarter filing shall be filed with the commissioner on or before August 15th of every year. The third quarter filing shall be filed with the commissioner on or before November 15th of every year. If any of these dates fall on a day other than a business day, then the filing is due to the commissioner by the first business day preceding that date.
All insurers doing business in this state shall have an annual audit by an independent certified public accountant. The audit, including required auditor and management reporting, the audit committee and its membership, and other aspects of the audit content and process, shall be conducted, and the audit report prepared and filed, in conformity with the standards adopted by the National Association of Insurance Commissioners.
The commissioner may grant 30-day extensions of the filing date upon a showing by the insurer and its independent certified public accountant of the reasons for requesting each extension and the determination by the commissioner of substantial cause for an extension. The request for an extension shall be submitted in writing not less than 10 days prior to the due date in sufficient detail to permit the commissioner to make an informed decision on the requested extension.
The commissioner may promulgate regulations to further the purposes of this section.
An insurer or group of insurers doing business in this state shall establish an internal audit function to provide independent, objective, and reasonable assurance to the insurer’s audit committee and management regarding the insurer’s governance, risk management, and internal controls. This assurance shall be provided by performing general and specific audits, reviews, and tests, and by employing other techniques deemed necessary to protect assets, evaluate control effectiveness and efficiency, and evaluate compliance with policies and regulations.
The audit committee of an insurer or group of insurers shall be responsible for overseeing the insurer’s internal audit function and granting the person or persons performing the internal audit function suitable authority and resources to fulfill the responsibilities required by this section.
To ensure that an internal auditor remains objective, the internal audit function shall be organizationally independent. Organizational independence does not preclude dual-reporting relationships. The internal audit function shall not defer ultimate judgment on audit matters to others.
An individual shall be appointed to head the internal audit function, and shall have direct and unrestricted access to the insurer’s board of directors or audit committee.
The head of the internal audit function shall report to the insurer’s audit committee regularly, but not less than annually, regarding all of the following:
The periodic audit plan.
Factors that may adversely impact the internal audit function’s independence or effectiveness.
Material findings from completed audits.
The appropriateness of corrective actions implemented by management as a result of audit findings.
If an insurer is a member of an insurance holding company system or a group of insurers, the insurer may comply with this section at the ultimate controlling parent level, an intermediate holding company level, or the individual legal entity level.
This section shall not apply to an insurer if either of the following apply:
The insurer has annual direct written and unaffiliated assumed premium of less than five hundred million dollars ($500,000,000), including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program.
The insurer is a member of a group of insurers, and the group of insurers has annual direct written and unaffiliated assumed premium of less than one billion dollars ($1,000,000,000), including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and National Flood Insurance Program.
For purposes of this section, “internal audit function” means a person or persons that provide independent, objective, and reasonable assurance designed to add value, improve an organization’s operations, and accomplish an organization’s objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
The commissioner shall charge and collect four hundred twenty dollars ($420) in advance as a fee for the first filing each year of a statement under this article. Only one fee shall be charged or collected from any one insurer in any one calendar year.
The commissioner may decline to grant or renew or may suspend or revoke a certificate of authority of an insurer that knowingly files with the department a false financial statement.
Any officer, director, employee or agent of any insurer, who wilfully signs or files a false or untrue report or statement of the business, affairs, or condition of such insurer with intent to deceive any public officer, office, or board to which such insurer is required by law to report, or which has authority by law to examine into its affairs or transactions, is guilty of a felony.
Insurers engaged in the business of compensation insurance shall, at such intervals as may be prescribed by the commissioner, file statements supplemental to such annual statements and covering such matters dealt with in such annual statements as the commissioner designates. Neither such supplemental report nor any synopsis thereof need be published.
The commissioner shall require statements and reports to be verified as follows: (a) If made by a domestic corporation, by the oaths of any two of the executive officers thereof. (b) If made by an individual or firm, by the oath of such individual or a member of the firm. (c) If made by a foreign insurer, by the oath of the principal executive officer thereof, or manager, residing within the United States.
In any case where an insurer is required by law to file with the commissioner statements or reports respecting its financial condition, income or disbursements, verified or signed by its designated officers, agents, or employees, the commissioner may accept and file the statement or report verified by affidavit of the president or vice president and the treasurer or secretary of such insurer, in lieu of the verification or signature otherwise prescribed by law.
In addition to the annual statement required to be filed pursuant to Section 900, each admitted insurer shall file an authorization for disclosure to the commissioner of financial records pertaining to such funds pursuant to Section 7473 of the Government Code, to be effective until the next such annual filing.
The guarantee by the Small Business Administrator that a surety shall not suffer loss as set forth in the Small Business Investment Act of 1958, as amended, shall for all purposes and requirements under this code be deemed a contract of reinsurance between such surety and an authorized or admitted reinsurer irrespective of whether or not such guarantee contains all the provisions required of other reinsurance contracts.
The Legislature declares its intent that:
In some instances, it is appropriate for the protection of insureds, insurers, and the public generally, that assuming insurers be required to provide security for the payment of their reinsurance obligations.
Where such security is provided and upon the insolvency of the assuming insurer or initiation of receivership proceedings against it, the commissioner shall have the authority to determine whether it is in the best interest of insureds, claimants, and insurers to retain such security in the United States, to allow the filing of claims against the assuming insurer in the United States, and to have such claims valued in a United States proceeding subject to United States laws.
In furtherance of the protection of insureds, insurers, and the public generally, the Legislature hereby states that these matters are fundamental to the business of insurance and hereby exercises its powers and privileges available pursuant to Sections 1011 and 1012 of Title 15 of the United States Code.
The reinsurer shall indemnify the ceding insurer for the risk it has assumed according to the terms and conditions contained in the reinsurance contract.
In the event of insolvency, or a change in the status of the ceding company as defined in this section, and the appointment of a conservator, liquidator, or statutory successor of the ceding company, the reinsurance shall be payable to the conservator, liquidator, or statutory successor on the basis of claims allowed against the insolvent company by any court of competent jurisdiction or by any conservator, liquidator, or statutory successor of the company having authority to allow those claims, without diminution because of that insolvency or change in status, or because the conservator, liquidator, or statutory successor has failed to pay all or a portion of any claims. Payments by the reinsurer as set forth in this subdivision shall be made directly to the ceding insurer or to its conservator, liquidator, or statutory successor, except where the contract of insurance or reinsurance specifically provides another payee of such reinsurance in the event of the insolvency or change in status of the ceding insurer.
The reinsurance contract may provide that the conservator, liquidator, or statutory successor of a ceding insurer shall give written notice of the pendency of a claim against the ceding insurer indicating the policy or bond reinsured, within a reasonable time after such claim is filed and the reinsurer may interpose, at its own expense, in the proceeding in which the claim is to be adjudicated, any defense or defenses which it may deem available to the ceding insurer or its conservator, liquidator, or statutory successor. The expense thus incurred by the reinsurer shall be payable subject to court approval out of the estate of the insolvent ceding insurer as part of the expense of conservation or liquidation to the extent of a proportionate share of the benefit which may accrue to the ceding insurer in conservation or liquidation, solely as a result of the defense undertaken by the reinsurer.
Payment pursuant to a reinsurance contract shall be made within a reasonable time with reasonable provision for verification in accordance with the terms of the reinsurance agreement. However, in no event shall the payments be beyond the period required by the National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual.
The original insured or policyholder shall not have any rights against the reinsurer which are not specifically set forth in the contract of reinsurance, or in a specific agreement between the reinsurer and the original insured or policyholder.
For purposes of this section, the phrase “change in the status of the ceding company” means a finding by the commissioner that conditions set forth in subdivision (d) or (i) of Section 1011, a Regulatory Action Level Event as defined in Section 739.4, or any other event which permits the appointment of a conservator, liquidator, or statutory successor has occurred with respect to the ceding company.
Notwithstanding any other provision of law, credit for reinsurance, as either an asset or a deduction, shall not be allowed in any accounting or financial statement of the ceding insurer in respect to any so-called reinsurance contract unless, in such contract, the reinsurer undertakes to indemnify the ceding insurer, not only in form but in fact, against all or a part of the loss or liability arising out of the original insurance.
A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the commissioner within 30 days after reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, exceeds 50 percent of the domestic ceding insurer’s last reported surplus to policyholders, or after it is determined that reinsurance recoverables from any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the commissioner within 30 days after ceding to any single assuming insurer, or group of affiliated assuming insurers, more than 20 percent of the ceding insurer’s gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to any single assuming insurer, or group of affiliated assuming insurers, is likely to exceed this limit. The notification shall demonstrate that the exposure is safely managed by the domestic ceding insurer.
Credit for reinsurance shall be allowed a domestic ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of subdivision (a), (b), (c), (d), (e), or (f). Credit shall be allowed under subdivision (a), (b), (c), or (e) only for cessions of those kinds or classes of business that the assuming insurer is licensed or otherwise permitted to write or assume in its state of domicile or, in the case of a United States branch of an alien assuming insurer, in the state through which it is entered and licensed to transact insurance or reinsurance. The commissioner may adopt by regulation specific additional requirements relating to or setting forth the valuation of assets or reserve credits, the amount and forms of security supporting reinsurance arrangements described in subdivision (b) of Section 922.85, and the circumstances pursuant to which credit will be reduced or eliminated.
Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is licensed to transact insurance or reinsurance in this state unless the assuming insurer is the subject of a regulatory order or regulatory oversight by any state in which it is licensed based upon a commissioner’s determination that the assuming insurer is in a hazardous financial condition.
Credit shall be allowed when the reinsurance is ceded to an assuming insurer that is accredited as a reinsurer in this state unless the assuming insurer is the subject of a regulatory order or regulatory oversight by any state in which it is licensed based upon a commissioner’s determination that the assuming insurer is in a hazardous financial condition. An accredited reinsurer is one that does all of the following:
Files with the commissioner evidence of its submission to this state’s jurisdiction.
Submits to this state’s authority to examine its books and records.
Designates the commissioner or a designated attorney in this state as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.
Is licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer, is entered through and licensed to transact insurance or reinsurance in at least one state.
Files annually with the commissioner a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement and other financial information requested by the commissioner.
Submits a statement, signed and verified by an officer of the assuming insurer to be true and correct, that discloses whether the assuming insurer or any affiliated person who owns or has a controlling interest in the assuming insurer is currently known to be the subject of any of the following:
Any order or proceeding regarding conservation, liquidation, or receivership.
Any order or proceeding regarding the revocation or suspension of a license or accreditation to transact insurance or reinsurance in any jurisdiction.
Any order or proceeding brought by an insurance regulator in any jurisdiction seeking to restrict or stop the assuming insurer from transacting insurance or reinsurance based upon a hazardous financial condition.
The assuming insurer shall provide the commissioner with copies of any orders or other documents initiating proceedings subject to disclosure under this paragraph. The statement shall affirm that no actions, proceedings, or orders subject to this subparagraph are outstanding against the assuming insurer or any affiliated person who owns or has a controlling interest in the assuming insurer, except as disclosed in the statement.
Demonstrates to the satisfaction of the commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement if it maintains a surplus as regards policyholders in an amount that is not less than twenty million dollars ($20,000,000) and whose accreditation has not been denied by the commissioner within 90 days of its submission. An assuming insurer who is not deemed to meet this requirement shall obtain the affirmative approval of the commissioner. The approval of the commissioner shall be based upon a finding that the assuming insurer has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers.
The commissioner may deny or revoke an assuming insurer’s accreditation if the assuming insurer does not meet all of the standards required of an accredited reinsurer, or if its accreditation would be hazardous to the policyholders of this state. In determining whether to deny or revoke accreditation, the commissioner may consider the qualifications of the assuming insurer with respect to all the following subjects:
Its financial stability.
The lawfulness and quality of its investments.
The competency, character, and integrity of its management.
The competency, character, and integrity of persons who own or have a controlling interest in the assuming insurer.
Whether claims under its contracts are promptly and fairly adjusted and are promptly and fully paid in accordance with the law and the terms of the contracts.
Credit shall not be allowed a domestic ceding insurer if the assuming insurer’s accreditation has been revoked by the commissioner after notice and hearing.
Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the commissioner pursuant to Section 922.41.
The trust instrument shall provide that contested claims shall be valid, enforceable, and payable out of funds in trust to the extent remaining unsatisfied 30 days after entry of the final order of any court of competent jurisdiction in the United States.
The trust shall vest legal title to its assets in the trustees of the trust for the benefit of the grantor’s United States ceding insurers, their assigns, and successors in interest.
The trust and the assuming insurer shall be subject to examination as determined by the commissioner.
The trust shall remain in effect for as long as the assuming insurer, or any member or former member of a group of insurers, shall have outstanding obligations due under the reinsurance agreements subject to the trust.
No later than February 28 of each year, the trustees of the trust shall report to the commissioner in writing setting forth the balance of the trust and listing the trust’s investments at the preceding yearend and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire within the next 18 months.
The assuming insurer shall do both of the following:
Submit to the jurisdiction of any court of competent jurisdiction in any state of the United States, comply with all requirements necessary to give the court jurisdiction, and abide by the final decision of the court or of any appellate court in the event of an appeal.
Designate the commissioner or an attorney in this state as its true and lawful agent upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.
This subparagraph is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if this obligation is created in the agreement.
The assuming insurer shall agree in the trust agreement that notwithstanding any other provision in the trust instrument, if the trust fund is inadequate because it contains an amount less than the amount required by paragraph (4), or if the grantor of the trust has been declared insolvent or placed into receivership, rehabilitation, liquidation, or similar proceedings under the laws of its state or country of domicile:
The trustee shall comply with an order of the commissioner with regulatory oversight over the trust or with an order of a court of competent jurisdiction directing the trustee to transfer to the commissioner with regulatory oversight all of the assets of the trust fund.
The assets shall be distributed by, and insurance claims shall be filed with and valued by, the commissioner with regulatory oversight in accordance with the laws of the state in which the trust is domiciled that are applicable to the liquidation of domestic insurance companies.
If the commissioner with regulatory oversight determines that the assets of the trust fund or any part thereof are not necessary to satisfy the claims of the United States ceding insurers of the grantor of the trust, the assets or part thereof shall be returned by the commissioner with regulatory oversight to the trustee for distribution in accordance with the trust agreement.
The grantor hereby waives any right otherwise available to it under United States law that is inconsistent with this provision.
The following requirements apply to the following categories of assuming insurer:
The trust fund for a single assuming insurer shall consist of funds in trust in an amount not less than the assuming insurer’s liabilities attributable to reinsurance ceded by United States domiciled ceding insurers, and, in addition, the assuming insurer shall maintain a trusteed surplus of not less than twenty million dollars ($20,000,000), except as provided in subparagraph (B), (C), or (D).
In the case of a group including incorporated and individual unincorporated underwriters:
For reinsurance ceded under reinsurance agreements with an inception, amendment, or renewal date on or after January 1, 1993, the trust shall consist of a trusteed account in an amount not less than the respective underwriters’ several liabilities attributable to business ceded by United States domiciled ceding insurers to any underwriter of the group.
For reinsurance ceded under reinsurance agreements with an inception date on or before December 31, 1992, and not amended or renewed after that date, notwithstanding the other provisions of this article, the trust shall consist of a trusteed account in an amount not less than the respective underwriters’ several insurance and reinsurance liabilities attributable to business written in the United States.
In addition to the trusts required in clauses (i) and (ii), the group shall maintain in trust a trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of the United States domiciled ceding insurers of any member of the group for all years of account.
The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of regulation and solvency control by the group’s domiciliary regulator as are the unincorporated members.
The group shall, within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, provide to the commissioner an annual certification by the group’s domiciliary regulator of the solvency of each underwriter member; or, if a certification is unavailable, financial statements prepared by independent public accountants of each underwriter member of the group.
In the case of a group of incorporated insurers under common administration, the group shall meet all of the following requirements:
Have continuously transacted an insurance business outside the United States for at least three years immediately prior to making application for accreditation and be in good standing with its domiciliary regulator.
Demonstrate that individual insurer members maintain standards and financial conditions reasonably comparable to admitted insurers.
Maintain aggregate policyholders’ surplus of at least ten billion dollars ($10,000,000,000).
Maintain a trust fund in an amount not less than the group’s several liabilities attributable to business ceded by United States domiciled ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of such group.
In addition, maintain a joint trusteed surplus of which one hundred million dollars ($100,000,000) shall be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for these liabilities. The commissioner shall have the authority to require additional amounts to be held in the trust as a condition for initial or continued accreditation if the commissioner determines that these additional amounts are required for the protection of ceding insurers.
Within 90 days after its financial statements are due to be filed with the group’s domiciliary regulator, make available to the commissioner an annual certification of each underwriter member’s solvency by the member’s domiciliary regulator, and financial statements for each underwriter member of the group prepared by its independent public accountant.
At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least three full years, the commissioner may authorize a reduction in the required trusteed surplus, but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders, and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cashflows, and shall consider all material risk factors, including, when applicable, the lines of business involved, the stability of the incurred loss estimates, and the effect of the surplus requirements on the assuming insurer’s liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than 50 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust, unless the commissioner expressly finds that appropriate circumstances justify a lower level of minimum required trusteed surplus, provided the minimum required trusteed surplus may not be reduced to an amount less than 30 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.
Credit shall be allowed when the reinsurance is ceded to an assuming insurer that has its head office or is domiciled in and is licensed in a reciprocal jurisdiction, as determined by the commissioner pursuant to Section 922.425.
Credit shall be allowed when the reinsurance ceded to an assuming insurer not meeting the requirements of subdivision (a), (b), (c), (d), or (e) but only as to the insurance of risks located in jurisdictions where the reinsurance is required by applicable law or regulation of that jurisdiction. As used in this section, “jurisdiction” means state, district, or territory of the United States and any lawful national government.
Credit shall be allowed a domestic insurer when the reinsurance is ceded to an assuming insurer that has been certified by the commissioner as a reinsurer in this state and secures its obligations in accordance with this section. Credit shall be allowed at all times for which statutory financial statement credit for reinsurance is claimed under this section. The credit allowed shall be based upon the security held by or on behalf of the ceding insurer in accordance with a rating assigned to the certified reinsurer by the commissioner. The security shall be in a form consistent with this section, any regulations promulgated by the commissioner, and Section 922.5.
In order to be eligible for certification, the assuming insurer shall meet the following requirements:
The assuming insurer shall be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction, as determined by the commissioner pursuant to subdivisions (f) and (g).
The assuming insurer shall maintain minimum capital and surplus, or its equivalent, in an amount to be determined by the commissioner, but no less than two hundred fifty million dollars ($250,000,000) calculated in accordance with paragraph (4) of subdivision (f) of this section or Section 922.5. This requirement may also be satisfied by an association including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least two hundred fifty million dollars ($250,000,000) and a central fund containing a balance of at least two hundred fifty million dollars ($250,000,000).
The assuming insurer shall maintain financial strength ratings from two or more rating agencies deemed acceptable by the commissioner. These ratings shall be based on interactive communication between the rating agency and the assuming insurer and shall not be based solely on publicly available information. These financial strength ratings will be one factor used by the commissioner in determining the rating that is assigned to the assuming insurer. Acceptable rating agencies include the following:
Standard & Poor’s.
Moody’s Investors Service.
Fitch Ratings.
A.M. Best Company.
Any other nationally recognized statistical rating organization.
The assuming insurer shall agree to submit to the jurisdiction of this state, appoint the commissioner or a designated attorney in this state as its agent for service of process in this state, and agree to provide security for 100 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment.
The assuming insurer shall agree to meet applicable information filing requirements as determined by the commissioner, both with respect to an initial application for certification and on an ongoing basis.
The certified reinsurer shall comply with any other requirements deemed relevant by the commissioner.
An association, including incorporated and individual unincorporated underwriters, may be a certified reinsurer. In order to be eligible for certification, in addition to satisfying requirements of subdivision (b), the reinsurer shall meet all of the following requirements:
The commissioner shall post notice on the department’s internet website promptly upon receipt of an application for certification, including instructions on how members of the public may respond to the application. The commissioner shall not take final action on the application until at least 30 days after posting the notice required by this subdivision.
The commissioner shall issue written notice to an assuming insurer that has made application and has been approved as a certified reinsurer. Included in that notice shall be the rating assigned the certified reinsurer in accordance with subdivision (h). The commissioner shall publish a list of all certified reinsurers and their ratings.
The certified reinsurer shall agree to meet applicable information filing requirements as determined by the commissioner, both with respect to an initial application for certification and on an ongoing basis. All information submitted by certified reinsurers that is not otherwise public information subject to disclosure shall be exempted from disclosure under Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code, and shall be withheld from public disclosure. The applicable information filing requirements are as follows:
Notification within 10 days of a regulatory action taken against the certified reinsurer, a change in the provisions of its domiciliary license, or a change in rating by an approved rating agency, including a statement describing those changes and the reasons for those changes.
Annually, Form CR-F or CR-S, as applicable pursuant to the instructions published on the department’s internet website.
Annually, the report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in paragraph (4).
Annually, the most recent audited financial statements, regulatory filings, and actuarial opinion as filed with certified reinsurer’s supervisor and with a translation into English. Upon the initial certification, audited financial statements for the last two years filed with the certified reinsurer’s supervisor.
At least annually, an updated list of all disputed and overdue reinsurance claims regarding reinsurance assumed from United States domestic ceding insurers.
A certification from the certified reinsurer’s domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction’s highest regulatory action level.
Any other information that the commissioner may reasonably require.
If the commissioner certifies a non-United States domiciled insurer, the commissioner shall create and publish a list of qualified jurisdictions, under which an assuming insurer licensed and domiciled in that jurisdiction is eligible to be considered for certification by the commissioner as a certified reinsurer.
In order to determine whether the domiciliary jurisdiction of a non-United States assuming insurer is eligible to be recognized as a qualified jurisdiction, the commissioner shall evaluate the appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, both initially and on an ongoing basis, and consider the rights, benefits, and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States. The commissioner shall determine the appropriate process for evaluating the qualifications of those jurisdictions. Before its listing, a qualified jurisdiction shall agree in writing to share information and cooperate with the commissioner with respect to all certified reinsurers domiciled within that jurisdiction. A jurisdiction may not be recognized as a qualified jurisdiction if the commissioner has determined that the jurisdiction does not adequately and promptly enforce final United States judgments and arbitration awards. Additional factors may be considered in the discretion of the commissioner, including, but not limited to, the following:
The framework under which the assuming insurer is regulated.
The structure and authority of the domiciliary regulator with regard to solvency regulation requirements and financial surveillance.
The substance of financial and operating standards for assuming insurers in the domiciliary jurisdiction.
The form and substance of financial reports required to be filed or made publicly available by reinsurers in the domiciliary jurisdiction and the accounting principles used.
The domiciliary regulator’s willingness to cooperate with United States regulators in general and the commissioner in particular.
The history of performance by assuming insurers in the domiciliary jurisdiction.
Any documented evidence of substantial problems with the enforcement of final United States judgments in the domiciliary jurisdiction.
Any relevant international standards or guidance with respect to mutual recognition of reinsurance supervision adopted by the International Association of Insurance Supervisors or a successor organization.
Any other matters deemed relevant by the commissioner.
The commissioner shall consider the list of qualified jurisdictions published through the NAIC committee process in determining qualified jurisdictions. The commissioner may include on the list published pursuant to this section any jurisdiction on the NAIC list of qualified jurisdictions or on any equivalent list of the United States Treasury.
If the commissioner approves a jurisdiction as qualified that does not appear on either the NAIC list of qualified jurisdictions, or the United States Treasury list, the commissioner shall provide thoroughly documented justification in accordance with criteria to be developed under this section.
United States jurisdictions that meet the requirements for accreditation under the NAIC financial standards and accreditation program shall be recognized as qualified jurisdictions.
If a certified reinsurer’s domiciliary jurisdiction ceases to be a qualified jurisdiction, the commissioner has the discretion to suspend the reinsurer’s certification indefinitely, in lieu of revocation.
The commissioner shall assign a rating to each certified reinsurer, giving due consideration to the financial strength ratings that have been assigned by rating agencies deemed acceptable to the commissioner pursuant to this section. The commissioner shall publish a list of all certified reinsurers and their ratings.
Each certified reinsurer shall be rated on a legal entity basis, with due consideration being given to the group rating where appropriate, except that an association including incorporated and individual unincorporated underwriters that has been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating. Factors that may be considered as part of the evaluation process include, but are not limited to, the following:
The certified reinsurer’s financial strength rating from an acceptable rating agency. The maximum rating that a certified reinsurer may be assigned shall correspond to its financial strength rating as set forth in clauses (i) to (vi), inclusive. The commissioner shall use the lowest financial strength rating received from an approved rating agency in establishing the maximum rating of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies shall result in loss of eligibility for certification.
Ratings category “Secure - 1” corresponds to A.M. Best Company rating A++; Standard & Poor’s rating AAA; Moody’s Investors Service rating Aaa; and Fitch Ratings rating AAA.
Ratings category “Secure - 2” corresponds to A.M. Best Company rating A+; Standard & Poor’s rating AA+, AA, or AA-; Moody’s Investors Service rating Aa1, Aa2, or Aa3; and Fitch Ratings rating AA+, AA, or AA-.
Ratings category “Secure - 3” corresponds to A.M. Best Company rating A; Standard & Poor’s rating A+ or A; Moody’s Investors Service rating A1 or A2; and Fitch Ratings rating A+ or A.
Ratings category “Secure - 4” corresponds to A.M. Best Company rating A-; Standard & Poor’s rating A-; Moody’s Investors Service rating A3; and Fitch Ratings rating A-.
Ratings category “Secure - 5” corresponds to A.M. Best Company rating B++ or B+; Standard & Poor’s rating BBB+, BBB, or BBB-; Moody’s Investors Service rating Baa1, Baa2, or Baa3; and Fitch Ratings rating BBB+, BBB, or BBB-.
Ratings category “Vulnerable - 6” corresponds to A.M. Best Company rating B, B-, C++, C+, C, C-, D, E, or F; Standard & Poor’s rating BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, or R; Moody’s Investors Service rating Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, or C; and Fitch Ratings rating BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, or DD.
The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations.
For certified reinsurers domiciled in the United States, a review of the most recent applicable NAIC Annual Statement Blank, either Schedule F (for property/casualty reinsurers) or Schedule S (for life and health reinsurers).
For certified reinsurers not domiciled in the United States, a review annually of Form CR-F (for property/casualty reinsurers) or Form CR-S (for life and health reinsurers) (as published on the department’s internet website).
The reputation of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers’ Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than 90 days past due or are in dispute, with specific attention given to obligations payable to companies that are in administrative supervision or receivership.
Regulatory actions against the certified reinsurer.
The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subparagraph (H).
For certified reinsurers not domiciled in the United States, audited financial statements, regulatory filings, and actuarial opinion as filed with the non-United States jurisdiction supervisor and with a translation into English. Upon the initial application for certification, the commissioner shall consider audited financial statements for the last two years filed with its non-United States jurisdiction supervisor.
The liquidation priority of obligations to a ceding insurer in the certified reinsurer’s domiciliary jurisdiction in the context of an insolvency proceeding.
A certified reinsurer’s participation in a solvent scheme of arrangement, or similar procedure, that involves United States ceding insurers. The commissioner shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement.
Any other information deemed relevant by the commissioner.
Based on the analysis conducted under subparagraph (E) of paragraph (1) of a certified reinsurer’s reputation for prompt payment of claims, the commissioner may make appropriate adjustments in the security the certified reinsurer is required to post to protect its liabilities to United States ceding insurers, provided that the commissioner shall, at a minimum, increase the security the certified reinsurer is required to post by one rating level under regulations promulgated by the commissioner, if the commissioner finds either of the following:
More than 15 percent of the certified reinsurer’s ceding insurance clients have overdue reinsurance recoverables on paid losses of 90 days or more that are not in dispute and that exceed one hundred thousand dollars ($100,000) for each ceding insurer.
The aggregate amount of reinsurance recoverables on paid losses that are not in dispute and that are overdue by 90 days or more exceeds fifty million dollars ($50,000,000).
The assuming insurer shall submit a properly executed Form CR-1, as published on the department’s internet website, as evidence of its submission to the jurisdiction of this state, appointment of the commissioner as an agent for service of process in this state, and agreement to provide security for 100 percent of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment. The commissioner shall not certify an assuming insurer that is domiciled in a jurisdiction that the commissioner has determined does not adequately and promptly enforce final United States judgments or arbitration awards.
In the case of a downgrade by a rating agency or other disqualifying circumstance, the commissioner shall, upon written notice, assign a new rating to the certified reinsurer in accordance with the requirements of this subdivision.
The commissioner shall have the authority to suspend, revoke, or otherwise modify a certified reinsurer’s certification at any time if the certified reinsurer fails to meet its obligations or security requirements under this section, or if other financial or operating results of the certified reinsurer, or documented significant delays in payment by the certified reinsurer, lead the commissioner to reconsider the certified reinsurer’s ability or willingness to meet its contractual obligations.
If the rating of a certified reinsurer is upgraded by the commissioner, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the commissioner shall require the certified reinsurer to post security under the previously applicable security requirements as to all contracts in force on or before the effective date of the upgraded rating. If the rating of a certified reinsurer is downgraded by the commissioner, the commissioner shall require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.
Upon revocation of the certification of a certified reinsurer by the commissioner, the assuming insurer shall be required to post security in accordance with Section 922.5 in order for the ceding insurer to continue to take credit for reinsurance ceded to the assuming insurer. If funds continue to be held in trust in accordance with subdivision (d) of Section 922.4, the commissioner may allow additional credit equal to the ceding insurer’s pro rata share of those funds, discounted to reflect the risk of uncollectibility and anticipated expenses of trust administration. Notwithstanding the change of a certified reinsurer’s rating or revocation of its certification, a domestic insurer that has ceded reinsurance to that certified reinsurer shall not be denied credit for reinsurance for a period of three months for all reinsurance ceded to that certified reinsurer, unless the reinsurance is found by the commissioner to be at high risk of uncollectibility.
A certified reinsurer shall secure obligations assumed from United States ceding insurers under this subdivision at a level consistent with its rating. The amount of security required in order for full credit to be allowed shall correspond with the following requirements:
Ratings security required
Secure - 1: 0 percent
Secure - 2: 10 percent
Secure - 3: 20 percent
Secure - 4: 50 percent
Secure - 5: 75 percent
Vulnerable - 6: 100 percent
With respect to obligations incurred by a certified reinsurer under this subdivision, if the security is insufficient, the commissioner shall reduce the allowable credit by an amount proportionate to the deficiency, and have the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer’s obligations will not be paid in full when due.
For purposes of this subdivision, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure 100 percent of its obligations.
As used in this subdivision, the term “terminated” means revocation, suspension, voluntary surrender, and inactive status.
If the commissioner continues to assign a higher rating as permitted by other provisions of this section, this requirement shall not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.
The commissioner shall require the certified reinsurer to post 100-percent security in accordance with Section 922.5, for the benefit of the ceding insurer or its estate, upon the entry of an order of rehabilitation, liquidation, or conservation against the ceding insurer.
Affiliated reinsurance transactions shall receive the same opportunity for reduced security requirements as all other reinsurance transactions.
In order to facilitate the prompt payment of claims, a certified reinsurer shall not be required to post security for catastrophe recoverables for a period of one year from the date of the first instance of a liability reserve entry by the ceding company as a result of a loss from a catastrophic occurrence that is likely to result in significant insured losses, as recognized by the commissioner. The one-year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner, as determined by the commissioner, in writing. Reinsurance recoverables for only the following lines of business as reported on the NAIC annual financial statement related specifically to the catastrophic occurrence shall be included in the deferral:
Line 1: Fire.
Line 2: Allied lines.
Line 3: Farmowners’ multiple peril.
Line 4: Homeowners’ multiple peril.
Line 5: Commercial multiple peril.
Line 9: Inland marine.
Line 12: Earthquake.
Line 21: Auto physical damage.
Credit for reinsurance under this section shall apply only to reinsurance contracts entered into or renewed on or after the effective date of the certification of the assuming insurer. A reinsurance contract entered into before the effective date of the certification of the assuming insurer that is subsequently amended by mutual agreement of the parties to the reinsurance contract after the effective date of the certification of the assuming insurer, or a new reinsurance contract, covering a risk for which collateral was provided previously, shall only be subject to this section with respect to losses incurred and reserves reported from and after the effective date of the amendment or new contract.
This section shall not be construed to prohibit the parties to a reinsurance agreement from agreeing to provisions establishing security requirements that exceed the minimum security requirements established for certified reinsurers under this section.
A certified reinsurer that ceases to assume new business in this state may request to maintain its certification in inactive status in order to continue to qualify for a reduction in security for its in-force business. An inactive certified reinsurer shall continue to comply with all applicable requirements of this section, and the commissioner shall assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.
Notwithstanding this section, credit for reinsurance or deduction from liability by a domestic ceding insurer for cessions to a certified reinsurer may be disallowed upon a finding by the commissioner that the application of the literal provisions of this section does not accomplish its intent, or either the financial condition of the reinsurer or the collateral or other security provided by the reinsurer does not, in substance, satisfy the credit for reinsurance requirements in Section 922.4.
If an accredited or certified reinsurer ceases to meet the requirements for accreditation or certification, the commissioner may suspend or revoke the reinsurer’s accreditation or certification.
The commissioner shall give the reinsurer notice and opportunity for hearing. The suspension or revocation shall not take effect until after the commissioner’s order on hearing, unless any of the following applies:
The reinsurer waives its right to hearing.
The commissioner’s order is based on regulatory action by the reinsurer’s domiciliary jurisdiction or the voluntary surrender or termination of the reinsurer’s eligibility to transact insurance or reinsurance business in its domiciliary jurisdiction or in the primary certifying state of the reinsurer under subdivision (b) of Section 922.41.
The commissioner finds that an emergency requires immediate action and a court of competent jurisdiction has not stayed the commissioner’s action.
While a reinsurer’s accreditation or certification is suspended, no reinsurance contract issued or renewed after the effective date of the suspension qualifies for credit except to the extent that the reinsurer’s obligations under the contract are secured in accordance with Section 922.5. If a reinsurer’s accreditation or certification is revoked, no credit for reinsurance may be granted after the effective date of the revocation except to the extent that the reinsurer’s obligations under the contract are secured in accordance with subdivision (i) of Section 922.41 or Section 922.5.
Credit shall be allowed a domestic insurer when the reinsurance is ceded to an assuming insurer that meets all of the following requirements:
The assuming insurer has its head office or is domiciled in, as applicable, and is licensed to transact reinsurance in, a reciprocal jurisdiction. A “reciprocal jurisdiction” is a jurisdiction, as designated by the commissioner pursuant to subdivision (b), that meets one of the following criteria:
A non-United States jurisdiction that is subject to an in-force covered agreement with the United States, each within its legal authority, or, in the case of a covered agreement between the United States and European Union, is a member state of the European Union. For purposes of this section, a “covered agreement” is an agreement entered into pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act (Sections 313 and 314 of Title 31 of the United States Code), that is currently in effect or in a period of provisional application and addresses the elimination, under specified conditions, of collateral requirements as a condition for entering into a reinsurance agreement with a ceding insurer domiciled in this state or for allowing the ceding insurer to recognize credit for reinsurance.
A United States jurisdiction that meets the requirements for accreditation under the NAIC financial standards and accreditation program.
A qualified jurisdiction, as determined by the commissioner pursuant to subdivision (g) of Section 922.41, that is not otherwise described in subparagraph (A) or (B) and that the commissioner determines meets all of the following additional requirements, consistent with the terms and conditions of in-force covered agreements:
Provides that an insurer that has its head office or is domiciled in a qualified jurisdiction shall receive credit for reinsurance ceded to a United States-domiciled assuming insurer in the same manner as credit for reinsurance is received for reinsurance assumed by insurers domiciled in that qualified jurisdiction.
Does not require a United States-domiciled assuming insurer to establish or maintain a local presence as a condition for entering into a reinsurance agreement with a ceding insurer subject to regulation by the non-United States jurisdiction or as a condition to allow the ceding insurer to recognize credit for that reinsurance.
Recognizes the United States’ regulatory approach to group supervision and group capital, by providing written confirmation by a competent regulatory authority, in the qualified jurisdiction, that insurers and insurance groups that are domiciled or maintain their headquarters in this state or another jurisdiction accredited by the National Association of Insurance Commissioners (NAIC) shall be subject only to worldwide prudential insurance group supervision, including worldwide group governance, solvency and capital, and reporting, as applicable, by the commissioner or the commissioner of the domiciliary state and shall not be subject to group supervision at the level of the worldwide parent undertaking of the insurance or reinsurance group by the qualified jurisdiction.
Provides written confirmation by a competent regulatory authority in the qualified jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the commissioner in accordance with a memorandum of understanding or similar document between the commissioner and the qualified jurisdiction, including the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC.
The assuming insurer has and maintains, on an ongoing basis, minimum capital and surplus, or its equivalent, calculated on at least an annual basis as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, and confirmed as set forth in paragraph (7) according to the methodology of its domiciliary jurisdiction, in either of the following amounts:
No less than two hundred fifty million dollars ($250,000,000).
If the assuming insurer is an association, including incorporated and individual unincorporated underwriters it must have and maintain, both of the following on an ongoing basis:
Minimum capital and surplus equivalents (net of liabilities) or own funds of the equivalent of at least two hundred fifty million dollars ($250,000,000), calculated according to the methodology applicable in its domiciliary jurisdiction.
A central fund containing a balance of the equivalent of at least two hundred fifty million dollars ($250,000,000).
The assuming insurer has and maintains, on an ongoing basis, a minimum solvency or capital ratio, as applicable, as follows:
If the assuming insurer has its head office or is domiciled in a reciprocal jurisdiction as defined in subparagraph (A) of paragraph (1), the ratio specified in the applicable covered agreement.
If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subparagraph (B) of paragraph (1), a risk-based capital (RBC) ratio of 300 percent of the authorized control level, calculated in accordance with the formula developed by the NAIC.
If the assuming insurer is domiciled in a reciprocal jurisdiction as defined in subparagraph (C) of paragraph (1), after consultation with the reciprocal jurisdiction and considering any recommendations published through the NAIC Committee Process, the solvency or capital ratio that the commissioner determines to be an effective measure of solvency.
If the assuming insurer is an association, including incorporated and individual unincorporated underwriters, it shall have and maintain, on an ongoing basis, a minimum solvency or capital ratio in the reciprocal jurisdiction where the assuming insurer has its head office or is domiciled, as applicable, and is also licensed.
The assuming insurer agrees to and provides adequate assurance to the commissioner, in the form of a properly executed Form RJ-1, as published on the department’s internet website, of its agreement to all of the following:
The assuming insurer shall provide prompt written notice and explanation to the commissioner if it falls below the minimum requirements set forth in paragraph (2) or (3) or if any regulatory action is taken against it for serious noncompliance with applicable law.
The assuming insurer shall consent, in writing, to the jurisdiction of the courts of this state and to the appointment of the commissioner as agent for service of process. The commissioner may require that consent for service of process be provided to the commissioner and included in each reinsurance agreement. This subparagraph does not limit, or in any way alter, the capacity of parties to a reinsurance agreement to agree to alternative dispute resolution mechanisms, except to the extent those agreements are unenforceable under applicable insolvency or delinquency laws.
The assuming insurer shall consent, in writing, to pay all final judgments, wherever enforcement is sought, obtained by a ceding insurer or its legal successor, that have been declared enforceable in the jurisdiction where the judgment was obtained.
Each reinsurance agreement shall include a provision requiring the assuming insurer to provide security in an amount equal to 100 percent of the assuming insurer’s liabilities attributable to reinsurance ceded pursuant to that agreement if the assuming insurer resists enforcement of a final judgment that is enforceable under the law of the jurisdiction in which it was obtained or a properly enforceable arbitration award, whether obtained by the ceding insurer or by its legal successor on behalf of its resolution estate.
The assuming insurer shall confirm that it is not presently participating in any solvent scheme of arrangement which involves this state’s ceding insurers, and shall agree to notify the ceding insurer and the commissioner and to provide security in an amount equal to 100 percent of the assuming insurer’s liabilities to the ceding insurer, consistent with the terms of the scheme, if the assuming insurer enters into such a solvent scheme of arrangement. Security shall be in a form consistent with the provisions of paragraph (1) of subdivision (i) of Section 922.41 and Section 922.5 and as specified by regulation. For purposes of this section, “solvent scheme of arrangement” means a foreign or alien statutory or regulatory compromise procedure subject to requisite majority creditor approval and judicial sanction in the assuming insurer’s home jurisdiction either to finally commute liabilities of duly noticed classed members or creditors of a solvent debtor, or to reorganize or restructure the debts and obligations of a solvent debtor on a final basis, and that may be subject to judicial recognition and enforcement of the arrangement by a governing authority outside the ceding insurer’s home jurisdiction.
The assuming insurer shall agree, in writing, to meet the applicable information filing requirements as set forth in paragraph (5).
The assuming insurer or its legal successor shall provide, if requested by the commissioner, on behalf of itself and any legal predecessors, the following documentation to the commissioner:
For the two years preceding entry into the reinsurance agreement, and on an annual basis thereafter, the assuming insurer’s annual audited financial statements, in accordance with the applicable law of the jurisdiction of its head office or domiciliary jurisdiction, as applicable, including the external audit report.
For the two years preceding entry into the reinsurance agreement, the solvency and financial condition report or actuarial opinion, if filed with the assuming insurer’s supervisor.
Before entry into the reinsurance agreement, and not more than semiannually thereafter, an updated list of all disputed and overdue reinsurance claims outstanding for 90 days or more, regarding reinsurance assumed from ceding insurers domiciled in the United States.
Before entry into the reinsurance agreement, and not more than semiannually thereafter, information regarding the assuming insurer’s assumed reinsurance by ceding insurer, ceded reinsurance by the assuming insurer, and reinsurance recoverable on paid and unpaid losses by the assuming insurer to allow for the evaluation of the criteria set forth in paragraph (6).
The assuming insurer shall maintain a practice of prompt payment of claims under reinsurance agreements. The lack of prompt payment will be evidenced if one of the following criteria is met:
More than 15 percent of the reinsurance recoverables from the assuming insurer are overdue and in dispute as reported to the commissioner.
More than 15 percent of the assuming insurer’s ceding insurers or reinsurers have overdue reinsurance recoverable on paid losses of 90 days or more that are not in dispute and that exceed one hundred thousand dollars ($100,000) for each ceding insurer, or as otherwise specified in a covered agreement.
The aggregate amount of reinsurance recoverable on paid losses which are not in dispute, but are overdue by 90 days or more, exceeds fifty million dollars ($50,000,000), or as otherwise specified in a covered agreement.
The assuming insurer’s supervisory authority shall confirm to the commissioner on an annual basis, as of the preceding December 31 or at the annual date otherwise statutorily reported to the reciprocal jurisdiction, that the assuming insurer complies with the requirements set forth in paragraphs (2) and (3).
This subdivision does not preclude an assuming insurer from providing the commissioner with information on a voluntary basis.
The commissioner shall timely create and publish a list of reciprocal jurisdictions.
A list of reciprocal jurisdictions is published through the NAIC Committee Process. The commissioner’s list shall include any reciprocal jurisdiction as defined under subparagraphs (A) and (B) of paragraph (1) of subdivision (a), and shall consider any other reciprocal jurisdiction included on the NAIC list. The commissioner may approve a jurisdiction that does not appear on the NAIC list of reciprocal jurisdictions as provided by applicable law or regulation, or in accordance with criteria published through the NAIC Committee Process.
The commissioner may remove a jurisdiction from the list of reciprocal jurisdictions upon a determination that the jurisdiction no longer meets one or more of the requirements of a reciprocal jurisdiction, as provided by applicable law, a process set forth in regulations issued by the commissioner, or in accordance with criteria published through the NAIC Committee Process, except that the commissioner shall not remove from the list a reciprocal jurisdiction as defined under subparagraphs (A) and (B) of paragraph (1) of subdivision (a). Upon removal of a reciprocal jurisdiction from this list, credit for reinsurance ceded to an assuming insurer that has its home office or is domiciled in that jurisdiction shall be allowed, if otherwise allowed pursuant Section 922.4, 922.41, or 922.5.
The commissioner shall timely create and publish a list of assuming insurers that have satisfied the conditions set forth in this section and to which cessions shall be granted credit in accordance with this section. The commissioner may add an assuming insurer to the list if a NAIC accredited jurisdiction has added the assuming insurer to a list of assuming insurers or if, upon initial eligibility, the assuming insurer submits the information to the commissioner as required under paragraph (4) of subdivision (a) and complies with any additional requirements that the commissioner may impose by regulation, except to the extent that they conflict with an applicable covered agreement.
If the commissioner determines that an assuming insurer no longer meets one or more of the requirements under this section, the commissioner may revoke or suspend the eligibility of the assuming insurer for recognition.
Before denying statement credit, imposing a requirement to post security with respect to subdivision (d), or adopting a similar requirement that will have substantially the same regulatory impact as security, the commissioner shall do all of the following:
Communicate with the ceding insurer, the assuming insurer, and the assuming insurer’s supervisory authority that the assuming insurer no longer satisfies one of the conditions listed in subdivision (a).
Provide the assuming insurer with 30 days from the initial communication to submit a plan to remedy the defect, and 90 days from the initial communication to remedy the defect, except in exceptional circumstances in which a shorter period is necessary for policyholder and other consumer protection.
After the expiration of 90 days or less, as set forth in paragraph (2), if the commissioner determines that no or insufficient action was taken by the assuming insurer, the commissioner may impose any of the requirements of this subdivision.
Provide a written explanation to the assuming insurer of any of the requirements set out in this subdivision.
If subject to a legal process of rehabilitation, liquidation, or conservation, as applicable, the ceding insurer, or its representative, may seek and, if determined appropriate by the court in which the proceedings are pending, may obtain an order requiring that the assuming insurer post security for all outstanding ceded liabilities.
Credit may be taken under this section only for reinsurance agreements entered into, amended, or renewed on or after January 1, 2021, and only with respect to losses incurred and reserves reported on or after the later of the date on which the assuming insurer has met all eligibility requirements pursuant to subdivision (a) and the effective date of the new reinsurance agreement, amendment, or renewal.
This section does not authorize an assuming insurer to withdraw or reduce the security provided under a reinsurance agreement, except as permitted by the terms of the agreement.
This section does not limit or alter the capacity of parties to a reinsurance agreement to renegotiate the agreement.
The actual costs and expenses incurred by the department in reviewing requests for accreditation or certification, trusts, or review of an assuming insurer that has its head office or is domiciled in and is licensed in a reciprocal jurisdiction, as determined by the commissioner pursuant to Section 922.425, and subsequent amendments established or maintained pursuant to Sections 922.1 to 922.7, inclusive, and subsequent reviews, shall be charged to and collected from the requesting reinsurer. If the reinsurer fails to pay the actual costs and expenses promptly when due, then the commissioner may deny the requests, may refuse to allow credit for reinsurance ceded to that reinsurer or group, or may revoke the reinsurer’s accreditation or certification.
An asset or a deduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 922.4 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer to the extent of either of the following:
The asset or deduction is not greater than the amount of funds held by the ceding insurer under a reinsurance contract with that assuming insurer as security for the payment of obligations thereunder and those funds are held in the United States under the exclusive control of the ceding insurer.
The asset or deduction is not greater than the amount of funds held in a trust, satisfactory to the commissioner, on behalf of the ceding insurer under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder and is held in a qualified United States financial institution, as defined in subdivision (b) of Section 922.7, subject to withdrawal solely by the ceding insurer.
The security under this subdivision may be in the form of cash or securities authorized as general investments under Article 3 (commencing with Section 1170) of Chapter 2, or securities listed by the Securities Valuation Office of the NAIC, including those deemed exempt from filing, as defined by the Purposes and Procedures Manual of the National Association of Insurance Commissioners Securities Valuation Office, qualifying as admitted assets under this code and with liquidity meeting the requirements of Section 706.5, and not otherwise disallowed in the commissioner’s discretion.
An asset or a deduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of Section 922.4 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer to the extent that security is provided in the form of letters of credit, satisfactory to the commissioner, which shall be:
Clean, irrevocable, unconditional letters of credit, issued or confirmed by qualified United States financial institutions, as defined in subdivision (a) of Section 922.7, effective no later than December 31st in respect of the year for which filing is being made, and in the possession of the ceding insurer on or before the filing date of its annual statement.
Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation and shall, notwithstanding the issuing or confirming institutions’ subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification, or amendment, whichever first occurs.
For purposes of this section, the phrase “deemed exempt from filing as defined by the Purposes and Procedures Manual of the National Association of Insurance Commissioners Securities Valuation Office” shall mean all United States government securities, and all other securities or bonds with a rating of SVO 1 or FE 1 listed by the National Association of Insurance Commissioners Securities Valuation Office as exempt.
The commissioner may adopt, by regulation pursuant to subdivision (b) of Section 922.85, specific additional requirements relating to or setting forth the valuation of assets or reserve credits, the amount and forms of security supporting reinsurance arrangements described in paragraph (2) of subdivision (b) of Section 922.85, and the circumstances pursuant to which credit will be reduced or eliminated.
Credit for reinsurance shall not be denied a foreign ceding insurer to the extent that credit is recognized by the ceding insurer’s domestic state regulator, provided that the domestic state is accredited by the National Association of Insurance Commissioners (NAIC), or the domestic state regulator has financial solvency requirements substantially similar to the requirements necessary for NAIC accreditation.
For purposes of subdivision (b) of Section 922.5, a “qualified United States financial institution” means an institution that complies with all of the following:
Is organized or in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof.
Is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies.
Has been determined by the commissioner, or, in the discretion of the commissioner, the Securities Valuation Office of the NAIC, to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner.
A “qualified United States financial institution” means, for purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that is both:
Organized, or in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers.
Regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.
The commissioner, after notice, comment period, and a hearing if requested by more than 10 affected insurers, may issue a bulletin setting forth reasonable requirements for the allowance of reinsurance as an asset or deduction from liability consistent with Sections 922.4 to 922.6, inclusive, including the following:
Filing requirements for an accredited assuming insurer.
Accreditation requirements for an assuming insurer with less than a twenty million dollar ($20,000,000) surplus as regards policyholders.
Investment guidelines for trust funds established and maintained pursuant to subdivision (d) of Section 922.4.
Definitions and required or permitted conditions for trust funds established and maintained pursuant to Section 922.5.
Requirements of letters of credit established and maintained pursuant to Section 922.5.
On or before January 1, 1998, the commissioner shall notify the Legislature that the bulletin has been promulgated so that the Legislature is able to ensure the commissioner’s compliance with the requirements of this subdivision.
The bulletin authorized by this section shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree, as regulations issued by the commissioner until the time that the commissioner issues additional or amended regulations pursuant to subdivision (d).
The commissioner shall adopt regulations implementing the provisions of this law, that shall supersede the bulletin authorized by this section, no later than December 31, 2001.
The commissioner may adopt regulations in accordance with the procedures provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code or otherwise prescribe requirements consistent with Sections 922.4, 922.41, 922.42, 922.425, 922.43, and 922.5, provided the commissioner may update subparagraph (A) of paragraph (1) of subdivision (h) and subdivision (i) of Section 922.41 to add other nationally recognized statistical rating agencies, or to modify the rating categories, the corresponding financial ratings, or the percentage of security required to conform to changes in these factors adopted by the National Association of Insurance Commissioners (NAIC).
The commissioner may adopt regulations applicable to reinsurance arrangements described in paragraph (2).
A regulation adopted pursuant to this subdivision may apply only to reinsurance relating to the following:
Life insurance policies with guaranteed nonlevel gross premiums or guaranteed nonlevel benefits.
Universal life insurance policies with a provision resulting in the ability of a policyholder to keep a policy in force over a secondary guarantee period.
Variable annuities with guaranteed death or living benefits.
Long-term care insurance policies.
Other life and health insurance and annuity products as to which the NAIC adopts model regulatory requirements with respect to credit for reinsurance.
A regulation adopted pursuant to subparagraph (A) or (B) of paragraph (2) may apply to any treaty containing the following:
Policies issued on or after January 1, 2015.
Policies issued prior to January 1, 2015, if risk pertaining to those policies is ceded in connection with the treaty, in whole or in part, on or after January 1, 2015.
A regulation adopted pursuant to this subdivision may require the ceding insurer, in calculating the amounts or forms of security required to be held under regulations promulgated under this authority, to use the Valuation Manual adopted pursuant to paragraph (1) of subdivision (b) of Section 10489.96, including all amendments in effect on the date as of which the calculation is made, to the extent applicable.
A regulation adopted pursuant to this subdivision shall not apply to cessions to an assuming insurer that satisfies any of the following:
The insurer meets the conditions of Section 922.425 in this state or is operating in accordance with provisions substantially equivalent to Section 922.425 in a minimum of five other states.
The insurer is certified in this state, or certified in a minimum of five other states.
The insurer maintains at least two hundred fifty million dollars ($250,000,000) in capital and surplus when determined in accordance with the NAIC Accounting Practices and Procedures Manual, including all amendments thereto adopted by the NAIC, excluding the impact of any permitted or prescribed practices, and satisfies either of the following:
The insurer is licensed in at least 26 states.
The insurer is licensed in at least 10 states, and licensed or accredited in a total of at least 35 states.
The authority to adopt regulations pursuant to this subdivision does not limit the commissioner’s general authority to adopt regulations pursuant to subdivision (a).
The commissioner shall require every insurer which is required to file an annual or quarterly statement to use the statement blanks and instructions thereto for the appropriate year adopted by the National Association of Insurance Commissioners. The statements shall be completed in conformity with the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners, to the extent that the practices and procedures contained in the manual do not conflict with any other provision of this code. The commissioner may make changes from time to time in the form of the statements and the number and method of filing reports as seem to him or her best adapted to elicit from the insurers a true exhibit of their condition. The commissioner shall notify each insurer of any changes from the National Association of Insurance Commissioners’ statement blanks which the commissioner has determined pursuant to this section to be appropriate.
Each insurer transacting business in this state shall at all times maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses and claims for which the insurer may be liable, and to provide for the expense of adjustment or settlement of losses and claims.
The reserves shall be computed in accordance with regulations made from time to time by the commissioner. The promulgation of the regulations by the commissioner, or any changes thereto or amendments thereof, shall be in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. The commissioner shall make the regulations upon reasonable consideration of the ascertained experience and the character of such kinds of business for the purpose of adequately protecting the insured and securing the solvency of the insurer.
The commissioner may prescribe the manner and form of reporting pertinent information concerning the reserves provided for in this section.
This section shall not apply to life insurance, title insurance, disability insurance, mortgage insurance, or mortgage guaranty insurance.
Every admitted property and casualty insurer, unless otherwise exempted by the domiciliary commissioner, shall annually submit the opinion of an Appointed Actuary entitled “Statement of Actuarial Opinion.” This opinion shall be filed in accordance with the appropriate Property and Casualty Annual Statement Instructions of the National Association of Insurance Commissioners (NAIC).
For purposes of this section, the following terms have the same meaning as used in the Property and Casualty Annual Statement Instructions of the NAIC:
Actuarial Opinion.
Actuarial Opinion Summary.
Actuarial Report.
Appointed Actuary.
Statement of Actuarial Opinion.
Property and Casualty Annual Statement Instructions.
The commissioner may adopt regulations related to the terms and conditions required by the Property and Casualty Annual Statement Instructions of the NAIC.
Every property and casualty insurer domiciled in this state that is required to submit a Statement of Actuarial Opinion shall annually submit an Actuarial Opinion Summary, written by the insurer’s Appointed Actuary. This Actuarial Opinion Summary shall be filed in accordance with the appropriate Property and Casualty Annual Statement Instructions of the NAIC and shall be considered as a document supporting the Actuarial Opinion required in subdivision (a).
An admitted insurer not domiciled in this state shall provide the Actuarial Opinion Summary upon request of the commissioner.
An Actuarial Report and underlying workpapers as required by the appropriate Property and Casualty Annual Statement Instructions of the NAIC shall be prepared to support each Actuarial Opinion. If an insurer fails to provide either a supporting Actuarial Report or workpapers at the request of the commissioner, or if the commissioner determines that the supporting Actuarial Report or workpapers provided by the insurer are otherwise unacceptable to the commissioner, the commissioner may engage a qualified actuary at the expense of the insurer to review the opinion and the basis for the opinion and prepare the supporting Actuarial Report or workpapers.
Notwithstanding Section 7929.000 of the Government Code, subdivision (f), or any other provision of law, the Statement of Actuarial Opinion required by subdivision (a) shall be a public record and open to inspection.
Documents, materials, or other information in the possession or control of the commissioner that are considered an Actuarial Report, workpapers, or Actuarial Opinion Summary provided in support of the Statement of Actuarial Opinion, and any other material provided by the insurer to the commissioner in connection with the Actuarial Report, workpapers, or Actuarial Opinion Summary shall be confidential by law and privileged, shall not be made public by the commissioner or any other person and are exempt from the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any civil action brought by a private party.
This subdivision shall not limit the commissioner’s authority to release the documents, materials, and other information described in paragraph (1) to the American Academy of Actuaries’ Actuarial Board for Counseling and Discipline (ABCD), or its successor, so long as those documents, materials, and other information are required for the purpose of professional disciplinary proceedings, and the ABCD establishes procedures satisfactory to the commissioner for preserving the confidentiality of the documents, nor shall this subdivision limit the commissioner’s authority to use those documents, materials, or other information in furtherance of any regulatory or legal action brought as part of the commissioner’s official duties.
The commissioner may also exercise, with respect to the documents, materials, or other information described in paragraph (1), all the authority specified in subdivision (b) of Section 735.5, or any successor provision.
The commissioner shall collect a late filing fee of seven hundred five dollars ($705) from any admitted insurer that fails to make and file in the commissioner’s office within the time prescribed by law any statements or stipulations required by this code. After the first month, the commissioner shall also collect a late filing fee of eight hundred forty-nine dollars ($849) for each and every month or fractional part of a month thereafter that the insurer continues to transact the business of insurance until those statements and stipulations are filed.
Upon request of the commissioner, and at intervals as prescribed by him or her, any insurer that appears to the commissioner to require immediate regulatory attention shall provide to the commissioner supplemental accounting, financial, and actuarial information. The commissioner may request that an insurer select and retain an independent certified public accountant, certified public accountant corporation, an actuary corporation, or an independent actuary satisfactory to the commissioner, if that person has not already been retained by the insurer, whenever the information supplied or likely to be supplied is not satisfactory or acceptable to the commissioner, or, whenever the person who would be responsible for that preparation of that information has previously provided information that was not satisfactory or acceptable to the commissioner. The commissioner may select or retain an independent certified public accountant, a certified public accountant corporation, an actuary corporation, or an independent actuary, if the insurer does not within a reasonable time make the selection as requested by the commissioner. If the information is prepared by an independent certified public accountant or independent actuary, or other independent professional financial corporation or person, the corporation or person shall examine and render an opinion upon that supplemental information.
All supplemental information, work papers and other relevant documents of the independent certified public accountant, or independent actuary, or other independent professional financial person and the insurer relevant to information provided to the commissioner pursuant to Sections 925 to 925.2, inclusive, shall be made available by the insurer for review by the commissioner upon request at the insurer’s office, at the commissioner’s office, or any other reasonable place designated by the commissioner.
All supplemental information, relevant work papers and other relevant documents of the certified public accountant or actuary shall be retained for a period of not less than five years from the date of the report. The certified public accountant or the actuary shall make that information available to the insurer upon the reasonable request of the commissioner made to the insurer, except when that information is subject to the right against self-incrimination or other relevant privileges.
The commissioner may prescribe the subject matter and form of reporting supplemental information and the subject matter of opinions.
All supplemental information provided or made available to the commissioner pursuant to Sections 925 to 925.2, inclusive, including work papers and other relevant documents of the independent certified public accountants or, independent actuary or other independent professional financial person and the insurer relevant to that information, shall be received in confidence within the meaning of Section 7929.000 of the Government Code and exempt from the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Additionally, that information shall not be subject to subpoena or subpoena duces tecum.
Nothing contained herein shall be deemed in any manner to limit, restrict or abridge the powers of the commissioner to examine insurers, to inquire into their financial condition or to obtain supplemental information in accordance with any other provision of this code.
ARTICLE 10.1. California Insurance Community Investment [926. - 926.3.]
The Legislature finds and declares all of the following:
It is in the interest of all Californians that there is a strong and viable insurance market.
It is the policy of this state that insurers should be supportive of investments that promote social, economic, and environmental benefits, and should consider making these investments with an emphasis on using diverse investment managers to the extent possible.
This article shall establish the California Organized Investment Network (COIN) within the department.
COIN has the responsibility to pursue active measures to encourage insurers to make investments that promote social, economic, and environmental benefits.
COIN shall pursue active measures to encourage insurers to make investments, as defined in this article, including, but not limited to, creating and identifying potential investment opportunities, including the development of investment opportunity bulletins and marketing and outreach efforts. This information shall be published on the department’s internet website in investment opportunity bulletins. These opportunity bulletins help finance projects that address the state’s critical needs, particularly in underserved, low-to-moderate-income, and rural communities, as well as environmental needs.
As used in this article, the following terms shall have the following meanings:
“Area median income” (AMI) means either of the following:
The median family income for the metropolitan statistical area (MSA), if a person or geography is located in an MSA, or for the metropolitan division, if a person or geography is located in an MSA that has been subdivided into metropolitan divisions.
The statewide nonmetropolitan median family income, if a person or geography is located outside an MSA.
“Community development investment” means an investment where all or a portion of the investment has as its primary purpose community development for, or that directly benefits, California underserved or low-to-moderate-income individuals, families, or communities. “Community development investment” includes, but is not limited to, investments in California in the following:
Affordable housing, including multifamily rental and ownership housing, for underserved or low-to-moderate-income individuals or families.
Community facilities or community services providers (including providers of education, health, or social services) directly benefiting underserved or low-to-moderate-income individuals, families, or communities.
Economic development that demonstrates benefits, including, but not limited to, job creation, retention, or improvement, or provision of needed capital, to underserved or low-to-moderate-income individuals, families, or communities, including urban or rural communities, or businesses or nonprofit community service organizations that serve these communities.
Activities that revitalize or stabilize underserved or low-to-moderate-income communities.
Investments in or through California Organized Investment Network (COIN)-certified community development financial institutions (CDFIs) and investments made pursuant to the requirements of federal, state, or local community development investment programs or community development investment tax incentive programs, if these investments directly benefit underserved or low-to-moderate-income individuals, families, and communities and are consistent with this article.
Community development infrastructure investments.
Investments in a commercial property or properties located in underserved or low-to-moderate-income geographical areas and are consistent with this article.
Investments in reservation-based communities. “Reservation-based” means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of “Indian Entities Recognized and Eligible to Receive Services From the Bureau of Indian Affairs,” or successor document, as published in the Federal Register by the Bureau of Indian Affairs.
Investments in rural areas. “Rural area” means any open country or any place, town, village, or city that, by itself and taken together with any other places, towns, villages, or cities that it is part of or associated with, has either a population not exceeding 10,000 persons or has a population not exceeding 50,000 persons and is contained within a nonmetropolitan area. “Rural area” also means any open country, place, town, village, or city located within a standard MSA if the population of that area does not exceed 50,000 persons, the area is not part of, or associated with, an urban area, and the area is rural in character.
“Community development infrastructure” means California debt, including all debt issued by the State of California or a California state or local government agency, if all or a portion of the debt has as its primary purpose community development for, or that directly benefits, underserved or low-to-moderate-income communities and is consistent with subdivision (b).
“Diverse investment managers” means investment management organizations, including corporations, groups, and persons within corporations, partnerships, limited liability corporations, and other special purpose vehicles that are either located in, or actively make and hold investments in, California and whose investment managers are composed of at least 51 percent women, veterans, minorities, or lesbian, gay, bisexual, transgender, or queer persons, or a combination of persons in those groups.
“Geography” means a census tract delineated by the United States Bureau of the Census in the most recent decennial census.
“Green investments” means investments that emphasize renewable energy projects, economic development, and affordable housing focused on infill sites so as to reduce the degree of automobile dependency and promote the use and reuse of existing urbanized lands supplied with infrastructure for the purpose of accommodating new growth and jobs. “Green investments” also means investments that can help communities grow through new capital investment in the maintenance and rehabilitation of existing infrastructure so that the reuse and reinvention of city centers and existing transportation corridors and community space, including projects offering energy efficiency improvements and renewable energy generation, including, but not limited to, solar and wind power, water and waste management, sustainable agriculture, mixed-use development, affordable housing opportunities, multimodal transportation systems, and transit-oriented development, can advance economic development, jobs, and housing.
“Impact investments” means investments that provide a social or environmental benefit to underserved or low-to-moderate-income individuals, families, or communities in California.
“High-impact investments” means investments that are innovative, responsive to community needs, not routinely provided by insurers, and provide a minimum of 50 percent social or environmental benefits to underserved or low-to-moderate-income individuals, families, or communities in California.
“Investment” means a lawful equity or debt investment, or loan, or deposit obligation, or other investment or investment transaction allowed by the Insurance Code.
“Low-income” means an individual income that is less than 50 percent of the AMI, or a median family income that is less than 50 percent of the AMI in the case of a geographical area.
“MSA” means a metropolitan statistical area as defined by the Director of the Office of Management and Budget.
“Moderate-income” means an individual income that is at least 50 percent but less than 80 percent of the AMI, or a median family income that is at least 50 percent but less than 80 percent of the AMI in the case of a geographical area.
“Nonmetropolitan area” means any area that is not located in an MSA.
It is the policy of the State of California that (1) insurers should, where practicable, be supportive of community development investments and community development infrastructure investments, and insurers should be encouraged to invest in prudent community development investments and community development infrastructure investments that benefit California and California’s low- and moderate-income communities; (2) every admitted insurer that writes a substantial amount of insurance in the state should consider community development investments and community development infrastructure investments; and (3) the California Organized Investment Network is a part of the department, and has the responsibility to pursue active measures to encourage community development investing by admitted insurers.
Each insurer admitted in California that writes premium in California equal to or in excess of one hundred million dollars ($100,000,000) annually shall develop, and file with the commissioner no later than July 1, 2011, a policy statement on community development investments and community development infrastructure investments that expresses the insurer’s goals for these investments during the current and following calendar year. These filings shall be public information. For purposes of this subdivision, “policy statement” means a statement of principle intended to influence a decision or action. The policy statement may include general goals or specific investment goals, but is not required to contain specific investment goals or thresholds.
The commissioner shall establish a link on the department’s Internet Web site that provides public access to the contents of each insurer’s policy statement and the data on community development investments and community development infrastructure investments provided by each insurer pursuant to subdivision (b).
ARTICLE 10.2. Minority, Women, LGBT, Veteran, and Disabled Veteran Business Enterprises [927. - 927.5.]
The Legislature finds and declares all of the following:
It is in the state’s interest to encourage competitive business opportunities for all of its people. Insurers are uniquely positioned to build relationships within the communities they serve through the development, inclusion, and utilization of certified minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business enterprises whenever possible.
It is in the state’s interest to encourage corporate leadership opportunities for all of its people. Insurers are uniquely positioned to build relationships within the communities they serve through the development of a corporate board that represents the diversity of the state.
According to the California Insurance Diversity Survey, in 2021, among at least 1,600 board seats reported by 386 insurance companies, nearly 64 percent of those seats were occupied by Caucasians, and 62 percent of board members identified as men. Meanwhile, less than 1 percent of board members publicly identified as LGBT, 4.1 percent publicly identified as veterans, and less than 1 percent publicly identified as disabled veterans. Moreover, diverse board members from historically underrepresented communities continue to remain disproportionately low. Blacks and African Americans, Asians-Pacific Islanders, Hispanics-Latinos, and Native Americans comprised only 7.8 percent, 4.4 percent, 3.4 percent, and 0 percent, of board seats, respectively.
An analysis by KPMG of 2020 proxy statement data from Equilar, Inc. revealed that nearly 23 percent of the directors serving on the boards of publicly held insurance companies in the Russell 3000 Index are women. At more than 35 percent of insurance companies, women comprise less than 10 percent of the board.
By requiring each major insurer to report to the Insurance Commissioner, explaining the insurer’s supplier diversity statement, expressing its goals regarding certified minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business enterprises, and detailing the insurer’s efforts and goals regarding board diversity, and by having the commissioner place that information on the department’s internet website, will help facilitate these relationships.
For the purposes of this article, the following definitions apply:
“Control” means to exercise the power to make policy decisions.
“Disabled veteran business enterprise” has the same meaning as defined in subparagraph (A) of paragraph (7) of subdivision (b) of Section 999 of the Military and Veterans Code, or any successor provision. Disabled veteran business enterprise certification eligibility requirements shall be consistent with those imposed by the Department of General Services, and this section applies only to those disabled veteran business enterprises certified by the Department of General Services.
“LGBT business enterprise” means a business enterprise that is 51 percent owned, managed, operated, and controlled by one or more lesbian, gay, bisexual, or transgender (LGBT) individuals, has been legally formed in the United States, and exercises independence from any non-LGBT business enterprise.
“Minority business enterprise” means a business enterprise, physically located in the United States or its trust territories, that is at least 51 percent owned by a minority group or groups, or, in the case of any publicly owned business, at least 51 percent of the stock of which is owned by one or more minority groups, and whose management and daily business operations are controlled by one or more of those individuals. “Minority” includes African Americans, Hispanic Americans, Native Americans, and Asian Pacific Americans.
“Operate” means to be actively involved in the day-to-day management of the enterprise and not to be merely officers or directors.
“Person with disabilities” means a person who identifies as having any of the following:
A physical or mental impairment that substantially limits one or more major life activities as defined by subdivision (2) of Section 12102 of Title 42 of the United States Code, also known as the federal Americans with Disabilities Act of 1990.
A record of such an impairment.
Being regarded as having such an impairment as described under subdivision (3) of Section 12102 of the federal Americans with Disabilities Act of 1990.
“Persons with disabilities business enterprise” or “Disability-owned business enterprise” or “Disabled-owned business enterprise” means a business enterprise physically located in the United States or its trust territories, that is at least 51 percent owned by a person or persons with a disability or, in the case of a publicly owned business, at least 51 percent of the stock of which is owned by one or more persons with a disability, and whose management and daily business operations are controlled by one or more of those individuals.
“Disabled” means an individual who self-identifies as having a disability, as defined in Section 12102 of the federal Americans with Disabilities Act of 1990.
“Women business enterprise” means a business enterprise physically located in the United States or its trust territories, that is at least 51 percent owned by a woman or women, or, in the case of any publicly owned business at least 51 percent of the stock of which is owned by one or more women, and whose management and daily business operations are controlled by one or more of those individuals.
“Veteran business enterprise” means a business enterprise physically located in the United States or its trust territories that is at least 51 percent owned by one or more veteran groups or, in the case of a publicly owned business, at least 51 percent of the stock of which is owned by one or more veteran groups, and whose management and daily business operations are controlled by one or more of those individuals.
Commencing July 1, 2020, and biennially on July 1 of each even-numbered year thereafter, each admitted insurer, with California premiums written of seventy-five million dollars ($75,000,000) or more, shall report to the commissioner on its minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business procurement efforts during the previous two years.
The insurer shall provide all of the following:
The insurer’s supplier diversity policy statement.
The insurer’s outreach and communications to minority, women, LGBT, persons with disabilities, veteran, and disabled veteran business enterprises, including:
How the insurer encourages and seeks out minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business enterprises to become potential suppliers.
How the insurer encourages its employees involved in procurement to seek out minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business enterprises to become potential suppliers.
How the insurer conducts outreach and communication to minority, women, LGBT, persons with disabilities, veteran, and disabled veteran business enterprises.
How the insurer supports organizations that promote or certify minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business enterprises.
Information regarding appropriate contacts at the insurer for interested business enterprises.
Information about which procurements are made from minority, women, LGBT, persons with disabilities, and veteran business enterprises with a headquarters’ address in California, and from disabled veteran business enterprises, as defined in subdivision (b) of Section 927.1, with each category aggregated separately, to the extent that information is readily accessible. An insurer may also include other relevant information.
Information about which procurements are made from minority, women, LGBT, persons with disabilities, veteran, and disabled veteran business enterprises with at least a majority of the enterprise’s workforce in California, with each category aggregated separately, to the extent that information is readily accessible. An insurer may also include other relevant information.
Information related to total procurement contract dollars awarded, to the extent that information is readily accessible. An insurer may also include other relevant information.
An insurer that does not enter into contracts to procure goods or services in California satisfies the requirements of paragraph (2) by filing a statement with the commissioner attesting that it does not enter into procurement contracts in California.
This section does not require quotas, set-asides, or preferences in an admitted insurer’s procurement of goods or services, and this section does not apply to insurer producer or licensee contracts. Admitted insurers retain the authority to use business judgment to select the supplier for a particular contract.
This section does not preclude an admitted insurer that is a member of an insurance holding company system, as defined in Article 4.7 (commencing with Section 1215) of Chapter 2, from complying with paragraphs (1) and (2) of subdivision (a) through a single filing on behalf of the entire group of affiliated companies.
Failure to report the information required by subdivision (a), by the reporting deadline, shall subject the admitted insurer to a civil penalty to be fixed by the commissioner, not to exceed five thousand dollars ($5,000), or if the act or practice was willful, a civil penalty not to exceed ten thousand dollars ($10,000). An insurer may request, and the commissioner may grant, a 30-day extension to report the information if needed due to unintended or unforeseen delays. If the insurer has failed to report the information within 30 days of a written notice by the commissioner that the insurer has failed to report the information, the commissioner may find that the failure to report the information was willful and increase the civil penalty to an amount not to exceed ten thousand dollars ($10,000). The penalty imposed by this section shall be enforced by the commissioner and is appealable by means of any remedy provided by Section 12940, or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. This subdivision is the sole means for enforcement of this section.
By November 1 of the reporting year, the commissioner shall establish and maintain a link on the department’s internet website that provides public access to the contents of each admitted insurer’s reported information on minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned business procurement efforts. The commissioner shall include a statement on the department’s internet website that the information on minority, women, LGBT, persons with disabilities, veteran, and disabled veteran-owned businesses posted pursuant to this subdivision is provided for informational purposes only.
Commencing July 1, 2020, and biennially on July 1 of each even-numbered year thereafter, each admitted insurer with California premiums written of seventy-five million dollars ($75,000,000) or more, shall report to the commissioner on its governing board and board diversity efforts during the previous two years.
The insurer shall provide all of the following information:
The demographic makeup of the insurer’s governing board.
The insurer’s goals regarding board diversity, including outreach and communication strategies to diversify its board.
A board diversity policy statement or a measurable goal or goals to include at least one diverse board member on the insurer’s board of directors. For purposes of this subparagraph:
A “board diversity policy statement” is any language that refers to an insurer’s corporate governance policy or guidelines, with the goal of increasing diversity on the insurer’s board of directors. Board diversity language as part of an insurer’s corporate governance policy describes how the board considers gender, ethnicity, race, age, geographic location, sexual orientation, skills, disability, and experience when identifying director candidates and throughout the nomination process.
A “diverse board member” means an individual who self-identifies as a woman, nonbinary, Black, African American, Hispanic, Latino-Latina, Asian, Pacific Islander, Native American, Native Hawaiian, Alaskan Native, person with disabilities, veteran or disabled veteran, lesbian, gay, bisexual, transgender, or queer.
An insurer shall provide each board member with an opportunity to participate in a survey for the purpose of collecting and reporting the information described in subparagraph (A) of paragraph (2) of subdivision (a).
The insurer shall distribute a written disclosure to each board member prior to, or concurrently with, the survey. The disclosure shall notify the board member that the board member’s decision to disclose their demographic information is voluntary, that no adverse action may be taken against the board member or the insurer if the board member declines to participate in the survey, and that the aggregate data collected for each demographic category will be reported.
The survey shall be completed using a standardized form to be specified by the commissioner.
Neither an insurer nor the department shall in any way encourage, incentivize, or attempt to influence the decision of a board member to participate in the survey.
An insurer required to conduct the survey shall do both of the following:
Collect survey response data from board members in a manner that maintains the anonymity of the responding board member and the confidentiality of the data reported.
Transmit the survey response data to the department in a manner that does not associate the survey response data with an individual board member.
This section does not require quotas, set-asides, or preferences in regard to an admitted insurer’s governing board.
This section does not preclude an admitted insurer that is a member of an insurance holding company system, as defined in Article 4.7 (commencing with Section 1215) of Chapter 2, from complying with subdivisions (a) and (b) through a single filing by the insurance holding company on behalf of an entire group of affiliated companies that identifies the aggregated survey results for each affiliated insurer.
By November 1 of the reporting year, the commissioner shall establish and maintain a link on the department’s internet website that provides public access to the information submitted pursuant to this section. The commissioner shall publish the information submitted pursuant to this section in the aggregate, and shall not identify an individual respondent or insurer. The commissioner shall include a statement on the department’s internet website that the information posted pursuant to this subdivision is provided for informational purposes only.
The data collected pursuant to this section is confidential and shall not be released by the department or an insurer under any circumstances, except as provided in this section.
The commissioner shall establish and appoint an Insurance Diversity Task Force.
The task force shall be comprised of at least 13, but not more than 15, members as follows:
The commissioner or the commissioner’s designee.
Two members who are representatives in the insurance industry, one of whom shall, at the time of appointment, serve as a practitioner in the field of supplier diversity, and one of whom shall, at the time of appointment, have expertise in governing board diversity.
Two members who are representatives of a minority business enterprise.
Two members who are representatives of a women business enterprise.
A member who is a representative of a disabled veteran business enterprise or a veteran business enterprise.
A member who is a representative of an LGBT business enterprise.
A member who is representative of a persons with disabilities business enterprise.
Two members with expertise in the field of supplier diversity.
Two members with expertise in the field of governing board diversity.
The term of each member shall be for two years. Staggered terms shall be established by drawing lots at the first meeting of the task force so that a simple majority of the members shall initially serve a two-year term, and the remainder shall initially serve a one-year term.
The task force shall have all of the following duties:
The members of the task force shall not receive compensation from the state for their services under this section but may be reimbursed for their actual and necessary expenses incurred in connection with attending a task force meeting.
The department shall review and revise, if necessary, the department’s conflicts of interest regulations to ensure that each task force member is required to disclose conflicts of interest to the public.
The commissioner may promulgate regulations that further the purposes of this article.
ARTICLE 10.3. Single Risk Limitation [928. - 928.]
An admitted insurer shall not undertake any single risk or accept reinsurance on any single risk when its liability thereon in excess of the amount reinsured by reinsurance authorized for annual statement credit under this code exceeds 10 percent of its capital and surplus as shown by its last statement on file in the office of the commissioner.
This section shall apply to any class or classes of insurance specified in Chapter 1 (commencing with Section 100) of Part 1 of Division 1, except:
Life, as defined in Section 101.
Title, as defined in Section 104.
Surety, as defined in Section 105.
Mortgage Guaranty, as defined in Section 119.
Financial Guaranty, as defined in Section 124.
ARTICLE 10.4. Wildfire Risk Information Reporting [929. - 929.3.]
On or before April 1, 2020, and every two years thereafter, an admitted insurer with written California premiums totaling ten million dollars ($10,000,000) or more shall submit a report to the commissioner on its residential property experience data for the previous two years for policies written in California.
The premium threshold for reporting shall be increased to twelve million dollars ($12,000,000) for the reports due on April 1, 2026, and shall thereafter be increased every five years by 20 percent of the threshold amount required in the year immediately preceding the increase.
Reports filed on April 1, 2020, shall include data from calendar years 2018 and 2019. Subsequent reports shall likewise include data from the two calendar years immediately preceding the year in which the report is due.
The commissioner may specify, by bulletin, the manner of submission and format of the report required pursuant to subdivision (a). The report shall include the following information reported by individual policy:
Fire- or wildfire-incurred losses, if any, reported by property coverage category and the date of the loss.
The public protection class or its equivalent, if utilized by the insurer.
The specific numerical or other fire risk score and source of fire risk score, if applicable.
Premium.
ZIP Code.
If the commissioner issues a bulletin pursuant to subdivision (b), the initial bulletin shall be posted to the department’s Internet Web site on or before May 1, 2019. Any updated bulletin shall be posted no less than two months before the date that the insurer’s report in which the changes are required is due.
An insurance holding company system, as defined in subdivision (e) of Section 1215, may submit a consolidated report of the information required by this section for all insurers comprising the holding company system.
For the purposes of this section, “policy of residential property insurance” has the meaning described in subdivision (a) of Section 10087.
Information submitted to the commissioner, as required by Section 929, shall be confidential pursuant to Section 7929.000 of the Government Code and exempt from the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Additionally, that information shall not be subject to subpoena or subpoena duces tecum. Testimony by the commissioner, the commissioner’s staff, an employee of the department, or a person to whom the report required by Section 929 was disclosed, regarding the contents of any report submitted pursuant to Section 929, shall be inadmissible as evidence in a civil proceeding.
The commissioner shall post to the department’s Internet Web site a report on wildfire risk compiled from the data collected pursuant to Section 929.
The report shall be updated every two years to reflect new data submitted by insurers.
The report shall separately provide information each calendar year.
Failure to submit a report pursuant to Section 929 shall subject an admitted insurer to a civil penalty to be fixed by the commissioner, not to exceed five thousand dollars ($5,000) or, if the act was willful, a civil penalty not to exceed ten thousand dollars ($10,000).
An insurer may request, and the commissioner may grant, a 30-day extension, if needed due to unintended or unforeseen delays, to submit the report. If the insurer fails to submit the report within 30 days of a written notice by the commissioner regarding the failure to submit the report, the commissioner may find that the failure to submit the report was willful and increase the civil penalty to an amount not to exceed ten thousand dollars ($10,000).
The penalty imposed by this section shall be enforced by the commissioner and may be appealed by means of a remedy provided by Section 12940, or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. This subdivision is the sole means for enforcement of this section.
ARTICLE 10.5. National Association of Insurance Commissioners [930. - 934.]
The provisions of this article shall apply to all domestic, foreign, and alien insurers doing business in this state.
Each domestic, foreign, and alien insurer doing business in this state shall annually, on or before the first day of March of each year, file with the National Association of Insurance Commissioners a copy of its annual statement convention blank, along with any additional filings as prescribed by the commissioner for the preceding year. The information filed with the National Association of Insurance Commissioners shall be in the same format and scope as that required by the commissioner and shall include the signed jurat page and the actuarial certification. Any amendments and addendums to the annual statement filing subsequently filed with the commissioner shall also be filed with the National Association of Insurance Commissioners.
Each year, on or before the following dates, every domestic, foreign, and alien insurer doing business in this state shall make and file with the National Association of Insurance Commissioners, in the number, form, and methods prescribed by the commissioner, a copy of the quarterly statements exhibiting its condition and affairs for the period beginning on January 1 of the current calendar year through the end of each quarter of the current year as described below. These quarterly filings shall cover the period of time beginning January 1 of the current year through and including the last day of the quarter for which the report is being made. The first quarter filing shall be filed on or before May 15th of every year. The second quarter filing shall be filed on or before August 15th of every year. The third quarter filing shall be filed on or before November 15th of every year. If any of these dates fall on a day other than a business day, then the filing is due to the National Association of Insurance Commissioners by the first business day preceding that date. The information filed with the National Association of Insurance Commissioners shall include a jurat page. A copy of any amendments and addendums to the quarterly statement filings subsequently filed with the commissioner shall also be filed with the National Association of Insurance Commissioners.
Foreign insurers that are domiciled in a state which has a law substantially similar to subdivision (a) of this section shall be deemed in compliance with this section.
In the absence of actual malice, members of the National Association of Insurance Commissioners, their duly authorized committees, subcommittees, and task forces, their delegates, National Association of Insurance Commissioners’ employees, and all others charged with the responsibility of collecting, reviewing, analyzing, and disseminating the information developed from the filing of the annual statement convention blanks shall be acting as agents of the commissioner under the authority of this article and shall not be subject to civil liability for libel, slander, or any other cause of action by virtue of their collection, review, and analysis or dissemination of the data and information collected from the filings required herein.
All financial analysis ratios and examination synopses concerning insurers that are submitted to the department by the National Association of Insurance Commissioners’ Insurance Regulatory Information System are confidential and may not be disclosed by the department.
The commissioner may suspend, revoke, or refuse to renew the certificate of authority of any insurer failing to file its annual or quarterly statement with the National Association of Insurance Commissioners when due or within any extension of time which the commissioner, for good cause, may grant.
ARTICLE 10.6. Own Risk and Solvency Assessment [935.1. - 935.11.]
The purpose of this article is to provide the requirements for maintaining a risk management framework, completing an Own Risk and Solvency Assessment (ORSA), and provide guidance and instructions for filing an ORSA Summary Report with the commissioner. The requirements of this article shall apply to all insurers domiciled in this state unless exempt pursuant to Section 935.6.
The Legislature finds and declares that the ORSA Summary Report will contain confidential and sensitive information related to an insurer’s or insurance group’s identification of risks that are material and relevant to the insurer or insurance group filing the report. This information will include proprietary and trade secret information that has the potential for harm and competitive disadvantage to the insurer or insurance group if the information is made public. It is the intent of the Legislature that the ORSA Summary Report shall be a confidential document filed with the commissioner, that the ORSA Summary Report shall be shared only as stated in this article to assist the commissioner in the performance of his or her duties, and that in no event shall the ORSA Summary Report be subject to public disclosure.
For purposes of this article, the following definitions apply:
For the purpose of conducting an ORSA, the term “insurance group” shall mean those insurers and affiliates included within an insurance holding company system as defined in subdivision (e) of Section 1215.
The term “insurer” shall have the same meaning as set forth in subdivision (f) of Section 1215, except that it shall not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.
An “Own Risk and Solvency Assessment” or “ORSA” means a confidential internal assessment that is appropriate to the nature, scale, and complexity of an insurer or insurance group, conducted by that insurer or insurance group, of the material and relevant risks associated with the insurer’s or insurance group’s current business plan and the sufficiency of capital resources to support those risks.
The term “ORSA Guidance Manual” means the current version of the Own Risk and Solvency Assessment Guidance Manual developed and adopted by the National Association of Insurance Commissioners (NAIC) and as amended from time to time. A change in the ORSA Guidance Manual shall be effective on the January 1 following the calendar year in which the changes have been adopted by the NAIC.
An “ORSA Summary Report” means a confidential high-level summary of an insurer’s or insurance group’s ORSA.
An insurer shall maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks. This requirement may be satisfied if the insurance group of which the insurer is a member maintains a risk management framework applicable to the operations of the insurer.
Subject to Section 935.6, an insurer, or the insurance group of which the insurer is a member, shall regularly conduct an ORSA consistent with a process comparable to the ORSA Guidance Manual. The ORSA shall be conducted no less than annually but also at any time when there are significant changes to the risk profile of the insurer or the insurance group of which the insurer is a member.
Upon the commissioner’s request, and no more than once each year, an insurer shall submit to the commissioner an ORSA Summary Report or any combination of reports that together contain the information described in the ORSA Guidance Manual, applicable to the insurer or the insurance group of which it is a member. Notwithstanding any request from the commissioner, if the insurer is a member of an insurance group, the insurer shall submit the report or reports required by this subdivision only if the commissioner is the lead state commissioner of the insurance group as determined by the procedures within the Financial Analysis Handbook adopted by the NAIC.
The report shall include a signature of the insurer’s or insurance group’s chief risk officer or other executive having responsibility for the oversight of the insurer’s enterprise risk management process, attesting to the best of his or her belief and knowledge that the insurer applies the enterprise risk management process described in the ORSA Summary Report and that a copy of the report has been provided to the insurer’s board of directors or the appropriate committee thereof.
An insurer may comply with subdivision (a) by providing the most recent and substantially similar report provided by the insurer, or by another member of an insurance group of which the insurer is a member, to the commissioner of another state, or to a supervisor or regulator of a foreign jurisdiction, provided that the report provides information that is comparable to the information described in the ORSA Guidance Manual. A report in a language other than English shall be accompanied by a translation of that report into the English language.
An insurer shall be exempt from the requirements of this article if both of the following apply:
The insurer has annual direct written and unaffiliated assumed premiums, including international direct and assumed premiums, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than five hundred million dollars ($500,000,000).
The insurance group of which the insurer is a member has annual direct written and unaffiliated assumed premiums, including international direct and assumed premiums, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than one billion dollars ($1,000,000,000).
If an insurer qualifies for exemption pursuant to paragraph (1) of subdivision (a), but the insurance group of which the insurer is a member does not qualify for exemption pursuant to paragraph (2) of subdivision (a), then the ORSA Summary Report that may be required pursuant to Section 935.5 shall include every insurer within the insurance group. This requirement may be satisfied by the submission of more than one ORSA Summary Report for any combination of insurers provided any combination of reports includes every insurer within the insurance group.
If an insurer does not qualify for exemption pursuant to paragraph (1) of subdivision (a), but the insurance group of which it is a member qualifies for exemption pursuant to paragraph (2) of subdivision (a), the only ORSA Summary Report that may be required pursuant to Section 935.5 shall be the report applicable to that insurer.
An insurer that does not qualify for exemption pursuant to subdivision (a) may apply to the commissioner for a waiver from the requirements of this article based upon unique circumstances. In deciding whether to grant the insurer’s request for waiver, the commissioner may consider the type and volume of business written, ownership and organizational structure of the insurer or insurance group, and any other factor the commissioner considers relevant to the insurer or insurance group of which the insurer is a member. If the insurer is part of an insurance group with insurers domiciled in more than one state, the commissioner shall coordinate with the lead state commissioner and with the other domiciliary commissioners in considering whether to grant the insurer’s request for a waiver.
Notwithstanding the exemptions stated in this section, the commissioner may do either one or both of the following:
The commissioner may require that an insurer maintain a risk management framework, conduct an ORSA, and file an ORSA Summary Report based on unique circumstances, which include, but are not limited to, the type and volume of business written, ownership and organizational structure, federal agency requests, and international supervisor requests.
The commissioner may require that an insurer maintain a risk management framework, conduct an ORSA, and file an ORSA Summary Report if the insurer (A) has Risk-Based Capital for a Company Action Level Event as described in Section 739.3, (B) meets one or more of the standards of an insurer that may be determined to be in hazardous financial condition as provided in Article 14.5 (commencing with Section 1065.1), and in regulations, or (C) otherwise exhibits qualities of a troubled insurer as determined by the commissioner.
If an insurer that qualifies for an exemption pursuant to subdivision (a) subsequently no longer qualifies for that exemption due to changes in premiums as reflected in the insurer’s most recent annual statement or in the most recent annual statements of the insurers within the insurance group of which the insurer is a member, the insurer shall have one year following the year the threshold in subdivision (a) is exceeded to comply with the requirements of this article.
The ORSA Summary Report shall be prepared consistent with the ORSA Guidance Manual, subject to the requirements of this section. Documentation and supporting information shall be maintained and made available upon examination or upon request of the commissioner.
The commissioner shall review the ORSA Summary Report submitted pursuant to Section 935.5 and any additional requests for information, using procedures similar to those currently used in the analysis and examination of multistate or global insurers and insurance groups.
Documents, materials, or other information, including the ORSA Summary Report, in the possession of or control of the Department of Insurance that are obtained by, created by, or disclosed to the commissioner or any other person under this article, are recognized by this state as being proprietary and contain trade secrets. These documents, materials, or other information shall be confidential by law and privileged, shall not be subject to disclosure pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), and shall not be subject to subpoena or discovery, or admissible in evidence, in any private civil action. However, the commissioner is authorized to use those documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner’s official duties. The commissioner shall not otherwise make those documents, materials, or other information public without the prior written consent of the insurer.
Neither the commissioner nor any other person who received documents, materials, or other ORSA-related information, including the ORSA Summary Report, through examination or otherwise, while acting under the authority of the commissioner, or with whom those documents, materials, or other information are shared pursuant to this article, shall be permitted or required to testify in any private civil action concerning those confidential documents, materials, or information, subject to subdivision (a).
In order to assist in the performance of the commissioner’s regulatory duties, the commissioner:
May, upon request, share documents, materials, or other ORSA-related information, including the confidential and privileged documents, materials, or information subject to subdivision (a), including proprietary and trade secret documents and materials, with other state, federal, and international financial regulatory agencies, including members of any supervisory college as described in Section 1215.7, with the NAIC, and with any third-party consultants designated by the commissioner, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality.
May receive documents, materials, or other ORSA-related information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade secret information or documents, from regulatory officials of other foreign or domestic jurisdictions, including members of any supervisory college as described in Section 1215.7, and from the NAIC, and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.
Shall enter into a written agreement with the NAIC or a third-party consultant governing the sharing and the use of information provided pursuant to this article, consistent with this subdivision that shall do all of the following:
Specify procedures and protocols regarding the confidentiality and security of information shared with the NAIC or a third-party consultant pursuant to this article, including procedures and protocols for sharing by the NAIC with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the ORSA-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality.
Specify that ownership of information shared with the NAIC or a third-party consultant pursuant to this article remains with the commissioner and that the NAIC’s or a third-party consultant’s use of the information is subject to the direction of the commissioner.
Prohibit the NAIC or third-party consultant from storing the information shared pursuant to this article in a permanent database after the underlying analysis is completed.
Require prompt notice to be given to an insurer whose confidential information in the possession of the NAIC or a third-party consultant pursuant to this article when that information is subject to a request or subpoena to the NAIC or a third-party consultant for disclosure or production.
Require the NAIC or a third-party consultant to consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this article.
In the case of an agreement involving a third-party consultant, provide for the insurer’s written consent.
The sharing of information and documents by the commissioner pursuant to this article shall not constitute a delegation of regulatory authority or rulemaking, and the commissioner is solely responsible for the administration, execution, and enforcement of the provisions of this article.
A waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade secret materials, or other ORSA-related information shall not occur as a result of disclosure of the ORSA-related information or documents to the commissioner under this section or as a result of sharing as authorized in this article.
Documents, materials, or other information in the possession or control of the NAIC or a third-party consultant pursuant to this article shall be confidential by law and privileged, shall not be subject to disclosure pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), and shall not be subject to subpoena or discovery, or admissible in evidence, in any private civil action.
Any insurer failing, without just cause, to timely file the ORSA Summary Report as required in this article shall be subject to the late filing fees set forth in Section 924. The commissioner may reduce the penalty if the insurer demonstrates to the commissioner that the imposition of the penalty would constitute a financial hardship to the insurer.
If any provision of this article, or the application thereof to any person or circumstance, is held invalid, that determination shall not affect the provisions or applications of this article that can be given effect without the invalid provision or application, and to that end the provisions of this article are severable.
This article shall become operative on January 1, 2015.
ARTICLE 10.8. Corporate Governance Disclosure Act [936.1. - 936.9.]
The purpose of this article is to provide the Insurance Commissioner a summary of an insurer or insurance group’s corporate governance structure, policies, and practices to permit the commissioner to gain and maintain an understanding of the insurer’s corporate governance framework and outline the requirements for completing a corporate governance annual disclosure with the Insurance Commissioner. The requirements of this article shall apply to all insurers domiciled in this state.
The Legislature finds and declares that the Corporate Governance Annual Disclosure and related information will contain confidential and sensitive information related to an insurer or insurance group’s internal operations and proprietary and trade secret information that, if made public, could potentially cause the insurer or insurance group competitive harm or disadvantage.
This article shall not be construed to prescribe or impose corporate governance standards and internal procedures beyond that which is required under applicable state corporate law. Notwithstanding the foregoing, this article shall not be construed to limit the commissioner’s authority or the rights or obligations of third parties, under Article 4 (commencing with Section 729) relating to the examination of insurers.
For the purposes of this article, the following definitions apply:
“Corporate Governance Annual Disclosure (CGAD)” means a confidential report filed by the insurer or insurance group made in accordance with the requirements of this article.
“Insurance group” means those insurers and affiliates included within an insurance holding company system as defined in subdivision (e) of Section 1215 (Insurance Holding Company System Regulatory Act).
“Insurer” has the same meaning as set forth in subdivision (f) of Section 1215, except that it shall not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.
An “ORSA Summary Report” means the report filed in accordance with subdivision (e) of Section 935.2.
“Corporate Governance Annual Disclosure Model Regulation” means the current version of the Corporate Governance Annual Disclosure Model Regulation developed and adopted by the National Association of Insurance Commissioners (NAIC) and as amended from time to time. A change in the Corporate Governance Annual Disclosure Model Regulations shall be effective on the January 1 following the calendar year in which the changes have been adopted by the NAIC.
An insurer, or the insurance group of which the insurer is a member, shall, no later than June 1 of each calendar year, submit to the commissioner a CGAD that contains the information described in subdivision (b) of Section 936.5. Notwithstanding any request from the commissioner made pursuant to subdivision (c), if the insurer is a member of an insurance group, the insurer shall submit the report required by this section to the commissioner of the lead state for the insurance group, in accordance with the laws of the lead state, as determined by the procedures outlined in the most recent Financial Analysis Handbook adopted by the NAIC.
The CGAD shall include a signature of the insurer or insurance group’s chief executive officer or corporate secretary attesting to the best of that individual’s belief and knowledge that the insurer has implemented the corporate governance practices therein and that a copy of the disclosure has been provided to the insurer’s board of directors or the appropriate committee thereof.
An insurer not required to submit a CGAD under this section shall submit a CGAD upon the commissioner’s request.
For purposes of completing the CGAD, the insurer or insurance group may provide information regarding corporate governance at one or all of the following: the ultimate controlling parent level, an intermediate holding company level, or the individual legal entity level, depending upon how the insurer or insurance group has structured its system of corporate governance.
The insurer or insurance group is encouraged to make the CGAD disclosures at one of the following levels:
At the level at which the insurer’s or insurance group’s risk appetite is determined.
At the level at which the earnings, capital, liquidity, operations, and reputation of the insurer are overseen collectively and at which the supervision of those factors are coordinated and exercised.
At the level at which legal liability for failure of general corporate governance duties would be placed.
If the insurer or insurance group determines the level of reporting based on the criteria listed in paragraph (2), it shall indicate which of the three criteria was used to determine the level of reporting and explain any subsequent changes in the level of reporting.
The review of the CGAD and any additional requests for information shall be made through the lead state as determined by the procedures within the most recent Financial Analysis Handbook referenced in subdivision (a).
Insurers providing information substantially similar to the information required by this article in other documents provided to the commissioner, including proxy statements filed in conjunction with Form B requirements, or other state or federal filings provided to the department, shall not be required to duplicate that information in the CGAD but shall only be required to cross reference the document in which the information is included.
The commissioner may, upon notice and opportunity for all interested parties to be heard, issue those rules, regulations, and orders as may be necessary to carry out the provisions of this article. Those rules and regulations shall be adopted, amended, or repealed in accordance with Administrative Procedure Act Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
The insurer or insurance group shall have discretion over the responses to the CGAD inquiries, provided the CGAD contains the material information necessary to permit the commissioner to gain an understanding of the insurer's or group's corporate governance structure, policies, and practices. The commissioner may request additional information that he or she deems material and necessary to provide him or her with a clear understanding of the corporate governance policies, the reporting or information system, or controls implementing those policies.
Notwithstanding subdivision (a), the insurer or insurer group shall prepare the CGAD consistent with the NAIC Corporate Governance Annual Disclosure Model Regulation, subject to the requirements of this article. Documentation and supporting information shall be maintained and made available upon examination or upon request of the commissioner.
Documents, materials, or other information, including the CGAD, in the possession or control of the department that are obtained by, created by, or disclosed to, the commissioner or any other person under this article are recognized by this state as being proprietary and to contain trade secrets. All those documents, materials, or other information shall be confidential by law and privileged, shall not be subject to disclosure by the commissioner pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), shall not be subject to subpoena, and shall not be subject to discovery from the commissioner or admissible in evidence in any private civil action if obtained from the commissioner in any manner.
However, the commissioner is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner’s official duties. The commissioner shall not otherwise disclose or make public the documents, materials, or other information without the prior written consent of the insurer.
This section shall not be construed to require written consent of the insurer before the commissioner may share or receive confidential documents, materials, or other CGAD-related information pursuant to subdivision (c) to assist in the performance of the commissioner’s regulatory duties.
Neither the commissioner nor any person who received documents, materials, or other CGAD-related information, through examination or otherwise, while acting under the authority of the commissioner, or with whom those documents, materials, or other information are shared pursuant to this article shall be permitted or required to testify in any private civil action concerning any confidential documents, materials, or information described in subdivision (a).
In order to assist in the performance of the commissioner’s regulatory duties, the commissioner may do both of the following:
Upon request, share documents, materials, or other CGAD-related information, including the confidential and privileged documents, materials, or information described in subdivision (a), including proprietary and trade secret documents and materials with other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in Section 1215.7 (Insurance Holding Company System Regulatory Act), with the NAIC, and with third-party consultants pursuant to Section 936.7, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality.
Receive documents, materials, or other CGAD-related information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade-secret information or documents, from regulatory officials of other state, federal, and international financial regulatory agencies, including members of any supervisory college as defined in Section 1215.7 (Insurance Holding Company System Regulatory Act), and from the NAIC, and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the documents, materials, or information.
The sharing of information and documents by the commissioner pursuant to this article shall not constitute a delegation of regulatory authority or rulemaking, and the commissioner is solely responsible for the administration, execution, and enforcement of this article.
No waiver of any applicable privilege or claim of confidentiality in the documents, proprietary and trade-secret materials, or other CGAD-related information shall occur as a result of disclosure of that CGAD-related information or those documents to the commissioner under this section or as a result of sharing as authorized in this article.
The commissioner may retain, at the insurer's expense, third-party consultants, including attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner’s staff as may be reasonably necessary to assist the commissioner in reviewing the CGAD and related information or the insurer's compliance with this article.
Any person retained under subdivision (a) shall be under the direction and control of the commissioner and shall act in a purely advisory capacity.
The NAIC and third-party consultants shall be subject to the same confidentiality standards and requirements as the commissioner.
As part of the retention process, a third-party consultant shall verify to the commissioner in writing, with notice to the insurer, that it is free of a conflict of interest, and that it has internal procedures in place to monitor compliance with a conflict and to comply with the confidentiality standards and requirements of this article.
A written agreement with the NAIC, a third-party consultant, or both, governing sharing and use of information provided pursuant to this article shall contain all of the following provisions and expressly require the written consent of the insurer prior to making public information provided under this article:
Specific procedures and protocols for maintaining the confidentiality and security of CGAD-related information shared with the NAIC or a third-party consultant pursuant to this article.
Procedures and protocols for sharing by the NAIC only with other state regulators from states in which the insurance group has domiciled insurers. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the CGAD-related documents, materials, or other information and has verified in writing the legal authority to maintain confidentiality.
A provision specifying that ownership of the CGAD-related information shared with the NAIC or a third-party consultant remains with the department, and the NAIC’s or third-party consultant’s use of the information is subject to the direction of the commissioner.
A provision that prohibits the NAIC or a third-party consultant from storing the information shared pursuant to this act in a permanent database after the underlying analysis is completed.
A provision requiring the NAIC or third-party consultant to provide prompt notice to the commissioner and to the insurer or insurance group regarding any subpoena, request for disclosure, or request for production of the insurer’s CGAD-related information.
A requirement that the NAIC or a third-party consultant consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant pursuant to this article.
Any insurer or insurer group failing, without just cause, to timely file the CGAD as required in this article shall be subject to the late filing fees set forth in Section 924. The commissioner may reduce the penalty if the insurer or insurer group demonstrates to the commissioner that the imposition of the penalty would constitute a financial hardship to the insurer or insurer group.
The provisions of this article, other than Section 936.6, are severable. If any provision of this article, other than Section 936.6, or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
ARTICLE 10.85. Insurance and Climate Risk Market Intelligence Act [937. - 937.5.]
The Legislature finds and declares all of the following:
Since 2006, the state of California has funded and undertaken four comprehensive climate change assessments designed to assess the impacts and risks from climate change. The most recent, California’s Fourth Climate Change Assessment, identified that if greenhouse gas emissions continue to increase, the frequency of extreme wildfires will increase.
The Department of Insurance’s review of the multistate Climate Risk Disclosure Survey in 2023 showed that insurance companies commonly identified that the purchase of reinsurance is a primary strategy for addressing increased risks from catastrophic events such as wildfires and the use of catastrophe modeling is a prominent risk assessment tool.
It is in the state’s interest to expand insurance options for consumers in wildfire-distressed areas of California.
It is in the state’s interest to understand the trends in the insurance markets and the reinsurance strategies and models used by insurance companies, not only to expand the writing of insurance policies, but to understand the systemic risk to the solvency of insurance companies that write policies in wildfire-distressed areas.
Regularly updated information will support the ability of the department to further understand the California residential and commercial property insurance market by providing point-in-time information so the department can evaluate reinsurance trends across the market.
The regularly updated information may include, but shall not be limited to, all of the following:
The overview of a reinsurance program.
The catastrophe program in place.
The type of risk covered.
The California-specific information.
Year-over-year changes.
Regularly updated data will allow the department to better analyze market trends and scenarios, which in turn will result in better, more informed communication to California consumers.
On or before March 1, 2026, and on or before March 1 of every year thereafter, an admitted insurer in a group with written premiums in the prior year from fire, allied lines, private flood, homeowners, farmowners, and commercial nonliability lines totaling fifty million dollars ($50,000,000) or more shall submit a report to the commissioner that shall only include data and information necessary to understand its reinsurance program placement data and use of probabilistic catastrophic models for the previous year for policies.
Reports filed on or before March 1, 2026, shall include data from the latest available reinsurance treaty year. Subsequent reports shall likewise include data from the latest reinsurance treaty year available when the report is due.
The commissioner may specify the manner of submission, format, and content of the report required pursuant to paragraph (1).
An insurance holding company system, as defined in subdivision (h) of Section 1215, may submit a consolidated report of the information required by this section for all insurers comprising the holding company system.
Upon submission of a report pursuant to this section, the insurer shall promptly respond to inquiries from the commissioner or their representative regarding the information submitted in the report.
Notwithstanding Section 937.3, information submitted to the commissioner under this article shall be confidential pursuant to Section 7929.000 of the Government Code and exempt from the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Additionally, that information shall not be subject to subpoena or subpoena duces tecum. Testimony by the commissioner, the commissioner’s staff, an employee of the department, or a person to whom the report required by Section 937.1 was disclosed, regarding the contents of a report submitted pursuant to Section 937.1, shall be inadmissible as evidence in a civil proceeding.
The commissioner shall post to the department’s internet website an aggregated report based on the data collected under Section 937.1.
The report shall include only data and indices aggregated sufficiently to avoid identification of individual company reinsurance practices.
The aggregated report shall not identify an individual respondent or insurer and may be updated every year to reflect new data submitted by admitted insurers under Section 937.1.
Failure to submit a report under Section 937.1 shall subject an admitted insurer to a civil penalty to be fixed by the commissioner, not to exceed five thousand dollars ($5,000) for each 30-day period that the insurer is not in compliance, unless the failure to comply is willful, in which case the civil penalty shall be in an amount not to exceed ten thousand dollars ($10,000) for each 30-day period that the insurer is not in compliance, but not to exceed an aggregate amount of one hundred thousand dollars ($100,000). The commissioner shall collect the amount payable and may bring an action in the name of the people of the State of California to enforce collection. These penalties shall be in addition to other penalties provided by law.
An insurer may request, and the commissioner may grant, a 30-day extension to submit a report pursuant to Section 937.1 if needed due to unintended or unforeseen delays. If the insurer fails to submit a report pursuant to Section 937.1 after the granted 30-day extension has passed, the commissioner may find that the failure to submit the report was willful and increase the civil penalty to an amount not to exceed ten thousand dollars ($10,000) for each 30-day period that the insurer is not in compliance, but not to exceed an aggregate amount of one hundred thousand dollars ($100,000).
The penalty imposed by this section may be appealed by means of a remedy provided by Section 12940, or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
The commissioner may consider an insurer’s violation of this section or article as the basis for other enforcement action against an insurer, as authorized by law.
The commissioner may promulgate regulations that further the purposes of this article.
ARTICLE 10.9. Zero-Emission Heavy-Duty Truck Data Reporting [938. - 938.1.]
The Department of Insurance shall implement specific data collections on the availability and affordability of insurance for heavy-duty trucks and truck fleets that utilize advanced fuels and related technologies to better understand emerging markets important to the State of California’s climate change goals, expand insurance options by establishing more robust data for consumers and insurers, and identify potential barriers to zero-emission technologies in the transportation sector. The focus of the data collections shall be zero-emission technologies that reduce greenhouse gas emissions and improve air quality when compared with conventional or fully commercialized alternatives, including those defined by the State Air Resources Board.
The department shall issue a bulletin on or before February 1, 2024, to initiate the first data collection. Admitted insurers shall respond on or before May 1, 2024. Data collections shall include surveys and data calls from insurance companies licensed to write insurance through the admitted market. The surveys and data calls shall include, but are not limited to, all of the following information:
Whether an insurance company offers insurance for zero-emission truck options.
Loss experience information per claim over a specified time period, such as annually, including, but not limited to, all of the following:
Type of loss, which may include both liability and physical damage type losses.
Type of medium- and heavy-duty truck.
Date of loss.
Amount of losses incurred and paid in United States dollars.
The number of vehicles covered under insurance policies,
Policy level experience, including, but not limited to, premium per type of medium- and heavy-duty truck insured, the time the truck is insured from effective start date to end date of coverage, and type of coverage, which may include both liability and physical damage type coverage.
Minimum, maximum, and average overall coverage limit of the policy, and per type of medium- and heavy-duty truck within a truck fleet.
The information required by this section shall be submitted to the commissioner. The commissioner may specify, by bulletin, the manner of submission and format of the reporting required pursuant to subdivision (a).
Notwithstanding subdivision (e), the commissioner shall publish information compiled from the data submitted pursuant to this section in the aggregate and shall not identify an individual respondent or insurer, except to support consumer understanding of insurance options as specified in subdivision (a) of Section 938.1. The commissioner shall establish and maintain a link on the department’s internet website that provides public access to the aggregate information required to be disclosed pursuant to this subdivision.
Information submitted to the commissioner, as required by this section, shall be confidential pursuant to Section 7929.000 of the Government Code and exempt from the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Additionally, that information shall not be subject to subpoena or subpoena duces tecum. Testimony by the commissioner, the commissioner’s staff, an employee of the department, or a person to whom the reporting required by this section was disclosed, regarding the contents of any report submitted pursuant to this section, shall be inadmissible as evidence in a civil proceeding.
The Department of Insurance, in consultation with the State Air Resources Board, shall create a consumer-focused online insurance information resource tool, based on data collected pursuant to Section 938, for the public to use to readily find information and insurance options for battery-powered, hydrogen-powered, or other zero-emission advanced truck technology, including which insurance companies offer insurance for trucks or fleets using different zero-emission technologies and any relevant coverage limits or fleet size specifications, to provide a “one-stop” for the public.
The Department of Insurance, in consultation with the State Air Resources Board, shall provide an assessment of all of the following:
The availability and affordability of insurance for existing and emerging advanced fleet technologies being deployed for heavy-duty vehicles.
The role of insurance markets in meeting the goals of Chapter 4.1 (commencing with Section 39710) of Part 2 of Division 26 of the Health and Safety Code and the greenhouse gas reduction and short-lived climate pollutant emissions reduction goals of the state.
On or before January 1, 2025, the Department of Insurance, in consultation with the State Air Resources Board, shall create a strategy to address current and future insurance gaps for new heavy-duty truck technologies, including consideration for establishing a risk pool and other tools to offer insurance to truck fleet businesses and individual truck owners who are unable to find insurance in the private insurance markets. This strategy shall include an evaluation of all of the following:
Availability of actuarial loss data for electric and hydrogen trucks, or fleets of those trucks.
Coverage limits most appropriate for zero-emission truck fleets, based on the common size and characteristics of zero-emission trucking fleets.
Additional insurance related information, including information collected pursuant to Section 938.
Important timelines and specific checkpoints for monitoring insurance accessibility in advance of major regulatory deadlines for transitioning medium- and heavy-duty fleets to zero-emission technologies, and state goals for increasing the percentage of zero-emission trucks and buses in the state.
The State Air Resources Board shall provide information necessary to support the Department of Insurance in the development of the evaluation described in subdivision (c), including, but not limited to, the information required by paragraphs (2) and (6) of subdivision (c).
ARTICLE 11. Deposit of Securities [939. - 956.]
Except as otherwise expressly provided, all deposits of securities with the commissioner shall be subject to the provisions of this article.
The commissioner shall accept and hold securities in trust for the policyholders or policyholders and creditors of an insurer and for their benefit, whenever (a) the law of another state or of a foreign country requires such a deposit with an officer of this state as a prerequisite to transacting insurance business in that state or country, or (b) the law of this state requires such a deposit with an officer of this state.
The commissioner shall require the payment of fifty-eight dollars ($58) in lawful money of the United States in advance for receiving and processing securities or deposit schedules for securities deposited pursuant to this article. An additional fee of twenty-nine dollars ($29) shall be payable for each withdrawal, substitution, or any other change in the securities comprising such deposit. There shall be no other or additional fee for attaching the commissioner’s seal to a securities deposit schedule for a deposit under this article.
Such deposited securities shall not be estimated above their par value nor above their market value, except that preferred stock shall be estimated only at its market value.
The commissioner shall permit a deposit of those securities in the State Treasury, subject to the provisions of Section 11691, if applicable. The securities deposited with the Treasurer shall be maintained in electronic book entry or certificate form as security for policyholders or policyholders and creditors of the insurer to whom they respectively belong. The state is responsible for the custody and safe return of any money or securities so deposited. The Treasurer shall deposit these moneys under the provisions of Sections 16370 and 16375 of the Government Code.
So long as the insurer continues solvent the commissioner shall permit it to collect the interest or dividends on the securities so deposited, and from time to time to withdraw any such securities on depositing other securities in the stead of those to be withdrawn. Such new securities shall be of the same value as those withdrawn and of the character mentioned in this article.
Securities deposited under the provisions of this article shall not be withdrawn from the State treasury except upon the written order of the insurer making the deposits, with the endorsement of the commissioner thereon, or upon the order of some court of competent jurisdiction.
If the deposit is of mortgages, it shall be accompanied either by full abstracts of title with the fees for examination of title, or by policies of title insurance or certificates of title issued by an admitted title insurer. The fees for appraisal of the property shall be paid by the insurer making the deposit. In any case where he ascertains that the expense thereof would not be unreasonable or such as to make the deposit impracticable, the commissioner may require a policy of title insurance or a guaranty that the abstract is correct and that it shows title to be in the proper parties, issued by a corporation authorized to issue such policies or guaranties in the State in which the security or some part thereof is located.
If the deposit is of stocks or bonds, it shall be accompanied by the fees necessary for the appraisal thereof, except as otherwise provided by Article 3, Chapter 1, Part 2, Division 1, of this code.
Whenever an insurer has deposited with the commissioner the requisite security, in conformity with the requirements of this article, the commissioner shall issue to such insurer, under his official seal, a certificate of such deposit for each State or country requiring such certificate. Such certificate shall state the items and amount of securities so deposited, and their value.
The commissioner shall require the payment of seventy-two dollars ($72), in advance, as a fee for each certificate issued pursuant to this article.
Whenever such a depositing insurer has paid, canceled, or reinsured all its unexpired policies outstanding in this State, and all its liabilities under such policies are extinguished, or assumed by other responsible insurers, it may apply to the commissioner for return of its deposit. Such application shall be in writing and verified. If on such application, and from an examination of the books of the insurer and of its officers under oath, the commissioner is satisfied that all of its policies are so paid, canceled, extinguished, or reinsured, he shall deliver up to the insurer the securities deposited.
Pending such examination the securities requested to be withdrawn may continue subject to withdrawal and substitution as provided by section 943.
Whenever the laws of any other state or country, by reason of which Section 940 is brought into force, are repealed and abrogated, then any deposit with the commissioner under and by reason of that section shall be delivered up to the depositing insurer.
Whenever a domestic insurer deposits securities with an officer of this State, in order to enable it to do business in another State pursuant to the laws of such other State, if such insurer thereafter ceases to do business in such other State and files conclusive evidence that all policies written in such other State have expired or been paid, canceled or reinsured, the securities shall on demand be returned to the depositing insurer.
The commissioner shall make an annual examination of the securities received by him from each insurer. If it appears at any time that the securities deposited by any such insurer amount to less than the sum required for the purposes for which the deposit was made, he shall notify the insurer thereof. Unless the deficiency is made up within thirty days after the notice, the commissioner shall revoke the insurer’s certificate of authority, countermand all the certificates issued to the insurer under this article, and give notice thereof to the officers of the several States to whom the certificate has been transmitted.
All appraisal fees collected by the commissioner under the provisions of this article shall be paid into the State treasury in trust and withdrawn as provided by law for withdrawal of trust funds from the State treasury.
An account or accounts in one or more banks or savings and loan associations the accounts of which are insured by an agency or instrumentality of the federal government shall be accepted as securities comprising any part of any deposit made with the commissioner.
ARTICLE 12. Wildfire Safety and Risk Mitigation Program [970. - 978.]
The Wildfire Safety and Risk Mitigation Program is hereby established.
The purpose of the program is to provide funding to one or more universities for the purpose of creating a research and educational center responsible for developing, demonstrating, and deploying a public wildfire catastrophe model that provides significant wildfire safety benefits to California communities and assists alignment of federal, state, and local wildfire risk reduction efforts.
Projects eligible for a grant under this article include either of the following:
The development of a public wildfire catastrophe model that can provide insight for state and local emergency planners, aid wildfire safety efforts that protect lives and property, increase research and development on wildfire risk mitigation strategies, inform actuarial analyses, create training opportunities for students and professionals, and support effective insurance regulation and financial oversight of insurance, risk assessments, and insurance company solvency risks and risk management.
The development of outreach initiatives to identify and educate potential users of a public wildfire catastrophe model, including, but not limited to, state and local emergency planners, wildfire safety groups, agricultural and business groups, research organizations, and educators.
For the purposes of this article, a “public wildfire catastrophe model” means a computerized process that uses the best available science to simulate potential property damage caused by major wildfires and has readily accessible documentation and programs, including, but not limited to, underlying data and algorithms, for use by public agencies, organizations, and individuals.
The Wildfire Safety and Risk Mitigation Program shall be administered by the department.
The department shall award grants on a competitive basis. The department shall establish minimum standards, funding schedules, and procedures for awarding grants. In determining these standards, the department shall do all of the following:
Outline performance criteria and metrics.
Ensure that the program is administered in furtherance of applicable insurance laws and regulations, including, but not limited to, Sections 2642.7, 2644.16, 2644.25, 2644.4.5, and 2644.9 of Title 10 of the California Code of Regulations.
Consider research and development of modeling techniques and actuarial analyses specific to the effectiveness of actions to mitigate and prevent the risk of loss due to wildfires, including those actions at the property, community, and regional scale by utilities and local, state, and federal governments.
Promote publicly accessible information to inform individual property and community-scale mitigation planning, focusing on reducing the primary risk factors for wildfire catastrophes through providing regional and property-level risk assessments.
Leverage, to the maximum extent feasible, federal or private funding.
Ensure activities undertaken pursuant to this article complement efforts by the federal government and private industries, including insurance, to achieve wildfire safety at the community scale.
Ensure activities undertaken pursuant to this article complement wildfire mitigation priorities identified in local and state hazard mitigation plans and in after-action reports following federal major disaster declarations related to wildfires.
Consider recommendations to the commissioner by the Public Wildfire Catastrophe Model Strategy Group.
In evaluating grant proposals pursuant to this article, the department shall give priority to projects that demonstrate one or more of the following:
A benefit to disadvantaged communities determined under Sections 39711 and 39713 of the Health and Safety Code, vulnerable communities as defined in subdivision (d) of Section 71340 of the Public Resources Code, and where insurance access has become a major challenge for the public due to wildfire risk.
Assistance to state and local governments in protecting communities from devastating wildfire disasters and promoting equitable recovery.
An educational benefit for California students to train a future workforce in the effective use of available data and modeling tools for planning, risk analysis and reduction, and actuarial approaches, with a focus on collaboration between multiple universities and public higher education institutions.
The availability for use by governments and others in running scenarios to help reduce the risks of loss of life and property.
The availability of publicly accessible information useful for property-level risk assessments with sufficient detail to be useful for community and property mitigation planning, focusing on reducing the primary risk factors for wildfire catastrophes, including property- and community-level actions.
The understanding of environmental factors that affect the risk of loss, including extreme temperatures, drought, and other conditions.
The ability to improve consumer information, relief, transparency, and understanding about catastrophe modeling.
The department shall create a framework and multiyear plan with available data for the development, demonstration, and deployment of a public wildfire catastrophe model created pursuant to a grant provided by this article.
The framework and plan shall be published on the department’s internet website upon completion.
The Wildfire Safety and Risk Mitigation Account is hereby created within the Insurance Fund. Funds in the account shall fund the development, demonstration, and deployment of public wildfire catastrophe modeling.
Upon implementation of the first round of grants issued pursuant to this article, the department shall identify, publish, and make available on its internet website key milestones for the completion of a public wildfire catastrophe model, including additional research, outreach, and operational steps needed to fully establish the model.
The department shall provide recommendations to the Senate Committee on Insurance, Assembly Committee on Insurance, Assembly Committee on Emergency Management, Budget Committees, and the Governor for future budget allocations related to this article before September 1, 2026.
This article shall not be construed to limit or conflict with the commissioner’s authority regarding rate regulation, or any other provisions of this code.
This article shall be operative upon appropriation by the Legislature for these purposes.
ARTICLE 13. Insolvency [980. - 989.]
As used in this article, “liability” includes liability for losses reported, expenses, taxes, and all other indebtedness not included in those categories.
Any mortgage insurer or any mortgage guaranty insurer is insolvent whenever provision for its liabilities and for unearned income would, after exhausting its required insurance surplus, impair its capital paid in so as to reduce it below two hundred fifty thousand dollars ($250,000) or below 75 percent of the aggregate par value of its issued capital stock.
On or after January 1, 1970, as used in this article and in subdivision (i) of Section 1011, “insolvency” means either of the following:
Any impairment of minimum “paid-in capital” or “capital paid in,” as defined in Section 36, required in the aggregate of an insurer by the provisions of this code for the class, or classes, of insurance that it transacts anywhere.
An inability of the insurer to meet its financial obligations when they are due.
On or after January 1, 1970, an insurer cannot escape the condition of insolvency by being able to provide for all its liabilities and for reinsurance of all outstanding risks. An insurer must also be possessed of additional assets equivalent to the aggregate “paid-in capital” or “capital paid in” required by this code after making provision for all those liabilities and for that reinsurance.
On or after October 1, 1967, as used in this code provision for reinsurance of all outstanding risks and “gross premiums without any deduction, received and receivable upon all unexpired risks” means the greater of: (1) the aggregate amount of actual unearned premiums, or (2) the amount reasonably estimated as being required to reinsure in a solvent admitted insurer the unexpired terms of the risks represented by all outstanding policies.
On or after October 1, 1967, an insurer shall make provision for reinsurance of the outstanding risk on policies that provide premiums that are fully earned at inception and on policies that for any other reason do not provide for a return premium to the insured on cancellation prior to expiration.
On or after October 1, 1967, the commissioner shall prescribe standards for reasonably estimating the amount required to reinsure that will provide adequate safeguards for the policyholders, creditors, and the public.
On or after October 1, 1967, this section shall not be applicable to life, title, mortgage, or mortgage guaranty insurers.
In the case of the insolvency of an admitted insurer, the commissioner shall prepare a report, which shall be a public record, with respect to the causes and factors which contributed to that insolvency. The report shall be submitted to the Governor and to the Legislature no later than one year from the date of the insolvency.
A life insurer issuing policies on a reserve basis is insolvent whenever its assets are exceeded by the total of the following: (1) the amount necessary to provide for its liabilities; (2) the amount of paid-in capital, as defined in Section 36, required by the provisions of Sections 10510, 10511, and 10512; (3) the amount necessary to provide for reinsurance of all its outstanding risks at the following rates:
In the case of contracts issued in a foreign country, upon the lives of residents thereof, by a domestic insurer authorized to and doing business in that foreign country, the rates shall be in accordance with the standard of mortality approved by the commissioner, as provided by law.
In the case of group insurance, at the rates required by law for valuation thereof.
In the case of all other outstanding risks written prior to January 1, 1892, at the rates based upon the American Experience Table of Mortality with interest at the rate of 412 percent per annum.
In the case of all its other outstanding risks written from and after December 31, 1891, up to and including December 31, 1907, at rates based upon the Combined Experience or Actuaries’ Table of Mortality with interest at the rate of 4 percent per annum.
In the case of all its other outstanding risks written from and after December 31, 1907, and prior to the operative date as to such risks of Article 3a (commencing with Section 10159.1), Chapter 1, Part 2, Division 2, at rates based upon the American Experience Table of Mortality with interest at the rate of 312 percent per annum, and, where applicable, in accordance with Section 10486.9.
In the case of all other risks, according to the standards provided in Article 3a (commencing with Section 10489.1), Chapter 5, Part 2, Division 2.
A title insurer is insolvent whenever provision for its liabilities would, after exhausting its required surplus, so far impair its capital paid in as to reduce it below two hundred fifty thousand dollars ($250,000), or below 75 percent of the aggregate par value of its issued capital stock.
As used in this section:
“Impaired” means a financial situation in which the assets of an insurer are less than the sum of the insurer’s minimum required capital, minimum required surplus and all liabilities as determined in accordance with the requirements for the preparation and filing of the annual statement of an insurer.
“Chief executive officer” means the person, irrespective of title, designated by the board of directors or trustees of an insurer as the person charged with the responsibility of administering and implementing the insurer’s policies and procedures.
Whenever an insurer is impaired, its chief executive officer shall immediately notify the commissioner, in writing of that impairment and shall also immediately notify in writing all of the board of directors or trustees of the insurer. Any officer, director, or trustee of an insurer shall notify the person serving as chief executive officer of the impairment of the insurer in the event the officer, director, or trustee knows or has reason to know that the insurer is impaired.
Any person who violates this section shall, upon conviction thereof, be fined not more than fifty thousand dollars ($50,000) or be imprisoned in the county jail for not more than one year, or both.
Any person who does any of the following is guilty of a misdemeanor punishable by not more than one year in county jail:
Conceals any property belonging to an insurer.
Transfers or conceals in contemplation of a state insolvency proceeding his or her own property or property belonging to an insurer.
Conceals, destroys, mutilates, alters or makes a false entry in any document which affects or relates to the property of an insurer or withholds any such document from a receiver, trustee or other officer of a court entitled to its possession.
ARTICLE 13.3. Obligations of Automobile Insurers and Their Agents Under Contingent and Retrospective Compensation Arrangements [995. - 995.7.]
As used in this article, “contingent compensation arrangement” means an arrangement having as its purpose the payment of a variable commission by the insurer, depending on the overall operating profit on the insurance business produced and handled by the payee, with other provisions of the arrangement auxiliary or incidental to such purpose.
As used in this article, “retrospective commission arrangement” means an arrangement having as its purpose the retention by the insurer of a fixed proportion of the gross premiums, or gross premiums plus policy fees with the balance of the premiums, or premiums plus policy fees, retained by the producer of the business, who assumes to pay therefrom all losses, all subordinate commissions, loss adjustment expenses and his profit, if any, with other provisions of the arrangement auxiliary or incidental to such purpose.
The phrases defined in subdivisions (a) and (b) of this section shall not be deemed to include a contingent commission arrangement of a producer, managing general agent, surplus line broker, or general agent based wholly or partly on underwriting results, unless the arrangement guarantees an agreed return to the insurer which may exceed the underwriting profit actually earned by the insurer on business written through the producer, managing general agent, surplus line broker, or general agent.
As used in this article, “policy fee” means any sum specified in the policy as paid, or payable, in addition to the specified premium, as a consideration for the policy; and does not include expenses customarily charged to the insured which are not recited in the policy.
This article shall apply only to automobile and automobile liability insurance.
An agent, broker, surplus line broker, general agent or other person operating under a contingent or retrospective compensation arrangement with any insurer shall promptly notify the insurer of every policy claim against the insurer of which he has knowledge with sufficient particulars to enable the insurer to establish an adequate claim reserve. Every insurer so notified of a policy claim or receiving independent knowledge of any policy claim shall promptly make a record thereof and establish a claim reserve for the same.
If the commissioner has reason to believe such agent, broker, general agent or other person is not so notifying the insurer, he shall give the insurer seven days written notice of such belief and if the insurer does not correct the situation within seven days thereafter he may examine such agent, broker, general agent or other person at the expense of the insurer.
In the case of any arrangement whereby the producer receives from the insurer an initial percentage commission to be augmented if loss ratios or profits are more favorable than a stated standard, the insurer shall establish a contingent commission reserve for the amount, if any, which will become due to the producer because of such favorable loss ratios or profits.
Notwithstanding any provision of the contingent or retrospective arrangement, such claims and contingent commission reserves shall be a liability of the insurer.
Nothing contained in this section is intended to prohibit reasonable arrangements between a managing general agent, surplus line broker or general agent and an insurer which provide (a) for the amount of claim reserve to be recommended by the managing general agent, surplus line broker or general agent to the insurer, without particulars other than those needed by the insurer to establish the claim reserve on its books, or (b) for the handling of claim reserves on smaller claims of not more than two thousand dollars ($2,000) each on a bulk or group basis, upon recommendation of the amount by the managing general agent, surplus line broker or general agent, or (c) for the handling of losses not exceeding five hundred dollars ($500) each by the managing general agent, surplus line broker or general agent without establishment of claim reserves, or (d) for the reporting of losses and recommended reserves by the managing general agent, surplus line broker, or general agent on a monthly basis.
An insurer shall not claim as an asset by reason of any provision of a contingent or retrospective compensation arrangement, any account due from the other party pursuant to such an arrangement in an amount in excess of the money actually held by such party in a trusteed bank account for such insurer, unless such party is solvent without giving effect to any contingent or retrospective compensation not specifically acknowledged in writing by the insurer as settled in amount and payable in cash, or usable as an absolute offset against the insurer, within 90 days.
If the commissioner has reason to doubt the solvency of any person dealing with an insurer under a contingent or retrospective commission arrangement, he may examine him at the expense of the insurer.
Nothing contained in this section is intended to modify any provision contained in Section 1735 of this code.
Every person operating under a retrospective or contingent compensation arrangement with any insurer shall report to the insurer within a reasonable time, and policy by policy, the full premium charge including any policy fee made to the insured and the amount of premium and policy fee, if any, collected from the insured in respect to each such policy. Such reporting need not be policy by policy in a case where such arrangement covers only policies which are all uniform in coverage, uniform as to premium and such premium is not over ten dollars ($10) annually.
If the commissioner has reason to believe any such person is not complying with this section, he shall give the insurer seven days written notice of such belief and if the insurer does not correct the situation within seven days thereafter, he may examine such person at the expense of the insurer.
Nothing contained in this section is intended to prohibit or invalidate use of the bordereau method of accounting or accounting by transmission of computer data by a managing general agent, surplus line broker, or general agent, nor to require him to report premium collections to an insurer where the managing general agent, surplus line broker, or general agent is liable to pay the insurer bordereau or accounting balances in full whether collected or not.
An insurer, notwithstanding the provisions of any contingent or retrospective compensation arrangement with any person, shall maintain as a liability, as part of its unearned premium reserve the unearned portion of all premium charges made to insureds without deduction for uncollected charges.
An insurer, notwithstanding the provisions of any contingent or retrospective compensation arrangement with any person, shall report and pay the premium tax liability set forth in the Revenue and Taxation Code on the basis that it has received the full premium charge including policy fees made to the insureds under policies less return premiums as permitted by law.
The provisions of Sections 995.1, 995.2, and 995.3 permitting the commissioner, in certain situations, to examine a person operating under a contingent or retrospective commission arrangement with an insurer at the expense of the insurer, and the other provisions of this article, shall not prevent the insurer from making a contract in advance with such person that in such event the person will reimburse the insurer for such expense. If in the course of examining such person the commissioner finds such person also operates under such contingent or retrospective commission arrangements with other insurers, he may prorate the expense of examination on an equitable basis among all the insurers so dealing with the person.
The purposes of Section 816 and the provisions of this article are to promote the solvency of insurers and the producers dealing with them under contracts, arrangements and practices therein described; to protect the public from unjustifiable claims practices and the inconvenience, hardship and possible loss attendant upon the insolvency of any of the insurers or persons described therein; and to prevent any frauds or mistakes which may arise from any of the contracts, arrangements or practices described therein. In furtherance of these purposes the commissioner shall at least 90 days prior to charging any person with a violation of Section 816 or the provisions of this article make reasonable rules and regulations clarifying or defining any word, term or phrase used in Section 816 or in this article, including establishment of detailed standards to determine solvency as that word is used in Section 995.2. Such rules and regulations shall be adopted, amended or repealed in accordance with the procedures provided in Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.
ARTICLE 13.5. Disability Insurance Reserves [997. - 997.]
For statement purposes as defined in Article 10 (commencing with Section 900), for insolvency calculations as defined in Article 13 (commencing with Section 980), and for the valuation of the liabilities of insurers for all other purposes, every admitted insurer shall maintain an active life reserve which shall place a sound value on its liabilities under all disability policies and which shall not be less than the reserve according to the standards set forth in regulations issued by the commissioner and, in no event, less in the aggregate than the pro rata gross unearned premium reserve for the policies. The promulgation of the regulations by the commissioner or any changes or amendments thereof shall be in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
Subdivisions (b), (c), and (d) shall control the amounts of reserves and liabilities, other than for specific claim losses, upon all individual disability policies until the effective date of regulations issued by the commissioner as provided in the next preceding paragraph. The regulations, in lieu of subdivisions (b), (c), and (d), shall control the amounts of the reserves and liabilities during the time the regulations continue in force. In the event the regulations shall cease to be in effect, the reserves and liabilities again shall be controlled by subdivisions (b), (c), and (d) during the time no such regulations shall be in force.
Every admitted insurer which issues one or more of the following three types of individual disability policies shall maintain a reserve not less than the minimum reserve required under this subdivision:
Policies which are guaranteed renewable for life or to a specified age at guaranteed premium rates.
Policies which are guaranteed renewable for life or to a specified age but under which the insurer has reserved the right to change the scale of premiums.
Policies, other than those described in paragraph (1) of subdivision (c), in which the insurer has reserved the right to cancel or to refuse renewal for one or more reasons, but has agreed implicitly or explicitly that, prior to a specified time or age, it will not cancel or decline renewal solely because of deterioration of health after issue.
During the period within which the renewability of the policy is guaranteed or the insurer’s right to cancel the policy or to refuse renewal thereof is limited, the minimum reserve shall be an amount computed on the basis of two-year preliminary term tabular mean reserves employing the following assumptions:
Mortality and Interest: those assumptions specified in Article 3 (commencing with Section 10478) and Article 3a (commencing with Section 10489.1) of Chapter 5 of Part 2 of Division 2, for the determination of minimum policy reserve liabilities for ordinary life insurance.
Morbidity or other contingency: any tables adopted by the National Association of Insurance Commissioners, or its successor, that is approved by regulation promulgated by the commissioner for use in determining the minimum standard of valuation for use in valuing individual disability insurance policies, or any modification of these tables approved by the commissioner, or any tables based upon individual insurer’s own experience and approved by the commissioner.
For each benefit, each company shall establish reserves that place a sound value on the liabilities for the benefit.
These mean reserves shall be diminished or offset by appropriate credit for the valuation net deferred premiums. In no event, however, shall the aggregate reserves for all policies valued on the mean reserve basis, diminished by any credit for deferred premiums, be less than the gross pro rata unearned premiums under the policies.
Negative reserves for any benefit may be offset against positive reserves for other benefits in the same individual or family policy, but if all benefits of the policy collectively develop a negative reserve, credit shall not be taken for the amount.
Every admitted insurer which issues one or more of the following types of individual disability policies shall maintain the minimum unearned premium reserve required under this subdivision:
Provided the reserve on all policies to which the method or basis is applied is not less in the aggregate than the required amount determined according to the applicable standards specified in subdivisions (b) and (c), an insurer may use any reasonable assumptions as to the interest rate, mortality rates or the rates of morbidity or other contingency, and may introduce an assumption as to the voluntary termination of policies. Also, subject to the preceding conditions, the insurer may employ methods other than the methods stated in subdivisions (b) and (c) in determining a sound value of its liabilities under such policies, including, but not limited to, any of the following:
The use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity.
The computation of the reserve for one policy benefit as a percentage of, or by other relation to, the aggregate policy reserves, exclusive of the benefit or benefits so valued.
The use of a composite annual claim cost for all or any combination of the benefits included in the policies valued.
For statement purposes the net reserve liability for active lives may be shown as the mean reserve with offsetting asset items for net unpaid and deferred premiums or it may be shown as the excess of the mean reserve over the amount of net unpaid and deferred premiums, or, regardless of the underlying method of calculation, it may be divided between the gross pro rata unearned premium reserve and a balancing item for the “additional reserve.”
ARTICLE 14. Proceedings in Cases of Insolvency and Delinquency [1010. - 1062.]
The provisions of this article shall apply to all persons, except the State Compensation Insurance Fund, subject to examination by the commissioner, or purporting to do insurance business in this state, or in the process of organization with intent to do such business therein, or from whom the commissioner’s certificate of authority is required for the transaction of business, or whose certificate of authority is revoked or suspended.
Notwithstanding subdivision (a), if any of the conditions set forth in Section 1011 exists with respect to the State Compensation Insurance Fund, and the commissioner would otherwise file a verified application with the superior court or proceed under Section 1013 against the fund, the commissioner shall instead issue a report to the Governor, the President pro Tempore of the Senate, and the Speaker of the Assembly setting forth the conditions that exist and recommending a course to remedy those conditions. The Governor, in consultation with the Legislature, shall direct a course of action to be implemented by the fund’s board of directors, or if additional legislative action is necessary, recommend a course of action to the Legislature, or both.
The superior court of the county in which the principal office of a person described in Section 1010 is located, upon the filing by the commissioner of the verified application showing any of the conditions in this subdivision exist, or a filing by the Federal Deposit Insurance Corporation of the verified application showing that the conditions enumerated in subdivision (j) exist and the conditions set forth in Section 5383(e)(3) of Title 12 of the United States Code having been satisfied, shall issue its order vesting title to all of the assets of that person, wheresoever situated, in the commissioner or his or her successor in office, in his or her official capacity, and direct the commissioner forthwith to take possession of all of its books, records, property, real and personal, and assets, and to conduct, as conservator, the business of the person, or so much thereof as to the commissioner may seem appropriate, and enjoining the person and its officers, directors, agents, servants, and employees from the transaction of its business or disposition of its property until any of the following further order of the court:
That the person has refused to submit its books, papers, accounts, or affairs to the reasonable inspection of the commissioner or his or her deputy or examiner.
That the person has neglected or refused to observe an order of the commissioner to make good within the time prescribed by law any deficiency in its capital if it is a stock corporation, or in its reserve if it is a mutual insurer.
That the person, without first obtaining the consent in writing of the commissioner, has transferred, or attempted to transfer, substantially its entire property or business or, without consent, has entered into any transaction the effect of which is to merge, consolidate, or reinsure substantially its entire property or business in or with the property or business of any other person.
That the person is found, after an examination, to be in a condition that makes its further transaction of business hazardous to its policyholders, or creditors, or to the public.
That the person has violated its charter or any law of the state.
That any officer of the person refuses to be examined under oath, touching its affairs.
That any officer or attorney in fact of the person has embezzled, sequestered, or wrongfully diverted any of the assets of the person.
That a domestic insurer does not comply with the requirements for the issuance to it of a certificate of authority, or that its certificate of authority has been revoked.
That the last report of examination of any person to whom the provisions of this article apply shows the person to be insolvent within the meaning of Article 13 (commencing with Section 980) of Chapter 1 of Part 2 of Division 1; or if a reciprocal or interinsurance exchange, within the applicable provisions of Section 1370.2, 1370.4, 1371, or 1372; or if a life insurer, within the applicable provisions of Sections 10510 and 10511.
Notification is given by the United States Secretary of the Treasury that a determination has been made by the secretary, in accordance with and satisfying the provisions of Section 5383(b) of Title 12 of the United States Code, as to a person described in Section 1010 that is an insurance company as defined in Section 5381(a)(13) of Title 12 of the United States Code, and one of the following:
The board of directors, or body performing similar functions, of the person acquiesces or consents to the appointment of a receiver as provided for in Section 5832(a)(1)(A)(i) of Title 12 of the United States Code, with that consent to be considered to be consent to issuance of an order under this section.
The United States District Court for the District of Columbia issued an order for the appointment of a receiver of the person as provided for in Section 5382(a)(1)(A)(iv)(I) of Title 12 of the United States Code, without regard to whether an appeal of the order is pending.
A petition by the United States Secretary of the Treasury for appointment of a receiver was made to the United States District Court for the District of Columbia and was granted by operation of the law as provided for in Section 5382(a)(1)(A)(v) of Title 12 of the United States Code, without regard to whether an appeal of the order is pending.
A superior court hearing shall be held in which the person may oppose the verified application solely on the grounds that the conditions set forth in subdivision (j) of Section 1101 do not exist. The hearing shall be completed within 24 hours after the verified application is filed with the court.
The superior court shall issue an order as provided for in Section 1011 within 24 hours after the verified application was filed with the court.
If the superior court does not issue an order within 24 hours as provided for in subdivision (b), then an order described in Section 1011 shall be deemed granted by operation of law upon expiration of the 24-hour period, without further notice.
An order entered by the superior court pursuant to subdivision (b) or entered by operation of law pursuant to subdivision (c) shall not be subject to any stay or injunction pending appeal.
The consent described in subdivision (c) of Section 1011 shall be obtained by filing an application with the commissioner in a form to be prescribed by him or her accompanied by that additional information concerning the insurer, its condition and affairs, as the commissioner requires.
A fee of six thousand three hundred fifty dollars ($6,350) shall be paid to the commissioner for the filing of the application.
Except in the case of an order issued based on a verified application showing the conditions in subdivision (j) of Section 1011 to exist, the order shall continue in force and effect until, on the application either of the commissioner or of that person, it shall, after a full hearing, appear to the court that the ground for the order directing the commissioner to take title and possession does not exist or has been removed and that the person can properly resume title and possession of its property and the conduct of its business.
Whenever it appears to the commissioner that any of the conditions set forth in section 1011 exist or that irreparable loss and injury to the property and business of a person specified in section 1010 has occurred or may occur unless the commissioner so act immediately, the commissioner, without notice and before applying to the court for any order, forthwith shall take possession of the property, business, books, records and accounts of such person, and of the offices and premises occupied by it for the transaction of its business, and retain possession subject to the order of the court. Any person having possession of and refusing to deliver any of the books, records or assets of a person against whom a seizure order has been issued by the commissioner, shall be guilty of a misdemeanor and punishable by fine not exceeding one thousand dollars or imprisonment not exceeding one year, or both such fine and imprisonment.
Whenever the commissioner makes any seizure as provided in section 1013, it shall, on the demand of the commissioner, be the duty of the sheriff of any county of this State, and of the police department of any municipal corporation therein, to furnish him with such deputies, patrolmen or officers as may be necessary to assist the commissioner in making and enforcing any such seizure.
Immediately after such seizure, the commissioner shall institute a proceeding as provided for in section 1011 and thereafter shall proceed in accordance with the provisions of this article.
If at any time after the issuance of an order under Section 1011, or if at the time of instituting any proceeding under this article, including under Section 1011, it shall appear to the commissioner that it would be futile to proceed as conservator with the conduct of the business of that person, he or she may apply to the court for an order to liquidate and wind up the business of the person. Upon a full hearing of that application, the court may make an order directing the winding up and liquidation of the business of that person by the commissioner, as liquidator, for the purpose of carrying out the order to liquidate and wind up the business of that person.
Notwithstanding subdivision (a), the court may issue an order to liquidate and wind up the business of a person as to whom a verified application is filed pursuant to subdivision (j) of Section 1011 based solely on the verified application and hearing as provided for in subdivision (a) of Section 1011.1, without further hearing, or may issue an order to liquidate and wind up the business of the person upon application by the commissioner after the issuance of an order under Section 1011. The court’s order may direct the winding up and liquidation of the business of the person by the commissioner, as liquidator, for the purpose of carrying out the order to liquidate and wind up the business of the person.
In the commissioner’s application for an order for the liquidation of a domestic corporation, or at any time thereafter, the commissioner may apply for, and the court shall make, an order dissolving the corporation.
At any time during a proceeding for the liquidation of a domestic corporation authorized under Section 1016, the commissioner may apply for, and the court shall make, an order to permit the commissioner to sell the charter and license of that corporation while continuing to administer and distribute the remaining assets according to the provisions of this article. The order shall provide that the liabilities of the domestic corporation may not be transferred with the charter and license. In continuing the administration and distribution of assets the commissioner need not establish a liquidating trust or other, similar entity.
Upon the issuance of an order of liquidation under section 1016, the rights and liabilities of any such person and of creditors, policyholders, shareholders and members, and all other persons interested in its assets, including the State of California, shall, unless otherwise directed by the court, be fixed as of the date of the entry of the order in the office of the clerk of the county wherein the application was made.
Interference with the commissioner or the proceeding.
Waste of assets of such person.
The institution or prosecution of any actions or proceedings.
The obtaining of preferences, judgments, attachments, or other liens against such person or its assets.
The making of any levy against any such person or its assets.
The sale or deed for nonpayment of taxes or assessments levied by any taxing agency of property:
Owned by such person.
Upon which such person holds an encumbrance.
Upon which such person has prior thereto commenced an action to foreclose any deed of trust or mortgage or has exercised the power of sale under any trust deed or mortgage which sale or foreclosure proceedings have not yet been completed or upon which no trustee’s deed or judgment of court or sheriff’s certificate of sale has been issued. “Taxing agency” as used in this section has the meaning ascribed to it by Section 121 of the Revenue and Taxation Code. The injunctions or orders authorized by this subdivision may be modified, dissolved or rescinded by the court on motion of the commissioner, the State Controller, the person charged with the collection of taxes or assessments on such property, or any person beneficially interested in the property. The recording in the office of the county recorder of any county in the State of an order or injunction issued pursuant to this section, shall constitute service of such order or injunction upon any taxing agency with respect to property or interests therein located in such county.
Any managing general agent or attorney in fact from withholding from the commissioner any books, records, accounts, documents or other writing relating to the business of such person; provided, however, that, if by contract or otherwise any of the same are the property of such an agent or attorney, the same shall be returned when no longer necessary to the commissioner or at any time the court after notice and hearing shall so direct.
Upon the making of an order to liquidate the business of such person, the commissioner shall publish notice to its policyholders, creditors, shareholders, and all other persons interested in its assets. The order and the notice shall require claimants to file their claims with the commissioner, together with proper proofs thereof, within six months to one year, at the commissioner’s discretion, after the date of first publication of such notice, in the manner specified in this article.
The time period specified in subdivision (a) shall not apply to the California Insurance Guarantee Association or the California Life and Health Insurance Guarantee Association provided it files with the commissioner a notice of possible claim within such six-month period and files actual claim or claims within such periods of time as may be permitted by order of court.
Notwithstanding the provisions of subdivision (a), both of the following apply:
If the commissioner determines that the business subject to liquidation order possesses, or is likely to possess, insufficient assets to permit significant distribution to a person interested in those assets, the commissioner may decline to handle a claim submitted pursuant to subdivision (a), as long as the notice requirements of subdivision (a) and Section 1022 are observed.
If the commissioner reasonably determines that the business subject to liquidation order possesses, or is likely to possess, insufficient assets to permit significant distribution of funds to pay the expenses of administration under this article, as provided in paragraph (1) of subdivision (a) of Section 1033, the commissioner may decline to continue, and may abandon, the insolvency proceeding upon providing notice pursuant to subdivision (a) and Section 1022.
The notice shall be published in newspapers of general circulation in geographic areas pertinent to the liquidation. The notice shall reference a source, either the liquidated company’s or the liquidator’s Internet Web site, where ongoing information for creditors shall be provided. A copy of the notice, accompanied by an affidavit of due publication, including a statement of the date of publication, shall be filed with the clerk of the court.
A claim must set forth, under oath, on the form prescribed by the commissioner:
The particulars thereof, and the consideration therefor.
Whether said claim is secured or unsecured, and, if secured, the nature and amount of such security.
The payments, if any, made thereon.
That the sum claimed is justly owing from such person to the claimant.
That there is no offset to the claim.
Such other data or supporting documents as the commissioner requires.
Unless such claim is filed in the manner and within the time provided in section 1021, it shall not be entitled to filing or allowance, and no action may be maintained thereon. In the liquidation, pursuant to the provisions of this article, of any domestic insurer which has issued policies insuring the lives of persons, the commissioner shall, within thirty days after the last day set for the filing of claims, make a list of the persons who have not filed proofs of claim with him and to whom, according to the books of said insurer, there are amounts owing under such policies, and he shall set opposite the name of each person the amount so owing to such person. Each person whose name shall appear upon said list shall be deemed to have duly filed, prior to the last day set for the filing of claims, a claim for the amount set opposite his name on said list.
Claims founded upon unliquidated or undetermined demands must be filed within the time limit provided in this article for the filing of claims, but claims founded upon such demands shall not share in any distribution to creditors of a person proceeded against under section 1016 until such claims have been definitely determined, proved and allowed. Thereafter, such claims shall share ratably with other claims of the same class in all subsequent distributions.
An unliquidated or undetermined claim or demand within the meaning of this article shall be deemed to be any such claim or demand upon which a right of action has accrued at the date of the order of liquidation and upon which the liability has not been determined or the amount thereof liquidated.
File a claim himself or herself on behalf of all claimants for return premiums.
Permit any assignee of the right of the insured to a return premium by virtue of a valid assignment, as security or otherwise, made prior to an order under Section 1011 or a seizure under Section 1013, whichever is earlier in time in the particular case, to file one claim as assignee on behalf of all insureds having assigned rights to the assignee, which shall set forth such information as may be required under Section 1023.
Permit the California Insurance Guarantee Association under subdivision (b) of Section 1063.4, or the California Life and Health Insurance Guarantee Association under paragraph (1) of subdivision (k) of Section 1067.07 to file one claim, for its association, combining all assigned claims and setting forth the information that the commissioner may require under Section 1023.
Whenever any person has a cause of action against an insured and such cause is covered by a liability policy, such person, if the insurer is adjudged insolvent, may file a claim in the liquidation proceeding even if the claim is undetermined or unliquidated.
Where a claim arising out of a policy of insurance has been filed by a third party and approved by the liquidator and such claim has subsequently been paid or satisfied, either wholly or in part, by the transfer of anything of value, either voluntarily or by process, from the insured of the person in liquidation to such third party, then upon the filing with the liquidator of proof of the making and value of such transfer, to the extent and in the manner required by the liquidator, the insured shall be subrogated to the rights of the third party claimant to the extent that the claim has been satisfied and discharged, but the rights of the insured shall not exceed the face value of such claim and if the insured has theretofore filed a claim covering the same subject matter, he is entitled to only one recovery.
A claim by a third party founded upon an insurance policy may be allowed by the liquidator without requiring such claim to be reduced to judgment, provided it can be reasonably inferred from the proof presented that the claimant would be able to obtain a judgment upon his cause of action against the insured and that such judgment would represent a liability of the person in liquidation under the policy of insurance upon which such claim is founded.
In the event several claims founded upon one policy or bond are filed, and the aggregate amount of such claims exceeds the liability limit of said policy or bond, and one or more of such claims is unliquidated and undetermined, then all of such claims shall be deemed unliquidated and undetermined; provided, however, that should one or more of said claims become determined and proved within the time provided in this article, the liquidator, upon any distribution to creditors, shall impound the distribution percentage of the face amount of said claim or claims so determined and proved, not exceeding the policy or bond limit, and upon such claim or claims becoming liquidated as to amount, the liquidator shall release to such claimant the distribution percentage of the final liquidated value of such claims out of the funds so impounded.
A judgment taken by default, or by collusion, against an insured shall not be considered as evidence, in the liquidation proceeding, either of the liability of such insured to such claimant upon such cause of action or of the amount of damages to which such claimant is entitled.
A claim of a secured claimant shall not be allowed in a sum greater than the excess over the value of the security of the amount for which the claim would be allowable if unsecured, unless the claimant surrenders the security to the liquidator. Upon such surrender the claim may be allowed in the full amount for which it is valued.
The value of the security to be credited upon such claim shall be determined by an appraiser appointed by the liquidator and approved by the court. Such claimant shall elect to accept the security or to release it to the liquidator.
The liquidator may require, as a condition of payment of the final liquidation dividend to a lender, or his assignee, who has filed a claim for an unearned premium as an assignee of the insured for valuable consideration, that such assignee of the insured shall assign to the liquidator all his right, title, and interest in any unsatisfied debt of the insured to such assignee, pertaining to policies of the insolvent insurer, remaining unpaid after crediting the final liquidation dividend, if the amount of such unsatisfied debt is less than one hundred dollars and one cent ($100.01).
The liquidator may also require, as condition precedent, the delivery to him of all the documents giving rise to such debt.
The liquidator, in his sole discretion, may determine whether or not it will be feasible to attempt to collect any such assigned debt. If he determines not to pursue collection of any such debt, he shall file a declaration to that effect with the liquidation court and be relieved of any further responsibility in respect to such debt.
As used in this section, “insured” means a natural person who purchased insurance from the insolvent insurer for personal, family, or household purposes.
In any proceeding under this article, no agent shall be liable to the liquidator or conservator for unearned premiums uncollected by the agent, or unearned commissions uncollected by the agent, arising from an insolvency of an insurer.
Mutual debts or mutual credits, whether arising out of one or more contracts between the person in liquidation under Section 1016 and any other person, shall be set off and the balance only shall be allowed or paid, except with respect to any of the following obligations as described in subdivisions (a) to (d), inclusive:
The obligation of the person in liquidation to such other person does not entitle such other person claiming such set-off to share as a claimant in the assets of the person in liquidation.
The obligation of the person in liquidation to the other person was purchased by, or transferred to, the other person.
The obligation of the other person to the person in liquidation is to pay an assessment levied against the other person or to pay a balance upon a subscription for shares of the capital stock of the person in liquidation.
The obligations between the other person and the person in liquidation arise from business where either the person in liquidation or the other person has assumed risks and obligations from the other party and then has ceded back to that party substantially the same risks and obligations.
Notwithstanding the foregoing, a set-off of amounts due on obligations arising from those contracts shall be allowed if the balance arises from contracts that were entered into, renewed, or extended with the express written approval of the commissioner.
When a claim is rejected by the commissioner, written notice of rejection shall be given by mail, addressed to the claimant at the address set forth in his claim. Within thirty days after the mailing of the notice the claimant may apply to the court in which the liquidation proceeding is pending for an order to show cause why the claim should not be allowed.
Claims allowed in a proceeding under this article shall be given preference in the following order:
Expense of administration.
All claims of the California Insurance Guarantee Association or the California Life and Health Insurance Guarantee Association, and associations or entities performing a similar function in other states, together with claims for refund of unearned premiums and all claims under insurance and annuity policies or contracts, including funding agreements, of an insolvent insurer that are not covered claims.
The following claims are excluded from this priority:
Any obligations of the insolvent insurer arising out of any reinsurance contracts, as well as obligations incurred after the expiration date of the policy or after the insurance policy has been replaced by the insured or canceled at the insured’s request, or after the policy has been canceled by the California Insurance Guarantee Association, the California Life and Health Insurance Guarantee Association, or another association or entity performing a similar function in another state.
Any obligations to insurers, insurance pools, or underwriting associations, and their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise provided in this chapter.
Any amount awarded as punitive or exemplary damages, and any damages in excess of the liability limits of the policies or contracts that represent damages for contractual bad faith.
Any amount that is a surplus deposit of a subscriber as defined in Section 1374.1.
Any judgments against or obligations or liabilities of the insolvent insurer otherwise arising from alleged or proven torts, and any default, collusive, or stipulated judgment against either the insured or the person subject to proceedings under this article, as well as any judgment taken in violation of Section 1020. Nothing in this subparagraph shall prohibit the commissioner from considering the underlying claims as a claim entitled to priority under this section, provided that the claimant shall provide to the commissioner a written election that the judgment shall in all things be disregarded in determining the liability for and valuation of the underlying claim.
Any loss adjustment expenses, including adjustment fees and expenses, attorneys’ fees and expenses, court costs, interest, bond premiums, expert witness fees, and other claims of a similar nature incurred prior to the appointment of a liquidator.
Claims arising from any self-insured program of the insurer, including employee life, health and annuity plans, and self-funded employee benefit plans, however denominated, as well as claims arising from a multiple employer welfare arrangement as defined in Section 514 of the federal Employee Retirement Income Security Act of 1974, as amended, a minimum premium group insurance plan, a stop-loss group insurance plan, or an administrative services-only plan.
Any portion of a policy or contract to the extent that it provides experience rating credits or refunds, dividends, or for the payment of fees or allowances to any person, including the policyholder or contractholder, in connection with the service to or administration of the policy or contract.
Any annuity issued by a charitable organization for which the person subject to these proceedings did not have or utilize a certificate of authority to issue the policy or contract.
Claims having preference by the laws of the United States.
Unpaid charges due under the provisions of Section 736.
Taxes due to the State of California.
Claims having preference by the laws of this state.
Claims of creditors not included in paragraphs (1) to (6), inclusive.
Certificates of contribution, surplus notes, or similar obligations, and premium refunds on assessable policies.
The interests of shareholders or other owners in any residual value in the estate.
Every claim allowed under a separate account policy, contract, or agreement providing, in effect, that the assets allocated to the separate account are not chargeable with liabilities arising out of any other business of the insurer, shall be satisfied out of the assets properly allocated to and maintained in the separate account, excluding amounts allocated or transferred to the separate account by the insurer pursuant to subdivision (b) of Section 10506, equal to the reserves maintained in the separate account for the policies, contracts, or agreements. No liabilities of the insurer arising out of any other business of the insurer shall be satisfied from assets properly allocated to and maintained in a separate account except (A) from amounts allocated or transferred to the separate account pursuant to subdivision (b) of Section 10506 and (B) from any assets allocated to the separate account that exceed the reserves under the separate account policies, contracts, or agreements. For the purposes of this subdivision, “separate account policies, contracts, or agreements” means any policies, contracts, or agreements that provide for separate accounts as contemplated by Section 10506, 10506.3, 10506.4, or 10541. Any valid and allowed claim for contractual benefits that cannot be satisfied out of the assets properly allocated to and maintained in a separate account for obligations authorized by subdivision (a) of Section 10506.3 shall be included as a claim against the general account within paragraph (2) of subdivision (a). Any valid and allowed claim against the general account for contractual benefits under an obligation authorized by Section 10506.4 shall be included as a claim within paragraph (2) of subdivision (a).
Notwithstanding any other provision of law, to the extent that any assets of a life insurer, other than those assets properly allocated to, and maintained in, a separate account, have been used to fund or pay any expenses, taxes, or policyholder benefits that are attributable to a separate account policy, contract, or agreement that should have been paid by a separate account prior to the commencement of delinquency proceedings, then upon the commencement of delinquency proceedings, the separate accounts that benefited from this payment or funding shall first be used to repay or reimburse the company’s general assets or account for any unreimbursed net sums due at the commencement of delinquency proceedings prior to the application of the separate account assets to the satisfaction of liabilities of the corresponding separate account policies, contracts, and agreements.
Upon the issuance of an order appointing a conservator or liquidator for any person under either Section 1011 or 1016 or both these sections, the lien of taxes due to the State of California imposed by Article 4 (commencing with Section 12491) of Chapter 4 of Part 7 of Division 2 of the Revenue and Taxation Code shall become subordinate to the reasonable administrative expenses of the proceeding under the order.
The following definitions are for purposes of this section only and shall not be used to determine coverage under the California Life and Health Insurance Guarantee Association Act (Article 14.7 (commencing with Section 1067)):
Reinsurance contracts shall not be included as insurance or annuity policies or contracts, or funding agreements. However, any insurance or annuity policy or contract, including any funding agreement, that is assumed by an insurer under an assumption reinsurance agreement pursuant to a plan of liquidation, rehabilitation, or reorganization shall, unless the plan provided otherwise, be deemed to retain the issue date of the original insurance or annuity policy or contract, or funding agreement that is assumed.
The provisions of this section are severable. If any portion of this section is held invalid or is preempted by federal law, the remainder of the section and its application shall not be affected. Specifically, should any of paragraphs (1) to (6), inclusive, of subdivision (a) be held to be invalid or preempted by federal law, the claims included within the invalid paragraph shall be included within paragraph (7) of subdivision (a), and the remaining paragraphs shall not be affected thereby.
No payment shall be made to any creditor in paragraphs (8) or (9) of subdivision (a), unless all claims in paragraphs (3) to (7), inclusive, of subdivision (a) have been paid in full, together with interest at the legal rate of the date of the order commencing the proceeding or the date on which the claim became liquidated, whichever date is later. In proceedings involving life insurance companies, no payment shall be made for any claim in paragraph (7), (8), or (9) of subdivision (a) unless and until all claims in paragraph (1) of subdivision (a) have been paid in full, together with interest at the legal rate, all claims in paragraph (2) of subdivision (a) have been paid the full value of the policy or contract upon which the claim is based, as of the time of distribution to claimants, and all claims in paragraphs (3) to (6), inclusive, of subdivision (a) have been paid in full, together with interest at the legal rate from the date of the order commencing the proceeding. Notwithstanding the provisions of this subdivision, no payment of interest shall be made to any insurance guaranty association that receives early access disbursements from the estate pursuant to Section 1035.5.
The purpose of this section is to clarify the rights and obligations of policyholders, claimants, guaranty funds, including the California Insurance Guarantee Association, and the liquidator with respect to a deductible agreement entered into between a policyholder and an insurer subject to liquidation proceedings under this article. These arrangements are commonly referred to as “large deductible” policies or programs, even though the actual amount of the deductible can vary significantly and may not be in fact large in amount. Deductible amounts under these arrangements may vary from as little as five thousand dollars ($5,000) to as much as $1,000,000 or more. This section shall be construed such that the claim payment obligations of the guaranty associations, including the California Insurance Guarantee Association, in total arising from deductible agreements will be substantially equivalent to those of the insurer, except as provided otherwise in each guaranty association’s enabling statute, including that of the California Insurance Guarantee Association, had the insurer continued in business and not become subject to a liquidation proceeding.
Notwithstanding any other provision of law or contract to the contrary, any collateral held by or for the benefit of, or assigned to, the insurer or the liquidator to secure the obligations of a policyholder under a deductible agreement and any reimbursement payments to the liquidator under a deductible agreement shall be considered property of the liquidated company, but shall not be general assets of the liquidated company. The liquidator shall maintain, administer, and distribute all such collateral and deductible reimbursement payments only as provided in this section.
If a claim that is subject to a deductible agreement and secured by collateral is not covered by a guaranty association or the California Insurance Guarantee Association and the policyholder is unwilling or unable to take over the handling and payment of the noncovered claims, the liquidator shall adjust and pay the noncovered claims utilizing the collateral, but only to the extent the available collateral, after allocation under subdivision (d), is sufficient to pay all outstanding and anticipated claims. If the collateral is exhausted and the policyholder is not able to provide funds to pay the remaining claims within the deductible after all reasonable means of collection against the policyholder have been exhausted, the remaining claims shall be claims against the insurer’s estate, subject to the other provisions of this article regarding the filing and allowance of claims. When the liquidator determines that the collateral is insufficient to pay all additional and anticipated claims, the liquidator may file a plan for equitably allocating the collateral among claimants, subject to court approval.
To the extent that the liquidator holds collateral provided by a policyholder that was obtained to secure a deductible agreement and to secure other obligations of the policyholder to pay the insurer, directly or indirectly, amounts that become assets of the estate, such as reinsurance obligations under a captive reinsurance program or adjustable premium obligations under a retrospectively rated insurance policy or where the premium due is subject to adjustment based upon actual loss experience, the liquidator shall equitably allocate the collateral among those obligations and administer the collateral allocated to the deductible agreement pursuant to this section.
With respect to the collateral allocated to obligations under the deductible agreement, if the collateral secured reimbursement obligations under more than one line of insurance, then the collateral shall be equitably allocated among the various lines based upon the estimated ultimate exposure within the deductible amount for each line.
The liquidator shall inform the guaranty associations or the California Insurance Guarantee Association that is or may be obligated for claims against the insurer of the method and details of each allocation made pursuant to this subdivision.
The liquidator shall be entitled to deduct from the collateral or from the deductible reimbursements reasonable and actual expenses incurred in connection with the collection of the collateral and deductible reimbursements under this section.
Regardless of whether there is collateral, if the insolvent insurer has contractually agreed to allow the policyholder to fund its own claims within the deductible amount pursuant to a deductible agreement, either through the policyholder’s own administration of its claims or through its provision of funds directly to a third-party administrator who administers the claims, the liquidator shall allow the funding arrangement to continue and, where applicable, shall enforce the arrangement to the fullest extent possible. The funding of any of these claims by the policyholder within the deductible amount, including, but not limited to, any of these claims by the policyholder or the third-party claimant, shall bar a claim for that amount in the liquidation proceeding.
The funding of claims pursuant to paragraph (1) shall extinguish the obligation, if any, of a guaranty association or the California Insurance Guarantee Association to pay the claims within the deductible amount, as well as the obligation, if any, of the policyholder or third-party administrator to reimburse the guaranty association or the California Insurance Guarantee Association. No charge of any kind shall be made by the liquidator against any guaranty association or the California Insurance Guarantee Association on the basis of the policyholder funding of claims payment made pursuant to the mechanism set forth in this subdivision. The funding of these claims by the policyholders shall not limit or prejudice any right the guaranty association or the California Insurance Guarantee Association may have with respect to these claims under state law. Any policyholder that funds its own claims under the provisions of this subdivision shall provide to the guaranty association or to the California Insurance Guarantee Association all relevant information concerning the claim whenever the policyholder’s reserved liability for the claim equals or exceeds 50 percent of the deductible amount on the claim.
If the insurer has not contractually agreed to allow the policyholder to fund its own claims within the deductible amount, to the extent a guaranty association or the California Insurance Guarantee Association is required by applicable state law to pay any claims for which the insurer would be or would have been entitled to reimbursement from the policyholder under the terms of the deductible agreement, and to the extent the claims have not been paid by a policyholder or third party, the liquidator shall promptly bill the policyholder for the reimbursement. The policyholder shall pay that amount to the liquidator for the benefit of the California Insurance Guarantee Association or the guaranty association that paid the claims. Neither the insolvency of the insurer, nor its inability to perform any of its obligations under the deductible agreement, shall be a defense to the policyholder’s reimbursement obligation under the deductible agreement.
When the policyholder reimbursements pursuant to paragraph (1) are collected, the liquidator shall promptly reimburse the guaranty association or the California Insurance Guarantee Association for claims paid that were subject to the deductible. If the policyholder fails to pay the amounts due within 60 days after the bill for the reimbursements is due, the liquidator shall use the collateral to the extent necessary to reimburse the guaranty association or the California Insurance Guarantee Association, and, at the same time, may pursue other collections efforts against the policyholder. If more than one guaranty association or the California Insurance Guarantee Association has a claim against the same collateral, and the available collateral, after allocation under subdivision (d), along with billing and collection efforts, are together insufficient to pay each guaranty association or the California Insurance Guarantee Association in full, then the liquidator shall prorate payments to each guaranty association or the California Insurance Guarantee Association based upon the relationship the amount of claims each guaranty association or the California Insurance Guarantee Association has paid bears to the total of all claims paid by the guaranty association or the California Insurance Guarantee Association.
With respect to claim payments made by any guaranty association or the California Insurance Guarantee Association, the liquidator shall promptly provide the court, with a copy to the guaranty association or the California Insurance Guarantee Association, with a complete report of the liquidator’s deductible billing and collection activities, including copies of the policyholder billings when rendered, the reimbursements collected, the available amounts and use of collateral for each policyholder, and any proration of payments when it occurs. If the liquidator fails to make a good faith effort, within 120 days of receiving a claims payment report, to collect reimbursements due from a policyholder under a deductible agreement based on claim payments made by one or more guaranty associations or the California Insurance Guarantee Association, then the guaranty association or the California Insurance Guarantee Association may pursue collection from the policyholders directly on the same basis as the liquidator, and with the same rights and remedies, and shall report any amounts so collected from each policyholder to the liquidator. To the extent that the guaranty association or the California Insurance Guarantee Association pays claims within the deductible amount, but is not reimbursed by the liquidator under this section or by policyholder payments from the collection efforts of the guaranty association or the California Insurance Guarantee Association, the guaranty association or the California Insurance Guarantee Association shall have a claim against the insolvent insurer’s estate for the unreimbursed claims payments.
The liquidator shall periodically adjust the collateral being held as the claims subject to the deductible agreement are satisfied, provided that adequate collateral is maintained to secure the entire estimated ultimate obligation of the policyholder plus a reasonable safety factor, and provided further that the liquidator shall not be required to adjust the collateral more than once a year. The guaranty associations or the California Insurance Guarantee Association shall be informed of any collateral adjustment, including but not limited to, the basis for the adjustment. Once all claims covered by the collateral have been paid and the liquidator is satisfied that no new claims can be presented, the liquidator shall release any remaining collateral to the policyholder.
The court having jurisdiction over the liquidation proceedings shall have jurisdiction to resolve disputes arising under this provision.
Nothing in this section is intended to limit or adversely affect any right a guaranty association or the California Insurance Guarantee Association may have under applicable state law to obtain reimbursement from certain classes of policyholders for claims payments made by the guaranty association or the California Insurance Guarantee Association under policies of the insolvent insurer, or for related expenses the guaranty association or the California Insurance Guarantee Association incur.
This section shall apply only with respect to insolvencies occurring on or after January 1, 2006.
For purposes of this section, the following definitions apply:
“Collateral” means any form of security held to secure the obligations of a policyholder under a deductible agreement with an insurer subject to an order of liquidation under this article.
“Deductible agreement” means any policy, endorsement, contract, or security agreement, or a combination of any of those items, that provides for the policyholder to bear the risk of loss within a specified amount per claim or occurrence covered under a policy of insurance, and may be subject to the aggregate limit of policyholder reimbursement obligations.
“Noncovered claim” means a claim that is subject to a deductible agreement and is not covered by a guaranty association or the California Insurance Guarantee Association.
This section shall apply to claims funded by a guaranty association or the California Insurance Guarantee Association in excess of the deductible only if subdivision (e) is applicable.
A preference is a transfer of any of the property of the person proceeded against to or for the benefit of a creditor, for or on account of an antecedent debt, made or suffered by the person proceeded against within one year before the filing of a petition for liquidation pursuant to Section 1016, the effect of which transfer may be to enable the creditor to obtain a greater percentage of this debt than another creditor of the same class would receive. The following transactions shall be among those that may be considered a preference:
A transfer of property of the person proceeded against.
The creation of a lien on the property of the person proceeded against.
The entry of a judgment against the person proceeded against.
The transfers or other payments by the person proceeded against pursuant to subdivision (f) of Section 10506 in support of guarantees contemplated by Section 10506.4.
If a liquidation order is entered pursuant to Section 1016 while the person proceeded against is already subject to a conservation order, then the transfers described in subdivision (a) shall be deemed preferences if made or suffered within one year before the filing of the successful petition for conservation, or within two years before the filing of the successful petition for liquidation, whichever time is shorter.
Any preference may be avoided by the liquidator if any of the following is applicable:
The transfer was made within four months before the filing of the petition.
The creditor receiving the transfer or to be benefited thereby or his or her agent acting with reference thereto had, at the time when the transfer was made, reasonable cause to believe that the person proceeded against was insolvent or was about to become insolvent.
The creditor receiving the transfer was an officer, or any employee or attorney or other person who was in fact in a position of comparable influence in the person proceeded against to an officer, whether or not the person held that position, or any shareholder holding directly or indirectly more than 5 percent of any class of any equity security issued by the person proceeded against, or any other person, firm, corporation, association, or aggregation of persons with whom the person proceeded against did not deal at arm’s length.
Where the preference is voidable, the liquidator may recover the property or, if it has been converted, its value from any person who has received or converted the property; except where a bona fide purchaser or lienor has given less than fair equivalent value, the purchaser or lienor shall have a lien upon the property to the extent of the consideration actually given. Where a preference by way of lien or security title is voidable, the court may on due notice order the lien or title to be preserved for the benefit of the estate, in which event the lien or title shall pass to the liquidator.
Every transfer made or suffered and every obligation incurred by a person proceeded against within one year prior to the filing of a successful petition for conservation or liquidation under this article is fraudulent as to then existing and future creditors if made or incurred without fair consideration, or with actual intent to hinder, delay, or defraud either existing or future creditors.
A transfer made or an obligation incurred by a person proceeded against under this article, which is fraudulent under this section, may be avoided by the commissioner, except as to a person who in good faith is a purchaser, lienor, or obligee for a present fair equivalent value, and except that any purchaser, lienor, or obligee, who in good faith has given a consideration less than fair for that transfer, lien, or obligation, may retain the property, lien, or obligation as security for repayment. The court may, on due notice, order any such transfer or obligation to be preserved for the benefit of the estate, and in that event, the commissioner shall succeed to and may enforce the rights of the purchaser, lienor, or obligee.
A transfer of property other than real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent lien obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee.
A transfer of real property shall be deemed to be made or suffered when it becomes so far perfected that no subsequent bona fide purchaser from the person proceeded against could obtain rights superior to the rights of the transferee.
A transfer that creates an equitable lien shall not be deemed to be perfected if there are available means by which a legal lien could be created.
Any transfer not perfected prior to the filing of a petition for liquidation shall be deemed to be made immediately before the filing of the successful petition.
The provisions of this subdivision apply whether or not there are or were creditors who might have obtained any liens or persons who might have become bona fide purchasers.
Every person receiving any property from the person proceeded against or any benefit thereof that is a fraudulent transfer under subdivision (a) shall be personally liable therefor and shall be bound to account to the commissioner.
Any transaction of the person proceeded against with a reinsurer shall be subject to avoidance by the commissioner under subdivision (b) if both of the following are applicable:
In any proceeding under this article, the commissioner may appoint and employ under his or her hand and official seal, special deputy commissioners, as his or her agents, and to employ clerks and assistants and to give to each of them those powers that he or she deems necessary. Upon appointing or employing special deputy commissioners or executive officers, the commissioner shall notify the Chair of the Joint Legislative Budget Committee, by letter, of the action. The costs of employing special deputy commissioners, clerks, and assistants appointed to carry out this article, and all expenses of taking possession of, conserving, conducting, liquidating, disposing of, or otherwise dealing with the business and property of that person under this article, shall be fixed by the commissioner, subject to the approval of the court, and shall be paid out of the assets of that person to the department. In the event the property of that person does not contain cash or liquid assets sufficient to defray the cost of the services required to be performed under the terms of this article, the commissioner may at any time or from time to time pay the cost of those services out of the appropriation for the maintenance of the department, but not out of the assets of other estates. Any amounts so paid shall be deemed expenses of administration and shall be repaid to the fund out of the first available moneys in the estate.
Any person appointed by the commissioner to serve in the capacity of chief executive officer of the department’s Conservation and Liquidation Office shall be subject to confirmation by the Senate.
The officers and employees of the Conservation and Liquidation Office are subject to all conflict-of-interest provisions and financial disclosure requirements that would apply if they were employees of the department.
Prior to February 1, 2002, the department shall determine, pursuant to the provisions of Section 19990 of the Government Code, those activities of the officers and employees of the Conservation and Liquidation Office that are inconsistent, incompatible, or in conflict with their duties as officers or employees of that office.
Prior to February 1, 2002, the department shall adopt and promulgate a Conflict of Interest Code pursuant to the provisions of Article 3 (commencing with Section 87300) of Chapter 7 of Title 9 of the Government Code, pertaining to the officers and employees of the Conservation and Liquidation Office. The Conflict of Interest Code and any other regulations necessary to implement this section shall be promulgated by the department as emergency regulations.
The provisions of Chapter 7 (commencing with Section 87100) of Title 9 of the Government Code shall apply to a person who contracts with the Conservation and Liquidation Office to the same extent as would apply if that person were entering into the same or similar contractual relationship with the department.
The department shall ensure that the officers and employees of the Conservation and Liquidation Office and persons who contract with that office comply with all provisions of this section.
Notwithstanding the provisions of Article 14 (commencing with Section 1010), with regard only to those insurers subject to this article:
Within 120 days of the issuance of an order directing the winding up and liquidation of the business of an insolvent insurer under Section 1016, the commissioner shall make application to the court for approval of a proposal to disburse the insurer’s assets, from time to time as such assets become available, to the California Insurance Guarantee Association, or the California Life and Health Insurance Guarantee Association, and to any entity or person performing a similar function in another state.
The proposal shall at least include the following provisions for:
Reserving amounts for the payment of expenses of administration and the payment of claims of secured creditors (to the extent of the value of the security held) and claims falling within the priorities established in paragraphs (1) to (4), inclusive, of subdivision (a) of Section 1033.
Disbursement of the assets marshaled to date and subsequent disbursements of assets as they become available.
Equitable allocation of disbursements to each of the associations entitled thereto.
The securing by the commissioner from each of the associations entitled to disbursements pursuant to this section of an agreement to return to the commissioner such assets previously disbursed as may be required to pay claims of secured creditors and claims falling within the priorities established in paragraphs (1) to (5), inclusive, of subdivision (a) of Section 1033 in accordance with the priorities. No bond shall be required of any association.
A full report to be made by the association to the commissioner accounting for all assets so disbursed to the association, all disbursements made therefrom, any interest earned by the association on the assets, and any other matter as the court may direct.
The commissioner’s proposal shall provide for disbursements to the associations in amounts estimated at least equal to the claim payments made or to be made by the associations for which such associations could assert a claim against the commissioner, and shall further provide that if the assets available for disbursement from time to time do not equal or exceed the amount of the claim payments made or to be made by the associations, then disbursements shall be in the amount of available assets. The reserves of the insolvent insurer on the date of the order of liquidation shall be used for purposes of determining the pro rata allocation of funds among eligible associations.
The commissioner shall offset the amount disbursed to any entity or person performing a function in any other state similar to that function performed by the California Insurance Guarantee Association, or the California Life and Health Insurance Guarantee Association, by the amount of any statutory deposit, premiums, or any other asset of the insolvent insurer held in that state.
Notice of such application shall be given to the associations in and to the commissioners of insurance of each of the states. Any such notice shall be deemed to have been given when deposited in the United States certified mails, first-class postage prepaid, at least 30 days prior to submission of such application to the court. Action on the application may be taken by the court provided the above required notice has been given and provided further that the commissioner’s proposal complies with paragraphs (1) and (4) of subdivision (b).
Notwithstanding any other provision of law, the provisions of Article 4 (commencing with Section 11040) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code, pertaining to legal services, shall apply in the institution and prosecution of all insurance delinquency proceedings under this code. The compensation of any counsel outside of California state service who is employed pursuant to these provisions to represent the commissioner as receiver shall be fixed by the commissioner, subject to the approval of the court. Compensation of counsel representing the commissioner as receiver shall be paid from the assets of the person against whom the commissioner has proceeded under this article. It is the intent of the Legislature and the Legislature finds it is in the best interest of the people of the State of California that the Attorney General and the Insurance Commissioner consult and cooperate in regard to utilizing agency counsel of the Department of Insurance as the commissioner’s legal counsel in delinquency proceedings, judicial and otherwise, to the extent appropriate and consistent with the interests of the parties beneficially interested in those proceedings and if that use would result in the savings of costs to the parties beneficially interested in those proceedings.
Upon taking possession of the property and business of any person in any proceeding under this article, the commissioner, exclusively and except as otherwise expressly provided by this article, either as conservator or liquidator:
Shall have authority to collect all moneys due that person, and to do such other acts as are necessary or expedient to collect, conserve, or protect its assets, property, and business, and to carry on and conduct the business and affairs of that person or so much thereof as to him or her may seem appropriate.
Shall collect all debts due and claims belonging to that person, and shall have the authority to sell, compound, compromise, or assign, for the purpose of collection upon such terms and conditions as the commissioner deems best, any bad or doubtful debts.
Shall have authority to compound, compromise or in any other manner negotiate settlements of claims against that person upon such terms and conditions as the commissioner shall deem to be most advantageous to the estate of the person being administered or liquidated or otherwise dealt with under this article.
Shall have authority without notice, to acquire, hypothecate, encumber, lease, improve, sell, transfer, abandon, or otherwise dispose of or deal with, any real or personal property of that person at its reasonable market value, or, in cases other than acquisition, sale, or transfer on the basis of reasonable market value, upon such terms and conditions as the commissioner may deem proper. However, no transaction involving real or personal property shall be made where the market value of the property involved exceeds the sum of twenty thousand dollars ($20,000) without first obtaining permission of the court, and then only in accordance with any terms that court may prescribe.
Shall have authority to transfer to a trustee or trustees, under a voting trust agreement, the stock of an insurer heretofore or hereafter issued to the commissioner as conservator or as liquidator in connection with a rehabilitation or reinsurance agreement, or any other proceeding under this article. This voting trust agreement shall confer upon the trustee or trustees the right to vote or otherwise represent that stock, and shall not be irrevocable for a period of more than 21 years.
May, for the purpose of executing and performing any of the powers and authority conferred upon the commissioner under this article, in the name of the person affected by the proceeding or in the commissioner’s own name, prosecute and defend any and all suits and other legal proceedings, and execute, acknowledge and deliver any and all deeds, assignments, releases and other instruments necessary and proper to effectuate any sale of any real and personal property or other transaction in connection with the administration, liquidation, or other disposition of the assets of the person affected by that proceeding; and any deed or other instrument executed pursuant to the authority hereby given shall be valid and effectual for all purposes as though it had been executed by the person affected by any proceeding under this article or by its officers pursuant to the direction of its governing board or authority. In cases where any real property sold by the commissioner under this article is located in a county other than the county wherein the proceeding is pending, the commissioner shall cause a certified copy of the order of his or her appointment, or order authorizing or ratifying the sale, to be filed in the office of the county recorder of the county in which that property is located.
Shall have authority to invest and reinvest, in such manner as the commissioner may deem suitable for the best interests of the creditors of that person, such portions of the funds and assets of that person in his or her possession as do not exceed the amount of the reserves required by law to be maintained by that person as reserves for life insurance policies, annuity contracts, supplementary agreements incidental to life business, and reserves for noncancellable disability policies, and which funds and assets are not immediately distributable to creditors. However, no investment or reinvestment shall be made which exceeds the sum of one hundred thousand dollars ($100,000) without first obtaining permission of the court, and then only in accordance with any terms that court may prescribe. That permission shall not be required for any investment or reinvestment of those funds or assets in funds administered by the Treasurer.
The enumeration, in this article, of the duties, powers and authority of the commissioner in proceedings under this article shall not be construed as a limitation upon the commissioner, nor shall it exclude in any manner his or her right to perform and to do such other acts not herein specifically enumerated, or otherwise provided for, which the commissioner may deem necessary or expedient for the accomplishment or in aid of the purpose of such proceedings.
In lieu of the service required by section 1038, service may, upon application to said court, be made in such manner as the court directs whenever it is satisfactorily shown by affidavit (a) in the case of a corporation, that the officers of the corporation upon whom service is required to be made as above provided, have departed from the State or keep themselves concealed therein with intent to avoid the service, or, (b) in the case of a Lloyd’s association or interinsurance exchange, that the individual attorney in fact or the officers of the corporate attorney in fact can not be served because of such departure or concealment, or, (c) in the case of a natural person, that the natural person upon whom service is required to be made as above provided, has departed from the State or keeps himself concealed therein with intent to avoid the service.
At any time after an order is made under section 1011 or 1016, the commissioner may remove the principal office of the person proceeded against to the City and County of San Francisco or to the city of Los Angeles. In event of such removal, the court wherein the proceeding was commenced shall, upon the application of the commissioner, direct its clerk to transmit all of the papers filed therein with such clerk to the clerk of the City and County of San Francisco or of the county of Los Angeles as the case may require. The proceeding shall thereafter be conducted in the same manner as though it had been commenced in the county to which it had been transferred.
The commissioner shall be the custodian of all moneys collected by him or her or coming into his or her possession in the course of any proceeding under this article, but the commissioner may deposit those moneys, or any part thereof, without court approval in a bank which is a member of the Federal Deposit Insurance Corporation (FDIC), so long as the total deposit did not exceed those federal insurance limits; in a centralized State Treasury system bank account; or in funds administered by the Treasurer.
Provided further, any money which is deposited by the commissioner pursuant to this section, which the commissioner determines is available for investment, may be invested or reinvested by the Treasurer in any of the securities which are described in Article 1 (commencing with Section 16430) of Chapter 3 of Part 2 of Division 4 of Title 2 of the Government Code, or placed in a bank as provided in Chapter 4 (commencing with Section 16500) of Part 2 of Division 4 of Title 2 of the Government Code, and handled in the same manner as money in the State Treasury. Any increment which is received from that investment or reinvestment or deposit shall be remitted to the commissioner for allocation, upon a proper and equitable basis, to each estate participating in the investment, reinvestment, or deposit and deposited and disbursed as provided in Section 1037. The Treasurer may deduct from that remittance an amount equal to the reasonable costs incurred in carrying out this section or may bill the commissioner for those costs and the commissioner shall pay those costs from money which is collected pursuant to this chapter.
The commissioner and a special deputy commissioner appointed pursuant to section 1035 shall have the power to subpoena witnesses and examine them under oath upon any subject relating to the affairs and business of any person affected by proceedings under this article. The penalties provided in Chapter II, Title III, Part IV of the Code of Civil Procedure shall apply to any witness who fails or refuses to appear in accordance with such subpoena, or to testify in connection therewith.
In any proceeding under this article, the commissioner, as conservator or as liquidator, may, subject to the approval of said court, and subject to such liens as may be necessary mutualize or reinsure the business of such person, or enter into rehabilitation agreements. No commissioner who acts as conservator of such person or who mutualizes, merges or reinsures the business of such person or who enters into rehabilitation agreements affecting such person, and no deputy commissioner who has participated in the administration of the affairs of such person for the commissioner as conservator shall for a period of two years from and after the effective date of such mutualization, reinsurance or rehabilitation become an officer or director of, or serve as an officer or director of, or serve in any position of gain or profit in, any company formed in whole or in part of the assets or funds, or any part of the assets or funds of such mutualized, merged, reinsured or rehabilitated person.
Every person violating this provision is guilty of a public offense and shall be punished by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not exceeding one year, or by a fine not exceeding ten thousand dollars ($10,000), or by both that fine and imprisonment.
Such rehabilitation or reinsurance agreements shall provide that, subsequent to the date thereof and for such period of time as the commissioner may determine, no investment or reinvestment of the assets of the person rehabilitated or reinsured shall be made without first obtaining the written approval of the commissioner.
Every party to such agreement, and every director, officer, agent and employee of such person, and every other person who knowingly in violation thereof directs or aids or assists in causing to be made an investment or reinvestment of any of said assets without first having obtained the written approval of the commissioner, or who makes such investment or reinvestment in nonconformity with the written approval of the commissioner then in effect authorizing such investment or reinvestment, is guilty of a public offense and shall be punished by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail or by a fine not exceeding ten thousand dollars ($10,000), or by both that fine and imprisonment.
In connection with a rehabilitation agreement under section 1043, which affects a life insurer, and in an agreement made for the reinsurance of the business of a life insurer under said section, there may be included in such rehabilitation or reinsurance agreement a provision for, and the commissioner shall have authority to impose and declare, a moratorium against the provisions of the life insurance policies therein involved calling for the making of loans on the security of such policies and for the payment of money upon the surrender of such policies, such moratorium to continue for such period and to such extent as may be directed by said court.
If at any time after the issuance of an order under section 1011 affecting a life insurer issuing nonassessable policies on a reserve basis and organized with a capital stock evidenced by shares thereof it shall appear to the commissioner that the purposes of section 1011 can be best attained by the mutualization of such life insurer, the commissioner may formulate a plan for the mutualization of such insurer.
Said mutualization plan shall include provisions for:
The acquisition by such insurer of all outstanding shares of its capital stock at a price and upon terms and conditions to be fixed as hereinafter provided.
The retirement of said shares of stock when acquired by such insurer.
The amendment of the charter of such insurer so as to enable it to transact its business as a mutual insurer issuing nonassessable policies on a reserve basis.
The manner in which and the time within which, after mutualization is effected, matured and maturing claims against such insurer shall be paid to the lawful holders thereof.
The submission of said mutualization plan to the policyholders of such insurer under such procedure as shall be set forth in the plan or prescribed by said court, for their approval or rejection.
Notice to the shareholders of such insurer, in such manner and at such time after the approval of said mutualization plan by said policyholders, as the court may direct.
Said mutualization plan may include provisions:
Imposing a moratorium against the provisions of the life insurance policies issued by such insurer and then in force calling for the making of loans on the security of such policies and for the payment of money upon the surrender of such policies, for a period and to an extent to be named in such provisions imposing such moratorium, and subject to extension, change or prior termination only upon the written approval of the commissioner.
Imposing liens upon, or otherwise adjusting, the policies of the insurer so as to create or make available the minimum paid-in capital required of such an insurer to be admitted and such additional paid-in capital as will be reasonably sufficient to enable such insurer to carry on its business.
No lien or adjustment of such insurer’s policies shall be made or imposed which has the effect of creating or making available for distribution to the shareholders of such insurer assets otherwise unavailable therefor.
Regulating and adjusting the respective rights of holders of policies of different classes to participate in the profits or savings which may be made by such insurer when mutualized.
Regulating the manner in which and the time at which the shareholders of such insurer shall be compensated for their proprietary interest, then existing, in the assets of such insurer other than goodwill.
Regulating the manner in which the shareholders of such insurer shall be compensated for their proprietary interest in the goodwill, if then existing, of such insurer; provided, however, that no shareholder shall be compensated for his proprietary interest in such goodwill while any moratorium imposed under subdivision (a) of this section is in effect, nor while any lien imposed under subdivision (b) of this section exists, nor until all other indebtedness of such insurer existing at the time of mutualization has been fully paid and discharged or full provision made for its payment, nor otherwise than out of surplus earnings.
Regulating such other matters as may, in the opinion of the commissioner, require regulation in the interest of expediency or otherwise.
Upon formulation of said mutualization plan the commissioner shall submit the same to said court with his application for an order of said court directing the commissioner to submit said mutualization plan to the persons named in subdivision (e) of section 1046, under such procedure as shall be set forth in the plan or prescribed by said court, for their approval or rejection, and the court shall issue such order.
Each policyholder of such insurer shall be entitled to one vote, regardless of the amount for which, or the number of policies under which, he is insured. Such mutualization plan shall be deemed approved by the said policyholders if a majority of the policyholders voting for and against it shall have approved it, and shall be deemed rejected if a majority of the policyholders voting for and against it shall have rejected it. In the event that said plan of mutualization is rejected by the policyholders of such insurer, the commissioner shall certify the fact of such rejection to said court, whereupon he may proceed further as hereinbefore provided in this article.
In the event that said plan of mutualization is approved by said policyholders, the commissioner shall certify to the said court the fact of such approval and the number of votes cast for and against such mutualization plan. Said court shall thereupon issue its order directing the commissioner to give notice, as provided in said mutualization plan or as the court may otherwise prescribe, to the shareholders of such insurer of the approval of said mutualization plan by said policyholders. Said order shall direct the commissioner to transmit to each such shareholder by mail addressed to his address as it appears upon the records of such insurer, a true copy of said order and of said mutualization plan approved by said policyholders, and shall fix a time, not less than thirty nor more than sixty days from the date of such order, within which any such shareholder may file with said court a petition for the disapproval of said mutualization plan or for its modification in such manner as shall be set forth in such petition, and within which any such shareholder and the commissioner may file with said court a petition for the appointment of one or more appraisers to appraise the value of the then outstanding shares of capital stock of such insurer.
After the expiration of the time fixed in the order provided for in section 1050, and upon the filing of such petition, said court shall direct notice of a hearing of said petitions to be given to the commissioner and to such petitioners as are shareholders of such insurer. At such hearing, all petitions for the disapproval and all petitions for the modification of said mutualization plan shall be given precedence over all petitions for the appointment of one or more appraisers. Upon hearing of all such petitions for the disapproval and for the modification of said mutualization plan, said court shall either approve said mutualization plan or disapprove it or modify it in such manner and to such extent, not inconsistent with the provisions of this article, as to said court shall seem appropriate. In the event of the disapproval of said mutualization plan the court shall deny all petitions for the appointment of one or more appraisers. In the event of the approval or modification of said mutualization plan, the court shall, upon hearing of the petitions for the appointment of appraisers, appoint one or more appraisers, who shall appraise the then outstanding shares of the capital stock of such insurer, without regard to any appreciation or depreciation arising out of said mutualization plan as so approved or modified. Such appraisement shall fix the reasonable value of such shares of capital stock, including the goodwill, if any, of such insurer, and shall state the value, if any, assigned to such goodwill; and if the appraisers shall have found that such insurer has no goodwill, such finding shall be stated. Such appraisement, when confirmed by said court, shall be final and conclusive.
Thereupon the commissioner shall:
Pay to each of such shareholders or his assignee or nominee, upon surrender of the shares held by such shareholder, the value of said shares so ascertained; subject, however, to the restrictions of subdivisions (d) and (e) of section 1047, and subject, also, to the terms and conditions of the mutualization plan as approved or modified.
Appoint, with the approval of the court, the requisite number of directors in whom shall thereafter be vested the control and management of the assets and business of such insurer until their successors shall have been elected and qualified.
Transfer, upon the order of said court, to the appropriate officers appointed by such directors, the property, real and personal, and the books, records, accounts and papers of such insurer; provided, however, that the commissioner may retain, as a deposit, so much of such property as he deems necessary to defray additional costs and expenses incurred or to be incurred in connection with any proceeding under this article affecting such property or business.
Immediately upon the appointment of the directors as provided in subdivision (b) of section 1052, the directors theretofore holding office shall cease to hold office, and all rights of the shareholders of such insurer to vote at any meeting of such insurer shall absolutely cease and such shareholders shall retain only such interest in such corporation or in the property or assets thereof as shall be provided in said mutualization plan, and such insurer shall thereupon be and become a mutual life insurer under such corporate name as may have been set forth in its charter, as amended, to be conducted not for profit, but solely for the mutual benefit, ratably, of all its policyholders, and shall, upon issuance to it by the commissioner of a certificate of authority, have power to issue nonassessable policies on a reserve basis subject to all provisions of law applicable to incorporated life insurers issuing nonassessable policies on a reserve basis, but shall be exempt from the provisions of Chapter 7, Part 2, Division 2 of this code.
Such insurer, after mutualization, shall be a continuation of the original insurer, and such mutualization shall not affect existing suits, rights or contracts except as provided in said mutualization plan as approved. Such insurer, after mutualization, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and to protect rights and contracts existing prior to mutualization, subject to the effect of said mutualization plan.
The commissioner shall exercise the powers and discharge the duties, concerning any insurer so mutualized, that are applicable to domestic insurers issuing policies of the same class. He shall issue a certificate of authority to transact the proper classes of insurance in this State to any insurer so mutualized which is solvent under Article 13, Chapter 1, Part 2, Division 1 of this code and which has fully complied with the laws of this State.
All costs and expenses connected with proceedings for the mutualization of such insurer shall be paid by the commissioner out of the funds of such insurer, whether or not mutualized, subject to the approval of said court.
Whenever money or other property is payable to any claimant out of the assets of any person under the provisions of Sections 1021 to 1033, but such person cannot be located or for any other reason the payment of such money or other property to such person cannot be made, although assets are available for such payment, such money or other property shall be deposited in the State Treasury by the commissioner. Such deposits shall be deemed to have been received under the provisions of Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure, and shall be subject to claim or other disposition as provided in said Chapter 7 (commencing with Section 1500) of Title 10. The commissioner may pay over the money or other property held by him to the persons respectively entitled thereto at any time prior to such deposit, upon being furnished satisfactory evidence of their right to the same.
In all proceedings under this article, the commissioner shall be deemed to be a trustee for the benefit of all creditors and other persons interested in the estate of the person against whom the proceedings are pending.
In any proceeding pending under the provisions of this article, the court in which such proceeding is pending shall have jurisdiction to hear and determine, in such proceeding, all actions or proceedings then pending or thereafter instituted by or against the person affected by a proceeding under this article.
The commissioner, in the performance of any of his duties under this article, shall be deemed to be a public officer acting in his official capacity on behalf of the State, and the provisions of Chapter 2, Division 7, Title 1 of the Government Code shall apply to him.
The commissioner shall transmit all of the following to the Governor, the Legislature, and to the committees of the Senate and Assembly having jurisdiction over insurance in the annual report submitted pursuant to Section 12922:
The names of the persons proceeded against under this article.
Whether such persons have resumed business or have been liquidated or have been mutualized.
Such other facts on the operations of the Conservation & Liquidation Office as will acquaint the Governor, the policyholders, creditors, shareholders and the public with his or her proceedings under this article, including, but not limited to:
An itemization of the number of staff, total salaries of staff, a description of the compensation methodology, and an organizational flowchart.
Annual operating goals and results.
A summary of all Conservation and Liquidation Office costs, including an itemization of internal and external costs, and a description of the methodology used to allocate those costs among insurer estates.
A list of all current insolvencies not closed within ten years of a court ordered liquidation, and a narrative explaining why each insolvency remains open.
An accounting of total claims by estate.
A list of current year and cumulative distributions by class of creditor for each estate.
For each proceeding, the net value of the estate at the time of conservation or liquidation and the net value at the end of the preceding calendar year.
Other facts on the operations of the individual estates as will acquaint the Governor, Legislature, policyholders, creditors, shareholders, and the public with his or her proceedings under this article, including, but not limited to:
In verification of the matters set forth in Section 1060 of this code, the Department of Finance shall, at least every two years or more often if requested by the commissioner, examine the commissioner’s books and accounts relating to all proceedings under this article, and shall file a report of each examination with the court in which the respective proceeding is pending and shall furnish the commissioner a certified copy of each report. The expense of examining the books and accounts of the commissioner as conservator or liquidator under this article shall be paid out of the support appropriation for the Department of Insurance current at the date of billing for the expense and shall, upon order of the court or courts before which the proceedings under the articles are pending, be ratably reimbursed to that appropriation out of the assets of the estates administered by the commissioner as conservator or liquidator under this article.
In the event of the entry of an order under Section 1011 or 1016 of this article affecting any person having members, subscribers or policyholders, hereinafter referred to as “members” who are liable for assessment by law or by the provisions of their policies or contracts, and in which the termination of the policy or contract does not relieve the member from such liability, where the commissioner in his discretion decides that an assessment would be in order, the liability of such members shall be determined, and the assessment therefor levied in the following manner:
1. Within one year from the date of the entry of the order under the provisions of Section 1011 or 1016 of this article, the commissioner shall make a report to the court setting forth: (a) the reasonable value of the assets of such person; (b) its probable liabilities, including reasonable costs of liquidation; and (c) the probable necessary assessment, if any, to pay all claims in full.
2. Upon the basis of such report, including any amendments thereof, the court shall determine the basis for calculating the liability of each member, subscriber or policyholder and shall order the commissioner to determine the amount of liability of each of the members.
3. Thereafter the commissioner shall give notice to each member, subscriber or policyholder of the amount of his liability by inclosing notice thereof in a sealed envelope, addressed and mailed, postage prepaid, to each member, subscriber or policyholder at his last known address as the same appears upon the books of the insurer.
4. Not less than 20 days after the mailing of said notice, as provided in paragraph 3 of this section, the commissioner shall report to the court the names of the members, subscribers or policyholders who have failed to pay their assessment in accordance with said notice, whereupon the court shall issue an order directing each of said members, subscribers or policyholders to appear in said court and show cause in the proceedings pending against such person, why he should not be held liable to pay such assessment, and why the commissioner should not have judgment therefor.
5. The commissioner shall cause a notice of such order setting forth a brief summary of the contents thereof: (a) to be published in such manner as shall be directed by the court; and (b) to be inclosed in a sealed envelope, addressed and mailed by registered mail with return receipt requested, postage prepaid, to each of said members whose liability for assessment remains unpaid, at his last known address, at least 20 days before the return day of such order to show cause.
6. On the return day of such order to show cause, (a) if such member shall not appear and serve verified objections on the commissioner, the court shall make an order adjudicating that such member is liable for the amount of such assessment, and that the commissioner may have a judgment against such member therefor; (b) if such member shall appear and serve verified objections upon the commissioner, there shall be a full hearing before the court, and if the court affirms his liability to pay the whole or some part of said assessment, the commissioner may have judgment therefor.
7. A judgment upon any such order, shall have the same force and effect, and may be entered and may be appealed from as if it were a judgment in an original action brought in the court in which the proceeding is pending.
ARTICLE 14.2. California Insurance Guarantee Association [1063. - 1063.19.]
Within 60 days after the original effective date of this article, all insurers, including reciprocal insurers, admitted to transact insurance in this state of any or all of the following classes only in accordance with the provisions of Chapter 1 (commencing with Section 100) of Part 1 of this division: fire (see Section 102), marine (see Section 103), plate glass (see Section 107), liability (see Section 108), workers’ compensation (see Section 109), common carrier liability (see Section 110), boiler and machinery (see Section 111), burglary (see Section 112), sprinkler (see Section 114), team and vehicle (see Section 115), automobile (see Section 116), aircraft (see Section 118), and miscellaneous (see Section 120), shall establish the California Insurance Guarantee Association (the association); provided, however, this article shall not apply to the following classes or kinds of insurance: life and annuity (see Section 101), title (see Section 104), fidelity or surety including fidelity or surety bonds, or any other bonding obligations (see Section 105), disability or health (see Section 106), credit (see Section 113), mortgage guaranty, insolvency or legal (see Section 119), financial guaranty or other forms of insurance offering protection against investment risks (see Section 124), the ocean marine portion of any marine insurance or ocean marine coverage under any insurance policy including the following: the Jones Act (46 U.S.C. Sec. 688), the Longshore and Harbor Workers’ Compensation Act (33 U.S.C. Sec. 901 et seq.), or any other similar federal statutory enactment, or any endorsement or policy affording protection and indemnity coverage, or reinsurance as defined in Section 620, or fraternal fire insurance written by associations organized and operating under Sections 9080 to 9103, inclusive. Any insurer admitted to transact only those classes or kinds of insurance excluded from this article shall not be a member insurer of the association. Each insurer admitted to transact a class of insurance included in this article, including the State Compensation Insurance Fund, as a condition of its authority to transact insurance in this state, shall participate in the association whether established voluntarily or by order of the commissioner after the elapse of 60 days following the original effective date of this article in accordance with rules to be established as provided in this article. It shall be the purpose of the association to provide for each member insurer insolvency insurance as defined in Section 119.5.
The association shall be managed by a board of governors, composed of nine member insurers, each of which shall be appointed by the commissioner to serve initially for terms of one, two, or three years and thereafter for three-year terms so that three terms shall expire each year on December 31, and shall continue in office until his or her successor shall be appointed and qualified. At least five members of the board shall be domestic insurers. At least three of the members shall be stock insurers, and at least three shall be nonstock insurers. The nine members shall be representative, as nearly as possible, of the classes of insurance and of the kinds of insurers covered by this article. In case of a vacancy for any reason on the board, the commissioner shall appoint a member insurer to fill the unexpired term. In addition to the nine member insurers, the membership of the board shall also include one public member appointed by the President pro Tempore of the Senate, one public member appointed by the Speaker of the Assembly, one business member appointed by the commissioner, and one labor member appointed by the commissioner.
The association shall adopt a plan of operations, and any amendments thereto, not inconsistent with the provisions of this article, necessary to assure the fair, reasonable, and equitable manner of administering the association, and to provide for other matters as are necessary or advisable to implement the provisions of this article. The plan of operations and any amendments thereto shall be subject to prior written approval by the commissioner. All members of the association shall adhere to the plan of operation.
If for any reason the association fails to adopt a suitable plan of operation within 90 days following the original effective date of this article, or if at any time thereafter the association fails to adopt suitable amendments to the plan of operation, the commissioner shall after hearing adopt and promulgate reasonable rules as are necessary or advisable to effectuate the provisions of this chapter. These rules shall continue in force until modified by the commissioner after hearing or superseded by a plan of operation, adopted by the association and approved by the commissioner.
In accordance with its plan of operation, the association may designate one or more of its members as a servicing facility, but a member may decline this designation. Each servicing facility shall be reimbursed by the association for all reasonable expenses it incurs and for all payments it makes on behalf of the association. Each servicing facility shall have authority to perform any functions of the association that the board of governors lawfully may delegate to it and to do so on behalf of and in the name of the association. The designation of servicing facilities shall be subject to the approval of the commissioner.
The association shall have authority to borrow funds when necessary to effectuate the provisions of this article, and may provide in its plan of operations for any of the following:
The issuance of notes, bonds, or debentures, or the establishment of a special purpose trust or other entity, solely for the purpose of facilitating a financing.
The securing of that borrowing or those notes, bonds, or debentures by pledging or granting liens or mortgages, or by otherwise encumbering its real or personal property, including, but not limited to, premiums levied under Section 1063.5.
The association, either in its own name or through servicing facilities, may be sued and may use the courts to assert or defend any rights the association may have by virtue of this article as reasonably necessary to fully effectuate the provisions thereof.
The association shall have an annual audit of its financial condition conducted by an independent certified public accountant. The audit shall be conducted, to the extent possible, in accordance with generally accepted auditing standards (GAAS) and the report of the audit shall be submitted to the commissioner.
The association shall annually audit at least one-third of the service companies retained by the association to adjust claims of insolvent insurers. The audits shall (A) assure that all covered claims are being investigated, adjusted, and paid in accordance with customary industry standards and practices and all applicable statutes, rules, and regulations, and (B) examine the management and supervisory systems overseeing the claims functions. The audits shall be conducted by the association or an independent auditor, provided that the three largest service companies, as measured by the number of claims processed for the association during the previous three fiscal years, shall be audited by an independent auditor at least once every three years. The association shall implement systems to retain independent auditing firms for the purpose of this paragraph, provided that no one firm is designated or utilized as an exclusive provider. Audits conducted pursuant to this paragraph shall be submitted annually to the commissioner for review.
The commissioner shall examine the association to the same extent as, and in accordance with, the requirements of Article 4 (commencing with Section 729) of Chapter 1 of Part 2 of Division 1, which sets forth the examination requirements applicable to admitted insurers. A copy of the examination report shall be filed with the Chairpersons of the Senate and Assembly Committees on Insurance no later than December 31 of the year the report is completed.
As used in this article:
“Member insurer” means an insurer required to be a member of the association in accordance with subdivision (a) of Section 1063, except and to the extent that the insurer is participating in an insolvency program adopted by the United States government.
“Insolvent insurer” means an insurer that was a member insurer of the association, consistent with paragraph (11) of subdivision (c), either at the time the policy was issued or when the insured event occurred, and against which an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction, or, in the case of the State Compensation Insurance Fund, if a finding of insolvency is made by a duly enacted legislative measure.
“Covered claims” means the obligations of an insolvent insurer, including the obligation for unearned premiums, that satisfy all of the following requirements:
Imposed by law and within the coverage of an insurance policy of the insolvent insurer.
Which were unpaid by the insolvent insurer.
Which are presented as a claim to the liquidator in the state of domicile of the insolvent insurer or to the association on or before the last date fixed for the filing of claims in the domiciliary liquidating proceedings.
Which were incurred before the date coverage under the policy terminated and before, on, or within 30 days after the date the liquidator was appointed.
For which the assets of the insolvent insurer are insufficient to discharge in full.
In the case of a policy of workers’ compensation insurance, to provide workers’ compensation benefits under the workers’ compensation law of this state or under the workers’ compensation law of any state if the injured worker is a resident of this state and not otherwise entitled to coverage from an organization similar to the association in any other state.
In the case of other classes of insurance if the claimant or insured is a resident of this state at the time of the insured occurrence, or the property from which the claim arises is permanently located in this state.
“Covered claims” also includes the obligations assumed by an assuming insurer from a ceding insurer when the assuming insurer subsequently becomes an insolvent insurer if, at the time of the insolvency of the assuming insurer, the ceding insurer is no longer admitted to transact business in this state. Both the assuming insurer and the ceding insurer shall have been member insurers at the time the assumption was made. “Covered claims” under this paragraph shall satisfy the requirements of subparagraphs (A) to (G), inclusive, of paragraph (1), except for the requirement that the claims be against policies of the insolvent insurer. The association has a right to recover a deposit, bond, or other assets that may have been required to be posted by the ceding company to the extent of covered claim payments and shall be subrogated to any rights the policyholders may have against the ceding insurer.
“Covered claims” does not include obligations arising from the following:
Life, annuity, health, or disability insurance.
Mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks.
Fidelity or surety insurance including fidelity or surety bonds, or any other bonding obligations.
Credit insurance.
Title insurance.
Ocean marine insurance or ocean marine coverage under an insurance policy, including claims arising from the following: the Jones Act (46 U.S.C. Secs. 30104 and 30105), the Longshore and Harbor Workers’ Compensation Act (33 U.S.C. Sec. 901 et seq.), or any other similar federal statutory enactment, or an endorsement or policy affording protection and indemnity coverage.
A claims servicing agreement or insurance policy providing retroactive insurance of a known loss or losses, except a special excess workers’ compensation policy issued pursuant to subdivision (c) of Section 3702.8 of the Labor Code that covers all or any part of workers’ compensation liabilities of an employer that is issued, or was previously issued, a certificate of consent to self-insure pursuant to subdivision (b) of Section 3700 of the Labor Code.
“Covered claims” does not include an obligation of the insolvent insurer arising out of a reinsurance contract, an obligation incurred after the expiration date of the insurance policy or after the insurance policy has been replaced by the insured, canceled at the insured’s request, or canceled by the liquidator, or an obligation to a state or to the federal government. If the individual has a covered claim that includes medical services provided by a medical facility owned in whole or in part by a state or federal agency, the association may pay that claim directly to the facility, as long as the services provided otherwise qualify as a covered claim and the claim is owned by the medical facility asserting the claim.
“Covered claims” does not include an obligation to insurers, insurance pools, or underwriting associations, nor their claims for contribution, indemnity, or subrogation, equitable or otherwise, except as otherwise provided in this chapter.
An insurer, insurance pool, or underwriting association may not maintain, in its own name or in the name of its insured, a claim or legal action against the insured of the insolvent insurer for contribution, indemnity, or by way of subrogation, except insofar as, and to the extent only, that the claim exceeds the policy limits of the insolvent insurer’s policy. In those claims or legal actions, the insured of the insolvent insurer is entitled to a credit or setoff in the amount of the policy limits of the insolvent insurer’s policy, or in the amount of the limits remaining, when those limits have been diminished by the payment of other claims.
“Covered claims,” except in cases involving a claim for workers’ compensation benefits or for unearned premiums, does not include a claim in an amount of one hundred dollars ($100) or less or the portion of a claim that is in excess of the applicable limits provided in the insurance policy issued by the insolvent insurer.
“Covered claims” does not include that portion of a claim, other than a claim for workers’ compensation benefits, that is in excess of five hundred thousand dollars ($500,000).
For purposes of subparagraph (A), with respect to a policy of residential property insurance, each claim for a loss under a different coverage category shall be considered a separate covered claim.
Notwithstanding subparagraph (A), a claim for damage to, or loss of, a dwelling structure under a policy of residential property insurance shall not exceed one million dollars ($1,000,000) or the amount recoverable under the policy, whichever is less.
“Covered claims” does not include either of the following:
A claim to the extent it is covered by any other insurance of a class covered by this article available to the claimant or insured.
A claim by a person other than the original claimant under the insurance policy in the claimant’s own name, the claimant’s assignee as the person entitled thereto under a premium finance agreement as defined in Section 673 and entered into before insolvency, or the claimant’s executor, administrator, guardian, or other personal representative or trustee in bankruptcy, and does not include a claim asserted by an assignee or one claiming by right of subrogation, except as otherwise provided in this chapter.
“Covered claims” does not include an obligation of the insolvent insurer arising from a policy or contract of insurance issued or renewed before the insolvent insurer’s admission to transact insurance in the State of California.
“Covered claims” does not include surplus deposits of subscribers as defined in Section 1374.1.
“Covered claims” shall also include an obligation arising under an insurance policy written to indemnify a permissibly self-insured employer pursuant to subdivision (b) or (c) of Section 3700 of the Labor Code for its liability to pay workers’ compensation benefits in excess of a specific or aggregate retention. However, for purposes of this article, those claims shall not be considered workers’ compensation claims and therefore are subject to the per-claim limit in paragraph (7), and any payments and expenses related thereto shall be allocated to category (c) for claims other than workers’ compensation, homeowners’, and automobile, as provided in Section 1063.5.
These provisions shall apply to obligations arising under a policy as described herein issued to a permissibly self-insured employer or group of self-insured employers pursuant to Section 3700 of the Labor Code and notwithstanding any other provision of this code, those obligations shall be governed by this provision in the event that the Self-Insurers’ Security Fund is ordered to assume the liabilities of a permissibly self-insured employer or group of self-insured employers pursuant to Section 3701.5 of the Labor Code. This paragraph applies only to insurance policies written to indemnify a permissibly self-insured employer or group of self-insured employers under subdivision (b) or (c) of Section 3700 of the Labor Code, for its liability to pay workers’ compensation benefits in excess of a specific or aggregate retention, and this paragraph does not apply to special excess workers’ compensation insurance policies unless issued pursuant to authority granted in subdivision (c) of Section 3702.8 of the Labor Code, and as provided for in subparagraph (G) of paragraph (3). In addition, this paragraph does not apply to a claims servicing agreement or insurance policy providing retroactive insurance of a known loss or losses as are excluded in subparagraph (G) of paragraph (3).
A permissibly self-insured employer or group of self-insured employers, or the Self-Insurers’ Security Fund, shall, to the extent required by the Labor Code, be responsible for paying, adjusting, and defending each claim arising under policies of insurance covered under this section, unless the benefits paid on a claim exceed the specific or aggregate retention, in which case:
If the benefits paid on the claim exceed the specific or aggregate retention, and the policy requires the insurer to defend and adjust the claim, the association shall be solely responsible for adjusting and defending the claim, and shall make all payments due under the claim, subject to the limitations and exclusions of this article with regard to covered claims. As to each claim subject to this paragraph, notwithstanding any other provisions of this code or the Labor Code, and regardless of whether the amount paid by CIGA is adequate to discharge a claim obligation, neither the self-insured employer, group of self-insured employers, nor the Self-Insurers’ Security Fund shall have an obligation to pay benefits over and above the specific or aggregate retention, except as provided in this subdivision.
If the benefits paid on the claim exceed the specific or aggregate retention, and the policy does not require the insurer to defend and adjust the claim, the permissibly self-insured employer or group of self-insured employers, or the Self-Insurers’ Security Fund, shall not have any further payment obligations with respect to the claim, but shall continue defending and adjusting the claim, and shall have the right, but not the obligation, in a proceeding to assert all applicable statutory limitations and exclusions as contained in this article with regard to the covered claim. CIGA shall have the right, but not the obligation, to intervene in a proceeding in which the self-insured employer, group of self-insured employers, or the Self-Insurers’ Security Fund is defending a claim and shall be permitted to raise the appropriate statutory limitations and exclusions as contained in this article with respect to covered claims. Regardless of whether the self-insured employer or group of self-insured employers, or the Self-Insurers’ Security Fund, asserts the applicable statutory limitations and exclusions, or whether CIGA intervenes in a proceeding, CIGA shall be solely responsible for paying all benefits due on the claim, subject to the exclusions and limitations of this article with respect to covered claims. As to each claim subject to this paragraph, notwithstanding any other provision of this code or the Labor Code and regardless of whether the amount paid by CIGA is adequate to discharge a claim obligation, neither the self-insured employer, group of self-insured employers, nor the Self-Insurers’ Security Fund, shall have an obligation to pay benefits over and above the specific or aggregate retention, except as provided in this subdivision.
In the event that the benefits paid on the covered claim exceed the per-claim limit in paragraph (7), the responsibility for paying, adjusting, and defending the claim shall be returned to the permissibly self-insured employer or group of employers, or the Self-Insurers’ Security Fund.
These provisions shall apply to all pending and future insolvencies. For purposes of this paragraph, a pending insolvency is one involving a company that is currently receiving benefits from the guarantee association.
“Covered claims” also includes all obligations arising under a policy issued to cover cybersecurity, as long as the association’s total liability for all those obligations does not exceed one million dollars ($1,000,000) or the policy limits, whichever is less. Cybersecurity claims shall be covered by the account categorized pursuant to subparagraph (C) of paragraph (2) of subdivision (a) of Section 1063.5, unless the coverage is specifically attached to a policy that would otherwise be covered by an account categorized pursuant to subparagraph (A) or (B) of paragraph (2) of subdivision (a) of Section 1063.5.
Notwithstanding any other provision in this section or Section 1063, if an insurance policy has been allocated to or assumed by a company that did not issue the policy pursuant to a state statute that provides for the division of an insurance company or the statutory assumption of designated policies by a new company, that statute provides a novation has been deemed to have occurred with respect to those policies, and that company is placed in liquidation, then to the extent a claim arising under that allocated or transferred policy would have been a covered claim had the original company been placed in liquidation before the statutory allocation or assumption, any claim arising under that same policy shall be a covered claim regardless of whether the company that allocated or assumed the policy was or was not a member at the time the policy was issued or when the insured event occurred.
“Admitted to transact insurance in this state” means an insurer possessing a valid certificate of authority issued by the department.
“Affiliate” means a person who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an insolvent insurer on December 31 of the year next preceding the date the insurer becomes an insolvent insurer.
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, 10 percent or more of the voting securities of any other person. This presumption may be rebutted by showing that control does not in fact exist.
“Claimant” means an insured making a first party claim or a person instituting a liability claim. However, no person who is an affiliate of the insolvent insurer may be a claimant.
“Net direct written premiums” means the amount of direct written premiums in the annual financial statement on file with the commissioner, adjusted for any premiums written for any lines of insurance or types of coverages not covered by this article, plus premiums written in this state for coverage under a special excess workers’ compensation policy.
“Ocean marine insurance” includes marine insurance as defined in Section 103, except for inland marine insurance, as well as any other form of insurance, regardless of the name, label, or marketing designation of the insurance policy, that insures against maritime perils or risks and other related perils or risks, that are usually insured against by traditional marine insurance such as hull and machinery, marine builders’ risks, and marine protection and indemnity. Those perils and risks insured against include, without limitation, loss, damage, or expense or legal liability of the insured arising out of or incident to ownership, operation, chartering, maintenance, use, repair, or construction of a vessel, craft, or instrumentality in use in ocean or inland waterways, including liability of the insured for personal injury, illness, or death for loss or damage to the property of the insured or another person.
“Unearned premium” means that portion of a premium as calculated by the liquidator that had not been earned because of the cancellation of the insolvent insurer’s policy and is that premium remaining for the unexpired term of the insolvent insurer’s policy. “Unearned premium” does not include an amount sought as return of a premium under a policy providing retroactive insurance of a known loss or return of a premium under a retrospectively rated policy or a policy subject to a contingent surcharge or a policy in which the final determination of the premium cost is computed after expiration of the policy and is calculated on the basis of actual loss experienced during the policy period.
The association shall pay and discharge covered claims and, in connection therewith, pay for or furnish loss adjustment services and defenses of claimants when required by policy provisions. It may do so either directly by itself or through a servicing facility or through a contract for reinsurance and assumption of liabilities by one or more member insurers or through a contract with the liquidator, upon terms satisfactory to the association and to the liquidator, under which payments on covered claims would be made by the liquidator using funds provided by the association. Alternatively, the association may, with the express approval of the commissioner, reinsure with, or transfer liabilities to, a California admitted and authorized reinsurer or other reinsurer approved by the commissioner to limit or eliminate adverse development, to stabilize or limit the need for assessments, or to reduce its potential ultimate liability for covered claims, provided the association retains the ultimate responsibility to the policyholder or beneficiary for payment of claims covered by the reinsurance agreement. A reinsurance agreement or transfer of liabilities shall be paid for using the association’s available funds from one of its accounts and shall not be charged to administrative expense or allocated to any liquidation estate. The payment and discharge of covered claims shall be undertaken by the association, either directly or through an authorized third-party administrator. Recoveries from a reinsurance agreement or transfer of liabilities shall solely be the property of the association, shall not inure to the benefit of any liquidation estate, and shall be paid to the association account from which the payment for the reinsurance or transfer of liabilities was made.
The association shall be a party in interest in all proceedings involving a covered claim, and shall have the same rights as the insolvent insurer would have had if not in liquidation, including, but not limited to, the right to all of the following:
Appear, defend, and appeal a claim in a court of competent jurisdiction.
Receive notice of, investigate, adjust, compromise, settle, and pay a covered claim.
Investigate, handle, and deny a noncovered claim.
The association shall have no cause of action against the insureds of the insolvent insurer for any sums it has paid out, except as provided by this article.
Paragraph (2) does not limit the association’s right to pursue unpaid reimbursements owed by an employer pursuant to a workers’ compensation insurance policy with a deductible if the employer was obligated to reimburse the insurer for benefits payments and related expenses paid by the insurer or the association from a special deposit or from other association funds pursuant to the terms of the policy and related agreements.
The association shall have the right to recover from any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this article the amount of any covered claim and allocated claims expense paid on behalf of that person pursuant to this article.
A person having a claim or legal right of recovery under any governmental insurance or guaranty program that is also a covered claim, shall be required to first exhaust his or her right under the program. An amount payable on a covered claim shall be reduced by the amount of any recovery under the program.
“Covered claims” for unearned premium by lenders under insurance premium finance agreements as defined in Section 673 shall be computed as of the earliest cancellation date of the policy pursuant to Section 673.
“Covered claims” shall not include any judgments against or obligations or liabilities of the insolvent insurer or the commissioner, as liquidator, or otherwise resulting from alleged or proven torts, nor shall any default judgment or stipulated judgment against the insolvent insurer, or against the insured of the insolvent insurer, be binding against the association.
“Covered claims” shall not include any loss adjustment expenses, including adjustment fees and expenses, attorney’s fees and expenses, court costs, interest, and bond premiums, incurred before the appointment of a liquidator.
To aid in the detection and prevention of member insurer insolvencies:
The board may, upon majority vote, make recommendations to the commissioner on matters pertaining to regulation for solvency.
The board may prepare a report on the history and causes of any member insurer insolvency in which the association was obligated to pay covered claims, based on the information available to the association, and submit that report along with any recommendations resulting therefrom to the commissioner.
The board may request the Self-Insurers’ Security Fund to prepare, and the Self-Insurers’ Security Fund may provide to the board, a report identifying the aggregate amount of liability, including the estimated exposure for every insurance carrier admitted to transact workers’ compensation insurance in this state, under all specific excess workers’ compensation policies in existence for a given period in this state as reported by the private self-insured employers to the Director of Industrial Relations in the annual reports submitted pursuant to Section 3702.2 of the Labor Code.
Insureds entitled to the protection of this article shall cooperate with the association in accordance with their policies in the same manner as they would have been required to cooperate with their insurer if it were not in liquidation and shall be deemed to have assigned to the association any right to make claim against the liquidator for a refund of unearned premium for the period of coverage provided by the association beginning on the date of the order of liquidation to the date of expiration or cancellation.
Any insured or claimant entitled to the benefits of this article who elects to proceed under this article shall be deemed to have assigned to the association his or her rights against the estate of the insolvent insurer.
To the extent necessary to secure funds for the association for payment of the administrative expenses of the association, covered claims of insolvent insurers, and for payment of reasonable costs of adjusting the claims, the association shall collect premium payments from its member insurers sufficient to discharge its obligations.
The association shall allocate its claim payments and costs, incurred or estimated to be incurred, to one or more of the following categories:
Workers’ compensation claims.
Homeowners’ claims and automobile claims, including all of the following:
Automobile material damage.
Automobile liability (both personal injury and death and property damage).
Medical payments.
Uninsured motorist claims.
Claims other than workers’ compensation, homeowners’, and automobile, as defined above.
Separate premium payments shall be required for each category.
The premium payments for each category shall be used to pay the claims and costs allocated to that category.
The rate of premium charged shall be a uniform percentage of net direct written premium in the preceding calendar year applicable to that category.
The rate of premium charges to each member insurer in the appropriate categories shall be based on the net direct written premium of each member insurer as shown in the latest year’s annual financial statement on file with the commissioner.
In cases of a dispute as to the amount of the net direct written premium between the association and one of its member insurers, the written decision of the commissioner shall be final.
Within 90 days after the filing of an annual statement, each member insurer shall file a report to the association indicating the amount of premiums not subject to the association’s premium charge and the amount of special excess workers’ compensation premiums for the preceding calendar year. The report is not required in any year in which a premium charge is not made by the association.
In charging premiums to member insurers, the association shall adjust, if necessary, the net direct written premiums shown on a member insurer’s annual statement by excluding any premiums written for any lines of insurance or types of coverage not covered by this article under paragraph (3) of subdivision (c) of Section 1063.1.
The premium charged to any member insurer for any of the three categories or a category established by the association shall not be more than 2 percent of the net direct written premium unless there are bonds outstanding that were issued pursuant to Article 14.26 (commencing with Section 1063.70).
If bonds issued pursuant to Article 14.26 (commencing with Section 1063.70) are outstanding, the premium charged to a member insurer for the category for which the bond proceeds are being used to pay claims and expenses shall not be more than 1 percent of the net direct written premium for that category.
The association may exempt or defer, in whole or in part, the premium charge of any member insurer, if the premium charge would cause the member insurer’s financial statement to reflect an amount of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance. However, during the period of deferment, no dividends shall be paid to shareholders or policyholders by the company whose premium charge was deferred.
Deferred premium charges shall be paid when the payment will not reduce capital or surplus below required minimums.
After all covered claims of insolvent insurers and expenses of administration have been paid, any unused premiums and any reimbursements or claims dividends from liquidators remaining in any category shall be retained by the association and applied to reduce future premium charges in the appropriate category.
The commissioner may suspend or revoke the certificate of authority to transact business in this state of a member insurer that fails to pay a premium when due and after demand has been made.
Interest at a rate equal to the current federal reserve discount rate plus 212 percent per annum shall be added to the premium of any member insurer that fails to submit the premium requested by the association within 30 days after the mailing request. However, in no event shall the interest rate exceed the legal maximum.
This section shall apply only to premium charges paid on or after January 1, 2017.
All proceedings in which the insolvent insurer is a party or is obligated to defend a party in any court in the state shall, subject to waiver by the association in specific cases involving covered claims and subject to waiver by the commissioner as to matters that are not covered claims, be stayed for 60 days from the date that an order of liquidation or an order of receivership with a finding of insolvency has been entered by a superior court in this state or by a court in the state of domicile of the insurer, and an additional time thereafter as may be determined necessary by the court to permit proper defense or conduct of all pending causes of action by the association or the commissioner, as applicable. The stay as to matters to which the insolvent insurer is a party shall be superseded by and when an injunction or stay order is entered by the court in this state having jurisdiction of the liquidation or the ancillary liquidation.
The liquidator, receiver, or statutory successor of an insolvent member insurer shall permit reasonable access by the association to the insolvent insurer’s records as is necessary for the association to carry out its duties with regard to covered claims. In addition, the liquidator, receiver, or statutory successor shall provide the association with copies of these records upon the reasonable request of the association and at the expense of the association.
When a liquidator, domiciliary or ancillary, is appointed in this state for any member insurer, the liquidator shall promptly give notice of his or her appointment and a brief description of the contents of this article and of the nature and functions of the association by prepaid first-class mail, to: (a) all persons known or reasonably expected to have or be interested in claims against the insurer, at the last known address within this state; (b) all insureds of the insurer, at the last known address within this state, accompanied by a notice of the date of termination of insurance; and (c) the board of governors of the association. That notice may, but need not be, combined with the notice provided for in Section 1021. When notice is being provided by an ancillary liquidator, notice is only required to the extent information is available to provide the notice. The ancillary liquidator may also rely on the notice provided by the domiciliary liquidator to satisfy the notice requirements of this section. The liquidator may also require that producers of record of the insurer give prompt written notice of the same information, by first-class mail, to their insureds at the last known address within this state. The liquidator shall also promptly publish the notice pursuant to the requirements of Section 1022 and by publication elsewhere in this state as the court shall direct.
Notwithstanding any other provision of law, the association shall be exempt from all license fees, income, franchise, privilege, property, or occupation taxes levied or assessed by this state, any municipality, county, or other political subdivision of this state. The rules of the commissioner promulgated pursuant to this article may exempt the association from: filing an annual statement, maintaining minimum required capital, paying any fees or reimbursements, or meeting any other requirement or doing any other thing required by this code or other laws relating to insurance.
The operation of the association shall at all times be subject to the regulation of the commissioner. The commissioner, or any deputy or examiner, or any person whom the commissioner shall appoint, shall have the power of visitation and examination into the affairs of the association and free access to all books, papers, and documents that relate to the business of the association, may summon and qualify witnesses under oath, and may examine officers, agents or employees, or any other person having knowledge of the affairs, transactions, or conditions of the association.
Any member insurer aggrieved by any action or decision of the association may appeal to the commissioner within 30 days after the action or decision of the association and after exhaustion of administrative remedies may seek court relief as provided in Section 12940.
All orders or decisions of the commissioner made pursuant to Chapter 1347, Statutes of 1969 (of which this article is a part) and the provisions thereof as amended from time to time, shall be subject to judicial review as provided in Section 12940.
The commissioner may, upon notice and opportunity for all interested parties to be heard, issue such rules, regulations and orders as may be necessary to carry out the provisions of this article. Such rules and regulations shall be adopted, amended or repealed in accordance with Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.
The association, its member insurers, and its officers, directors, agents or employees of the association, or its member insurers, shall under no circumstances be liable for any sum in excess of the amount of covered claims of the insolvent insurer, as defined under subdivision (c) of Section 1063.1 of this article and the costs of administration and the costs of loss adjustment, investigation and defenses relating to claims thereunder.
Any person or member made a party to any action, suit or proceeding because such person or member served on the board of governors or on a committee or was an officer or employee of the association shall be held harmless and be indemnified by the association against all liability and costs (including the amounts of judgments, settlements, fines or penalties) and expenses incurred in connection with such action, suit or proceeding; provided, however, such indemnification shall not be provided on any matter in which the person or member shall be finally adjudged in any such action, suit or proceeding to have committed a breach of duty involving gross negligence, dishonesty, willful misfeasance or reckless disregard of the responsibilities of his office.
The costs and expenses of such indemnification shall be prorated and paid for by the members in the same manner as provided in the plan of operations for the proration of premiums.
The provisions of this section shall not be construed as creating any right in any third person, and shall be applicable only as between the association and its member insurers and its officers, directors, agents, or employees of the association or its member insurers.
No member insurer of the association shall engage in the unlawful trade practice defined and condemned in subdivision (g) of Section 790.03.
The plan of operation adopted pursuant to subdivision (c) of Section 1063 shall contain provisions whereby each member insurer is required to recoup, in the year following the premium charge, a sum calculated to recoup the premium charge paid by the member insurer under this article by way of a surcharge on premiums charged for insurance policies to which this article applies.
Amounts recouped shall not be considered premiums for any other purpose, including the computation of gross premium tax or agents’ commission.
The plan of operation adopted pursuant to subdivision (c) of Section 1063 shall contain a provision requiring a member insurer to recoup the premium charge amount, as determined by the association, through a surcharge on premiums charged for insurance policies to which this article applies, even if a premium charge was not yet paid to the association because the member insurer had no direct written premium for insurance policies to which this article applies for the prior year. All surcharges collected in this manner shall be remitted to the association within 60 days of the end of the calendar year in which the surcharge is collected.
The amount of any surcharge shall be separately stated on either a billing or policy declaration sent to an insured. The association shall determine the rate of the surcharge and the collection period for each category, and these shall be mandatory for all member insurers of the association who write business in those categories.
Each member insurer shall file a report in accordance with the provisions of the plan of operation indicating the amount of surcharges it has collected.
Member insurers who collect surcharges in excess of premium charges paid in the preceding year pursuant to Section 1063.5 shall remit the excess to the association as an additional premium within 30 days after the association has determined the amount of the excess recoupment and given notice to the member insurer of that amount. The excess shall be applied to reduce future premium charges in the appropriate category.
Member insurers who report surcharge collections that are less than what they paid in the preceding year’s premium charge shall receive reimbursement from the association for the shortfall in surcharge collection.
Member insurers may amend their reports indicating the amount of surcharges collected for the prior five years if they discover there was an error in the original reports filed with the association.
The plan of operation may permit a member insurer to omit collection of the surcharge from any of its insureds only if the expense of collecting the surcharge would exceed the amount of the surcharge, provided, however, that a member insurer is not entitled to reimbursement from the association pursuant to subparagraph (B) of paragraph (2) of subdivision (b) of any amount omitted from collection pursuant to this subdivision.
This section applies only to premium charges paid on or after January 1, 2017.
The statement of the amount of surcharge required to be provided under subdivision (b) of Section 1063.14 shall include a description of, and purpose for, the California Insurance Guarantee Association, as follows:
“Companies writing property and casualty insurance business in California are required to participate in the California Insurance Guarantee Association. If a company becomes insolvent the California Insurance Guarantee Association settles unpaid claims and assesses each insurance company for its fair share.
California law requires all companies to surcharge policies to recover these assessments. If your policy is surcharged, ’CA Surcharge’ with an amount will be displayed on your premium notice.”
In any workers’ compensation matter the association shall have the same period of time within which to act or to exercise a right as is accorded to the insurer by the Labor Code, and those time periods shall be tolled against the association until 45 days after the appointment of a domiciliary or receiver.
All meetings of the board of governors of the association and its investment and audit committees shall be open and public, and all persons shall be permitted to attend any meeting of the association except as otherwise provided in subdivision (g). This shall apply to meetings conducted in person and via teleconference. Attendance at telephonically conducted meetings by members of the public shall be made available by the publication by the association in its meeting notices as set forth below of a call-in number and passcode that members of the public may use to participate in the meeting.
As used in this section, “meeting” includes any congregation of a majority of the members of the board of governors or the investment and audit committee, as applicable, at the same time to hear, discuss, or deliberate upon any item that is within the responsibility of the association as set forth in this article or in the association’s plan of operations. Notwithstanding the foregoing, a meeting shall not include any of the following:
Individual contacts or conversations between a member of the board of governors and any other person, including, but not limited to, any employee or official of the association, that do not violate subdivision (c).
The attendance of a majority of the members of the board of governors or a committee at an industry conference or other gathering organized by a person or organization other than the association, provided that a majority of the members do not discuss among themselves any item that is within the responsibility of the association as set forth in this article or in the association’s plan of operations.
The attendance of a majority of the members, the board of governors, or a committee at a purely social or ceremonial occasion, provided that a majority of the members do not discuss among themselves any item that is within the responsibility of the association as set forth in this article or in the association’s plan of operations.
All meetings of the association authorized under this article shall comply with the protections and prohibitions contained in Section 202 of the Americans with Disabilities Act of 1990 (42 U.S.C. Sec. 12132), and the federal rules and regulations adopted in implementation of that act.
The association shall provide notice of its meetings that are open and public pursuant to subdivision (a). This notice and an agenda of items to be discussed shall be provided at least 10 days in advance of the meeting via the association’s Internet Web site, and the notice shall be published in a newspaper of general circulation in the State of California. In addition, members of the public may request notice by regular mail or by e-mail by making a written request to the association for notice of meetings that are open and public pursuant to subdivision (a). Notice may be waived, or the 10-day period modified with respect to any particular meeting by the board of governors of the association upon request submitted to the commissioner stating the need for a modified notice and exigent circumstances requiring waiver of the notice requirement at least 24 hours in advance of the meeting time set. The approval of the commissioner shall be deemed granted if a written denial of the request for waiver or modification of the notice period is not received at least four hours prior to the commencement of the meeting to be conducted under the modified notice. Notice of a meeting that does not meet the 10-day notice requirement under this subdivision shall be posted on the association’s Internet Web site and provided by e-mail to members of the public who have made a written request for e-mail notice to the association of meetings that are open and public pursuant to subdivision (a). A summary agenda shall be included in each such notice, but members of the board of governors may bring additional items of business to any such meeting.
At any meeting where notice is required pursuant to this section, the association shall reserve time for public comment on the issues addressed at the meeting.
Nothing in this section shall be construed to prohibit the board of governors of the association or its investment and audit committees from holding a closed meeting or a closed session of an open and public meeting to discuss any of the following subjects:
Bond issuances or other matters relating to borrowings of the association.
Matters regarding the detection and prevention of insolvency of members of the association as contemplated by this article.
Nonpublic information received from liquidators, receivers, and regulators regarding members of the association.
Nonpublic information received from the California Liquidation Office.
Proprietary information regarding third-party administrators, vendors that provide products and services in connection with claims administration, or investments made by the association. Proprietary information also includes information which the association and its corresponding out-of-state associations only have access to pursuant to binding contractual confidentiality provisions.
Nonpublic financial information regarding members of the association, including information in support of requests for assessment deferrals.
Statutory interpretations and other advice received from legal counsel to the association, whether in connection with litigation or otherwise.
Appointment, employment, evaluation of performance, or dismissal of any employee or vendor that provides products and services in connection with claims administration of the association.
Deliberations concerning the purchase, sale, exchange, or lease of real or personal property, including investment property.
Matters posing a threat of criminal or terrorist activity against the association, its personnel, or its property.
Covered claims and purported covered claims against the association.
Disputes and purported disputes with or involving members of the association.
Any other matters as permitted by the commissioner under the association’s approved plan, provided such matters may be heard in a closed meeting or a closed session consistent with Section 11126 of the Government Code.
With respect to any closed meeting or session held as permitted by subdivision (g), the association shall do both of the following:
Disclose, prior to the closed meeting or the closed session, the general nature of the item or items to be discussed in the closed session. The disclosure may take the form of a reference to the item or items as they are listed by number or letter on the agenda. In the closed session, the board of governors may consider only those matters covered in its disclosure. After any closed session, the board of governors shall reconvene in open session prior to adjournment and shall make any reports, provide any documentation, or make any other disclosures that may be required consistent with this article. The announcements required to be made in open session pursuant to this subdivision may be made at the location announced in the agenda for the closed session, as long as the public is allowed to be present at that location for the purpose of hearing the announcement.
Provide periodic reports to the commissioner identifying the matters covered in each such closed meeting or session and the provision of subdivision (g) pursuant to which the subject was discussed.
Nothing in this section shall require or authorize the disclosure of names or other information that would constitute an invasion of privacy or otherwise unnecessarily divulge the particular facts concerning the closed session or the disclosure of which is prohibited by state or federal law.
The commissioner or his or her designated representative shall be permitted to attend all meetings of the board of governors and its investment and audit committees, specifically including closed meetings and sessions. Any information discussed in closed meetings or sessions shall be treated by the commissioner and his or her designated representatives as confidential pursuant to the provisions of Section 12919.
Nothing in this article requires a final determination of a claim in an insolvent insurer’s liquidation proceeding before a covered claim may be submitted to the California Insurance Guarantee Association (CIGA). Nothing in this article requires a claim to first be determined and approved by the liquidator before CIGA pays and discharges a covered claim. If a claim is presented to the association and all requirements under paragraph (1) of subdivision (c) of Section 1063.1 for processing a covered claim are satisfied, the association shall proceed to process the claim for payment under this article.
If the association provides a written denial of a nonworkers’ compensation claim, the person asserting the claim against the association shall have one year to bring an action challenging the denial, including an action for declaratory relief. If the written denial is based on a failure to exhaust other insurance available to pay the claim, a claim shall be reasserted against the association within six months after all other insurance has been exhausted.
The association may administer the Prescribed Fire Claims Fund established by Section 4500 of the Public Resources Code, subject to prior written approval by the commissioner. The association shall seek the commissioner’s approval by amending the association’s plan of operations in accordance with Section 1063.
Upon approval by the commissioner and if contracted to administer the Prescribed Fire Claims Fund by the Department of Forestry and Fire Protection on the department’s behalf, the association is authorized to administer or assist in administering the Prescribed Fire Claims Fund consistent with Section 4500 of the Public Resources Code. The association shall not settle or adjust any claims to the fund while seeking to subrogate against the fund.
The state, the association, the association’s member insurers, and officers, directors, agents, and employees of the association or its member insurers shall not be liable for claims for losses described in Section 4500 of the Public Resources Code in excess of the amount in the Prescribed Fire Claims Fund or for the costs of administration, loss adjustment, investigation, and defenses relating to those claims in excess of the amount in the fund.
This section shall remain in effect only until January 1, 2028, and as of that date is repealed, unless a later enacted statute that is enacted before January 1, 2028, deletes or extends that date.
ARTICLE 14.26. California Insurance Guarantee Association Bond Funds [1063.70. - 1063.78.]
The California Insurance Guarantee Association is authorized to pay and discharge certain claims of insolvent insurers as defined in Section 1063.1 through the collection of premiums from its members, which amounts are limited by law and take time to assess and collect. This article provides for the ability of CIGA to request the issuance of bonds by the California Infrastructure and Economic Development Bank pursuant to Article 8 (commencing with Section 63049.6) of Chapter 2 of Division 1 of Title 6.7 of the Government Code to more expeditiously and effectively provide for the payment of covered claims that arise as a result of the insolvencies of insurers admitted to transact insurance in at least one of the categories described in paragraph (2) of subdivision (a) of Section 1063.5. The bonds are to be paid from the special bond assessments assessed by CIGA for those purposes and the other funds provided pursuant to Section 1063.74. Special bond assessments to repay bonds issued for payment of insurance benefits shall be assessed, to the extent necessary, for the respective category for which bonds are issued. It is a public purpose and in the best interest of the public health, safety, and general welfare of the residents of this state to provide for the issuance of bonds to pay claimants and policyholders having covered claims against insolvent insurers operating in this state.
The terms “member insurer,” “insolvent insurer,” and “covered claims” have the meanings assigned those terms in Section 1063.1.
“Bank” means the California Infrastructure and Economic Development Bank created pursuant to Article 1 (commencing with Section 63020) of Chapter 2, Division 1 of Title 6.7 of the Government Code.
“Board” means the board of governors of CIGA.
“Bonds” means bonds issued by the Bank pursuant to Article 8 (commencing with Section 63049.6) of Chapter 2 of Division 1 of Title 6.7 of the Government Code to provide funds for the payment of the covered claims and the adjusting and defense expenses relating to those claims that are issued at the request of the board pursuant to Section 1063.73.
“Collateral” means the special bond assessments, the right of CIGA to be paid the special bond assessments, all revenues therefrom, the separate accounts of the Workers’ Compensation Bond Fund, the Homeowners’ and Automobile Bond Fund, and the Other Bond Fund into which special bond assessments are deposited, and the proceeds thereof.
“CIGA” means the California Insurance Guarantee Association, established pursuant to Article 14.2 (commencing with Section 1063).
“Commissioner” means the Insurance Commissioner.
“Department” means the Department of Insurance.
“Homeowners’ and Automobile Bond Fund” means the fund created pursuant to subdivision (b) of Section 1063.72.
“Other Bond Fund” means the fund created pursuant to subdivision (c) of Section 1063.72.
“Special bond assessment” means the premiums collected by CIGA pursuant to Section 1063.74.
“Workers’ Compensation Bond Fund” means the fund created pursuant to subdivision (a) of Section 1063.72.
The Workers’ Compensation Bond Fund is hereby created.
Proceeds from the sale of bonds with respect to the workers’ compensation category described in subparagraph (A) of paragraph (2) of subdivision (a) of Section 1063.5 shall be deposited in a separate account in the Workers’ Compensation Bond Fund. Only CIGA, and, with respect to payment of the bonds, the trustee for the bonds, shall have the ability to authorize disbursements from the separate account within the Workers’ Compensation Bond Fund.
Special bond assessments levied pursuant to Section 1063.74 with respect to the workers’ compensation category shall be deposited in a separate account in the Workers’ Compensation Bond Fund and shall not be commingled with any other moneys. Only the trustee for the bonds shall have the ability to authorize disbursements from this separate account within the Workers’ Compensation Bond Fund, and CIGA shall have no right or authority to authorize disbursements from this separate account.
The Workers’ Compensation Bond Fund shall be maintained with the trustee for the bonds. Following payment or provision for payment of the bonds, amounts in the Workers’ Compensation Bond Fund shall be transferred to the fund that is designated in the indenture for the bonds.
All money in the Workers’ Compensation Bond Fund and all special bond assessments levied pursuant to Section 1063.74 with respect to the workers’ compensation category shall be used by CIGA for the exclusive purpose of carrying out the purposes of this part. Notwithstanding any other law, the Workers’ Compensation Bond Fund is not a state fund and shall not be subject to the rules or procedures of any fund in the State Treasury, and application of the fund shall not be subject to the supervision or budgetary approval of any officer or division of state government.
CIGA and the trustee for the bonds may, as necessary or convenient to the accomplishment of any other purpose under this article, divide the Workers’ Compensation Bond Fund into separate accounts.
The Homeowners’ and Automobile Bond Fund is hereby created.
Proceeds from the sale of bonds with respect to the homeowners’ and automobile category described in subparagraph (B) of paragraph (2) of subdivision (a) of Section 1063.5 shall be deposited in a separate account in the Homeowners’ and Automobile Bond Fund. Only CIGA, and, with respect to payment of the bonds, the trustee for the bonds, shall have the ability to authorize disbursements from the separate account within the Homeowners’ and Automobile Bond Fund.
Special bond assessments levied pursuant to Section 1063.74 with respect to the homeowners’ and automobile category shall be deposited in a separate account in the Homeowners’ and Automobile Bond Fund and shall not be commingled with any other moneys. Only the trustee for the bonds shall have the ability to authorize disbursements from this separate account within the Homeowners’ and Automobile Bond Fund, and CIGA shall have no right or authority to authorize disbursements from this separate account.
The Homeowners’ and Automobile Bond Fund shall be maintained with the trustee for the bonds. Following payment or provision for payment of the bonds, amounts in the Homeowners’ and Automobile Bond Fund shall be transferred to the fund that is designated in the indenture for the bonds.
All money in the Homeowners’ and Automobile Bond Fund and all special bond assessments levied pursuant to Section 1063.74 with respect to the homeowners’ and automobile category shall be used by CIGA for the exclusive purpose of carrying out the purposes of this part. Notwithstanding any other law, the Homeowners’ and Automobile Bond Fund is not a state fund and shall not be subject to the rules or procedures of any fund in the State Treasury, and application of the fund shall not be subject to the supervision or budgetary approval of any officer or division of state government.
CIGA and the trustee for the bonds may, as necessary or convenient to the accomplishment of any other purpose under this article, divide the Homeowners’ and Automobile Bond Fund into separate accounts.
The Other Bond Fund is hereby created.
In the event CIGA determines that the insolvency of one or more member insurers providing insurance in at least one of the categories described in paragraph (2) of subdivision (a) of Section 1063.5 will result in covered claim obligations in excess of CIGA’s capacity to pay from current funds, the board, in its sole discretion, may by resolution request the Bank to issue bonds pursuant to Article 8 (commencing with Section 63049.6) of Chapter 2 of Division 1 of Title 6.7 of the Government Code to provide funds for the payment of the covered claims and the adjusting and defense expenses relating to those claims. Notwithstanding any other provision of law, CIGA is hereby authorized to borrow proceeds of the bonds to provide for those purposes. CIGA may request the Bank to issue bonds pursuant to Article 8 (commencing with Section 63049.6) of Chapter 2 of Division 1 of Title 6.7 of the Government Code. CIGA shall provide the commissioner with a copy of the request and the commissioner may, within 30 days of receipt of the request, modify, cancel, or require a delay in the requested issuance. The proceeds of bonds issued for any category of insurance benefits may be used by CIGA to reimburse funds advanced or temporarily loaned from other categories.
Notwithstanding any other limits on assessments, CIGA shall have the authority to levy upon member insurers special bond assessments in the amount necessary to pay the principal of and interest on the bonds, and to meet other requirements established by agreements relating to the bonds. The assessments shall be collected only from the member insurers providing insurance in the category described in paragraph (2) of subdivision (a) of Section 1063.5 for which the bonds are issued, and shall be applied in the same manner as separate premium payments are used to pay the claims and costs allocated to that category pursuant to Section 1063.5. Special bond assessments made pursuant to this section shall also be subject to the surcharge provisions in Sections 1063.14 and 1063.145.
Notwithstanding any other law, after all bonds issued pursuant to this article have been redeemed, no further initial special bond assessments shall be levied or made. Any premium adjustments called for and described in Section 1063.5, as applied to special bond assessments initially charged, shall continue to be made and determined. Any credits or charges that result from the premium adjustments on the special bond assessments shall be credited or charged to the assessments called for and described in Section 1063.5.
In addition to the special bond assessments provided for in this section, the board in its discretion and subject to other obligations of the association, may utilize current funds of CIGA, premium assessments made under Section 1063.5, and advances or dividends received from the liquidators of insolvent insurers to pay the principal of and interest on any bonds issued at the board’s request and shall utilize, to the extent feasible, the recoveries from the liquidators of the estates of insolvent insurers in the respective category of insurance to pay bonds issued at the board’s request to fund the corresponding insurance claims in that category of insurance.
Bonds issued to provide funds for covered claim obligations for workers’ compensation claims, homeowners’ and automobile claims, as described in subparagraph (B) of paragraph (2) of subdivision (a) of Section 1063.5, and other claims, as described in subparagraph (C) of paragraph (2) of subdivision (a) of Section 1063.5, shall be issued in an aggregate principal amount outstanding for each category not to exceed at any one time one billion five hundred million dollars ($1,500,000,000) for that category. Any bonds issued or issued to refund bonds shall not have a final maturity exceeding 20 years from the date of issuance. The bonds shall be issued at the request of CIGA, shall be in the form, shall bear the date or dates, and shall mature at the time or times as the indenture authorized by the request may provide. The bonds may be issued in one or more series, as serial bonds or as term bonds, or as a combination thereof, and, notwithstanding any other provision of law, the amount of principal of, or interest on, bonds maturing at each date of maturity need not be equal. The bonds shall bear interest at the rate or rates, variable or fixed or a combination thereof, be in the denominations, be in the form, either coupon or registered, carry the registration privileges, be executed in the manner, be payable in the medium of payment at the place or places within or without the state, be subject to the terms of redemption, contain the terms and conditions, and be secured by the covenants as the indenture may provide. The indenture may provide for the proceeds of the bonds and funds securing the bonds to be invested in any securities and investments, including investment agreements, as specified therein. CIGA may enter into or authorize any ancillary obligations or derivative agreements as it determines necessary or desirable to manage interest rate risk or security features related to the bonds. The bonds shall be sold at public or private sale by the Treasurer at, above, or below the principal amount thereof, on the terms and conditions and for the consideration in the medium of payment that the Treasurer shall determine prior to the sale.
The collateral shall be used solely for the purpose of paying the principal and redemption price of, and interest on, the bonds and any amounts owing by CIGA under contracts entered into pursuant to Section 1063.77, and shall not be used for any other purpose. Member insurers shall pay the special bond assessments directly to the trustee for the bonds. Any collateral in the possession of CIGA shall be held by CIGA in trust for the benefit of the trustee for the bonds.
Upon the issuance of the first bond, the collateral shall be subject to a first priority statutory lien in favor of the trustee for the bonds, for the benefit of the holders of the bonds and the parties to the contracts entered into pursuant to Section 1063.77, to secure the payment of the principal and redemption price of, and interest on, the bonds and any amounts owing by CIGA under contracts entered into pursuant to Section 1063.77. This lien shall arise by operation of law automatically without any action on the part of CIGA, the bank, or any other person. This lien is a continuous lien on all collateral effective from the time the first bond is issued, whether or not a particular item of collateral exists at the time of the issuance. From the time the first bond is issued, this lien shall be valid, effective, prior, perfected, binding, and enforceable against CIGA, its successors, purchasers of the collateral, creditors, and all others asserting rights in the collateral, irrespective of whether those parties have notice of the lien and without the need for any physical delivery, recordation, filing, or further act. Upon default in the payment of the principal or redemption price of, or interest on, the bonds, or any amounts owing by CIGA under contracts entered into pursuant to Section 1063.77, the trustee for the bonds shall be entitled to foreclose or otherwise enforce this lien on the collateral.
No person acting under any provision of law or principle of equity shall be permitted in any way to impede or in any manner interfere with (1) the full and timely payment of the principal and redemption price of, and interest on, the bonds and any amounts owing by CIGA under contracts entered into pursuant to Section 1063.77, or (2) the statutory lien created by this section and the full and timely application of the collateral to the payment of the principal and redemption price of, and interest on, the bonds and any amounts owing by CIGA under contracts entered into pursuant to Section 1063.77.
None of the collateral shall be subject to garnishment, levy, execution, attachment, or other process, writ (including writ of mandate), or remedy in connection with the assertion or enforcement of any debt, claim, settlement, or judgment against the state, the department, the commissioner, the bank, CIGA, or the board, nor shall any of the collateral be subject to the claims of any creditor of the state, the department, the commissioner, the bank, CIGA, or the board. This paragraph shall not limit the rights or remedies of the trustee for the bonds, the holders of the bonds, or the parties to contracts entered into pursuant to Section 1063.77.
CIGA is authorized to enter into those contracts or agreements with those banks, insurers, or other financial institutions or parties that it determines are necessary or desirable to improve the security and marketability of, or to manage interest rates or other risks associated with, the bonds issued pursuant to Article 8 (commencing with Section 63049.6) of Chapter 2 of Division 1 of Title 6.7 of the Government Code. Those contracts or agreements may contain an obligation to reimburse, with interest, any of those banks, insurers, or other financial institutions or parties for advances used to pay the purchase price of, or principal or interest on, the bonds or other obligations.
If the board requests the California Infrastructure and Economic Development Bank to issue bonds pursuant to Section 1063.70, the board shall report all of the following to the Assembly Committee on Insurance and the Senate Committee on Insurance within 60 days of the request, and annually thereafter while the bonds remain outstanding:
The amount of the bonds requested.
The reason for the requested bonds.
Details of covered claims obligations requiring the issuance of bonds.
Planned bond repayment assessments.
ARTICLE 14.3. Uniform Liquidation Act [1064.1. - 1064.13.]
For the purposes of this act:
“Insurer” means any person subject to the insurance supervisory authority of, or to liquidation, rehabilitation, reorganization, or conservation by the commissioner or the equivalent insurance supervisory official of another state.
“Delinquency proceeding” means any proceeding commenced against an insurer for the purpose of liquidating, rehabilitating, reorganizing, or conserving that insurer.
“Foreign country” means territory not in any state.
“Domiciliary state” means the state in which an insurer is incorporated or organized, or, in the case of an insurer incorporated or organized in a foreign country, the state in which the insurer, having become authorized to do business in the state, has, at the commencement of delinquency proceedings, the largest amount of its assets held in trust and assets held on deposit for the benefit of its policyholders or policyholders and creditors in the United States; and any such insurer is deemed to be domiciled in such state.
“Ancillary state” means any state other than a domiciliary state.
“Reciprocal state” means any state other than this state in which in substance and effect the provisions of this act are in force, including the provisions requiring that the commissioner or equivalent insurance supervisory official be the receiver of a delinquent insurer. A “reciprocal state” includes any state also which has, through its commissioner or equivalent supervisory official, entered into a binding and enforceable written agreement with the commissioner of this state which provides that (1) a commissioner or equivalent supervisory official is required to be the receiver of a delinquent insurer; (2) title to assets of the delinquent insurer shall vest in the domiciliary receiver, as of the date of any court order appointing him or her as receiver, and he or she shall have the same rights to recover those assets as provided under subdivision (b) of Section 1064.3; (3) nondomiciliary creditors may file and prove their claims before ancillary receivers; (4) the laws of the domiciliary state of the delinquent insurer shall be applied uniformly to residents and nonresidents in the allowance of preference of claims, except for claims to special deposits created under the laws of the domiciliary state; (5) preferences (including attachments, garnishments, and liens) for creditors with advance information shall be prevented; and (6) the domiciliary receiver may sue in the reciprocal state to recover any assets of a delinquent insurer to which he or she may be entitled under the law.
“General assets” means all property, real, personal, or otherwise, not specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons or limited class or classes of persons, and as to such specifically encumbered property the term includes all such property or its proceeds in excess of the amount necessary to discharge the sum or sums secured thereby. Assets held in trust and assets held on deposit for the security or benefit of all policyholders or all policyholders and creditors in the United States, shall be deemed general assets.
“Preferred claim” means any claim with respect to which the law of a state accords priority of payment from the general assets of the insurer.
“Special deposit claim” means any claim secured by a deposit made for the security or benefit of a limited class or classes of persons, but not including any general assets.
“Secured claim” means any claim secured by mortgage, trust, deed, pledge, deposit as security, escrow, or otherwise, but not including special deposit claims or claims against general assets. The term also includes claims, which more than four months prior to the commencement of delinquency proceedings in the state of the insurer’s domicile, have become liens upon specific assets by reason of judicial process.
“Receiver” means receiver, liquidator, rehabilitator, or conservator as the context may require.
Whenever under the laws of this state a receiver is to be appointed in delinquency proceedings for an insurer domiciled in this state, the court shall appoint the commissioner as receiver. Upon the appointment, the court shall direct the receiver forthwith to take possession of the assets of the insurer and to administer them under the orders of the court.
The domiciliary receiver and his or her successors in office shall be vested by operation of law with the title to all of the property, contracts, and rights of action, and all of the books and records of the insurer wherever located, as of the date of the order of his or her appointment, and he or she shall have the right to recover the same and reduce them to possession; except that ancillary receivers in reciprocal states shall have, as to assets located in their respective states, the rights and powers which are prescribed in this article for ancillary receivers appointed in this state as to assets located in this state. The filing or recording of the order appointing the receiver or certified copy thereof, in the office where instruments affecting title to property are required to be filed or recorded shall impart the same notice as would be imparted by a deed, bill of sale, or other evidence of title duly filed or recorded. The domiciliary receiver shall be responsible on his or her official bond for the proper administration of all assets coming into his or her possession or control.
Upon taking possession of the assets of a delinquent insurer the domiciliary receiver shall, subject to the direction of the court, and in accordance with those procedures that the receiver may petition the court to establish, immediately proceed to conduct the business of the insurer or to take the steps authorized by the laws of this state for the purpose of liquidating, rehabilitating, reorganizing, or conserving the affairs of the insurer. In connection with delinquency proceedings, he or she may appoint one or more special deputy commissioners to act for him or her, and may employ clerks and assistants as he or she deems necessary. The compensation of the special deputies, clerks, or assistants and all expenses of taking possession of the delinquent insurer and of conducting the delinquency proceedings shall be fixed by the receiver, subject to the approval of the court, and shall be paid out of the funds or assets of the insurer. Within the limits of the duties imposed upon them, special deputies shall possess all the powers given to them, and, in the exercise of those powers, shall be subject to all of the duties imposed upon the receiver with respect to delinquency proceedings.
Whenever under the laws of this state an ancillary receiver is to be appointed in delinquency proceedings for an insurer not domiciled in this state, the court shall appoint the commissioner as ancillary receiver. The commissioner shall file an application requesting the appointment (1) if he or she finds that there are sufficient assets of that insurer located in this state, or that there are sufficient persons residing in this state having claims against that insurer, to justify the appointment of an ancillary receiver, or (2) if 10 or more persons resident in this state having claims against that insurer file an application with the commissioner requesting the appointment of an ancillary receiver.
The domiciliary receiver of an insurer domiciled in a reciprocal state, shall be vested by operation of law with the title to all of the property, contracts, and rights of action, and all of the books and records of the insurer located in this state, and he or she shall have the immediate right to recover balances due from local agents and to obtain possession of any books and records of the insurer found in this state. He or she shall also be entitled to recover the other assets of the insurer located in this state except that upon the appointment of an ancillary receiver in this state, the ancillary receiver shall, during the ancillary receivership proceedings, have the sole right to recover such other assets. The ancillary receiver shall, as soon as practicable, liquidate from their respective securities those special deposit claims and secured claims which are proved and allowed in the ancillary proceedings in this state, and shall pay the necessary expenses of the proceedings. All remaining assets shall be promptly transferred to the domiciliary receiver. Subject to the foregoing provisions, the ancillary receiver and his or her deputies shall have the same powers and be subject to the same duties with respect to the administration of such assets, as a receiver of an insurer domiciled in this state.
Notwithstanding any other provision of this article, in any ancillary receivership proceeding in this state against an insurer domiciled in a reciprocal state, assets located in this state which comprise all or part of any deposit by that insurer under the laws of that reciprocal state for the benefit and security of beneficiaries of awards of workers’ compensation against insurers shall be returned promptly to the domiciliary receiver, if he or she so requests, without deduction of any amounts to satisfy claims of policyholders and creditors.
In a delinquency proceeding begun in this state against an insurer domiciled in this state, claimants residing in reciprocal states may file claims either with the ancillary receivers, if any in their respective states, or with the domiciliary receiver. All claims shall be filed on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings.
Controverted claims belonging to claimants residing in reciprocal states may either (1) be proved in this state as provided by law, or (2), if ancillary proceedings have been commenced in those reciprocal states, be proved in those proceedings. In the event a claimant elects to prove his or her claim in ancillary proceedings, if notice of the claim and opportunity to appear and be heard is afforded the domiciliary receiver of this state as provided in Section 1064.5 with respect to ancillary proceedings in this state, the final allowance of such claim by the courts in the ancillary state shall be accepted in this state as conclusive as to its amount, and shall also be accepted as conclusive as to its priority, if any, against special deposits or other security located within the ancillary state.
In a delinquency proceeding in a reciprocal state against an insurer domiciled in that state, claimants against such insurer who reside within this state may file claims either with the ancillary receiver, if any, appointed in this state, or with the domiciliary receiver. All such claims shall be filed on or before the last date fixed for the filing of claims in the domiciliary delinquency proceeding.
Controverted claims belonging to claimants residing in this state may either (1) be proved in the domiciliary state as provided by the laws of that state, or (2), if ancillary proceedings have been commenced in this state, be proved in those proceedings. In the event that any such claimant elects to prove his or her claim in this state, he or she shall file his or her claim with the ancillary receiver in the manner provided by the law of this state for the proving of claims against insurers domiciled in this state, and he or she shall give notice in writing to the receiver in the domiciliary state, either by registered mail or by personal service at least 40 days prior to the date set for hearing. The notice shall contain a concise statement of the amount of the claim, the facts on which the claim is based, and the priorities asserted, if any. If the domiciliary receiver, within 30 days after the giving of notice, shall give notice in writing to the ancillary receiver and to the claimant, either by registered mail or by personal service, of his or her intention to contest that claim, he or she shall be entitled to appear or to be represented in any proceeding in this state involving the adjudication of the claim. The final allowance of the claim by the courts of this state shall be accepted as conclusive as to its amount, and shall also be accepted as conclusive as to its priority, if any, against special deposits or other security located within this state.
In a delinquency proceeding against an insurer domiciled in this state, claims owing to residents of ancillary states shall be preferred claims if like claims are preferred under the laws of this state. All such claims, whether owing to residents or nonresidents, shall be given equal priority of payment from general assets regardless of where such assets are located.
In a delinquency proceeding against an insurer domiciled in a reciprocal state, claims owing to residents of this state shall be preferred if like claims are preferred by the laws of that state.
The owners of special deposit claims against an insurer for which a receiver is appointed in this or any other state shall be given priority against their several special deposits in accordance with the provisions governing the creation and maintenance of such deposits. If there is a deficiency in any such deposit so that the claims secured thereby are not fully discharged therefrom, the claimants may share in the general assets, but, unless applicable law provides otherwise, the sharing shall be deferred until general creditors, and also claimants against other special deposits who have received smaller percentages from their respective special deposits, have been paid percentages of their claims equal to the percentage paid from the special deposit.
The owner of a secured claim against an insurer for which a receiver has been appointed in this or any other state may surrender his or her security and file his or her claim as a general creditor, or the claim may be discharged by resort to the security, in which case the deficiency, if any, shall be treated as a claim against the general assets of the insurer on the same basis as claims of unsecured creditors. If the amount of the deficiency has been adjudicated in ancillary proceedings as provided in this article, or if it has been adjudicated by a court of competent jurisdiction in proceedings in which the domiciliary receiver has had notice and opportunity to be heard, that amount shall be conclusive; otherwise the amount shall be determined in the delinquency proceeding in the domiciliary state.
During the pendency of delinquency proceedings in this or any reciprocal state, no action or proceeding in the nature of an attachment, garnishment, or execution shall be commenced or maintained in the courts of this state against the delinquent insurer or its assets. Any lien obtained by any such action or proceeding within four months prior to the commencement of any such delinquency proceeding or at any time thereafter shall be void as against any rights arising in such delinquency proceeding.
The domiciliary receiver of an insurer domiciled in a reciprocal state may sue in this state to recover any assets of that insurer to which he or she may be entitled under the laws of this state.
If any provision of this article or the application thereof to any person or circumstances is held invalid, that invalidity shall not affect other provisions or applications of the article which can be given effect without the invalid provision or application, and to this end the provisions of this article are declared to be severable.
This article may be referred to as the “Uniform Insurers Rehabilitation Act.”
The Uniform Insurers Rehabilitation Act shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states that enact it. To the extent that its provisions, when applicable, conflict with Article 14 (commencing with Section 1010), the provisions of this article shall control. The provisions of Article 14 (commencing with Section 1010) not in conflict with this article shall be unaffected by it.
This article does not apply in regard to insurers domiciled in any state that is not a reciprocal state, and to any insurer domiciled in a reciprocal state before that state appoints a domiciliary receiver for the insurer. All those insurers shall be governed by Article 14 (commencing with Section 1010). If a domiciliary receiver is appointed in a reciprocal state while a receivership is proceeding under Article 14 (commencing with Section 1010), the receiver under that article shall thereafter act as ancillary receiver under Section 1064.3.
This article shall not apply to the State Compensation Insurance Fund.
Upon receipt of a notice of liquidation the commissioner shall cease imposing, billing or collecting fees and assessments against the subject company pursuant to this code.
Upon receipt of a notice of conservation or administrative supervision the commissioner may cease to impose, bill, or collect fees against the subject company pursuant to this code. Following the date the order has been lifted the commissioner may once again impose, bill, or collect fees against the subject company.
Upon receipt of a notice of liquidation all outstanding invoices, billings or assessments pursuant to this code prior to the date of the notice shall be cancelled.
Upon issuance of a notice of conservation or administrative supervision, outstanding amounts due from the subject company imposed prior to the date of the conservation or administrative supervision, may be held in abeyance and remain unpaid until the conservation or administrative supervision is terminated. Late filing fees accrued pursuant to Section 12995 of this code shall not be imposed.
If it is determined that an insurer is in any of the conditions enumerated in Section 1011, and it is determined that all available funds are needed to pay policyholders, the commissioner may suspend the imposition of fees or assessments until the condition of the insurer has improved to the extent where payment of fees or assessments will not harm policyholders.
ARTICLE 14.5. Stop Order Power of the Commissioner [1065.1. - 1065.7.]
Whenever the commissioner has reasonable cause to believe, and determines, after a public hearing, that any person specified in Section 1010 is conducting its business and affairs in such a manner as to threaten to render it insolvent, or that it is in a hazardous condition, or is conducting its business and affairs in a manner which is hazardous to its policyholders, creditors or the public, or that it has committed or engaged in, or is committing or engaging in, any act, practice, or transaction which under any provision of this code would constitute ground rendering the person subject to conservation or liquidation proceedings, he may make and serve upon the person such order or orders as shall be reasonably necessary to correct, eliminate or remedy such conduct, condition or ground.
The commissioner shall serve notice of any hearing required by this article upon the person, stating the time and place therefor, and the conduct, condition or ground upon which the commissioner would make his order. The hearing shall occur not less than 20 nor more than 30 days after notice is served upon the person.
Whenever it appears to the commissioner that any conduct, condition or ground set forth in Section 1065.1 exists, and that irreparable loss and injury to the property and business of a person specified in Section 1010 has occurred or may occur unless the commissioner acts immediately, the commissioner may, without notice, and before hearing, issue and cause to be served upon such person an order requiring such person to forthwith cease and desist from engaging further in the acts, practices or transactions which are causing such conduct, condition or ground to exist.
At the same time an order is served pursuant to subdivision (a) of this section, the commissioner shall issue and also serve upon the person a notice of hearing to be held at a time and place fixed therein which shall not be less than 20 or more than 30 days after the service thereof. The notice shall contain a statement of the conduct, condition or ground which the commissioner deems violative of the provisions of Section 1065.1.
At any time prior to the commencement of a hearing as provided in Section 1065.1 or subdivision (b) of this section, the person may waive the hearing and have judicial review of the order by means of any remedy afforded by law without first exhausting administrative remedies or procedures.
If, after hearing as provided by Section 1065.1 or subdivision (b) of Section 1065.2, any of the statements as to conduct, conditions, or grounds in the notice are found to be true, the commissioner shall make an order or orders as may be reasonably necessary to correct, eliminate, or remedy the conduct, conditions, or grounds. As part of the order or orders, the commissioner may also order the person to whom the order is directed to fully reimburse the commissioner for the commissioner’s costs in investigating, examining, and prosecuting the matter. An order of reimbursement shall be enforced as provided in Section 1065.5.
Any person subject to an order or proceeding pursuant to this article shall be entitled to judicial review of the order or proceeding by means of any remedy afforded by law. Proceedings for judicial review shall be commenced within 60 days from the making and service of any order issued pursuant to Sections 1065.1 or 1065.3.
If any person violates or fails to comply with any order of the commissioner or any part thereof which as to such person has become final and is still in effect, the commissioner may, after a hearing, notice of which shall be given in accordance with the provisions of Section 1065.1, at which it is determined that a violation of such order has been committed, further order that:
Such person shall forfeit and pay to the State of California a sum not to exceed one hundred dollars ($100) per day for each and every day that such violation or failure to comply shall continue, but in no event to exceed a maximum amount of five thousand dollars ($5,000). Such liability shall be enforced in an action brought in any court of competent jurisdiction by the commissioner in the name of the people of the State of California; and that
Proceedings be commenced to revoke or suspend any license or certificate of authority held by such person under this code, in accordance with the procedures provided therefor.
The powers vested in the commissioner by this article shall be additional to any and all other powers and remedies vested in the commissioner by law, and nothing herein shall be construed as requiring that the commissioner shall employ the powers conferred herein instead of or as a condition precedent to the exercise of any other power or remedy vested in the commissioner.
Any order or notice of the commissioner hereunder may be served on any person, in the same manner and with the same effect as provided for in civil actions in a superior court of this state.
ARTICLE 14.7. California Life and Health Insurance Guarantee Association [1067. - 1067.19.]
This article shall be known and may be cited as the California Life and Health Insurance Guarantee Association Act.
The purpose of this article is to protect, subject to certain limitations, the persons specified in Section 1067.02 against failure in the performance of contractual obligations, under life and health insurance policies and annuity contracts specified in Section 1067.02, because of the impairment or insolvency of the member insurer that issued the policies or contracts.
To provide this protection, an association of insurers is created to pay benefits and to continue coverages as limited herein, and members of the association are subject to assessment to provide funds to carry out the purposes of this article.
This article shall provide coverage for the policies and contracts specified in subdivision (b) to all of the following:
To persons who, regardless of where they reside (except for nonresident certificate holders under group policies or contracts), are the beneficiaries, assignees, or payees of the persons covered under paragraph (2).
To persons who are owners of or certificate holders under the policies or contracts, other than structured settlement annuities, and in each case who either:
Are residents of this state.
Are not residents, but only under all of the following conditions:
The insurer that issued the policies or contracts is domiciled in this state.
The states in which the persons reside have associations similar to the association created by this article.
The persons are not eligible for coverage by the association in their resident state due to the fact that the insurer was not licensed in that state at the time specified in that state’s guaranty association law.
For structured settlement annuities specified in subdivision (b), paragraphs (1) and (2) of this subdivision shall not apply, and this article shall, except as provided in paragraphs (4) and (5) of this subdivision, provide coverage to a person who is a payee under a structured settlement annuity, or beneficiary of a payee if the payee is deceased, if the payee is either:
A resident of this state, regardless of where the contract owner resides.
Not a resident, but only if both of the following conditions are satisfied:
The contract owner of the structured settlement annuity is a resident, or the contract owner of the structured settlement annuity is not a resident, but the insurer that issued the structured settlement annuity is domiciled in this state, and the state in which the contract owner resides has an association similar to the association created by this article.
Neither the payee, or beneficiary, nor the contract owner is eligible for coverage by the association of the state in which the payee or contract owner resides.
This article shall not provide coverage to a person who is a payee, or beneficiary, of a contract owner resident of this state, if the payee, or beneficiary, is afforded coverage by the association of another state.
This article is intended to provide coverage to a person who is a resident of this state and, in special circumstances, to a nonresident. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this article is provided coverage under the laws of any other state, the person shall not be provided coverage under this article. In determining the application of the provisions of this paragraph in situations where a person could be covered by the association of more than one state, whether as an owner, payee, beneficiary, or assignee, this article shall be construed in conjunction with other state laws to result in coverage by only one association.
This article shall provide coverage to the persons specified in subdivision (a) for direct, nongroup life, health, or annuity policies or contracts, and supplemental contracts to any of these, and for certificates under direct group policies and contracts, except as limited by this article. Annuity contracts and certificates under group annuity contracts include allocated funding agreements, structured settlement annuities, and any immediate or deferred annuity contracts. The health policies and contracts covered under this article include, but are not limited to, basic hospital, medical, and surgical insurance, major medical insurance, disability income insurance, disability insurance, including insurance appertaining to injury, disablement, or death resulting to the insured from accidents, and appertaining to disablements resulting to the insured from sickness, and long-term care insurance, including any net cash surrender and net cash withdrawal values.
This article shall not provide coverage for any of the following:
Any portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy owner or contract owner.
Any policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract.
A portion of a policy or contract to the extent that the rate of interest on which it is based or the interest rate, crediting rate, or similar factor determined by the use of an index or other external reference which is stated in the policy or contract and employed in calculating returns or changes in value does both of the following:
Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting two percentage points from Moody’s Corporate Bond Yield Average averaged for that same four-year period or for the lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this article, not to go below a minimum of 0 percent.
On and after the date on which the member insurer becomes an impaired or insolvent insurer under this article exceeds the rate of interest determined by subtracting three percentage points from Moody’s Corporate Bond Yield Average as most recently available, not to go below a minimum of 0 percent.
An unallocated annuity contract.
A portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others, to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or other person under any of the following:
A multiple employer welfare arrangement as defined in Section 1144 of Title 29 of the United States Code.
A minimum premium group insurance plan.
A stop-loss group insurance plan.
An administrative services only contract.
A portion of a policy or contract to the extent that it provides for any of the following:
Dividends or experience rating credits.
Voting rights.
Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract.
Any policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this state.
Any annuity issued by a charitable organization that is duly qualified as such under applicable provisions of the Internal Revenue Code, and that is not engaged in the business of insurance as its primary business.
A portion of a policy or contract to the extent that the assessments required by Section 1067.08 with respect to the policy or contract are preempted or otherwise not permitted by federal or state law.
An obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including without limitation, any of the following:
Claims based on marketing materials.
Claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements.
Misrepresentations of, or regarding, policy benefits.
Extracontractual claims.
A claim for penalties or consequential or incidental damages.
A contractual agreement that establishes the member insurer’s obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer.
A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner’s rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this article, whichever is earlier. If a policy’s or contract’s interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture pursuant to this subparagraph, the interest or change in value determined by using the procedures defined in the policy or contract shall be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and shall not be subject to forfeiture.
A policy or contract providing any hospital, medical, prescription drug, or other health care benefits pursuant to Part C of Title XVIII of the Social Security Act (42 U.S.C. Sec. 1395w-21 et seq.) or Part D of Title XVIII of the Social Security Act (42 U.S.C. Sec. 1395w-101 et seq.), commonly known as Medicare Parts C and D, or any regulations issued pursuant thereto.
The benefits for which the association may become liable for life insurance and annuity policies shall in no event exceed the lesser of the following:
Three hundred thousand dollars ($300,000) in life insurance death benefits, but not more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal values for life insurance.
Two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values.
The health insurance benefits for which the association may become liable shall in no event exceed the lesser of the following:
The limitations set forth in subdivisions (c) and (d) are limitations on the benefits for which the association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the association’s obligations under this article may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights.
In performing its obligations to provide coverage under Section 1067.07, the association shall not be required to guarantee, assume, reinsure, or perform, or cause to be guaranteed, assumed, reinsured, or performed, the contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic values or economic benefits of the covered policy or contract.
This article shall be liberally construed to effect the purpose under Section 1067.01.
As used in this article:
“Account” means either of the two accounts created under Section 1067.05.
“Association” means the California Life and Health Insurance Guarantee Association created pursuant to Section 1067.05.
“Authorized assessment” means an assessment, to be called immediately or in the future from member insurers for a specified amount, that is authorized by a resolution of the board of directors. “Authorized,” when used in the context of assessments, means authorized by a resolution of the board of directors. An assessment is authorized when this resolution is passed.
“Benefit plan” means a specific employee, union, or association of natural persons benefit plan.
“Called assessment” means an assessment as to which a notice has been issued by the association to member insurers requiring that an authorized assessment be paid within a timeframe set forth in the notice. “Called,” when used in the context of assessments, means required by notice to be paid by member insurers. An authorized assessment becomes a called assessment when notice is mailed by the association to member insurers.
“Commissioner” means the Insurance Commissioner.
“Contractual obligation” means any obligation under a policy or contract, or certificate under a group policy or contract, or portion thereof, for which coverage is provided under Section 1067.02.
“Covered policy” means a policy or contract or portion of a policy or contract for which coverage is provided under Section 1067.02.
“Extracontractual claims” shall include, for example, claims relating to bad faith in the payment of claims, punitive or exemplary damages, or attorney’s fees and costs.
“Impaired insurer” means a member insurer which, after the effective date of this article, is not an insolvent insurer, and is placed under an order of rehabilitation or conservation by a court of competent jurisdiction.
“Insolvent insurer” means a member insurer that, after October 1, 1990, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency.
“Member insurer” means any insurer licensed or which holds a certificate of authority to transact in this state any kind of insurance for which coverage is provided under Section 1067.02 and includes any insurer whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, but does not include any of the following:
A hospital or medical service organization, whether for profit or nonprofit.
A health maintenance organization.
A fraternal benefit society.
A mandatory state pooling plan.
A mutual assessment company or other person that operates on an assessment basis.
An insurance exchange.
An organization that has a certificate or license limited to the issuance of charitable gift annuities.
A grants and annuities society holding a certificate of authority under Section 11520.
An entity similar to any of the above.
“Moody’s Corporate Bond Yield Average” means the Monthly Average Corporates as published by Moody’s Investors Service, Inc., or any successor thereto.
“Owner” of a policy or contract and “policy owner” and “contract owner” mean the person who is identified as the legal owner under the terms of the policy or contract or who is otherwise vested with legal title to the policy or contract through a valid assignment completed in accordance with the terms of the policy or contract and properly recorded as the owner on the books of the insurer. The terms owner, contract owner, and policy owner do not include persons with a mere beneficial interest in a policy or contract.
“Person” means an individual, corporation, limited liability company, partnership, association, governmental body or entity, or voluntary organization.
“Plan sponsor” means any of the following:
The employer in the case of a benefit plan established or maintained by a single employer.
The employee organization in the case of a benefit plan established or maintained by an employee organization.
In a case of a benefit plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the benefit plan.
“Premiums” means amounts or considerations, by whatever name called, received on covered policies or contracts less returned premiums, considerations, and deposits and less dividends and experience credits.
“Premiums” does not include amounts or considerations received for policies or contracts or for the portions of policies or contracts for which coverage is not provided under subdivision (b) of Section 1067.02, except that assessable premium shall not be reduced on account of subparagraph (C) of paragraph (2) of subdivision (b) of Section 1067.02 relating to interest limitations and paragraph (2) of subdivision (c) of Section 1067.02 relating to limitations with respect to one individual, one participant, and one contract owner.
“Premiums” does not include any of the following:
Premiums on an unallocated annuity contract.
With respect to multiple nongroup policies of life insurance owned by one owner, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, premiums in excess of five million dollars ($5,000,000) with respect to these policies or contracts, regardless of the number of policies or contracts held by the owner.
“Principal place of business” of a plan sponsor or a person other than a natural person means the single state in which the natural persons who establish policy for the direction, control, and coordination of the operations of the entity as a whole primarily exercise that function, determined by the association in its reasonable judgment by considering all the following factors:
The state in which the primary executive and administrative headquarters of the entity are located.
The state in which the principal office of the chief executive officer of the entity is located.
The state in which the board of directors, or similar governing persons, of the entity conducts the majority of its meetings.
The state in which the executive or management committee of the board of directors, or similar governing persons, of the entity conducts the majority of its meetings.
The state from which the management of the overall operations of the entity is directed.
In the case of a benefit plan sponsored by affiliated companies comprising a consolidated corporation, the state in which the holding company or controlling affiliate has its principal place of business as determined using the above factors. However, in the case of a plan sponsor, if more than 50 percent of the participants in the benefit plan are employed in a single state, that state shall be deemed to be the principal place of business of the plan sponsor.
The principal place of business of a plan sponsor of a benefit plan shall be deemed to be the principal place of business of the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the benefit plan that, in lieu of a specific or clear designation of a principal place of business, shall be deemed to be the principal place of business of the employer or employee organization that has the largest investment in the benefit plan in question.
“Receivership court” means the court in the insolvent or impaired insurer’s state having jurisdiction over the conservation, rehabilitation, or liquidation of the insurer.
“Resident” means a person to whom a contractual obligation is owed and who resides in this state on the date of entry of a court order that determines a member insurer to be an impaired insurer or a court order that determines a member insurer to be an insolvent insurer. A person may be a resident of only one state, which in the case of a person other than a natural person shall be its principal place of business. Citizens of the United States who are either residents of foreign countries, or residents of United States’ possessions, territories, or protectorates that do not have an association similar to the association created by this article shall be deemed residents of the state of domicile of the insurer that issued the policies or contracts.
“State” means a state, the District of Columbia, Puerto Rico, and a United States possession, territory, or protectorate.
“Structured settlement annuity” means an annuity purchased in order to fund periodic payments for a plaintiff or other claimant in payment for, or with respect to, personal injury suffered by the plaintiff or other claimant.
“Supplemental contract” means a written agreement entered into for the distribution of proceeds under a life, health, or annuity policy or a life, health, or annuity contract.
“Unallocated annuity contract” means an annuity contract or group annuity certificate which is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under the contract or certificate.
A nonprofit legal entity to be known as the California Life and Health Insurance Guarantee Association shall exist as a result of the merger of the Seastrand Health Insurance Guaranty Association with and into the California Life Insurance Guaranty Association pursuant to Section 1067.055. All member insurers shall be and remain members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under the plan of operation established and approved under Section 1067.09 and shall exercise its powers through a board of directors established under Section 1067.06. For purposes of administration and assessment, the association shall maintain the following two accounts:
The life insurance and annuity account which includes both of the following subaccounts:
The life insurance account.
The annuity account, which shall include annuity contracts owned by a governmental retirement plan, or its trustee, established under Section 401, 403(b), or 457 of the Internal Revenue Code.
The health insurance account.
The association shall come under the immediate supervision of the commissioner and shall be subject to the applicable provisions of the insurance laws of this state. Meetings or records of the association may be opened to the public upon majority vote of the board of directors of the association.
In order to provide for the merger of the Seastrand Health Insurance Guaranty Association with and into the California Life Insurance Guaranty Association, the following shall apply:
Notwithstanding the repeal of the California Life Insurance Guaranty Association Act and the Seastrand Health Insurance Guaranty Association Act, the Seastrand Health Insurance Guaranty Association shall, effective immediately prior to that repeal, be merged with and into the California Life Insurance Guaranty Association, which shall then be known as the California Life and Health Insurance Guarantee Association.
Notwithstanding the repeal of the California Life Insurance Guaranty Association Act and the Seastrand Health Insurance Guaranty Association Act, but subject to the last sentence of this subdivision, all of the following shall apply:
The association shall succeed, without other transfer, to all the rights, powers, privileges, assets, and property of each of the California Life Insurance Guaranty Association and the Seastrand Health Insurance Guaranty Association, which for the purposes of this section shall be referred collectively as the merging associations. The association shall be subject to all debts, obligations, and liabilities of each merging association in the same manner as if the association had itself incurred them, in each case under the law in effect prior to the effective date of this article, as those rights, powers, privileges, obligations, debts, and liabilities may be amended and restated in this article, and in each case with respect to member insurers that became impaired insurers or insolvent insurers prior to the effective date of this article and after October 1, 1990. Without limiting the generality of the foregoing, the association shall succeed to (A) all collected, uncollected, or unbilled assessments of the merging associations, (B) all cash, bank accounts, and accrued interest of the merging associations, (C) all rights, powers, privileges, and obligations of the merging associations under any contracts or commitments of the merging association, (D) all subrogations, assignments, and creditor rights and interests of the merging associations, and (E) all rights, powers, privileges, and obligations of each of the trusts established on December 31, 1993, by each of the merging associations as settlor.
All rights of creditors and all liens upon the property of each of the merging associations shall be preserved unimpaired, provided that the liens upon property of a merging association shall be limited to the property affected thereby immediately prior to the effective date of this article.
Any action or proceeding pending by or against a merging association may be prosecuted to judgment, which shall bind the association, or the association may be proceeded against or be substituted in its place.
Notwithstanding the other provisions of this subdivision, all debts, obligations, and liabilities of a merging association that were to be paid out of a specified account of the merging association shall be paid solely out of the assets of that merging association that were available to that merging association to pay those debts and liabilities, including, without limitation, collected, uncollected, or unbilled assessments, and any and all subrogation, assignment, and creditor rights, or out of assets in the same type of account of the association.
Notwithstanding any other provision to the contrary in this article:
The board of directors of the association shall consist of not less than 9 nor more than 13 member insurers serving terms as established in the plan of operation. The insurer members of the board shall be selected by member insurers subject to the approval of the commissioner. The board shall also include two additional members who represent the public generally. The public representatives shall be appointed by the commissioner. A public representative may not be an officer, director, or employee of an insurance company or a health maintenance organization, or any person engaged in the business of insurance. Vacancies on the board shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner. To select the initial board of directors, and initially organize the association, the commissioner shall give notice to all member insurers of the time and place of the organizational meeting. In determining voting rights at the organizational meeting each member insurer shall be entitled to one vote in person or by proxy. If the board of directors is not selected within 60 days after notice of the organizational meeting, the commissioner may appoint the initial members.
In approving selections or in appointing members to the board, the commissioner shall consider, among other things, whether all member insurers are fairly represented.
Members of the board may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors, but members of the board shall not otherwise be compensated by the association for their services.
If a member insurer is an impaired insurer, the association may, in its discretion, and subject to the conditions imposed by the association that do not impair the contractual obligations of the impaired insurer and that are approved by the commissioner, do any of the following:
Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the policies or contracts of the impaired insurer.
Provide moneys, pledges, loans, notes, guarantees, or other means to effectuate paragraph (1) and assure payment of the contractual obligations of the impaired insurer pending action under paragraph (1).
If a member insurer is an insolvent insurer, the association shall, in its discretion, either do those things described in paragraph (1) or in paragraph (2):
Guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, the policies or contracts of the insolvent insurer; or
Assure payment of the contractual obligations of the insolvent insurer; and
Provide moneys, pledges, loans, notes, guarantees, or other means reasonably necessary to discharge the association’s duties.
Provide benefits and coverages in accordance with the following provisions:
With respect to life and health insurance policies and annuities, assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability, that would have been payable under the policies or contracts of the insolvent insurer, for claims incurred:
With respect to group policies and contracts, not later than the earlier of the next renewal date under those policies or contracts or 45 days, but in no event less than 30 days, after the date on which the association becomes obligated with respect to the policies and contracts.
With respect to nongroup policies, contracts, and annuities, not later than the earlier of the next renewal date, if any, under the policies or contracts or one year, but in no event less than 30 days, from the date on which the association becomes obligated with respect to the policies or contracts.
Make diligent efforts to provide all known insureds or annuitants, for nongroup policies and contracts, or group policy owners with respect to group policies and contracts, 30 days’ notice of the termination, pursuant to subparagraph (A), of the benefits provided.
With respect to nongroup life and health insurance policies and annuities covered by the association, make available to each known insured or annuitant, or owner if other than the insured or annuitant, and with respect to an individual formerly insured or formerly an annuitant under a group policy who is not eligible for replacement group coverage, make available substitute coverage on an individual basis in accordance with subparagraph (D), if the insureds or annuitants had a right under law or the terminated policy or annuity to convert coverage to individual coverage or to continue an individual policy or annuity in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in a provision of the policy or annuity or had a right only to make changes in premium by class.
In providing the substitute coverage required under subparagraph (C), the association may offer either to reissue the terminated coverage or to issue an alternative policy and shall consider obtaining coverage for a medically uninsurable person.
Alternative or reissued policies shall be offered without requiring evidence of insurability, and shall not provide for a waiting period or exclusion that would not have applied under the terminated policy.
The association may reinsure an alternative or reissued policy.
Alternative policies adopted by the association shall be subject to the approval of the commissioner. The association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.
Alternative policies shall contain at least the minimum statutory provisions required in this state and provide benefits that shall not be unreasonable in relation to the premium charged. The association shall set the premium in accordance with a table of rates that it shall adopt. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but shall not reflect the changes in the health of the insured after the original policy was last underwritten.
An alternative policy issued by the association shall provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the association.
If the association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the association in accordance with the amount of insurance provided and the age and class of risk, subject to approval of the commissioner or by a court of competent jurisdiction.
The association’s obligations with respect to coverage under a policy of the impaired or insolvent insurer or under a reissued or alternative policy shall cease on the date the coverage or policy is replaced by another similar policy by the policy owner, the insured, or the association.
When proceeding under this paragraph with respect to a policy or contract carrying guaranteed minimum interest rates, the association shall assure the payment or crediting of a rate of interest consistent with subparagraph (C) of paragraph (2) of subdivision (b) of Section 1067.02.
Nonpayment of premiums within 31 days after the date required under the terms of a guaranteed, assumed, alternative, or reissued policy or contract or substitute coverage shall terminate the association’s obligations under the policy or coverage under this article with respect to that policy or coverage, except with respect to the claims incurred or a net cash surrender value that may be due in accordance with this article.
Premiums due for coverage after entry of an order of liquidation of an insolvent insurer shall belong to and be payable at the direction of the association, and the association shall be liable for unearned premiums due to policy or contract owners arising after the entry of that order.
The protection provided by this article shall not apply if a guarantee protection is provided to residents of this state by the laws of the domiciliary state or jurisdiction of the impaired or insolvent insurer other than this state.
In carrying out its duties under subdivision (b), the association may, subject to approval by a court of competent jurisdiction, do either of the following:
Impose permanent policy or contract liens in connection with a guarantee, assumption, or reinsurance agreement, if the association finds that the amounts that can be assessed under this article are less than the amounts needed to assure full and prompt performance of the association’s duties under this article, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to render the imposition of the permanent policy or contract liens, to be in the public interest.
Impose temporary moratoriums or liens on payments of cash values and policy loans, or any other right to withdraw funds held in conjunction with policies or contracts, in addition to the contractual provisions for deferral of cash or policy loan value. In addition, in the event of a temporary moratorium or moratorium charge imposed by the receivership court on payment of cash values or policy loans, or on any other right to withdraw funds held in conjunction with policies or contracts, out of the assets of the impaired or insolvent insurer, the association may defer the payment of cash values, policy loans, or other rights by the association for the period of the moratorium or moratorium charge imposed by the receivership court, except for claims covered by the association to be paid in accordance with a hardship procedure established by the liquidator or rehabilitator and approved by the receivership court.
A deposit in this state, held pursuant to law or required by the commissioner for the benefit of creditors, including policy owners, not turned over to the domiciliary liquidator upon the entry of a final order of liquidation or order approving a rehabilitation plan of an insurer domiciled in this state or in a reciprocal state shall be promptly paid to the association. The association shall be entitled to retain a portion of an amount so paid to it equal to the percentage determined by dividing the aggregate amount of policy owners’ claims related to that insolvency for which the association has provided statutory benefits by the aggregate amount of all policy owners’ claims in this state related to that insolvency and shall remit to the domiciliary receiver the amount so paid to the association less the amount retained pursuant to this subdivision. An amount so paid to the association and retained by it shall be treated as a distribution of estate assets pursuant to applicable state receivership law dealing with early access disbursements.
If the association fails to act within a reasonable period of time with respect to an insolvent insurer, as provided in subdivision (b), the commissioner shall have the powers and duties of the association under this article with respect to the insolvent insurer.
The association may render assistance and advice to the commissioner, upon his or her request, concerning rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of an impaired or insolvent insurer.
The association shall have standing to appear or intervene before a court or agency engaged in an adjudication in this state with jurisdiction over an impaired or insolvent insurer concerning which the association is or may become obligated under this article or with jurisdiction over a person or property against which the association may have rights through subrogation or otherwise. Standing shall extend to all matters germane to the powers and duties of the association, including, but not limited to, proposals for reinsuring, modifying, or guaranteeing the policies or contracts of the impaired or insolvent insurer and the determination of the policies or contracts and contractual obligations. The association shall also have the right to appear or intervene before a court or agency in another state with jurisdiction over an impaired or insolvent insurer for which the association is or may become obligated or with jurisdiction over a person or property against which the association may have rights through subrogation or otherwise.
A person receiving benefits under this article shall be deemed to have assigned the rights under, and causes of action against a person for losses arising under, resulting from, or otherwise relating to, the covered policy or contract to the association to the extent of the benefits received because of this article, whether the benefits are payments of or on account of contractual obligations, continuation of coverage, or provision of substitute or alternative coverages. The association may require an assignment to it of those rights and cause of action by a payee, policy or contract owner, beneficiary, insured, or annuitant as a condition precedent to the receipt of any right or benefits conferred by this article upon that person.
The subrogation rights of the association under this subdivision shall have the same priority against the assets of the impaired or insolvent insurer as that possessed by the person entitled to receive benefits under this article.
In addition to paragraphs (1) and (2), the association shall have all common law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or owner, beneficiary, or payee of a policy or contract with respect to the policy or contracts, including, without limitation, in the case of a structured settlement annuity, the rights of the owner, beneficiary, or payee of the annuity, to the extent of benefits received pursuant to this article, against a person originally or by succession responsible for the losses arising from the personal injury relating to the annuity or payment therefor, excepting a person responsible solely by reason of serving as an assignee in respect of a qualified assignment under Section 130 of the Internal Revenue Code.
If the preceding provisions of this subdivision are invalid or ineffective with respect to a person or claim, the amount payable by the association with respect to the related covered obligations shall be reduced by the amount realized by any other person with respect to the person or claim that is attributable to the policies, or portion thereof, covered by the association.
If the association has provided benefits with respect to a covered obligation and a person recovers amounts as to which the association has rights as described in the preceding paragraphs of this subdivision, the person shall pay to the association the portion of the recovery attributable to the policies, or portion thereof, covered by the association.
In addition to the rights and powers elsewhere in this article, the association may do any of the following:
Exercise, for the purposes of this article and to the extent approved by the commissioner, the powers of a domestic life or health insurer, but in no case may the association issue insurance policies or annuity contracts other than those issued to perform its obligations under this article.
Organize itself as a corporation or in another legal form permitted by the laws of the state.
Request information from a person seeking coverage from the association in order to aid the association in determining its obligations under this article with respect to the person, and the person shall promptly comply with the request.
File for an actuarially justified rate or premium increase for a policy or contract, in accordance with the terms and conditions of the policy or contract, for which the association provides coverage pursuant to this act, unless prohibited by law.
Take other necessary or appropriate action to discharge its duties and obligations under this article or to exercise its powers under this article.
The association may join an organization of one or more other state associations of similar purposes, to further the purposes and administer the powers and duties of the association.
There shall be no liability on the part of and no cause of action shall arise against the association or against a transferee from the association in connection with the transfer by reinsurance or otherwise of all or any part of an impaired or insolvent insurer’s business by reason of an action taken or a failure to take an action by the impaired or insolvent insurer at any time.
With respect to covered policies for which the association becomes obligated after an entry of an order or liquidation or rehabilitation, the association may elect to succeed to the rights of the insolvent insurer arising after the date of the order of liquidation or rehabilitation under a contract of reinsurance to which the insolvent insurer was a party, to the extent that the contract provides coverage for losses occurring after the date of the order of liquidation or rehabilitation. As a condition to making this election, the association must pay all unpaid premiums due under the contract for coverage relating to periods before and after the date of the order of liquidation or rehabilitation.
The board of directors of the association shall have discretion and may exercise reasonable business judgment to determine the means by which the association is to provide the benefits of this article in an economical and efficient manner.
If the association has arranged or offered to provide the benefits of this article to a covered person under a plan or arrangement that fulfills the association’s obligations under this article, the person shall not be entitled to benefits from the association in addition to or other than those provided under the plan or arrangement.
The association shall not be required to give an appeal bond in an appeal that relates to a cause of action arising under this article.
In carrying out its duties in connection with guaranteeing, assuming, or reinsuring policies or contracts under subdivision (a) or (b), the association may, subject to approval of the receivership court, issue substitute coverage for a policy or contract that provides an interest rate, crediting rate, or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value by issuing an alternative policy or contract in accordance with all of the following provisions:
In lieu of the index or other external reference provided for in the original policy or contract, the alternative policy or contract provides for a fixed interest rate, payment of dividends with minimum guarantees, or a different method for calculating interest or changes in value.
There is no requirement for evidence of insurability, waiting period, or other exclusion that would not have applied under the replaced policy or contract.
The alternative policy or contract is substantially similar to the replaced policy or contract in all other material terms.
For the purpose of providing the funds necessary to carry out the powers and duties of the association, the board of directors shall assess the member insurers, separately for each account, at the time and for the amounts as the board finds necessary. Assessments shall be due not more than 30 days after prior written notice to the member insurers and shall accrue interest at the rate of 10 percent per annum on and after the due date.
There shall be two classes of assessments, as follows:
Class A assessments shall be authorized and called for the purpose of meeting administrative and legal costs and other expenses and examinations conducted under the authority of subdivision (e) of Section 1067.11. Class A assessments may be authorized and called whether or not related to a particular impaired or insolvent insurer.
Class B assessments shall be authorized and called to the extent necessary to carry out the powers and duties of the association under Section 1067.07 with regard to an impaired or an insolvent insurer.
Assessments for funds to meet the requirements of the association with respect to an impaired or insolvent insurer shall not be authorized and called until necessary to implement the purposes of this article. Classification of assessments under subdivision (b) and computation of assessments under this subdivision shall be made with a reasonable degree of accuracy, recognizing that exact determinations may not always be possible. The association shall notify each member insurer of its anticipated pro rata share of an authorized assessment not yet called within 180 days after the assessment is authorized.
The association may abate or defer, in whole or in part, the assessment of a member insurer if, in the opinion of the board, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. In the event an assessment against a member insurer is abated, or deferred in whole or in part, the amount by which that assessment is abated or deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this section. Once the conditions that caused a deferral have been removed or rectified, the member insurer shall pay all assessments that were deferred pursuant to a repayment plan approved by the association.
Subject to the provisions of subparagraph (B), the total of all assessments authorized by the association with respect to a member insurer for each subaccount of the life insurance and annuity account and for the health account shall not in one calendar year exceed 2 percent of that member insurer’s average annual premiums received in this state on the policies and contracts covered by the subaccount or account during the three calendar years preceding the year in which the insurer became an impaired or insolvent insurer.
If two or more assessments are authorized in one calendar year with respect to insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation referenced in subparagraph (A) shall be equal and limited to the higher of the three-year average annual premiums for the applicable subaccount or account as calculated pursuant to this section.
If the maximum assessment, together with the other assets of the association in an account, does not provide in one year in either account an amount sufficient to carry out the responsibilities of the association, the necessary additional funds shall be assessed as soon thereafter as permitted by this article.
The board may provide in the plan of operation a method of allocating funds among claims, whether relating to one or more impaired or insolvent insurers, when the maximum assessment will be insufficient to cover anticipated claims.
The board may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each insurer to that account, the amount by which the assets of the account exceed the amount the board finds is necessary to carry out during the coming year the obligations of the association with regard to that account, including assets accruing from assignment, subrogation, net realized gains, and income from investments. A reasonable amount may be retained in any account to provide funds for the continuing expenses of the association and for future losses.
It shall be proper for any member insurer, in determining its premium rates and policy owner dividends as to any kind of insurance within the scope of this article, to consider the amount reasonably necessary to meet its assessment obligations under this article.
The association shall issue to each insurer paying an assessment under this article, other than class A assessment, a certificate of contribution, in a form prescribed by the commissioner, for the amount of the assessment so paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or date of issue. A certificate of contribution may be shown by the insurer in its financial statement as an asset in the form and for the amount, if any, and period of time as the commissioner may approve.
Subject to the provisions of paragraph (3), the plan of operation adopted pursuant to Section 1067.09 shall contain provisions whereby each member insurer may recoup over a reasonable length of time a sum reasonably calculated to recoup the assessments with respect to the health insurance account paid by the member insurer under this article by way of a surcharge on premiums charged for health insurance policies to which this article applies. Amounts recouped shall not be considered premiums for any other purpose, including the computation of gross premium tax or agent’s commission.
Member insurers who collect surcharges in excess of assessments paid pursuant to this section for an insolvent insurer shall remit the excess to the association as an additional assessment within 120 days after the end of the collection period as determined by the association. The excess shall be applied to reduce future health insurance account assessments for that insurer.
The plan of operation may permit a member insurer to omit the collection of the surcharge from its insureds when it determines the amount of the surcharge collectible from each insured would be unreasonably small in relation to the potential confusion of or objection by the insureds even if the aggregate surcharges collectible from all insureds exceeds the expense of collection.
Any statement of the amount of surcharge provided by the association shall include a description of, and purpose for, the California Life and Health Insurance Guarantee Association, as follows:
“Companies writing health insurance business in California are required to participate in the California Life and Health Insurance Guarantee Association. If a company writing health insurance becomes insolvent, the California Life and Health Insurance Guarantee Association settles unpaid claims and assesses each insurance company for its fair share.”
“California law allows all companies to surcharge policies to recover these assessments. If your policy is surcharged, “CA Surcharge” with an amount will be displayed on your premium notice.”
A member insurer that wishes to protest all or part of an assessment shall pay when due the full amount of the assessment as set forth in the notice provided by the association. The payment shall be available to meet association obligations during the pendency of the protest or any subsequent appeal. Payment shall be accompanied by a statement in writing that the payment is made under protest and setting forth a brief statement of the grounds for the protest.
Within 60 days following the payment of an assessment under protest by a member insurer, the association shall notify the member insurer in writing of its determination with respect to the protest unless the association notifies the member insurer that additional time is required to resolve the issues raised by the protest.
Within 30 days after a final decision has been made, the association shall notify the protesting member insurer in writing of that final decision. Within 60 days of receipt of notice of the final decision, the protesting member insurer may appeal that final action to the commissioner.
In the alternative to rendering a final decision with respect to a protest based on a question regarding the assessment base, the association may refer protests to the commissioner for a final decision, with or without a recommendation from the association.
If the protest or appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member company. Interest on a refund due a protesting member shall be paid at the rate actually earned by the association.
The association may request information of member insurers in order to aid in the exercise of its power under this section, and member insurers shall promptly comply with a request.
The association shall submit to the commissioner a plan of operation and any amendments thereto necessary or suitable to ensure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments thereto shall become effective upon the commissioner’s written approval or unless he or she has not disapproved it within 30 days.
If the association fails to submit a suitable plan of operation within 120 days following the effective date of this article or if at any time thereafter the association fails to submit suitable amendments to the plan, the commissioner shall, after notice and hearing, adopt and promulgate those reasonable rules as are necessary or advisable to effectuate the provisions of this article. The rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the association and approved by the commissioner.
All member insurers shall comply with the plan of operation.
The plan of operation shall, in addition to requirements enumerated elsewhere in this article, do all of the following:
Establish procedures for handling the assets of the association.
Establish the amount and method of reimbursing members of the board of directors under Section 1067.06.
Establish regular places and times for meetings including telephone conference calls of the board of directors.
Establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors.
Establish the procedure whereby selections for the board of directors will be made and submitted to the commissioner.
Establish any additional procedures for assessments under Section 1067.08.
Contain additional provisions necessary or proper for the execution of the powers and duties of the association.
Establish procedures whereby a director may be removed for cause, including in the case where a member insurer director becomes an impaired or insolvent insurer.
Require the board of directors to establish a policy and procedures for addressing conflicts of interests.
The plan of operation may provide that any or all powers and duties of the association, including its administration, except those under paragraph (3) of subdivision (l) of Section 1067.07 and Section 1067.08, are delegated to a corporation, association, or other organization which performs or will perform functions similar to those of this association, or its equivalent, in two or more states. That corporation, association, or organization shall be reimbursed for any payments made on behalf of the association and shall be paid for its performance of any function of the association. A delegation under this subdivision shall take effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association, or organization which extends protection not substantially less favorable and effective than that provided by this article.
In addition to the duties and powers enumerated elsewhere in this article:
The commissioner shall do all of the following:
Upon request of the board of directors, provide the association with a statement of the premiums in this and any other appropriate states for each member insurer.
When an impairment is declared and the amount of the impairment is determined, serve a demand upon the impaired insurer to make good the impairment within a reasonable time; notice to the impaired insurer shall constitute notice to its shareholders, if any; the failure of the insurer to promptly comply with such demand shall not excuse the association from the performance of its powers and duties under this article.
In any liquidation or rehabilitation proceeding involving a domestic insurer, be appointed as the liquidator or rehabilitator.
The commissioner may suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer which fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative the commissioner may levy a forfeiture on any member insurer which fails to pay an assessment when due. The forfeiture shall not exceed 5 percent of the unpaid assessment per month, but no forfeiture shall be less than one hundred dollars ($100) per month.
A final action of the board of directors or the association may be appealed to the commissioner by a member insurer if the appeal is taken within 60 days of its receipt of notice of the final action being appealed. A final action or order of the commissioner shall be subject to judicial review in a court of competent jurisdiction in accordance with the laws of this state that apply to the actions or orders of the commissioner.
The liquidator, rehabilitator, or conservator of any impaired insurer or insolvent insurer may notify all interested persons of the effect of this article.
To aid in the detection and prevention of insurer insolvencies or impairments:
It shall be the duty of the commissioner to do the following:
To notify the commissioners of all the other states, territories of the United States, and the District of Columbia when the commissioner takes any of the following actions against a member insurer:
Revocation of license.
Suspension of license.
Makes a formal order that the company restrict its premium writing, obtain additional contributions to surplus, withdraw from the state, reinsure all or any part of its business, or increase capital, surplus, or any other account for the security of policy owners or creditors.
The notice shall be mailed to all commissioners within 30 days following the action taken or the date on which the action occurs.
To report to the board of directors, the Legislature, and the Governor when the commissioner has taken any of the actions set forth in paragraph (1) or has received a report from any other commissioner indicating that any action has been taken in another state. The report to the board of directors, the Legislature, and the Governor shall contain all significant details of the action taken on the report received from another commissioner.
To report to the board of directors when the commissioner has reasonable cause to believe from an examination, whether completed or in process, of a member company that the company may be an impaired or insolvent insurer.
To furnish to the board of directors the NAIC Insurance Regulatory Information System (IRIS) ratios and listings of companies not included in the ratios developed by the National Association of Insurance Commissioners, and the board may use the information contained therein in carrying out its duties and responsibilities under this section. The report and the information contained therein shall be kept confidential by the board of directors until that time as it is made public by the commissioner or other lawful authority.
The commissioner may seek the advice and recommendations of the board of directors concerning any matter affecting the commissioner’s duties and responsibilities regarding the financial condition of member insurers and companies seeking admission to transact insurance business in this state.
The board of directors may, upon majority vote, make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation, or conservation of a member insurer or germane to the solvency of any company seeking to do insurance business in this state. Those reports and recommendations shall not be considered public documents.
The board of directors shall, upon majority vote, notify the commissioner of any information indicating a member insurer may be an impaired or insolvent insurer.
The board of directors may, upon majority vote, request that the commissioner order an examination of a member insurer that the board in good faith believes may be an impaired or insolvent insurer. Within 30 days of the receipt of the request, the commissioner shall begin the examination. The examination may be conducted as a National Association of Insurance Commissioners examination or may be conducted by persons that the commissioner designates. The cost of the examination shall be paid by the association and the examination report shall be treated as are other examination reports. In no event shall the examination report be released to the board of directors prior to its release to the public, but this shall not preclude the commissioner from complying with subdivision (a).
The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner, but it shall not be open to public inspection prior to the release of the examination report to the public.
The board of directors may, upon majority vote, make recommendations to the commissioner for the detection and prevention of insurer insolvencies.
Reports, information, and recommendations from the board to the commissioner and from the commissioner to the board under this section shall be treated as confidential and shall not be considered public documents except as otherwise specifically provided in this section or by specific action of the board or commissioner.
For valuation years ending in 2019 and later, an insurer with long-term care insurance contracts in force covering more than 10,000 lives as of the valuation date shall file disclosure reports with the commissioner and the department’s office of principle-based reserving. The reports shall be in compliance with the long-term care insurance-specific requirements developed in Actuarial Guideline 51 to be incorporated in the National Association of Insurance Commissioners’ Valuation Manual. The reports shall be submitted no later than April 1 for the previous calendar year.
On or before April 1, 2019, and on or before each April 1 thereafter, the association shall provide an annual financial report to the commissioner and the chairs of the Senate Insurance Committee and the Assembly Insurance Committee. The report shall include the maximum amount of coverage the association can provide pursuant to subparagraph (A) of paragraph (1) of subdivision (e) of Section 1067.08. The report shall cover the previous calendar year.
Notwithstanding any other law, the commissioner may annually assess a company that issues or renews long-term care policies in an amount up to one million dollars ($1,000,000) based on the insurer’s pro rata share of the costs the department incurs reviewing, analyzing, and reporting on disclosure reports submitted pursuant to subdivisions (h) and (i), but not to exceed reasonable regulatory costs.
This article shall not be construed to reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with assessment liability.
Records shall be kept of all meetings of the board of directors to discuss the activities of the association in carrying out its powers and duties under Section 1067.07. The records of the association with respect to an impaired or insolvent insurer shall not be disclosed to the public prior to the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer, except upon the termination of the impairment or insolvency of the insurer, or upon the order of a court of competent jurisdiction. Nothing in this subdivision shall limit the duty of the association to render a report of its activities under Section 1067.13.
For the purpose of carrying out its obligations under this article, the association shall be deemed to be a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies reduced by any amounts to which the association is entitled as subrogee pursuant to Section 1067.07. Assets of the impaired or insolvent insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer as required by this article. Assets attributable to covered policies, as used in this subdivision, are that proportion of the assets which the reserves that should have been established for those policies bear to the reserves that should have been established for all policies of insurance written by the impaired or insolvent insurer.
As a creditor of the impaired or insolvent insurer as established in subdivision (c) and consistent with Section 1035.5, the association and other similar associations shall be entitled to receive a disbursement of assets out of the marshaled assets, from time to time as the assets become available to reimburse it, as a credit against contractual obligations under this article. If the liquidator has not, within 120 days of an order directing the liquidation of the business of an insolvent insurer or a final determination of insolvency of an insurer by the receivership court, made an application to the court for the approval of a proposal to disburse assets out of marshaled assets to guaranty associations having obligations because of the insolvency, then the association shall be entitled to make application to the receivership court for approval of its own proposal to disburse these assets.
Prior to the termination of any liquidation, rehabilitation, or conservation proceeding, the court may take into consideration the contributions of the respective parties, including the association, the shareholders, and policy owners of the insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of the insolvent insurer. In the determination, consideration shall be given to the welfare of the policy owners of the continuing or successor insurer.
No distribution to stockholders, if any, of an impaired or insolvent insurer shall be made until and unless the total amount of valid claims of the association with interest thereon for funds expended in carrying out its powers and duties under Section 1067.07 with respect to the insurer have been fully recovered by the association.
If an order for liquidation or rehabilitation of an insurer domiciled in this state has been entered, the receiver appointed under the order shall have a right to recover on behalf of the insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the insurer on its capital stock, made at any time during the five years preceding the petition for liquidation or rehabilitation subject to the limitations of paragraphs (2) to (4), inclusive.
No such distribution shall be recoverable if the insurer shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.
Any person who was an affiliate that controlled the insurer at the time the distributions were paid shall be liable up to the amount of distributions he or she received. Any person who was an affiliate that controlled the insurer at the time the distributions were declared shall be liable up to the amount of distributions he or she would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.
The maximum amount recoverable under this subdivision shall be the amount needed in excess of all other available assets of the insolvent insurer to pay the contractual obligations of the insolvent insurer.
If any person liable under paragraph (3) is insolvent, all its affiliates that controlled it at the time the distribution was paid shall be jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.
The association shall be subject to examination and regulation by the commissioner. The board of directors shall submit to the commissioner, the Governor, and the Legislature each year, not later than 120 days after the association’s fiscal year, a financial report in a form approved by the commissioner and a report of its activities during the preceding fiscal year. Upon the request of a member insurer, the association shall provide the member insurer with a copy of the report.
The association shall be exempt from payment of all fees and all taxes levied by this state or any of its subdivisions, except taxes levied on real property.
There shall be no liability on the part of and no cause of action of any nature shall arise against any member insurer or its agents or employees, the association or its agents or employees, members of the board of directors, or the commissioner or his or her representatives, for any action or omission by them in the performance of their powers and duties under this article. The immunity shall extend to the participation in any organization of one or more other state associations of similar purposes and to that organization and its agents or employees.
All proceedings in which the insolvent insurer is a party in any court in this state shall be stayed not less than 180 days from the date an order of liquidation, rehabilitation, or conservation is final, to permit proper legal action by the association on any matters germane to its powers or duties. As to judgment under any decision, order, verdict, or finding based on default the association may apply to have the judgment set aside by the same court that made the judgment and shall be permitted to defend against the suit on the merits.
No person, including an insurer, agent, or affiliate of an insurer shall make, publish, disseminate, circulate, or place before the public, or cause directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement, written or oral, which uses the existence of the California Life and Health Insurance Guarantee Association for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered by the California Life and Health Insurance Guarantee Association Act. Provided, however, that this section shall not apply to the California Life and Health Insurance Guarantee Association or any other entity that does not sell or solicit insurance.
The association shall prepare a summary document describing the general purposes and current limitations of the article and complying with subdivision (c). This document shall be submitted to the commissioner for approval. Sixty days after receiving approval, no insurer may deliver a policy or contract described in paragraph (1) of subdivision (b) of Section 1067.02 to a policyholder or contractholder unless the document is delivered to the policy or contractholder prior to or at the time of delivery of the policy or contract. The document should also be available upon request by the policyholder. The distribution, delivery, or contents or interpretation of this document shall not mean that either the policy or the contract or the holder thereof would be covered in the event of the impairment or insolvency of a member insurer. The description document shall be revised by the association as amendments to the article may require. Failure to receive this document does not give the policyholder, contractholder, certificate holder, or insured any greater rights than those stated in this article. This paragraph shall remain operative only until paragraph (2) becomes operative.
Within 180 days of the effective date of the act that amended this section in the 2009–10 Regular Session, the association shall prepare a summary document describing the general purposes and current limitations of the article and complying with subdivision (c). This document shall be submitted to the commissioner for approval. At the expiration of the 60th day after the date on which the commissioner approves the document, an insurer may not deliver a policy or contract described in paragraph (1) of subdivision (b) of Section 1067.02 to a policy or contract owner unless the summary document is delivered to the policy or contract owner at the time of delivery of the policy or contract. The document shall also be available upon request by a policy owner. The distribution, delivery, or contents or interpretation of this document does not guarantee that either the policy or the contract or the owner of the policy or contract is covered in the event of the impairment or insolvency of a member insurer. The description document shall be revised by the association, as amendments to the article may require. Failure to receive this document does not give the policy owner, contract owner, certificate holder, or insured any greater rights than those stated in this article.
The document prepared under subdivision (b) shall contain a clear and conspicuous disclaimer on its face. The commissioner shall promulgate a rule establishing the form and content of the disclaimer. The disclaimer shall do all of the following:
State that the insurer and its agents are prohibited by law from using the existence of the California Life and Health Insurance Guarantee Association for the purpose of sales, solicitation, or inducement to purchase any form of insurance.
State that the policy owner or contract owner should not rely on coverage under the California Life and Health Insurance Guarantee Association when selecting an insurer.
Provide other information as directed by the commissioner.
This article shall not apply to any insurer that was declared to be insolvent or impaired, or as to which delinquency proceedings had been commenced, on or before October 1, 1990.
The amendments made to this article by Chapter 334 of the Statutes of 2010 during the 2009–10 Regular Session of the Legislature shall not apply to any member insurer that, before the effective date of those amendments, has been placed under an order of liquidation with a finding of insolvency.
ARTICLE 14.8. Group Enrollment from Health Care Service Plans [1068. - 1068.2.]
As used in this section, the following definitions shall apply:
“Health care service plan” means any plan as defined in Section 1345 of the Health and Safety Code, but this section does not apply to specialized health care service contracts.
“Carrier” means a health care service plan, an insurer issuing group disability coverage which covers hospital, medical, or surgical expenses, a nonprofit hospital service plan, or any other entity responsible for either the payment of benefits for or the provision of hospital, medical, and surgical benefits under a group contract.
“Insolvency” means that the Director of the Department of Managed Health Care has determined that the health care service plan is not financially able to provide health care services to its enrollees and (A) the Director of the Department of Managed Health Care has taken an action pursuant to Section 1386, 1391, or 1399 of the Health and Safety Code, or (B) an order requested by the Director of the Department of Managed Health Care or the Attorney General has been issued by the superior court under Section 1392, 1393, or 1394.1 of the Health and Safety Code.
In the event of the insolvency of a health care service plan, upon order of the commissioner which shall be issued following his or her receipt of a notice issued by the Director of the Department of Managed Health Care pursuant to Section 1394.7 of the Health and Safety Code, any insurer, nonprofit hospital service plan, and any other entity, other than a health care service plan, responsible for either the payment of benefits for or the provision of hospital, medical, and surgical benefits under a group contract, that participated in the enrollment process with the insolvent health care service plan at the last regular open enrollment period of a group, shall offer enrollees of the group in the insolvent health care service plan a 30-day enrollment period commencing upon the date of insolvency. Each such carrier shall offer enrollees of the group in the insolvent health care service plan the same coverages and rates that it offered to enrollees of the group at the last regular open enrollment period of the group.
As used in this section:
“Carrier” means a specialized health care service plan, and any of the following entities which offer coverage comparable to the coverages offered by a specialized health care service plan: an insurer issuing group disability coverage; a nonprofit hospital service plan; or other entity responsible for either the payment of benefits for or the provision of services under a group contract.
“Insolvency” means that the Director of the Department of Managed Health Care has determined that the specialized health care service plan is not financially able to provide specialized health care services to its enrollees and (A) the Director of the Department of Managed Health Care has taken an action pursuant to Section 1386, 1391, or 1399 of the Health and Safety Code, or (B) an order requested by the commissioner or the Attorney General has been issued by the superior court under Section 1392, 1393, or 1394.1 of the Health and Safety Code.
“Specialized health care service plan” means any plan authorized to issue only specialized health care service plan contracts as defined in Section 1345 of the Health and Safety Code.
In the event of the insolvency of a specialized health care service plan, upon order of the commissioner which shall be issued following his or her receipt of a notice issued by the Director of the Department of Managed Health Care pursuant to Section 1394.8 of the Health and Safety Code, all carriers that participated in the enrollment process with the insolvent specialized health care service plan at a group’s last regular open enrollment period for the same type of specialized health care service benefits shall offer the group’s enrollees in the insolvent specialized health care service plan a 30-day enrollment period commencing upon the date of insolvency. Each such carrier shall offer enrollees of the insolvent specialized health care service plan the same specialized coverage and rates that it had offered to the enrollees of the group at its last regular open enrollment period.
The commissioner shall have the administrative authority to assess penalties against any person, including a natural person or other entity, for violations of this article.
Upon a showing of a violation of this article in any civil action, a court may also assess the penalties prescribed in this section.
Whenever the commissioner has reasonable cause to believe or determines after a public hearing that any person has violated this article he or she shall make and serve upon the person an notice of hearing. The notice shall state the commissioner’s intent to assess the administrative penalties, the time and place of the hearing, and the conduct, condition or grounds upon which the commissioner is holding the hearing and assessing the penalties. The hearings shall occur within 30 days after the notice is served. Within 30 days after the hearing the commissioner shall issue an order specifying the penalty. The penalties resulting from the hearing shall be paid to the Insurance Fund, but may be spent only when appropriated by the Legislature.
Any person who violates this article is liable for administrative penalties of no less than twenty-five thousand dollars ($25,000).
ARTICLE 15. Withdrawal of Insurers [1070. - 1076.]
Any insurer, upon payment of the fees and costs therefor and surrender to the commissioner of its certificate of authority, may apply to withdraw from this State. Such application shall be in writing, duly executed, accompanied by evidence of due authority for such execution, and properly acknowledged.
Whenever an admitted insurer fails to take any step necessary to maintain continuance of its certificate of authority, or whenever the certificate of authority admitting an insurer is canceled or revoked, or whenever an admitted insurer as an entity ceases doing an insurance business in this state for any reason, such insurer shall apply to withdraw as an insurer and shall withdraw as such insurer from this state pursuant to this article. Every certificate of authority hereafter granted is so granted subject to this withdrawal requirement. Acceptance of every such certificate of authority is an agreement by the accepting insurer that it will conform to the provisions of this article.
The withdrawal procedure and fees prescribed by this article shall not be required of a nonsurviving admitted constituent to a merger or consolidation into another admitted insurer in accordance with the applicable statutes and the commissioner’s prior written consent given pursuant to subdivision (c) of Section 1011, provided the commissioner is satisfied by documents, authenticated so as to be admissible in evidence over objection, filed with him or her, that:
The constituent has discharged all of its liabilities to residents of this state in the manner provided by Section 1071.5;
There will be an admitted insurer directly available to the constituent’s policyholders: (1) to obtain policy changes and endorsements, (2) to receive payment of premiums and refund unearned premiums, (3) to serve notice of claim, proof of loss, summons, process, and other papers, and (4) for purposes of suit;
The constituent shall timely file with the commissioner appropriate financial statements reporting its insurance business done in this state during the calendar year of the merger or consolidation and all appropriate tax returns required by law for the period, and shall timely pay all taxes found to be due on account of the business; and
The constituent has surrendered its current California certificate of authority to the commissioner for cancellation as of the effective date of the merger.
The withdrawal procedure and fees prescribed by this article shall not be required of an insurer that has been liquidated by a final order of a court of record of this or any sister state provided a certified copy of the order reciting the fact of liquidation and discharge of all obligations has been filed with the commissioner.
The commissioner shall publish such application for withdrawal, daily, for one week, in each of two daily newspapers of general circulation, one published in the city of San Francisco, and the other in the city of Sacramento. The expense of such publication shall be paid in advance by the insurer.
Every insurer which withdraws as an insurer, or is required to withdraw as an insurer, from this State shall, prior to such withdrawal, discharge its liabilities to residents of this State. In the case of its policies insuring residents of this State it shall cause the primary liabilities under such policies to be reinsured and assumed by another admitted insurer. In the case of such policies as are subject to cancellation by the insurer, it may cancel such policies pursuant to the terms thereof in lieu of such reinsurance and assumption.
The commissioner shall make, or cause to be made by the insurance authority of the State where the insurer is organized, an examination of the books and records of the insurer. If, upon such examination, he finds that the insurer has no outstanding liabilities to residents of this State and no policies in favor of the residents of this State uncanceled or the primary liabilities under which have not been reinsured and assumed by another admitted insurer, as required by Section 1071.5, he shall cancel the insurer’s certificates of authority, if unexpired, and he shall permit the insurer to withdraw. The commissioner may, in his discretion, waive any or all of the above requirements if, after such examination, he finds it to be in a solvent condition. The cost and expense of all such examinations shall be paid as prescribed in Section 736.
Whenever any insurer withdraws from business in this State, and whenever for any reason the commissioner revokes or cancels the certificate of authority admitting any insurer, the commissioner shall thereafter cause a notice of the revocation, cancellation or withdrawal to be published in one daily newspaper published in the city of San Francisco and one daily newspaper published in the city of Los Angeles. The expense of such publication shall be paid by the insurer.
Upon the failure of such insurer to pay the expense of such advertising within thirty days after the presentation of the bill therefor, the commissioner shall collect such fee from the surety in the bond furnished in accordance with the provisions of Article 12 of this chapter or out of securities furnished thereunder.
The withdrawing insurer shall pay to the commissioner a fee of one thousand four hundred ten dollars ($1,410) for all services and expenses in connection with the withdrawal.
ARTICLE 15.5. Administrative Supervision [1077. - 1077.95.]
As used in this article:
“Insurer” means and includes every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of life or disability insurance or of annuities.
“Exceeded its powers” means any of the following conditions:
The insurer has refused to permit examination of its books, papers, accounts, records, or affairs by the commissioner, his or her deputies, employees, or duly commissioned examiners.
A domestic insurer has unlawfully removed from this state books, papers, accounts, or records necessary for an examination of the insurer.
The insurer has failed to promptly comply with the applicable financial reporting statutes or rules and departmental requests relating thereto.
The insurer has neglected or refused to observe an order of the commissioner to make good, within the time prescribed by law, any prohibited deficiency in its capital, capital stock, or surplus.
The insurer is continuing to transact insurance or write business after its license has been revoked or suspended by the commissioner.
The insurer, by contract or otherwise, has unlawfully, or has in violation of an order of the commissioner, or has without first having obtained written approval of the commissioner, if approval is required by law, done any of the following:
Totally reinsured its entire outstanding business.
Merged or consolidated substantially its entire property or business with another insurer.
The insurer engaged in any transaction in which it is not authorized to engage under the laws of this state.
The insurer refused to comply with a lawful order of the commissioner.
“Consent” means agreement to administrative supervision by the insurer.
The provisions of the article shall apply to all of the following:
All domestic life or disability insurers, except the State Compensation Insurance Fund.
Any other life or disability insurer doing business in this state whose state of domicile has asked the commissioner to apply the provisions of this article as regards that insurer.
Notwithstanding subdivision (a), the State Compensation Insurance Fund may give its consent to administrative supervision pursuant to paragraph (5) of subdivision (a) of Section 1077.2.
An insurer may be subject to administrative supervision by the commissioner if, upon examination or at any other time it appears in the commissioner’s discretion that any of the following applies:
The insurer’s condition renders the continuance of its business hazardous to the public or to its insureds.
The insurer appears to have exceeded its powers granted under its certificate of authority and applicable law.
The insurer has failed to comply with the applicable provisions of the Insurance Code.
The business of the insurer is being conducted fraudulently.
The insurer gives its consent.
If the commissioner determines that the conditions set forth in subdivision (a) exist, the commissioner shall do all of the following:
Notify the insurer of his or her determination.
Furnish to the insurer a written list of the requirements to abate this determination.
Notify the insurer that it is under the supervision of the commissioner and that the commissioner is applying and effectuating the provisions of the article. The action by the commissioner shall be subject to review pursuant to Section 12940.
If placed under administrative supervision, the insurer shall have 60 days, or another period of time as designated by the commissioner, to comply with the requirements of the commissioner subject to the provisions of this article.
If it is determined after notice and hearing that the conditions giving rise to the supervision still exist at the end of the supervision period specified above, the commissioner may extend the period.
If it is determined that none of the conditions giving rise to the supervision exist, the commissioner shall release the insurer from supervision.
Notwithstanding any other provision of law, and except as set forth in this section, proceedings, hearings, notices, correspondence, reports, records, and other information in the possession of the commissioner or the department relating to the supervision of any insurer are confidential except as provided by this section.
The personnel of the department shall have access to these proceedings, hearings, notices, correspondence, reports, records, or information as permitted by the commissioner.
The commissioner may open the proceedings or hearings or disclose the notices, correspondence, reports, records, or information to a department, agency, or instrumentality of this or another state of the United States if the commissioner determines that the disclosure is necessary or proper for the enforcement of the laws of this or another state of the United States.
The commissioner may open the proceedings or hearings or make public the notices, correspondence, reports, records, or other information if the commissioner deems that it is in the best interest of the public or in the best interest of the insurer, its insureds, creditors, or the general public.
This section does not apply to hearings, notices, correspondence, reports, records, or other information obtained upon the appointment of a receiver for the insurer by a court of competent jurisdiction.
During the period of supervision, the commissioner or his or her designated appointee shall serve as the administrative supervisor. The commissioner may provide that the insurer may not do any of the following things during the period of supervision, without the prior approval of the commissioner or his or her appointed supervisor:
Dispose of, convey, or encumber any of its assets or its business in force.
Withdraw any of its bank accounts.
Lend any of its funds.
Invest any of its funds.
Transfer any of its property.
Incur any debt, obligation, or liability.
Merge or consolidate with another company.
Approve new premiums or renew any policies.
Enter into any new reinsurance contract or treaty.
Terminate, surrender, forfeit, convert, or lapse any insurance policy, certificate, or contract, except for nonpayment of premiums due.
Release, pay, or refund premium deposits, accrued cash, or loan values, unearned premiums, or other reserves on any insurance policy, certificate, or contract.
Make any material change in management.
Increase salaries and benefits of officers or directors or the preferential payment of bonuses, dividends, or other payments deemed preferential.
During the period of supervision the insurer may contest an action taken or proposed to be taken by the supervisor specifying the manner wherein the action being complained of would not result in improving the condition of the insurer by requesting reconsideration by the commissioner. Denial of the insurer’s request upon reconsideration entitles the insurer to seek judicial review under Section 12940.
Nothing contained in this article shall preclude the commissioner from initiating judicial proceedings to place an insurer in conservation, rehabilitation, or liquidation proceedings or other delinquency proceedings, however designated under the laws of this state, regardless of whether the commissioner has previously initiated administrative supervision proceedings under this article against the insurer.
The commissioner may adopt reasonable rules necessary for the implementation of this article.
Notwithstanding any other provision of law, the commissioner may meet with a supervisor appointed under this article and with the attorney or other representative of the supervisor, without the presence of any other person, at the time of any proceedings or during the pendency of any proceeding held under authority of this article to carry out the commissioner’s duties under this article or for the supervisor to carry out his or her duties under this article.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, the commissioner or the department or its employees or agents for any action taken by them in the performance of their powers and duties under this article.
The authority granted pursuant to this article is in addition to, and not in lieu of, any other provision of this code.
ARTICLE 16. Approval of Reinsurance Plans [1080. - 1091.]
Any domestic incorporated mutual life insurer or disability insurer or life and disability insurer issuing nonassessable policies on a reserve basis may merge, consolidate or otherwise unite with or become a part of, or may reinsure all of its policies with, and, upon the assumption of all of its liabilities, may transfer its assets to, any incorporated mutual insurer admitted to transact the business of life, disability or life and disability insurance in this State. The plan and agreement by which any such transaction is to be effected shall be submitted to the commissioner who shall examine the same and may require such provisions to be inserted in the agreement and such actions to be taken in connection with the transaction as he may deem necessary in order that the transaction shall be mutually fair and equitable between the respective members and policyholders of the companies parties to the transaction.
When any such plan and agreement shall have been approved by the commissioner the same shall be approved in the case of each domestic insurer party to the merger or consolidation or the reinsuring of its policies and transferring of its assets by two-thirds of the votes cast by the members thereof represented in person or by proxy at a meeting called to consider the same. Notice of said meeting and its purpose shall be given by mail at least 30 days before the day fixed for the meeting to members whose insurance shall have been in force for at least one year prior to such meeting, at their addresses appearing on the books maintained at the home office of the company. With respect to those members whose addresses do not appear on such books of the company notice shall be deemed to have been given if published at least once in some newspaper of general circulation in the county in which the principal office of the company is located. At such meeting the presence in person or by proxy of 5 percent of such members of such insurer shall constitute a quorum. In the absence of a quorum the members present at the meeting in person or by proxy may adjourn the meeting to a later date. No further notice need be given of the date to which the meeting is adjourned. If the vote is in the affirmative a certified copy of all proceedings relating to the proposed transaction shall be filed with the commissioner. If one of the insurance companies is a foreign company there shall be filed with the commissioner evidence of such approval, consent or other authorization as may be required by the laws of the state of incorporation of said foreign insurance company evidencing the power of the foreign insurance company to assume and carry out the agreement by which such transaction is effected. If the commissioner finds that the proceedings have been in accordance with the law and his requirements he shall approve the agreement which shall thereupon become effective.
An insurer which is insolvent, retiring from business in this state other than by merger or consolidation into an admitted insurer with the commissioner’s prior written consent, or the required paid-in capital of which is impaired, shall not reinsure its business until its plan to effect such reinsurance is first submitted to the commissioner and approved by him.
The retiring insurer shall pay to the commissioner a fee of one thousand seven hundred ninety-four dollars ($1,794) for filing the documents initiating approval proceedings under this article. If the plan be approved and consummated the retiring insurer shall apply for withdrawal under Article 15 of this chapter and that fee shall also cover the services and expenses of the commissioner in connection with the withdrawal.
ARTICLE 17. Loans and Investments [1100. - 1107.1.]
In this state, all investments and deposits of the assets of an insurer, all purchases on behalf of an insurer, and all sales made of the property and effects of an insurer shall be made in its own name, or in that of a corporation authorized to act as a trustee under the laws of this state, or in the name of a nominee of such a corporation in accordance with any law of this state permitting such a trustee to make use of nominees, or in the name of a qualified custodian, qualified subcustodian, or qualified depository (as defined in Section 1104.9) or in the name of a nominee of a qualified custodian, qualified subcustodian, or qualified depository, provided that the nominee is not a corporation and, as to any nominee which is a partnership, the partnership shall consist solely of the employees, officers, or directors of the qualified custodian, qualified subcustodian, or qualified depository or a corporation which is a member of the same holding company system as the nominee, or any combination thereof, or in the name of a nominee approved by the commissioner.
Every admitted incorporated insurer may under a certificate of authority issued pursuant to the provisions of Article 3 (commencing with Section 699), engage in this state in the type of loan transactions otherwise permitted by law without obtaining any other license or certificate.
Pursuant to the authority contained in Section 1 of Article XV of the State Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligation of, loans made by, or forbearances of, any incorporated admitted insurer.
This section creates and authorizes incorporated admitted insurers as an exempt class of persons pursuant to Section 1 of Article XV of the Constitution.
An admitted insurer’s officers, directors, trustees, and any persons who have authority in the management of the insurer’s funds, shall not, unless otherwise provided in this code:
Receive any money or valuable thing for negotiating, procuring, recommending, or aiding in, any purchase by or sale to such insurer of any property, or any loan from such insurer.
Be pecuniarily interested as principal, coprincipal, agent, attorney, or beneficiary, in any such purchase, sale, or loan.
Directly or indirectly purchase, or be interested in the purchase of, any of the assets of the insurer.
This section shall not apply to:
The purchase or exchange of stock of an admitted insurer by an admitted insurer or between admitted insurers nor to any merger, consolidation, or corporate reorganization of such insurers, and shall not apply as to such purchase, merger, exchange, consolidation, or reorganization, nor to the officers, directors, trustees, or any persons having authority in the management of such insurers funds in respect to any such transaction, and no such transaction shall be either void or voidable, if:
The transaction is just and reasonable as to the insurers involved at the time it is authorized or approved and if no such officer, director, trustee, or other person having authority in the management of such insurers funds receives any money or other valuable thing, other than his or her usual compensation for his or her regular duties, for negotiating, procuring, recommending, or aiding in such transaction, and, either of the following apply:
Any interest in such transaction on the part of any officers, directors, trustees, or persons who have authority in the management of any such insurer’s funds is disclosed or known to its board of directors or committee, authorizing, approving, or ratifying the transaction, and noted in the minutes thereof, and the board or committee authorizes, approves, or ratifies the transaction in good faith by a vote sufficient for the purpose without counting the vote or votes of any interested officers, directors, trustees, or persons who have authority in the management of the funds of any such insurer.
The fact of such interest is disclosed or known to the shareholders in the case of a stock insurance company, or in the case of a mutual insurer to the policyholders, and they approve or ratify the transaction in good faith by a vote or written consent of a majority of the shares or policyholders, as the case may be, entitled to vote, unless the consent or vote of more than a majority is otherwise required, in which event the vote or written consent shall be that so otherwise required.
Any such officer, director, trustee, or other person who has such interest may be counted in determining the presence of a quorum at any meeting that authorizes, approves, or ratifies such transaction.
Any transaction relating to an insurer if the transaction meets the other requirements of subdivision (b) and such officers, directors, and trustees of the insurer do not in the aggregate own more than 5 percent of the stock of any corporation with which the insurer is entering into a transaction.
Any transaction if prior to its consummation the insurer has applied for and obtained from the commissioner a certificate of exemption in respect to the specific transaction therein described and such transaction is consummated in conformity with such certificate and the representations and disclosures made in, or in connection with, the application therefor.
To obtain the certificate of exemption the insurer shall file with the commissioner a written application, accompanied by a filing fee of seven hundred five dollars ($705). The application shall be verified as provided in Section 834, be in a form as the commissioner shall require and shall contain all of the following:
A specific description of the particular transaction for which the certificate is sought.
Copies of all contracts and other legal documents involved or to be involved in the transaction.
A description of all assets involved in the transaction.
The names, titles, capacities, and business relationships of all persons in any way involved in the transaction who are connected with the insurer or any of its affiliates, officers, directors, managers, or controlling persons or entities in any of the capacities described in this section.
A description of any and all considerations on either or any side of the transaction.
Evidence that its governing board has specifically authorized the filing of the application.
Such other information, opinions, or matters as the commissioner may require.
The commissioner may issue such certificate of exemption if he or she finds, with or without a hearing, that the transaction is fair, just, and equitable, and not hazardous to policyholders, stockholders, or creditors. The commissioner may impose such conditions, including, but not limited to, disclosure of the circumstances and terms of the transaction either before or after its consummation either publicly or to such persons and entities as he or she may designate and the approval of the transaction by such persons or entities as he or she may designate. He or she may also require that a report of the transaction be filed with him or her subsequent to its consummation in such form and containing such information as he or she may prescribe.
The certificate of exemption issued pursuant to paragraph (3) of subdivision (b) shall only exempt the transaction from the prohibitions of this section and shall not affect the rights or remedies of any persons under any other law.
The amendment made to this section at the 1955 General Session shall not apply to contracts, sales, transfers, or other transactions entered into prior to the effective date hereof.
The commissioner shall not issue a certificate of exemption under paragraph (3) of subdivision (b) in respect to any transaction consummated prior to the effective date of the amendment made to this section at the 1967 Regular Session.
Whenever it appears to the commissioner that any insurer, or any director, officer, employee, or agent thereof, has committed or is about to commit a violation of this section, the commissioner may apply to the superior court for the county in which the principal office of the insurer is located, or if such insurer has no such office in this state, then to the Superior Court for the County of Los Angeles, or for the City and County of San Francisco, for an order enjoining such insurer, or such director, officer, employee, or agent thereof, from violating or continuing to violate this section, and for such other equitable relief as the nature of the case and the interests of the insurer’s policyholders, creditors, and shareholders or the public may require.
An officer, excluding a director who holds no other office, or employee of an admitted insurer shall not receive any money or valuable thing directly or indirectly as a brokerage commission on reinsurance ceded by such insurer and an insurer shall not pay such commissions. This provision shall not apply to brokerage or commissions authorized by the board of directors of the ceding insurer as compensation for services actually rendered nor to dividends received by any such officer or employee upon the stock of a corporation in which such officer or employee or his immediate family does not own a controlling interest or in fact exercises control.
The financial obligation of any officer, director, trustee, or other person having authority in the management of an insurer’s funds shall not be guaranteed by such insurer in any capacity, and any such guarantee shall be void.
Whenever an insurer is injured or made to suffer loss by reason of any violation of the provisions of sections 1101, 1102 or 1104, such insurer may recover from the guilty officer, director, trustee or other person, or any one or more of them jointly or severally damages sufficient to compensate such insurer for such loss.
An admitted insurer shall not make any loan, other than a policy loan, to any officer, director, trustee or other person having authority in the management of its funds, nor shall such officer, director, trustee or other person accept any such loan.
This section does not prohibit a loan to, or for the benefit of, an employee for the purpose of paying the premiums on a life insurance policy on the life of such employee.
The commissioner may from time to time require any domestic admitted insurer to report to him, in such detail as he may prescribe, the moneys and securities owned by it, the place where such moneys and securities are deposited and, in the case of moneys and securities deposited outside the State, the reason for maintaining each such deposit outside the State.
Whenever the commissioner after hearing following notice, finds that such moneys or securities are maintained on deposit outside the State in excess of legal requirements and of the reasonable needs of the business of such insurer, he may order such insurer to transfer to, and maintain in, this State money and securities to the extent of such excess and to cease, pending such transfer, from unnecessary transfers of moneys and securities from this State to any place outside this State.
Every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of stock of a domestic insurer or who is a director or officer of such insurer shall file in the office of the Insurance Commissioner on or before the 31st day of October, 1965, or within 10 days after he becomes such a beneficial owner, director or officer, a statement, in such form as the commissioner may prescribe, of the amount of all stock of such insurer of which he is the beneficial owner, and within 10 days after the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file in the office of the commissioner a statement, in such form as the commissioner shall prescribe, indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month.
For the purpose of preventing the unfair use of information which may have been obtained by any beneficial owner of an insurer, or director or officer thereof, described in Section 1104.2, by reason of his relationship to such insurer, any profit realized by him from any purchase and sale, or any sale and purchase, of any stock of such insurer within any period of less than six months, unless such stock was acquired in good faith in connection with a debt previously contracted, shall inure to, and be recoverable by, the insurer, irrespective of the intent of the beneficial owner, director or officer who entered into the transaction of holding the stock purchased or not repurchasing the stock sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the insurer or by the owner of any stock of the insurer in the name of and on behalf of the insurer if the insurer shall fail or refuse to bring such suit within 60 days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This section shall not be construed to cover any transaction where a beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the stock involved, or any transaction or transactions which the commissioner may by rules and regulations exempt as not within the scope of this section or Section 1104.2.
It shall be unlawful for any beneficial owner of an insurer, or director or officer thereof, described in Section 1104.2, to, directly or indirectly, sell any stock of such insurer if he or his principal does not own the stock sold, or, if he or his principal owns the stock, he does not deliver it against such sale within 20 days thereafter, or does not within five days after such sale deposit it in the mails or other usual channels of transportation; but no person shall be deemed to have violated this section if he proves that notwithstanding the exercise of good faith he was unable to make such delivery or deposit within such time, or that to do so would cause undue inconvenience or expense.
The provisions of Section 1104.3 shall not apply to any purchase and sale, or sale and purchase, and the provisions of Section 1104.4 shall not apply to any sale of stock of a domestic insurer (not then or theretofore held in an investment account), by a dealer in the ordinary course of his business and incidental to the establishment or maintenance by him of a primary or secondary market (other than on an exchange as defined in the Securities Exchange Act of 1934) for such stock. The commissioner may, by such rules and regulations as he deems necessary or appropriate in the public interest, define and prescribe terms and conditions with respect to stock held in an investment account and transactions made in the ordinary course of business and incident to the establishment or maintenance of a primary or secondary market.
The term “stock” as it is used in Sections 1104.2, 1104.3, 1104.4, 1104.5 and 1104.8 means any stock or similar security, or any security, convertible, with or without consideration, into such stock or carrying any warrant or right to subscribe to or purchase such stock, or any such warrant or right, or any other security which the commissioner shall deem to be of similar nature and consider necessary or appropriate, by such rules and regulations as he may prescribe in the public interest or for the protection of investors, to treat as stock.
Its stock shall be registered, or shall be required to be registered, pursuant to Section 12 of the Securities Exchange Act of 1934, as amended; or if
Such domestic insurer shall not have any class of its stock held of record by 100 or more persons on the last business day of the year next preceding the year in which stock of the insurer would be subject to the provisions of Sections 1104.2, 1104.3, and 1104.4 except for the provisions of this subdivision.
As used in this section, “qualified custodian” means: (A) commercial banks (as defined in Section 105 of the Financial Code), savings and loan associations (as defined in Section 5102 of the Financial Code), and trust companies (other than trust departments of title insurance companies), or any entity approved by the commissioner as a qualified custodian; (B) that is either (i) domiciled and has a principal place of business in this state or (ii) a national banking association with a trust office located in this state; and (C) that either has a net worth of at least one hundred million dollars ($100,000,000) or is able to demonstrate to the satisfaction of the commissioner that it is financially secure. The commissioner may consider, among other factors, evidence of the following in order to determine whether a custodian is financially secure for the purpose of this subdivision: (i) its obligations under an agreement approved by the commissioner pursuant to subdivision (c) are guaranteed by its parent holding company, (ii) its parent holding company has a net worth of at least one hundred million dollars ($100,000,000), or (iii) it is a member of a holding company system with a net worth of at least one hundred million dollars ($100,000,000).
As used in this section, “qualified depository” means an entity that is located in this state or a reciprocal state and is (i) a depository that provides for the long-term immobilization of securities or a clearing corporation that is also a depository, and that in either case has been approved by or registered with the United States Securities and Exchange Commission, (ii) a Federal Reserve bank, or (iii) an entity approved by the commissioner as a qualified depository.
A “qualified depository” may also include an entity that is located outside the United States, if it is a securities depository and clearing agency, incorporated or organized under the laws of a country other than the United States, (i) that operates a transnational system for securities or equivalent book entries (specifically Euroclear and Cedel, or successors to all or substantially all of their operations), or (ii) that operates a central system for securities or equivalent book entries, but solely for securities issued by, or by entities within, the country in which the securities depository and clearing agency is incorporated or organized. The depository shall meet all qualifying requirements imposed by this section upon Euroclear or Cedel.
As used in this section, “qualified subcustodian” means an entity located in this state or a reciprocal state (A) that holds securities of the domestic insurer, and maintains an account through which the securities are held, in this state or a reciprocal state and (B) that has shareholder equity of at least one hundred million dollars ($100,000,000) or is able to demonstrate to the satisfaction of the commissioner that it is financially secure. The qualified subcustodian shall be: (A) a commercial bank, a savings and loan association, or a trust company (other than trust departments of title insurance companies); (B) a subsidiary of a qualified custodian; or (C) any entity approved by the commissioner as a qualified subcustodian. The commissioner may consider, among other factors, evidence of the following in order to determine whether a subcustodian is financially secure for the purpose of this subdivision: (i) its obligations are guaranteed by its parent company, (ii) its parent holding company has shareholder equity of at least one hundred million dollars ($100,000,000), or (iii) it is a member of a holding company system with shareholder equity of at least one hundred million dollars ($100,000,000). A “qualified subcustodian” may also include an entity that is located outside the United States that is used by the domestic insurer for the purpose of obtaining access to a qualified depository located outside the United States. The qualified foreign subcustodian shall be a banking institution or trust company, incorporated or organized under the laws of a country other than the United States, that is regulated by that country’s government or an agency thereof, and that has shareholders’ equity in excess of two hundred million dollars ($200,000,000), whether in United States dollars or the equivalent of United States dollars, as of the close of its most recently completed fiscal year; or a majority-owned direct or indirect subsidiary of a qualified United States bank or bank holding company, if the subsidiary is incorporated or organized under the laws of a country other than the United States and has shareholders’ equity in excess of one hundred million dollars ($100,000,000), whether in United States dollars or the equivalent of United States dollars, as of the close of its most recently completed fiscal year; or is able to demonstrate to the satisfaction of the commissioner that it is financially secure. The commissioner may consider, among other factors, evidence of the following in order to determine whether a qualified foreign subcustodian is financially secure for purposes of this subdivision: (i) its obligations are guaranteed by its parent company, (ii) its parent holding company has shareholder equity of at least two hundred million dollars ($200,000,000), or (iii) it is a member of a holding company system with shareholder equity of at least two hundred million dollars ($200,000,000).
As used in this section, “subsidiary” means: (A) an entity all of whose voting securities (other than director qualifying shares, if any) are owned, directly or indirectly, by a qualified custodian; or (B) any affiliated entity approved by the commissioner as a subsidiary of a qualified custodian. For the purpose of this section, an affiliated entity means an entity that (A) controls or is controlled, either directly or indirectly or through one or more intermediaries, by a qualified custodian or (B) is under the common control, directly or indirectly, as or with a qualified custodian.
As used in this section, “entity approved by the commissioner as a qualified custodian,” “entity approved by the commissioner as a qualified depository,” “entity approved by the commissioner as a qualified subcustodian,” and “entity approved by the commissioner as a subsidiary of a qualified custodian” mean those entities that meet the conditions or standards established by the commissioner. The commissioner shall charge and collect in advance a one-time fee of two thousand two hundred forty-one dollars ($2,241) to review an application for approval of any entity pursuant to this section.
As used in this section, “reciprocal state” has the same meaning as in subdivision (f) of Section 1064.1.
As used in this section, “moneys” means cash held incidental to securities transactions occurring in the ordinary course of business with respect to securities held pursuant to the custodial agreements under this section.
Except as provided in subparagraph (B), as used in this section, “insurer,” “domestic insurer,” and “domestic admitted insurer” mean any insurer, other than a domestic life insurer that is incorporated or that has its principal place of business in this state. Except as provided in subparagraph (B), no portion of this section applies to domestic life insurers nor shall this section affect the interpretation of any other portion of this code with respect to domestic life insurers nor is it intended to create a precedent for the application of its provisions to those insurers. However, the exclusion of domestic life insurers from this section shall not be construed to diminish the commissioner’s existing authority over those insurers under any other provision of this code.
Domestic life insurers that are wholly owned by any insurer other than a domestic life insurer or are part of an insurance holding company system whose other insurer affiliates are not domestic life insurers may elect to be subject to this section by affirmatively stating that election in the statement otherwise required to be filed by that system pursuant to Section 1215.4.
Notwithstanding Section 1104.1, a domestic admitted insurer may maintain its securities and moneys in a reciprocal state, subject to the requirements of this section, through a custodian account located in California in or with a qualified custodian, and that qualified custodian may maintain those securities or moneys in a qualified depository or qualified subcustodian, either or both of which may be located in a reciprocal state. In addition, a domestic insurer that has foreign investments or any other investments that require delivery outside of the United States upon sale or maturity that qualify under Section 1240, 1241, or 10506, or any other provision of this code, may maintain those securities or moneys in or with a qualified depository located in a jurisdiction outside the United States. However, the aggregate amount of general account investments so deposited shall not exceed the lesser of 5 percent of the total admitted assets of the insurer or 25 percent of the excess of admitted assets over the sum of paid-up capital, liabilities, and surplus required by Section 700.02. However, unless exempted by the commissioner, not more than 50 percent of that amount of assets that an insurer is authorized to invest pursuant to Section 1241 or 1241.1 may be maintained in any single country in a qualified depository as defined in clause (ii) of paragraph (2) of subdivision (a) and as to life companies not more than 12.5 percent of that amount of assets that an insurer is authorized to invest pursuant to Section 1241 or 1241.1 may be maintained in any single country in a qualified depository as defined in clause (ii) of paragraph (2) of subdivision (a). The percentage or dollar value of admitted assets and paid-up capital and liabilities shall be determined by the insurer’s last preceding annual statement of conditions and affairs made as of the preceding December 31 that has been filed with the commissioner pursuant to law. A broker or agent, as defined in the Federal Securities Exchange Act of 1934 (15 U.S.C. Sec. 78c et seq.), may not serve as a qualified custodian, qualified subcustodian, or qualified depository under this section. However, no otherwise qualified custodian or subcustodian shall be disqualified on account of its activities as a broker or dealer, as so defined, when the activities are incidental to its custodial or other business.
Securities shall not be deposited in or with a qualified custodian, qualified depository, or qualified subcustodian except as authorized by an agreement between the insurer and the qualified custodian, if the agreement is satisfactory to and has been approved by the commissioner. The agreement shall require that the securities be held by the qualified custodian for the benefit of the insurer and that the books and records of the qualified custodian shall so designate. The agreement shall further require that beneficial title to the securities remain in the insurer and shall require that the qualified subcustodian and qualified depository be the agents of the qualified custodian. The agreement shall also specifically require that the qualified custodian shall exercise the standard of care of a professional custodian engaged in the banking or trust company industry and having professional expertise in financial and securities processing transactions and custody would observe in these affairs. This section does not affect the burden of proof under applicable law with respect to the assertion of liability in any claim, action, or dispute alleging any breach of, or failure to observe, that standard of care.
An agreement between the qualified custodian and the insurer shall not be approved by the commissioner unless the qualified custodian agrees therein to comply with this section. Except when the agreement is submitted in conjunction with an application for an original certificate of authority or variable life and variable annuity qualification, a fee of seven hundred forty-eight dollars ($748) shall be paid to the commissioner at the time of filing the agreement for approval. However, a fee shall not be required if the form of the agreement has been previously submitted for approval and approved by the commissioner as certified by the insurer and qualified custodian submitting the agreement to the commissioner. The agreement shall be deemed approved unless, within 60 days after receipt by the commissioner of that agreement and any required filing fee, the commissioner has disapproved the agreement in writing citing specific reasons for disapproval.
Notwithstanding the maintenance of securities with an out-of-state qualified depository or qualified subcustodian pursuant to agreement, if the commissioner has reasonable cause to believe that the domestic insurer (1) is conducting its business and affairs in a manner as to threaten to render it insolvent, or (2) is in a hazardous condition or is conducting its business and affairs in a manner that is hazardous to its policyholders, creditors, or the public, or (3) has committed or is committing or has engaged or is engaging in any act that would constitute grounds for rendering it subject to conservation or liquidation proceedings, or if the commissioner determines that irreparable loss and injury to the property and business of the domestic insurer has occurred or may occur unless the commissioner acts immediately, then the commissioner may, without hearing, order the insurer and the qualified custodian promptly to effect the transfer of the securities back to a qualified custodian, qualified subcustodian, or qualified depository located in this state from any qualified depository or qualified subcustodian located outside of this state (the transfer order). Upon receipt of the transfer order, the qualified custodian shall promptly effect the return of the securities. Notwithstanding the pendency of any hearing or action provided for in subdivision (f), the transfer order shall be complied with by those persons subject to that order. Any challenge to the validity of the transfer order shall be made in accordance with subdivision (f). It is the responsibility of both the insurer and the qualified custodian to oversee that compliance with the transfer order is completed as expeditiously as possible. Upon receipt of a transfer order, there shall be no trading of the securities without specific instructions from the commissioner until the securities are received in this state, except to the extent trading transactions are in process on the day the transfer order is received by the insurer and the failure to complete the trade may result in loss to the insurer’s account. Issuance of a transfer order does not affect the qualified custodian’s liabilities with regard to the securities that are the subject of the order.
At the same time the transfer order is served, the commissioner shall issue and also serve upon the insurer a notice of hearing to be held at a time and place fixed therein which shall not be less than 20 nor more than 45 days after the service thereof. Upon request of the insurer and agreement of the department, the hearing may be held within a shorter time but in no event less than 10 days after the service of the notice of hearing. The transfer order and notice of hearing may be served by certified mail, express mail, messenger, telegram, or any other means calculated to give prompt actual notice to (1) the California office of the insurer designated in the agreement, its home office as shown on its most recently filed annual or quarterly statement, or its California agent for service of process; and (2) the California office of the qualified custodian designated in the agreement. If, as a result of the hearing, any of the statements as to conduct, conditions, or grounds for the transfer order are found to be true, or if other conditions or grounds are discovered or become known at the hearing and are found to be true, the commissioner shall affirm the transfer order and may make additional order or orders, pertaining to the transfer order, as may be reasonably necessary.
The insurer subject to the transfer order is entitled to judicial review in the state of the commissioner’s order issued as a result of the hearing.
Alternatively, at any time prior to the commencement of the hearing on the transfer order, the insurer may waive the hearing and have judicial review in this state of the transfer order by petition for writ of mandate and declaratory relief without first exhausting administrative remedies or procedures. In that event the insurer is not entitled to any extraordinary remedies prior to trial.
No person other than the insurer has standing at the hearing by the commissioner or for any judicial review of the transfer order.
This article shall not prevent:
The purchase by any person of any asset which the commissioner requires to be sold, at a price approved by the commissioner.
The borrowing in accordance with its terms by any person upon a policy of life insurance upon his own life.
The payment of a fee to any attorney for legal services rendered to any such insurer.
The receipt of advances under agency contracts by agents of life insurers.
Any admitted insurer’s officers, directors, trustees or other persons who have authority in the management of the funds of such insurer from entering into any transaction with such insurer if:
Such transaction is pursuant to a permit issued by the Insurance Commissioner under authority granted to him by other provisions of this code or is such as requires his approval prior to its consummation under other provisions of this code;
The application for any such permit or the request for any such approval sets forth under oath the complete details concerning all such transactions with any such officers, directors, trustees or other persons; and
Where the commissioner in his permit or approval specifically finds that the consummation of such transaction will not be unfair, unjust or inequitable to such insurer or to any of its stockholders or policyholders.
Any transaction between an insurer and a person having authority in the management of the insurer’s funds (except officers, directors, and trustees), if such insurer is subject to registration and reporting under the Insurance Holding Company System Regulatory Act (Article 4.7 (commencing with Section 1215) of Chapter 2 of this part), or subject to substantially similar registration and reporting requirements under the laws of its domicile.
An admitted insurer making a loan for the purchase of a principal residence by, and acquiring, at a price not to exceed the fair market value thereof, the principal residence from, an officer or person having authority in management of the insurer’s funds, nor shall such officer or person be prohibited from accepting such loan or acquisition, in connection with the relocation of the place of employment at the request of the insurer, either during the course of employment or upon initial employment of such officer or person having authority in management of the insurer’s funds.
Any loan permitted under this subdivision shall be secured by a first trust deed or first mortgage, shall not exceed 90 percent of the fair market value of the property, shall carry an interest rate no more favorable than that rate given to other employees of such insurer not subject to the limitations of this article and shall be subject to the approval of the insurer’s board of directors or delegated committee thereof.
This subdivision shall not apply to directors and trustees of insurers.
Any person violating, or wilfully aiding another in the violation of, Sections 1101, 1101.1, 1102, 1103, 1104 or the commissioner’s order issued pursuant to Section 1104.1 is guilty of a misdemeanor. The commissioner shall, after a hearing upon due notice, revoke, or deny the renewal of, the certificate of authority of a domestic admitted insurer persisting for more than 60 days from and after the commissioner’s order issued pursuant to Section 1104.1 in failure to comply with such order. The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have the powers granted therein.
In accordance with either subdivision (e) of Section 1001 or Section 1101.1 of the Corporations Code, an insurer may apply for the insurance commissioner’s approval of the terms and conditions of the covered transactions and the fairness of such terms and conditions to deliver consideration other than securities which shall be in such form, contain such information and be accompanied by such documents as the commissioner deems appropriate or requires.
The commissioner shall require the payment of three hundred seventy-four dollars ($374), as fee for the determination referred to in Section 1107.
ARTICLE 18. Multiple Insurer Operations [1110. - 1113.]
This article does not apply to combination automobile insurance policies in which one insurer issues a policy covering certain classes of insurance on a risk, and another insurer covers certain other classes of insurance on the same risk. This article applies to:
The issuance of a policy in which more than one insurer indemnifies the insured severally, jointly, or jointly and severally with other insurers for all or a specified portion of a risk.
The issuance of a policy which is subject to an automatic reinsurance agreement under which several insurers participate with the insurer or insurers issuing the policy to the same extent as though they were primary insurers, and the contract is negotiated upon the basis of such reinsurance and the policy makes reference to the fact of such reinsurance.
Policies issued pursuant to a plan providing for the allocation among various insurers of risks who have been unable to procure such insurance without resort to the plan.
Insurers desiring to issue policies to which this article is applicable, and to pay commissions to persons who are licensed as insurance agents, but not as agents for all insurers participating in the risk, and who are not licensed as insurance brokers, may file with the commissioner in such form as he may require, a statement of the plan under which they intend to operate, and a list of the insurers that will operate under the plan. If the commissioner finds that the nature of the plan is not such that the interests of the insuring public will be jeopardized by permitting an agent of one or more of the insurers to act in a transaction with or for all the insurers, or for the particular insurer paying the commission without being licensed as agent for such insurer or as an insurance broker, he may issue a permit authorizing the operation of the plan by or on behalf of the insurers listed in the application, and the payment of commissions pursuant to the plan as approved by the commissioner shall be lawful.
Within 10 days after the withdrawal of an insurer from the plan or from the time additional insurers participate in the plan, notice of the change shall be given the commissioner in writing, and unless such notice is so given, the permit theretofore issued by the commissioner shall expire on the tenth day after such change. Unless the permit expires as provided in the preceding sentence, it shall remain in force continuously unless the commissioner after hearing finds that the insurers have deviated materially from the plan, and that it is against public interest to continue its operation.
For filing application for a permit issued pursuant to this article, the commissioner shall charge and collect the sum of one hundred seven dollars ($107).
CHAPTER 2. Incorporated Insurers [1140. - 1260.]
ARTICLE 1. General [1140. - 1142.]
Except as otherwise provided in this code, incorporated insurers are subject to the provisions of the general corporation law in like manner with other corporations.
A domestic incorporated life insurer may be organized under the Nonprofit Mutual Benefit Corporation Law. With the prior consent of the commissioner, an existing domestic incorporated life insurer organized under the general corporation law may be converted to a domestic incorporated life insurer under the Nonprofit Mutual Benefit Corporation Law pursuant to Section 911 of the Corporations Code. The consent shall be obtained by filing an application accompanied by any information that the commissioner may require, and by submitting a filing fee of seven thousand dollars ($7,000).
Except as otherwise provided in this code, a domestic incorporated life insurer organized under the Nonprofit Mutual Benefit Corporation Law shall be subject to that law in the same manner as other corporations organized under that law. In the case of a conflict between the Insurance Code and the Nonprofit Mutual Benefit Corporation Law, the provisions of the Insurance Code shall prevail.
A life insurer organized under the Nonprofit Mutual Benefit Corporation Law shall have the same powers held by, and shall be subject to all provisions of this code applicable to, a domestic incorporated stock life insurer, except for Section 1140. An insurer so organized shall have a surplus (in lieu of paid-in capital and surplus) at least equal to the sum of the paid-in capital and surplus required of a stock insurer admitted for the same classes. In addition, an insurer so organized shall be subject to the same premium tax obligations as a stock insurer.
Officers, directors, and other managers of domestic life insurers organized under the Nonprofit Mutual Benefit Corporation Law shall not be entitled to any rights, preferences, or privileges that are not allowed for the officers, directors, or managers of an insurer of the same class organized under the general corporation law.
For a life insurer organized under the Nonprofit Mutual Benefit Corporation Law, all references in this code to “shareholders” shall be interpreted to mean “members,” and all references to “shares,” “stocks,” or “securities” shall mean “memberships,” as defined in the Nonprofit Mutual Benefit Corporation Law.
The issuance of memberships to policyholders that are not natural persons shall be subject to the provisions of Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. A domestic incorporated life insurer organized under the Nonprofit Mutual Benefit Corporation Law shall have at least one member. The redemption of memberships, other than for policyholders that are not natural persons, shall be subject to the same rules as those applicable to the payment of dividends by a domestic incorporated stock life insurer.
Notwithstanding any other law, a copy of every form of proxy or written consent or authorization for use at any meeting or proceeding of shareholders or stockholders of any domestic insurer to evidence authority to cast the vote of any shareholder or stockholder, or to record the consent or the authorization of any shareholder or stockholder to any action of the insurer, and a copy of every solicitation, announcement, or advertisement used to obtain, or to influence any shareholder or stockholder to sign, any proxy, or written consent or authorization shall be filed with the commissioner, accompanied by a filing fee of one hundred thirty-six dollars ($136), by the person intending to use, issue, publish, or circulate the document. This document shall not be used, issued, published, or circulated before a period of 10 days following the date of its filing, or any shorter period that may be designated by the commissioner, has elapsed. Within the 10-day or a shorter period, the commissioner may disapprove of any document filed with him or her pursuant to this section, stating his or her reasons therefor in writing, in which case, the document shall not be used, issued, published, or circulated.
Any person who fails to make the filing required by this section and who thereafter uses any document required to be filed, uses the document before it has been filed with the commissioner for the period required, or uses the document after receiving written notice that the document has been disapproved by the commissioner is guilty of a misdemeanor. It shall be unlawful to use any proxy or consent obtained in violation of this section. The superior court of the State of California in and for the county in which is located the principal place of business of the insurer shall have jurisdiction to enforce this section and the regulations promulgated pursuant to this section, and to grant appropriate relief upon the verified petition of the commissioner, the domestic insurer, or any of its shareholders or stockholders.
The purposes of this section are: to ensure that the shareholders, stockholders, or other persons entitled to vote or give written consents or authorizations are provided with adequate and accurate information regarding the affairs of the insurers in which they have interests, the interests of those soliciting proxies or written consents or authorizations and of those upon whose behalf the solicitations are made, and the matters as to which proxies, written consents, or authorizations are solicited; and to prevent fraud or deception in connection with proxies, proxy statements, or other proxy solicitations. The commissioner may make rules and regulations in furtherance of the purposes of this section. These rules and regulations may differ as to different classes and types of insurers.
This section shall not apply to any domestic insurer having fewer than 100 shareholders or stockholders and shall not apply to any domestic insurer if 95 percent or more of its stock is owned or controlled by a parent or an affiliated insurer and the remaining shares of stock are owned by fewer than 500 shareholders or stockholders. Any domestic insurer that files with the federal Securities and Exchange Commission forms of proxies, consents, and authorizations complying with the requirements of the federal Securities Exchange Act of 1934 (15 U.S.C. Sec. 78a et seq.) and the amendments thereto and the applicable regulations thereunder, is exempt from this section.
No director, trustee, officer or agent of any insurer shall be subject to personal liability by reason of any payment or any determination not to contest or seek recovery of any payment made subsequent to June 4, 1944, or hereafter made, by or on behalf of such insurer on account of any tax, license, fee, deposit or other charge paid pursuant to the terms of any statute, law or ordinance of this or any other State, county, city or taxing authority, unless prior to such payment or determination such statute, law or ordinance shall have been judicially rendered invalid by action of the State court having final appellate jurisdiction in the premises or by action of the Supreme Court of the United States. This section is applicable not only to directors, trustees, officers and agents of insurers generally but also to reciprocal or interinsurance exchanges, members of their subscribers’ boards, their attorneys in fact and any director, trustee, officer and agent thereof.
In situations of hardship, financial embarrassment or where other good cause is shown the commissioner may, in his discretion, by written order, permit an insurer to acquire by gift, devise, bequest or other transfer an asset, or a part thereof, not otherwise permissible, or retain an asset, however obtained. Such order, or any amendments thereto, shall specify the asset and the mode of acquisition or retention which is to be permitted and shall specify such reasonable time as the commissioner may determine in his discretion for the retention, or further retention of such asset. At the end of such time or earlier if he determines circumstances warrant such action the commissioner may invoke the procedure of Section 1202 for the purpose of requiring the insurer to dispose of the asset, or a part thereof, so acquired or held.
This section shall not apply to any asset of an insurer which:
Has been held for 25 years or more, and
Consists entirely of corporate securities, and
The value does not exceed more than one-tenth of 1 percent of the total assets of the insurer.
The insurer may retain such an asset.
ARTICLE 2. Restrictions on Activities [1152. - 1155.]
Domestic incorporated stock insurers, except those governed by Sections 10530, 12373, and 12640.06, shall be governed by the provisions of this section and, if the insurer is subject to registration pursuant to Sections 1215.4 and 1215.5, as to payment or distribution of dividends to stockholders. Such insurers may make dividends only from earned surplus.
No dividends shall be declared out of earned surplus derived from the mere net appreciation in the value of assets not yet realized, nor shall any dividends be declared from any part of such earned surplus derived from an exchange of assets, unless and until such earned surplus have been realized or unless the assets received are currently realizable in cash.
An insurer may declare and distribute a dividend otherwise prohibited by this section if (1) following payment of the dividend the insurer’s surplus as regards policyholders is (A) reasonable in relation to its outstanding liabilities and (B) adequate to its financial needs as prescribed in Section 1215.5, and (2) the commissioner has given approval for the dividend prior to payment.
For purposes of this section, “earned surplus” means unassigned funds, as required to be reported on the insurer’s annual statement.
An insurer shall not be admitted within three years from and after the time when it commences business as an insurer, nor within three years from and after the time when it is first incorporated, unless assets equal to the sum of its liabilities and the minimum capital and surplus required for admission are maintained in cash or one or more of the following:
Premiums that are in the course of collection, or agents’ balances representing premiums, on policies effected not more than 90 days prior to the date on which these premiums or balances are valued for the purpose of this section, and earned service fees receivable, not over 90 days due, and evidences of debt representing those assets.
In the case of a life insurer, the amount of current deferred premiums receivable, after deducting therefrom the amount of the loading.
Interest accrued and dividends declared, receivable on any of the assets specified in subdivisions (a) to (c), inclusive, no part of which interest or dividends has been due in excess of one year.
Amount of reinsurance recoverable from admitted insurers.
With the prior approval of the commissioner, any investments authorized by this code if the following conditions are met:
The insurer has previously been authorized to write life or health insurance, or is seeking authority to write life or health insurance.
The solvency of the insurer is guaranteed by another insurer (the “guaranteeing insurer”) that meets the following criteria:
The guaranteeing insurer has an ownership interest of at least 50 percent in the insurer.
The guaranteeing insurer, which may be a reciprocal or interinsurance exchange, has been admitted to do business in this state for not less than 10 years.
The guaranteeing insurer has maintained a surplus of admitted assets over all liabilities of at least five hundred million dollars ($500,000,000) for not less than three years.
The commissioner, in his or her discretion, determines that the proposed investment is sound in relation to the insurer’s business plan and operations.
An admitted insurer which has been in business as an insurer less than three years from and after the time when it commenced business as an insurer shall maintain its assets during the balance of such three-year period in the types of assets specified in Section 1153, excepting such of its assets as are in excess of the sum of its liabilities and the surplus and capital requirements for admission. On its failure so to do, the commissioner may revoke its certificate of authority. The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
After the period specified in Sections 1153 and 1153.5, the requirements of those sections shall no longer be applicable to any insurer specified therein and shall no longer affect or modify the application or nonapplication of any section of this code.
The provisions of Sections 1153 and 1153.5 shall not govern or limit the investments of any insurer formed by merger, consolidation, or reinsurance of the entire business of any one or more admitted insurers if any one or more of the merged, consolidated, reinsuring or reinsured insurers was, prior to such consolidation, merger, or reinsurance, admitted, or authorized to do business as an insurer in any state, for a period of three or more years.
An insurer, within such limits as may be set by the board of directors, may contribute to community funds or to charitable, philanthropic, or benevolent instrumentalities conducive to public welfare or civic betterment.
ARTICLE 3. General Investments [1170. - 1182.]
Domestic incorporated insurers may invest their assets in the purchase of any of the securities specified in this article, or in loans upon such securities, if those purchases or loans conform to all the following conditions:
Such securities are not in default as to principal or interest at the date of investment.
In the case of a purchase, the purchase price does not exceed the market value of the securities at the date of investment.
In the case of a loan not governed by the provisions of Section 1194.81, the amount loaned does not exceed eighty-five per cent of such market value at the date of investment.
Such insurers may invest in obligations of the United States or obligations for which the faith and credit of the United States are pledged for payment of principal and interest.
Such insurers may invest in obligations of the United States Postal Service.
Such insurers may invest in obligations of the Dominion of Canada, or the Commonwealth of Puerto Rico, or of any province of the Dominion of Canada, or of any political subdivision of the Commonwealth of Puerto Rico, or obligations for which are pledged the faith and credit either of the dominion, or the commonwealth, or of any province of the dominion, or of any political subdivision of the commonwealth, for the payment of principal and interest, if within 10 years immediately preceding the investment such province or such political subdivision was not in default for more than 90 days in the payment of principal or interest upon any legally authorized obligation issued by it.
Such insurers may invest in obligations issued under authority of law by any county, municipality, or school district in this State or in any other state, or in any province of the Dominion of Canada or in any political subdivision of the Commonwealth of Puerto Rico, if the obligor has not within two years next preceding the investment defaulted for more than 90 days in the payment of any part of either principal or interest upon any legally authorized obligation issued by it, and the obligations of the state or province or political subdivision in which it is located are legal for investment under the provisions of Sections 1172 or 1174.
Such insurers may invest in obligations of this State or those for which the faith and credit of this State are pledged for the payment of principal and interest, and in obligations of any other State in the United States, if within ten years immediately preceding the investment such State was not in default for more than ninety days in the payment of any part of principal or interest of any debt duly authorized by the Legislature of such State to be contracted by such State since the first day of January, 1878.
Such insurers may invest in bonds of any permanent road division in this state, or any district organized under the laws of this state, when such bonds are legal investments for savings banks of this state, or have been certified as legal investments for savings banks pursuant to Division 10 (commencing with Section 20000) of the Water Code, or when the statutes or laws providing for the issuance of such bonds provide that such bonds shall be entitled to the same force or value or use as bonds issued by any municipality, or such law specifically states that such bonds shall be legal investments for either savings banks, insurance companies, all trust funds, state school funds or any funds which may be invested in bonds of cities, counties, cities and counties, school districts, or municipalities in the state, or when such bonds have been investigated and approved by a commission or board now or hereafter authorized by law to conduct such investigation and give such approval when such law specifies that upon that approval the bonds are legal investments for insurers, or which the commissioner approves in writing as legal for investment of the funds of insurers. The commissioner in determining whether to approve any bonds as legal investments which do not otherwise qualify as such pursuant to any part of this code, shall, at the expense of any insurer requesting approval, make an adequate independent investigation of such bonds and the security therefor. A copy of the data secured in such investigation and the resulting opinion of the commissioner shall be furnished to the insurer.
Such insurers may invest in bonds of any county water district operating under Division 12 of the Water Code.
Such insurers may make, invest in or purchase loans which are guaranteed by the United States or any agency thereof pursuant to the provisions of the “Servicemen’s Readjustment Act of 1944” or any act of Congress supplementary or amendatory thereof.
None of the provisions of the Insurance Code limiting or restricting loans by insurers or prescribing the security therefor shall apply to any loans which are fully guaranteed by the United States or any agency thereof pursuant to the provisions of the “Servicemen’s Readjustment Act of 1944” or any act of Congress supplementary or amendatory thereof; and in any case in which payment of a portion of any loan is guaranteed by the United States or any agency thereof pursuant to the provisions of the “Servicemen’s Readjustment Act of 1944” or any act of Congress supplementary or amendatory thereof, the guaranteed portion of such loan shall not be deemed a part of said loan for the purposes of any provision of the Insurance Code limiting the amount which may be loaned by an insurer upon the security of real property or improvements thereon shall be applicable to such loan.
Such insurers may invest in notes or bonds secured by mortgage guaranteed as to payment by a policy of mortgage insurance, and mortgage participation certificates issued by a mortgage insurer in accordance with the provisions of this code.
Such insurers may invest in collateral trust bonds or notes, secured by any of the following:
A deposit of obligations authorized for investment by this article or Articles 4, 5, or 6 of this chapter having a market value at least fifteen per cent in excess of the par value of the collateral trust bonds or notes issued.
A deposit of obligations authorized for investment by this article or Articles 4, 5, or 6 of this chapter, together with other securities, the combined market value of the deposit being at least twenty per cent in excess of the par value of the collateral trust bonds or notes issued, with the par value of the collateral trust bonds or notes not exceeding the market value of the deposited obligations which are authorized for investment by this article or Articles 4, 5, or 6 of this chapter.
A deposit of obligations authorized for investment by this article, or Articles 4, 5, or 6 of this chapter, together with other securities, and conforming to the following requirements:
The combined market value of the deposit is at least thirty per cent in excess of the par value of the collateral trust bonds or notes issued.
The par value of such collateral trust bonds or notes issued does not exceed the market value of deposited obligations authorized for investment by this article.
The deposited collateral consists of obligations authorized for investment by this article, or Articles 4, 5, or 6 of this chapter, having a market value of at least seventy-five per cent of the par value of such collateral trust bonds or notes issued.
Such insurers may invest in farm loan bonds, consolidated farm loan bonds, collateral trust debentures, consolidated debentures, or other obligations issued under the Federal Farm Loan Act, approved July 17, 1916, as amended (Title 12 U.S.C. Sections 636 to 1012 inclusive, and Sections 1021 to 1129 inclusive), and the Farm Credit Act of 1933, as amended (Title 12 U.S.C. Sections 1131 to 1138f inclusive), and the Farm Credit Act of 1971 (Title 12 U.S.C. Sections 2001 to 2259 inclusive). Under this section such insurers may invest in farm loan bonds and consolidated farm loan bonds issued by federal land banks, consolidated collateral trust debentures and all other debentures issued by federal intermediate credit banks, debentures issued by the Central Bank for Cooperatives and consolidated debentures issued by banks for cooperatives.
Such insurers may invest in bonds issued under the “Home Owners’ Loan Act of 1933”; bonds, debentures and notes issued by any federal home loan bank, or consolidated federal home loan bank notes, bonds and debentures issued by the Federal Home Loan Bank Board in accordance with the provisions of the Federal Home Loan Bank Act, and mortgage, mortgage participation, pass-through or trust certificates, or obligations or other securities issued or guaranteed by the Federal Home Loan Mortgage Corporation, pursuant to Section 305 or Section 306 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. Secs. 1454, 1455), by the Government National Mortgage Association, pursuant to Section 306 or Section 313 or Title III of the National Housing Act (12 U.S.C. Secs. 1721, 1723(e)), or by the Federal National Mortgage Association pursuant to 12 U.S.C. Sections 1717–1719.
Such insurers may also invest in registered warrants of this State, issued pursuant to law.
Domestic incorporated insurers may invest in an account or accounts in one or more banks, savings and loan associations, or credit unions to the extent the account or accounts are insured by an agency or instrumentality of the federal government. As used in this section, an account may include a certificate of deposit.
ARTICLE 3.5. Disclosure of Material Transactions [1185. - 1187.]
Every domestic incorporated insurer shall file a report with the commissioner disclosing material acquisitions and dispositions of assets or material nonrenewals, cancellations, or revisions of ceded reinsurance agreements unless the acquisitions and dispositions of assets or material nonrenewals, cancellations, or revisions of ceded reinsurance agreements have been submitted to the commissioner for review, approval, or information purposes pursuant to other provisions of this code, laws, regulations, or other requirements.
The report shall be filed within 15 days after the end of the calendar month in which any of the foregoing transactions occur.
One complete copy of the report, including any exhibits or other attachments filed as part thereof, shall be filed with the department and the National Association of Insurance Commissioners.
All reports obtained by, or disclosed to the commissioner pursuant to this article, shall be given confidential treatment and shall not be subject to subpoena and shall not be made public by the commissioner, the National Association of Insurance Commissioners, or any other person, except to insurance departments of other states, without the prior written consent of the insurer to which it pertains unless the commissioner, after giving the insurer who would be affected thereby, notice and an opportunity to be heard, determines that the interest of policyholders, shareholders, or the public will be served by the publication thereof, in which event the commissioner may publish all or any part thereof in such manner as he or she may deem appropriate.
No acquisitions or dispositions of assets shall be reported pursuant to Section 1185 if the acquisitions or dispositions are not material. For purposes of this article, a material acquisition (or the aggregate of any series of related acquisitions during any 30-day period) or disposition (or the aggregate of any series of related dispositions during any 30-day period) is one that is nonrecurring and not in the ordinary course of business and involves more than 5 percent of the reporting insurer’s total admitted assets as reported in its most recent statutory statement filed with the insurance department of the insurer’s state of domicile.
Asset acquisitions subject to this article include every purchase, lease, exchange, merger, consolidation, succession, or other acquisition other than the construction or development of real property by or for the reporting insurer or the acquisition of materials for that purpose. Asset dispositions also include every sale, lease, exchange, merger, consolidation, mortgage, hypothecation, assignment (whether for the benefit of creditors or otherwise), abandonment, destruction, or other disposition.
The following information is required to be disclosed in any report of a material acquisition or disposition of assets:
Date of the transaction.
Manner of acquisition or disposition.
Description of the assets involved.
Nature and amount of the consideration given or received.
Purpose of, or reason for, the transaction.
Manner by which the amount of consideration was determined.
Gain or loss recognized or realized as a result of the transaction.
Name of the person from whom the assets were acquired or to whom they were disposed.
Insurers shall report material acquisitions and dispositions on a nonconsolidated basis unless the insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and that insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than one million dollars ($1,000,000) total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than 5 percent of the insurer’s capital and surplus.
No nonrenewals, cancellations, or revisions of ceded reinsurance agreements shall be reported pursuant to Section 1185 if the nonrenewals, cancellations, or revisions are not material. For purposes of this article, a material nonrenewal, cancellation, or revision is one that affects for property and casualty business, including accident and health business when written as such, more than 50 percent of an insurer’s ceded written premium, or for life, annuity, and accident and health business, more than 50 percent of the total reserve credit taken for business ceded, on an annualized basis as indicated in the insurer’s most recently filed statutory statement; provided, however, that no filing is required if the insurer’s ceded written premium or the total reserve credit taken for business ceded represents, on an annualized basis, less than 10 percent of direct plus assumed written premium or 10 percent of the statutory reserve requirement prior to any cession, respectively.
Subject to the criteria specified in subdivision (a), a report is to be filed without regard to which party has initiated the nonrenewal, cancellation, or revision of ceded reinsurance whenever one or more of the following conditions exist:
The entire cession has been canceled, nonrenewed, or revised and ceded indemnity and loss adjustment expense reserves after any nonrenewal, cancellation, or revision represent less than 50 percent of the comparable reserves that would have been ceded had the nonrenewal, cancellation, or revision not occurred.
An authorized or accredited reinsurer has been replaced on an existing cession by an unauthorized reinsurer.
Collateral requirements previously established for unauthorized reinsurers have been reduced; for example, the requirement to collateralize incurred but not reported (IBNR) claim reserves has been waived with respect to one or more unauthorized reinsurers newly participating in an existing cession.
Subject to the materiality criteria, for purposes of paragraphs (2) and (3), a report shall be filed if the result of the revision affects more than 10 percent of the cession.
The following information is required to be disclosed in any report of a material nonrenewal, cancellation, or revision of ceded reinsurance agreements:
Insurers shall report all material nonrenewals, cancellations, or revisions of ceded reinsurance agreements on a nonconsolidated basis unless the insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than one million dollars ($1,000,000) total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than 5 percent of the insurer’s capital and surplus.
ARTICLE 4. Property Authorized for Excess Funds Investments [1190. - 1202.]
Any domestic incorporated insurer, which maintains in cash on hand or on deposit in a national or state bank, or in securities specified in Article 3 (commencing with Section 1170), an amount equal to its required minimum paid-in capital, may invest the remainder of its assets in the purchase of, or loans upon the securities set forth in this article. The investments are known as excess funds investments and are subject to the restrictions set forth in this article.
Excess funds investments may be made in the stock of any corporation organized and carrying on business under the laws of this or any other state, or of the United States, or of the District of Columbia, or of the Dominion of Canada or of any province of the Dominion of Canada.
Excess fund investments may be made in the purchase and sale of exchange traded call options on common stock pursuant to this section.
An insurer may sell exchange traded call options only through an exchange and only with respect to stock which it owns. Common stock that is obligated under an unexpired written call option shall not be sold unless the insurer first enters into a closing purchase transaction. An insurer shall not sell any other options pursuant to this section.
An insurer may purchase exchange traded call options only through an exchange and only for the purpose of a closing purchase transaction. An insurer shall not purchase any other options pursuant to this section.
Excess fund investments may be made by a domestic life insurer having admitted assets aggregating in value not less than one hundred million dollars ($100,000,000) in the purchase and sale of call options on interest-bearing obligations pursuant to subdivision (b) or (c). These investments may be made only in options on interest-bearing obligations issued by the United States of America, or any of its agencies or instrumentalities specified in Section 1180.
An insurer may purchase call options pursuant to this section for the sole purpose of executing a closing purchase transaction for the interest-bearing obligation subject to the option. An insurer shall not purchase any other options pursuant to this section.
An insurer may sell call options pursuant to this section only on interest-bearing obligations that it owns. An insurer shall not sell an interest-bearing obligation subject to an unexpired written call option sold by it except pursuant to a closing purchase transaction under the call option.
Excess funds investments may be made in:
Interest-bearing obligations issued by a nonaffiliate institution, as defined in paragraph (5) of subdivision (f) of Section 1196.1, organized under the laws of any state, or of the United States, or of the District of Columbia, or of the Dominion of Canada or of any province of the Dominion of Canada, or interest-bearing obligations registered with the Securities and Exchange Commission and publicly traded issued by an affiliate corporation organized under the laws of any state, or of the United States, or of the District of Columbia, or of the Dominion of Canada or of any province of the Dominion of Canada, or interest-bearing obligations issued by an authority established pursuant to the California Industrial Development Financing Act provided for in Title 10 (commencing with Section 91500) of the Government Code, to which the corporation is obligated with respect to payment, or
Equipment trust obligations or certificates, or other adequately secured instruments, evidencing an interest in or lien upon transportation equipment used or to be used by a common carrier or common carriers and a right to receive determined portions of fixed obligatory payments for the use or purchase of this equipment, when the obligations, certificates, or instruments are issued by a corporation specified in subdivision (a) or are unconditionally guaranteed or assumed by the corporation as to principal and as to interest or dividends and as to the payment of the fixed obligatory payments or the payment of the determined portions thereof.
Excess funds investments may be made in bonds, notes or other obligations issued, assumed or guaranteed by the International Bank for Reconstruction and Development, or the Inter-American Development Bank, or the Government Development Bank for Puerto Rico, or the Asian Development Bank, the International Finance Corporation, or the African Development Bank. Investments held under the authority of this section at any one time shall not be in excess of 212 percent of the insurer’s admitted assets or an amount equal to 25 percent of the total of the capital and surplus of such insurer, whichever is the lesser. Percentage or dollar value of assets and surplus as provided herein shall be determined by the insurer’s last preceding annual statement of conditions and affairs filed with the commissioner pursuant to law.
An insurer may lend on the security of a first lien on an unencumbered leasehold on real property if:
The real property subject to the leasehold is primarily improved by a single family residence, the term of the loan does not exceed 30 years, and the amount of the loan plus the amount of the liens of any public bond, assessment or tax assessed upon the property loaned upon does not exceed 75 percent of the sound market value of the leasehold for loan purposes as determined by appraisal; or
The real property subject to the leasehold is not primarily improved by a single family residence, the term of the loan does not exceed 30 years, and the amount of the loan plus the amount of the liens of any public bond, assessment or tax assessed upon the property loaned upon does not exceed 6623 percent of the sound market value of the leasehold for loan purposes as determined by appraisal; or
Where the loan is a building loan, the principal so loaned plus the amount of the liens of any public bond, assessment or tax assessed upon the property subject to said leasehold at no time exceeds 75 percent if made upon the kind of property and improvements referred to in (a) above or if other than referred to in (a) above, at no time exceeds 6623 percent of the sound market value of the leasehold for loan purposes as determined by appraisal, including the actual cost of the improvements thereon taken as security; or
The loan is fully guaranteed or fully insured or covered by a commitment to fully guarantee or fully insure by the United States, the Federal Housing Administrator, or by any other agency of the United States which the commissioner shall have approved for the purposes of this subdivision as an issuer of insurance or guarantees of loans on real property, whether the proceeds of the guarantee or insurance is payable in cash or in obligations of the United States; or
The loan is fully guaranteed by the United States or any agency thereof pursuant to the “Servicemen’s Readjustment Act of 1944” or any act of Congress supplementary or amendatory thereof, or, if a portion of the loan is so guaranteed, then if the unguaranteed portion of the loan does not exceed 75 percent of the sound market value of the leasehold for loan purposes as determined by appraisal.
In all cases mentioned in subsections (a), (b), (c) and (e), the loan must be repayable in equal installments not less often than annually in amounts sufficient to completely amortize the loan within three-fourths of the remaining term of the leasehold including options to renew exercisable by the lender.
A leasehold on real property is not encumbered within the meaning of this section if subject only to one or more of the following: (a) the lien of taxes and assessments not delinquent at the time of investment, (b) the lien for delinquent taxes or assessments delinquent at the time of investment, which are being contested by any legal proceedings, provided that indemnity has been given pursuant to the indenture under which the bonds and notes are issued, or otherwise, for the payment of any amount which may be found to be due upon the final adjudication of such contest, (c) the lien of taxes and assessment becoming delinquent subsequent to the time of investment, (d) outstanding mineral, oil or timber rights, (e) easements or rights-of-way, (f) sewer rights, (g) rights in walls, (h) building restrictions or other restrictive covenants, or conditions or regulations of use, or subleases under which rents or profits are reserved to the owner.
For the purposes of this section, delinquent taxes funded on any deferred payment plan shall be deemed delinquent.
Excess fund investments may be made by a life insurer having admitted assets aggregating in value not less than two hundred million dollars ($200,000,000) in the following:
Equipment obligations, securities, or certificates of any equipment trust evidencing rights to receive partial payments agreed to be made upon any contract of leasing or conditional sale.
The purchase and ownership of machinery or equipment, which is or will within 30 days after acquisition become subject to contracts for sale or use under which contractual payments may reasonably be expected to return the principal of and provide earnings on the investment within the anticipated useful life of the property which shall be not less than five years.
Except upon the prior approval, in writing, of the commissioner, an investment may not be made under the authority of this section if at the time of the making of such investment it would result in such insurer then owning such obligations, securities, certificates, machinery and equipment in an amount exceeding five percent of such insurer’s admitted assets as determined by the insurer’s last preceding annual statement filed with the commissioner.
Any investment in a single piece of machinery or equipment shall not be made in excess of one percent of the insurer’s admitted assets or 10 percent of the aggregate of the insurer’s capital paid-up and unassigned surplus, whichever is larger.
No domestic insurer shall have more than 10 percent of its capital and surplus invested in stock of corporations organized under the laws of the Dominion of Canada or of any province of the Dominion of Canada, but this limitation shall not affect the authority conferred by Sections 1172, 1199 and 1240.
Excess funds investments may be made in all deposits and debt obligations of banks or savings and loan associations whose accounts are insured by an agency or instrumentality of the federal government including accounts or certificates of deposit not subject to Section 1182, bankers’ acceptances, and commercial paper.
An insurer, except an insurer authorized to transact mortgage guaranty insurance as defined in Section 119, may invest in a mortgage, mortgage-backed bond, or a mortgage participation, pass-through, conventional pass-through, trust or participation certificate, which is secured by or represents an undivided interest in any loan secured by real property if the loan is a permitted investment for the insurer or in a pool of those loans if each is a permitted investment for an insurer; and for which there exists, at the time of making the investment, a resale market.
If the loan or pools of loans have been transferred or contributed by an insurer to a corporation, all the voting securities of which are owned by the insurer, then the mortgage, mortgage-backed bond, or mortgage participation, pass-through, conventional pass-through, trust or participation certificate secured by or representing an undivided interest in the loan or pool of loans shall not be revalued solely due to that transfer. Any subsequent transfer to an affiliate from the wholly owned subsidiary shall be valued at the lower of book value or market value.
A domestic insurer having admitted assets aggregating in value not less than one hundred million dollars ($100,000,000) may make excess funds investments in participation certificates (1) which represent an undivided interest in an interest-bearing obligation issued by a corporation and (2) for which a resale market exists at the time the investment is made.
No investment in a participation certificate may be made pursuant to this section unless the entire obligation is a form of investment which the insurer would be authorized to acquire pursuant to subdivision (a) of Section 1192.
An investment may not be made under the authority of this section if at the time of making the investment it would result in the insurer then owning participation certificates described in this section in an amount exceeding 4 percent of the insurer’s admitted assets as determined by the insurer’s last preceding annual statement filed with the commissioner.
A domestic life insurer having admitted assets aggregating in value not less than one hundred million dollars ($100,000,000) may make excess fund investments pursuant to this section in interest-bearing notes, bonds, or obligations issued by (1) any operating business trust or limited partnership organized under the laws of any state of the United States, the District of Columbia, the Dominion of Canada, any province of the Dominion of Canada or (2) an authority established pursuant to the California Industrial Development Financing Act, Title 10 (commencing with Section 91500) of the Government Code. The issuer of the notes, bonds, or obligations through itself or its paying agent shall be obligated thereunder to make payments, with respect to the notes, bonds, or other obligations, directly to the insurer or the insurer’s nominee.
Except upon the prior written approval of the commissioner, an investment may not be made under the authority of this section unless the note, bond, or obligation is exchange-traded. “Exchange-traded,” as used in this subdivision, means listed and traded on the National Market System of the NASDAQ Stock Market or on a securities exchange subject to regulation, supervision, or control under a statute of the United States and acceptable to the commissioner.
Without the prior written consent of the commissioner, an investment made pursuant to this section shall not exceed in the aggregate 10 percent of the life insurer’s policyholder surplus.
A request to the commissioner for (1) approval pursuant to subdivision (b) to invest in notes, bonds, or obligations that are not exchange-traded or (2) consent to exceed the 10 percent limitation set forth in subdivision (c), shall be in writing and shall be accompanied by any supporting data and documentation that the commissioner may require. The commissioner shall require the payment of a fee of seven thousand four hundred seventy-two dollars ($7,472), in advance, for the determination of whether to approve or disapprove each request. Each request shall be in writing and shall be deemed approved unless the commissioner disapproves it within 60 days with respect to requests under subdivision (c) or 20 days with respect to requests under subdivision (b), after the request has been filed in the commissioner’s office.
This section shall not be construed to increase or reduce the authority to invest in any operating business trust or limited partnership specifically permitted in other sections of this code.
Notwithstanding Section 1100, a domestic insurer may make excess funds investments in shares of an investment company, as defined in the Federal Investment Company Act of 1940, if the requirements of subdivisions (b) and (c) are satisfied. No investment made pursuant to this section that ceases to satisfy the requirements of subdivision (b) or (c) shall be retained as an excess fund investment. No domestic insurer shall invest under any provision of this code in the shares of any investment company that has more than 33.33 percent of its investments in foreign investments that do not comply with paragraph (4) of subdivision (b).
The definitions in this subdivision apply to the following terms when used in this section:
A mutual fund is an open-end management company as defined in Section 5(a)(1) of the Federal Investment Company Act of 1940 (15 U.S.C. Sec. 80(a)-5(a)(1)).
An exchange traded fund is either an open-end management company as defined in Section 5(a)(1) of the Federal Investment Company Act of 1940, or a unit investment trust as defined in Section 4(2) of the Federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-4(2)), that is registered under the Federal Investment Company Act of 1940 and that satisfies the terms of exemptive orders issued by the United States Securities and Exchange Commission that qualify it to be an exchange-traded fund.
A fund is any investment company authorized in this section as an excess fund investment.
The investment company shall:
Be registered with and reporting to the United States Securities and Exchange Commission.
Be domiciled in the United States.
Have assets in excess of one hundred million dollars ($100,000,000), or be affiliated with other investment companies that have, in the aggregate, assets in excess of one billion dollars ($1,000,000,000).
Have at least 66.67 percent of its investments be investments that are authorized under Article 3 (commencing with Section 1170) and Article 4 (commencing with Section 1190), except that any amount of a fund’s assets may consist of foreign investments, provided that if more than 50 percent of its total investments consist of foreign investments, then the insurer’s investment in that fund shall comply with the provisions of subparagraph (C) of paragraph (1) of subdivision (c), notwithstanding any other provision of this section or this code.
Have at least 36 months of active investment history.
Issue its shares as fully paid and nonassessable, with no preemptive, conversion, or exchange rights.
Issue its shares to the insurer or to the insurer’s custodian, subcustodian, or depository designated pursuant to Section 1104.9, or have its shares be retained by a bank, trust company, or other entity other than the investment company that is authorized by the United States to act as a transfer and dividend paying agent for the investment company, provided that, notwithstanding any other provision of this code, Section 1104.9 shall not apply to the assets or investments held by the investment company.
Provide equal rights and privileges to each share within the same class or series, and entitle each share within its class or series to vote and to participate equally in dividends and distributions declared by the investment company and in the net distributable assets of the investment company on liquidation.
If it is a mutual fund, entitle shareholders to require the investment company to redeem all shares.
If it is an exchange-traded fund, all of its shares are both of the following:
Registered under the Federal Securities Act of 1933.
Either listed and traded on a national securities exchange registered under the Securities Exchange Act of 1934 or have prices ascertained by quotations furnished through a nationwide automated quotations system approved by the Financial Industry Regulatory Authority.
Have no investment policies that authorize any of the following:
Borrowings to exceed 3313 percent of its total assets.
The aggregate notional value of its derivative instruments outstanding to exceed 10 percent of its total assets.
Investment in commodities or direct ownership of real estate.
Have an expense ratio that does not exceed the following amounts of its average daily net asset values:
For a money market fund, 100 basis points.
For a bond fund, 200 basis points.
For a stock or mixed stock/bond fund, 300 basis points.
An insurer shall do the following:
An amount of its admitted assets, as reported in its most recent annual statement, that is more than any of the following:
Three percent in a single investment company or 7 percent in an affiliated group of investment companies.
Twenty-five percent in all investments authorized by this section.
One hundred percent of its surplus as regards policyholders, as reported in its most recent annual statement, in all investments authorized by this section.
For an investment in a fund that has more than 50 percent of its assets in foreign investments, those foreign investments shall be foreign investments as defined by Section 1240 and shall be considered foreign investments, investments denominated in foreign currencies, or both, as applicable, for purposes of the limitations set forth in subdivisions (a) and (b) of Section 1241. No insurer shall invest in any such fund pursuant to any other provision of this code.
An investment in any single investment company that exceeds 10 percent of the total net asset value of that investment company.
In addition to any other remedies available under this code for any violation of this section, the commissioner may, after giving an insurer notice and an opportunity to be heard, deny credit in any financial statement filed with the commissioner for all or any part of an investment in an investment company, even if it otherwise complies with this section, if he or she finds the investment to be unsound or hazardous.
The grounds for finding an investment unsound or hazardous may include, but are not limited to, the following determinations:
Notwithstanding Section 1100, an insurer may make excess funds investments in investment pools and cash management pools established pursuant to this section. The pools shall meet all of the following standards:
All participants in a pool shall each be affiliated with one another within the meaning of subdivision (a) of Section 1215 and shall all be insurers, or a pension plan or profit-sharing plan of a participant or affiliate.
The pools shall be a corporation, partnership, trust, limited liability company, or business trust domiciled in the United States with all assets held in accordance with Section 1104.9 and shall be maintained in one or more accounts in the name of or on behalf of the investment pool. Pool assets shall be held under a bank custody agreement that states and recognizes the claims and rights of each participant, acknowledges that the pool assets are held solely for the benefit of each participant in proportion to the aggregate amount of its pool investments, and states that the investments shall not be commingled with the general assets of the custodian or any other person. The pool manager shall be an insurer as defined by Section 826 or a business entity registered as an investment adviser under the federal Investment Act of 1940. The fiduciary duties a manager owes to the limited liability company and its members are those of a partner to a partnership. This duty may not be restricted by agreement.
Any management fee shall be subject to disapproval by the commissioner. Costs directly incurred in acquiring or selling assets, such as commissions, transaction fees, or custodial fees, are not management fees and may be charged by the pool to the participants as long as these fees are on a direct cost reimbursement basis. All costs shall be apportioned to each participant in proportion to its interest in the pool.
All shares of the pool shall be of the same class with equal rights, preferences, and privileges. Each share shall participate equally in dividends and distributions declared by the pool on liquidation in proportion to each participant’s interest. When issued, the shares shall be fully paid and nonassessable and shall have no preemptive, conversion, or exchange rights.
Each participant shall be entitled to require the pool to redeem all or any portion of the shares held by the participant on demand without penalty or assessment on any business day.
All assets of a cash management pool shall be assets that participant insurers may lawfully acquire individually and shall be: (A) debt obligations issued by or on behalf of the United States, its territories and possessions, the District of Columbia, and states or their political subdivisions, agencies, and instrumentalities, including industrial development obligations, having a maturity not exceeding one year; (B) corporate debt obligations, other than debt obligations issued, assumed, guaranteed, or insured by a participant or by any affiliate of a participant, having a maturity not exceeding one year and that are rated One or Two by the Securities Valuation Office of the National Association of Insurance Commissioners; or (C) accounts, deposits, or obligations of banks or savings and loan associations insured by an agency or instrumentality of the federal government.
All assets of an investment pool shall be: (A) investments that are authorized under Section 1191, other than stock issued, assumed, guaranteed, or insured by a participant or any affiliate of a participant; (B) accounts, deposits, or obligations of banks or savings and loan associations insured by an agency or instrumentality of the federal government; or (C) investments that are authorized under Section 1192, other than securities or notes issued, assumed, guaranteed, or insured by a participant or any affiliate of a participant, or under Section 1194.5 or 1241.
The assets of pools shall be required to meet the requirements of and be authorized for investment by a domestic incorporated insurer under Article 3 (commencing with Section 1170) or this article.
No pool shall make investments in purchases of, or loans upon, more than 30 percent of the total in par value or more than 30 percent of the total number of outstanding shares of the capital stock of any one corporation.
Transactions between the pool and its participants shall not be deemed to be material for purposes of subdivision (d) of Section 1215.4 or subdivision (b) of Section 1215.5. Investment activity of pools and transactions between pools and participants shall be reported in the annual registration statement required by Section 1215.4 and pursuant to Section 1215.5.
Participation in an investment pool shall be subject to a written pooling agreement that shall be approved by the participant’s board of directors and shall provide that (A) the underlying assets of the pool shall not be commingled with the general assets of the pool manager or any other person; (B) each participant must own an undivided interest in the underlying assets of the pool; (C) the underlying assets of the investment pool are held solely for the benefit of each participant; and (D) the pool manager shall make the records of the investment pool available for inspection by the commissioner. Pool agreements shall also specify what type of share participants hold to evidence their beneficial interest in the pool’s assets. Prior to the execution of a pool agreement, a participating insurer’s board of directors must approve the agreement only after having received a written opinion from an independent outside counsel explaining the ramifications and possible effects that a declaration of insolvency by a participant will have on the insurer’s share of the investment pool.
No participant insurer may invest more than 10 percent of admitted assets in a single pool or more than 25 percent of admitted assets in all pools combined.
Each participant’s proportionate share of the assets of a pool shall be deemed to be the direct holdings of that participant for purposes of determining compliance with the investment requirements of this code and shall be reported as such on required quarterly and annual reports. Pools operated as limited liability companies pursuant to Title 2.6 (commencing with Section 17701.01) of the Corporations Code shall conform their investments to this paragraph and the requirements of Sections 1200 and 1201.
The pool manager shall compile and maintain detailed accounting records setting forth (A) the cash received and disbursements reflecting each participant’s proportional investment in the investment pool; (B) a complete description of all underlying assets of the investment pool including amount, interest rate, and maturity date, if any, and other appropriate designations; and (C) other records that, on a daily basis, will allow the commissioner and the participants to verify each participant’s investments in the pool.
Pools shall not borrow or loan assets, except for securities-lending arrangements that are otherwise lawful for insurer participants of the pool.
As used in this section, “share” means stock, participation unit, certificate of interest, or other evidence of beneficial ownership in the pool, whether evidenced by an instrument or by a book entry maintained by the pool.
The commissioner shall have the authority to review any pool agreement and to disapprove any agreement that does not comply with this section. The commissioner shall have the authority to review the operation of any pool and to order compliance with this section. The commissioner shall have the authority to disallow, as an admitted asset, any pool investment not in compliance with this section. The commissioner may impose a fee upon any pool to recoup the actual cost of review under this section.
Excess funds investments may be made in securities evidencing an undivided interest in, the right to receive payments from, or payable primarily from distributions on a pool of financial assets held by an unaffiliated business entity, other than those authorized by Section 1192.6, if all of the following conditions are met:
The business entity is not a sole proprietorship and is established solely for the purpose of acquiring specific types of financial assets, issuing securities representing an undivided interest in, or right to receive cash flows from, those assets, and engaging in related activities.
The pool of assets consists solely of interest-bearing obligations or other contractual obligations representing the right to receive payment from the assets.
The investment is rated in one of the three highest rating categories by at least one nationally recognized statistical rating organization approved by the Securities and Exchange Commission and within one of the two highest categories established by the securities valuation office of the National Association of Insurance Commissioners.
No investment under this section may be made if, as a result of giving effect to that investment, the aggregate amount of investments then held by the insurer under this section would exceed 10 percent of its admitted assets.
Investments authorized by this section shall not be subject to subdivision (c) of Section 1196.
Excess funds investments may be made in bonds of any permanent road division, or any district of any state when such bonds are legal investments for savings banks of this State, or have been certified as legal investments for savings banks pursuant to Division 10 of the Water Code, or when the statutes or laws providing for the issuance of such bonds, provide that such bonds shall be entitled to the same force or value or use as bonds issued by any municipality, or such law specifically states that such bonds shall be legal investments for either savings banks, insurance companies, all trust funds, state school funds or any funds which may be invested in bonds of cities, counties, cities and counties, school districts, or municipalities in the State, or when such bonds have been investigated and approved by a commission or board now or hereafter authorized by law to conduct such investigation and give such approval when such law specifies that upon such approval said bonds are legal investments for insurers, or which the commissioner approves in writing as legal for investment of the funds of insurers. The commissioner in determining whether to approve any bonds as legal investments which do not otherwise qualify as such, shall make, upon the request of any insurer, at such insurer’s expense, an investigation and finding as provided for in Section 1175.
Excess funds investments may be made in bonds issued by any county, municipality, or school district in this State to represent assessments for local improvements authorized by law. At the date of such investment the purchase price or principal loaned shall not exceed fifty per cent of the market value of the real property or of the real property together with the improvements thereon, upon which the bond is the first lien.
Excess funds investments may be made in bonds issued pursuant to the Improvement Bond Act of 1915.
Excess funds investments may be made in any debt obligation issued by the United States, a federal agency or entity authorized to issue debt obligations by federal statute; the Commonwealth of Puerto Rico, its agencies and political subdivisions; any state, its agencies or political subdivisions, or by any city, county, or city and county, or by any department or board of such city, county, or city and county, whether issued in bearer, registered or book entry form.
Excess funds investments may be made by an insurer in bonds, notes, or other evidences of indebtedness payable in United States dollars, and issued by a corporation incorporated under the laws of an alien government provided all of the following conditions are met:
All the stock of the corporation is owned and ultimately controlled by a domestic corporation.
Payment in full of any bond, note, or other evidence of indebtedness is guaranteed by the domestic corporation.
Any bond, note, or other evidence of indebtedness is evaluated by the National Association of Insurance Commissioners as a bond which may be carried at amortized cost.
Excess fund investments may be made by a life insurer in bonds, notes, or other evidence of indebtedness payable in a currency other than United States dollars and issued by a corporation incorporated under the laws of an alien government provided all the following conditions are met:
All of the stock of the corporation is owned and ultimately controlled by a domestic corporation.
Payment in full of any bond, note, or other evidence of indebtedness is guaranteed by the domestic corporation.
Any bond, note, or other evidence of indebtedness is evaluated by the National Association of Insurance Commissioners as a bond which may be carried at amortized cost.
The life insurer shall, prior to or within five business days after purchase, enter into a contract with a qualified bank pursuant to which the bank agrees to exchange the payments made on the nondollar denominated investment for the full term to maturity of the investment for United States currency at a rate approximating the prevailing exchange rate at the time of the purchase. For purposes of this subdivision, a qualified bank means a bank the accounts of which are insured by an agency or instrumentality of the federal government or which is a member of the Federal Reserve System and a bank that has a net worth equal to or in excess of two hundred fifty million dollars ($250,000,000) as shown on its most recently published financial statements.
“Domestic,” as used in this section, means organized under the laws of any state, or of the United States or of the District of Columbia.
Excess funds investments may be made in the stock of a Federal home loan bank. Any domestic incorporated insurer investing in the stock of a Federal home loan bank and thereby becoming a member thereof shall have power (a) to obtain advances from, and (b) to pledge collateral as security for such advances from such Federal home loan bank.
Excess fund investments may be made by a domestic insurer in real estate and leases thereof and in making improvements thereon for business or residential purposes as an investment for the production of income. The phrase “business or residential purposes” shall not include real estate or leases primarily intended for use or valued as agricultural, horticultural, farm, ranch or mineral property. Any such investment may be made by admitted insurers having admitted assets aggregating in value not less than twenty-five million dollars ($25,000,000).
Domestic insurers, other than life, title, mortgage and mortgage guaranty insurers, having admitted assets aggregating in value less than twenty-five million dollars ($25,000,000) but not less than ten million dollars ($10,000,000) may also qualify to make such investments for a period of 12 months with the prior approval of the commissioner. Real estate and leases acquired and improvements made thereon under this section shall not exceed in the aggregate an amount equal to 10 percent of the insurer’s admitted assets. Real estate and leases acquired under this section shall be in addition to that which is authorized to be acquired under the provisions of paragraphs (a) to (h), inclusive, of Section 1194.86. Except upon the prior approval in writing of the commissioner, an investment may not be made under the authority of this section if at the time of the making of the investment it would result in the insurer then owning real estate and leases thereof, other than of the kind and for the purposes described in paragraphs (a), (b), and (f) of Section 1194.86, in an amount exceeding 10 percent of the insurer’s admitted assets. Any investment in a single parcel of real estate or in a single leasehold including improvements thereon made under the authority of this section shall not be made in an amount in excess of 1 percent of the insurer’s admitted assets or 10 percent of the aggregate of the insurer’s capital paid-up and unassigned surplus, whichever amount is larger. A lease eligible for purchase hereunder shall be for a term which at the date of purchase shall not expire for at least 24 years. Percentage or dollar value of assets and capital paid-up and unassigned surplus as provided herein shall be determined by the insurer’s last preceding annual statement of conditions and affairs made as of the December 31st last preceding and which has been filed with the commissioner pursuant to law.
In computing the value of real estate held by a domestic insurer for the purpose of complying with the asset standards or percentage of asset standards, the insurer shall add the net equity of the real estate owned by the insured to the amount of encumbrances and liens against the property for which the insurer could be held liable for any deficiency in the event of foreclosure or other action to realize the value of the liens. “Net equity” as used in this section means book value less the value of liens and encumbrances.
Notwithstanding subdivision (a) or Section 1100, excess fund investments may be made by a domestic life insurer as an investment for the production of income in interests in publicly traded limited partnerships, limited partnerships in which the life insurer is the general partner, general partnerships, or in shares of beneficial interests in trusts substantially all the assets of which are real estate or leases thereof or improvements thereon for business or residential purposes. “Business or residential purposes” does not include real estate or leases primarily intended for use or valued as agricultural, horticultural, farm, ranch, or mineral property. Any investment authorized by this subdivision may be made by domestic life insurers having admitted assets aggregating in value not less than one hundred million dollars ($100,000,000).
Investments acquired pursuant to this subdivision shall be in addition to investments authorized to be acquired under subdivisions (a) to (h), inclusive, of Section 1194.86. Except upon the prior approval in writing of the commissioner, an investment may not be made under the authority of this subdivision in a general partnership or a nonpublicly traded trust if at the time of the making of the investment it would result in the life insurer owning aggregate interests in those investments in an amount exceeding 3 percent of the life insurer’s admitted assets. Except upon the prior approval in writing of the commissioner, an investment may not be made if at the time it would result in the life insurer owning interests in general or limited partnerships or in shares of beneficial interests in trusts in an amount exceeding 10 percent of the life insurer’s admitted assets.
An investment in a single partnership or shares of beneficial interest in a single trust made pursuant to this subdivision shall not be made in an amount in excess of 1 percent of the life insurer’s admitted assets or 10 percent of the aggregate of the life insurer’s capital paid-up and unassigned surplus, whichever is larger. Percentage or dollar value of assets and capital paid-up and unassigned surplus as provided herein shall be determined by the life insurer’s last preceding annual statement of conditions and affairs made as of the December 31st last preceding and which has been filed with the commissioner pursuant to applicable provisions of law.
For purposes of this subdivision, “publicly traded” means securities of a limited partnership or trust listed and traded on a securities exchange subject to regulation, supervision, or control under a statute of the United States or listed on the NASDAQ system.
Investments made pursuant to subdivisions (a) and (c) shall not exceed in the aggregate an amount equal to 10 percent of the insurer’s admitted assets and shall produce sufficient cash-flow to amortize any mortgage, except with the prior written consent of the commissioner.
Domestic incorporated insurers may invest in notes or bonds secured by a mortgage or other first lien upon unencumbered real property meeting the criteria of subdivision (e), if the secured obligation meets the conditions of subdivisions (a) and (b), as follows:
There exists no condition or right of reentry or of forfeiture under which the lien can be cut off, subordinated, or otherwise disturbed.
The secured obligation satisfies the conditions of paragraph (1), (2), (3), or (4), as follows:
The principal so loaned or the entire note or bond issue so secured, plus the amount of the liens of any public bond, assessment, or tax assessed upon the property loaned upon, does not exceed 80 percent of the market value of that real property, together with improvements which are taken as security at the date of investment.
Where the loan is insured by an admitted mortgage guaranty insurer conforming to the provisions of Chapter 2A (commencing with Section 12640.01) of Part 6 of Division 2, the unguaranteed portion of the loan, plus the amount of the liens of any public bond, assessment, or tax assessed upon the property loaned upon, does not exceed 80 percent of the market value of that real property, together with improvements which are taken as security at the date of investment.
Where the loan is made or the notes or bonds are issued for a building loan on real property, the principal so loaned, or the entire outstanding notes or bonds so issued, plus the amount of the lien of any public bond, assessment, or tax assessed upon the property loaned upon, at no time exceeds 80 percent of the market value of the real property together with the actual cost of the improvements thereon taken as security.
Where the loan is secured by a first mortgage or other first lien upon real property primarily improved with a residential building, or buildings, which for the purposes of this paragraph includes a condominium unit, designed for occupancy by not more than four families, the terms of the loan provide for monthly payments of principal and interest sufficient to effect full repayment of the loan within the remaining useful life of the building as estimated in the appraisal for the loan, or 40 years, whichever is less, and the principal so loaned or the entire note or bond issue so secured, plus the amount of the liens of any public bond, assessment, or tax assessed upon the property loaned, does not exceed 90 percent of the market value of that real property, or of that real property together with improvements which are taken as security on the date of investment.
Real property is not encumbered within the meaning of this section if subject only to one or more of the following:
Easements or rights-of-way.
Sewer rights.
Rights in walls.
Building restrictions or other restrictive covenants, or conditions or regulations of use, or leases under which rents or profits are reserved to the owner.
For the purposes of this section, delinquent taxes funded on any deferred payment plan shall be deemed delinquent.
Only real property meeting the following criteria of paragraph (1), (2), or (3) may secure notes or bonds eligible for investment under this section:
There is an improvement on the real property with a value that is substantial in relation to the total value of the property.
There is no improvement on the real property, but the funds loaned on account of the secured obligation, which meets the criteria of paragraph (3) of subdivision (b), are used to construct an improvement on real property and the value of the improvement constructed on the real property is at all times substantial in relation to the amount of the construction loan funds advanced by the insurer and drawn down by or on account of the borrower.
There is no improvement on the real property, but the property is revenue producing and is used primarily as agricultural, horticultural, farm, or ranch property.
There is no improvement on the real property, but the note or bond secured by that real property is held in conjunction with another note or bond held by the insurer that is secured by other real property on which there exists a substantial improvement. However, the value of the unimproved real property may not exceed 20 percent of the total value of all real property taken as security for all those notes or bonds.
An insurer may invest in notes or bonds secured by second mortgages or other second liens, including all inclusive or wraparound mortgages or liens, upon real property encumbered only by a first mortgage or lien which meets the requirements set forth in Section 1194.81, subject to either of the following conditions:
The insurer also owns the note or bond secured by the prior first mortgage or lien and the aggregate value of both loans does not exceed the loan to market value ratio requirements of Section 1194.81.
The note or bond is secured by an “all-inclusive” or “wraparound” lien or mortgage which conforms to the requirements specified in subdivision (b), provided that the aggregate value of the resulting loan does not exceed the loan to market value ratio requirements of Section 1194.81.
“Wraparound” and “all-inclusive” lien or mortgage refer to a loan made by an insurer to a borrower on the security of a mortgage or lien on real property other than property containing a residence of one to four units or upon which a residence of one to four units is to be constructed, where the real property is encumbered by a first mortgage or lien and which loan is subject to all of the following:
There is no more than one preexisting mortgage or lien on the real property.
The total amount of the obligation of the borrower to the insurer under the loan is not less than the sum of the amount disbursed by the insurer on account of the loan and the outstanding balance of the obligation secured by the preexisting lien or mortgage.
The instrument evidencing the lien or mortgage by which the obligation of the borrower to the insurer under the loan is secured, is recorded, and the lien is insured under a policy of title insurance in an amount not less than the total amount of the obligation of the borrower to the insurer under the loan.
The insurer either (A) pursuant to Section 2924b of the Civil Code, files for record in the office of the recorder of the county in which the real property is located a duly acknowledged request for a copy of any notice of default or of sale under the preexisting lien, (B) otherwise arranges with the recorder of any county in which the real property is located to be advised in case of the filing for record of any notice of default or of sale with respect to any obligation secured by the preexisting lien, or (C) is entitled under applicable law to receive notice of default, sale, and foreclosure of the preexisting lien.
The amount disbursed by an insurer under any single wraparound or all-inclusive loan made pursuant to this section shall not exceed the greater of 1 percent of the insurer’s admitted assets or 10 percent of the aggregate of the insurer’s capital paid-up and unassigned surplus.
In any case in which a domestic insurer has requested the approval of the commissioner to make the investments specified in subdivision (a) or (c) of Section 1194.8, that insurer shall reimburse the department for all actual expenses, not to exceed seven hundred forty-eight dollars ($748), incurred by it in making a determination of whether to approve or disapprove that request.
Every admitted incorporated insurer may purchase, hold, or convey real estate only for the following purposes and in the following manner:
The building in which it has its principal office and the land upon which that building stands.
Real estate requisite for its accommodation in the convenient transaction of its business.
Real estate acquired by it, or by any person for it, to secure the payment of loans previously contracted or for moneys due.
Real estate purchased at sales upon deeds of trust or upon judgments or decrees obtained for those loans or debts.
Real estate conveyed to it in satisfaction of debts previously contracted in the course of its dealings.
Real estate acquired by gift or devise.
Real estate acquired in part payment of the consideration of the sale of real property owned by it, if each such transaction shall not effect an increase in its investment in such real property.
Upon the written approval of the Insurance Commissioner, real estate requisite or desirable for the protection or enhancement of the value of other real or personal property owned by the insurers.
If, after a hearing, the commissioner is satisfied that an insurer is carrying upon its books any parcel or parcels of real estate at values exceeding the sound market value thereof, he or she may order the insurer to:
Create an adequate contingency reserve against the book value of the parcel or parcels, or
Reduce the book value of the parcel or parcels by a corresponding amount.
In the case of real estate, not of a character described in subdivision (a), (b), (h), or (i) of Section 1194.86, which has been held by the insurer for more than five years, the commissioner may order the insurer to dispose of the real estate within six months if, after a hearing, the commissioner is satisfied that:
The insurer has refused reasonable offers for the sale of the real estate, or
The real estate may be disposed of without undue hardship to the insurer.
For the purpose of enabling him or her to determine whether to issue an order pursuant to this section, the commissioner, if he or she is not satisfied with the appraisal furnished at his or her request by the insurer, may appraise the real estate at the expense of the insurer.
The commissioner may suspend or revoke the certificate of authority of an insurer failing to comply with any order issued under this section.
Every admitted incorporated insurer may, for the protection or enhancement of the value of real property acquired under the provisions of Section 1194.86, use its funds in the manner as it shall deem proper to repair, alter, remodel, rehabilitate, demolish, purchase furnishings or other personal property for use in or otherwise to improve the real estate.
If the commissioner shall decide, after due notice and hearing that the interest of any company having real estate acquired pursuant to the provisions of Section 1194.8 requires that any specific parcel or parcels of such real estate be disposed of, then such insurance company shall dispose of such real estate within such reasonable time as the commissioner shall direct.
Excess funds investments may be made in an electronic computer or data processing machine or system to be used in connection with the business of the insurer; provided, however, that this machine or system shall have an original cost of at least two hundred fifty thousand dollars ($250,000) and shall be amortized in full over a period not to exceed four full calendar years.
This article does not authorize investments in any obligation unless the obligation is interest or income-bearing or dividend-paying.
An obligation is interest or income-bearing within the meaning of this section if it is not in default in payment of interest or income on the date of acquisition by the insurer and if no such default was imminent on such date.
Nothing in this section contained, however, shall limit or affect the authority conferred by section 1191 of this code.
Excess funds investments shall not be made in any stock or obligation unless:
The stock or obligation qualifies as a sound investment.
In case of a purchase, the price paid for the security is not in excess of the current market value at the date of purchase.
In case of a loan, the amount loaned does not exceed eighty-five per cent of the market value, at the date of the loan, of the collateral taken as security.
No domestic insurer shall acquire, directly or indirectly, any medium grade or lower grade obligation of any institution if, after giving effect to any such acquisition, the aggregate amount of all medium grade and lower grade obligations then held by the domestic insurer would exceed 20 percent of its admitted assets, provided that, (1) no more than 10 percent of its admitted assets consists of obligations rated four, five, or six by the Securities Valuation Office; (2) no more than 3 percent of its admitted assets consist of obligations rated five or six by the Securities Valuation Office; and (3) no more than 1 percent of its admitted assets consists of obligations rated six by the Securities Valuation Office. Attaining or exceeding the limit of any one category shall not preclude an insurer from acquiring obligations in other categories subject to the specific and multicategory limits.
No domestic insurer may invest more than an aggregate of 1 percent of its admitted assets in medium grade obligations issued, guaranteed, or insured by any one institution nor may it invest more than one-half of 1 percent of its admitted assets in lower grade obligations issued, guaranteed, or insured by any one institution. In no event, however, may a domestic insurer invest more than 1 percent of its admitted assets in any medium or lower grade obligations issued, guaranteed, or insured by any one institution.
Notwithstanding subdivision (a) or (b), a domestic insurer may acquire an obligation of an institution in which the insurer already has one or more obligations if the obligation is acquired in order to protect an investment previously made in the obligations of the institution; provided that all of those acquired obligations shall not exceed one-half of 1 percent of the insurer’s admitted assets.
Nothing contained in this section; (1) shall prohibit a domestic insurer from acquiring an obligation as a result of a restructuring of a medium or lower grade obligation already held; or (2) shall require a domestic insurer to sell or otherwise dispose of any obligation legally acquired prior to the effective date of this section.
The board of directors of any domestic insurer that acquires or invests, directly or indirectly, more than 2 percent of its admitted assets in medium grade and lower grade obligations, shall adopt a written plan for the making of that investment. The plan, in addition to guidelines with respect to the quality of the issues invested in, shall contain diversification standards including, but not limited to, standards for issuers, industry duration, liquidity, and geographic location.
As used in this section:
“Medium grade obligations” means obligations which are rated three by the Securities Valuation Office of the National Association of Insurance Commissioners.
“Lower grade obligations” means obligations which are rated four, five, or six by the Securities Valuation Office of the National Association of Insurance Commissioners.
“Admitted assets” means the amount shown as of the last day of the most recently concluded annual statement year, computed in the manner prescribed by the commissioner.
“Aggregate amount of medium grade and lower grade obligations” means the aggregate statutory statement value of the obligation.
“Institution” means (A) any corporation, business trust, or limited partnership organized under the laws of any state of the United States, District of Columbia, the Dominion of Canada, any province of the Dominion of Canada or (B) an authority established pursuant to the California Industrial Development Financing Act, Title 10 (commencing with Section 91500) of the Government Code.
Excess funds investments shall not be made in a loan or any other obligation to any one borrower or obligor, including all affiliates which shall be treated as one borrower or obligor, in an amount exceeding 10 percent of the capital stock and surplus or 1 percent of the admitted assets of the lending insurer, whichever amount is greater.
Excess funds investments shall not be made in purchases of or loans upon shares of the capital stock of any one corporation in an amount exceeding 10 percent of the excess of the admitted assets of the investing insurer over the liabilities and required reserves of such insurer.
Nor shall the excess amount of any such investment over and above 25 percent of the excess of the admitted assets of the owner thereof over the liabilities and required reserves of such owner be retained. The commissioner may determine the retention of such excess amount over said 25 percent to be a violation of the provisions of this article within the meaning of and subject to all the provisions of Section 1202.
No investment which is permitted under Section 1199 shall be prohibited or its retention limited by this section.
No domestic incorporated fire, life or marine insurer shall make excess funds investments in purchases of, or loans upon, more than 30 percent of the total in par value or number of outstanding shares of the capital stock of any one corporation, except:
In the purchase of the stock of another admitted domestic insurer; or
With the prior authorization of the commissioner, in the purchase of stock of any other insurance corporation organized under the laws of any other state, or of the Dominion of Canada or of any province of the Dominion of Canada, which is supervised by the state or dominions or provincial insurance commissioner or similar official, and the investments of which comply in substance with the investment requirements and limitations imposed by this code upon like domestic insurers; provided, that no such domestic insurer shall have in the aggregate more than 50 percent of its capital and surplus invested in the stocks of insurance corporations organized under the laws of this state or other states or of the Dominion of Canada or of any province of the Dominion of Canada.
In the purchase of stock of any corporation organized under the laws of this state for the exclusive purpose of engaging in the business of financing insurance premiums and any and all matters incidental thereto and engaging exclusively in such business and such matters.
Such insurer may purchase or otherwise acquire all or any percent of the issued and outstanding stock of any corporation which is any of the following:
A corporation providing investment advisory, management, or sales services to an investment company or separate account.
A real property holding, developing, managing, or leasing corporation.
A data processing or computer service corporation.
An investment company or companies as defined by the Investment Company Act of 1940, (Title 15, U.S.C., Sec. 80a-1, et seq.).
A corporation acting as administrative agent for a governmental instrumentality performing insurance-related functions, or for private health and welfare plans.
An excess funds investment shall not be made unless authorized or approved by the directors of the investor or by a committee thereof charged with the duty of supervising or making such investment. Such authorization or approval shall be entered upon the records or minutes of the investor and, if made upon authority of such a committee a report shall be submitted to the directors at their next meeting.
The entry of approval shall show:
The fact of making such investment.
The amount thereof.
The name of each director voting to approve the investment.
The amount, character and value of the security purchased or taken as collateral.
If the investment is a loan, the name of the borrower, the rate of interest thereon and the due date thereof.
The commissioner may, in his discretion and after hearing, by written order require the disposal of any investments made in violation of the provisions of this article, pending which disposal pursuant to such order no value shall be allowed for such investment in any statement, required by any provision of this code, purporting to show the financial condition of the owner thereof, or in measuring the financial condition of the owner thereof for the purpose of determining whether such owner is solvent or insolvent. The commissioner may also, for good cause, require the disposal of any excess funds investments.
ARTICLE 4.5. Leeway Law [1210. - 1210.]
A domestic incorporated insurer, after investing an amount equal to its required minimum paid-in capital in securities specified in Article 3 (commencing with Section 1170), may make investments as it may see fit in the purchase of, or loans upon, properties and securities other than or in addition to or in excess of those set forth in Article 2 (commencing with Section 1152), Article 3 (commencing with Section 1170), and Article 4 (commencing with Section 1190). Investments under this section shall not exceed, in the aggregate, the lesser of either of the following:
Five percent of the insurer’s admitted assets.
Fifty percent of the excess of admitted assets over the sum of capital paid up, liabilities, and the surplus required by Section 700.02. The percentage or dollar value of admitted assets and capital paid up and liabilities shall be determined by the insurer’s last preceding annual statement of conditions and affairs made as of the preceding December 31 and that has been filed with the commissioner as required by law. The investments shall be subject to the provisions of Sections 1153.5, 1154, 1200, 1201, and 1202 as if they were excess funds investments. This section applies to an insurer other than a life insurer only if the insurer has aggregate capital and surplus of at least ten million dollars ($10,000,000).
An investment originally made by an insurer pursuant to this section that subsequently meets the requirements of an investment contained in Article 2 (commencing with Section 1152), Article 3 (commencing with Section 1170), or Article 4 (commencing with Section 1190) may, at the election of the insurer, be considered to be held pursuant to any provision contained in those articles.
Pursuant to the authority conferred by subdivision (a), notwithstanding Section 1100, an insurer may make discretionary investments in shares of an open-end diversified management investment company, as defined in the federal Investment Company Act of 1940, as amended. This subdivision does not prohibit any other discretionary investment, now or in the future, that might otherwise be made by an insurer, whether expressly identified in this section or not.
This section shall become operative on January 1, 2027.
ARTICLE 4.6. Hedging [1211. - 1212.]
For the purposes of this section the following definitions shall apply:
“Aggregate counterparty exposure” means the sum of the aggregate statement value options, swaptions, caps, floors, and warrants purchased, and the aggregate potential exposure of collars, swaps, forwards, and futures entered into.
“Cap” means an agreement obligating the seller to make payments to the buyer with each payment based on the amount by which a reference price or level or the performance or value of one or more underlying interests exceeds a predetermined number, sometimes referred to as the strike rate or strike price.
“Collar” means an agreement to receive payments as the buyer of an option, cap, or floor and to make payments as the seller of a different option, cap, or floor.
“Credit default swap” means an agreement obligating the buyer to pay a periodic payment to the seller in return for the seller’s obligation to make a payment to the buyer if a credit event or events occur with respect to underlying interests or an entity, as specified in the documentation of the credit default swap.
“Derivative instrument” means an agreement, option, instrument, or a series or combination of those (A) to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof, or (B) that has a price, performance, value, or cashflow based primarily upon the actual or expected price, level, performance, value, or cashflow of one or more underlying interests.
A derivative instrument includes all investment instruments or contracts that derive all or almost all of their value from the performance of an underlying market, index, or financial instruments. The term includes options, warrants, caps, floors, collars, swaps, credit default swaps, swaptions, forwards, and futures.
“Derivative transaction” means a transaction involving the use of one or more derivative instruments.
“Floor” means an agreement obligating the seller to make payments to the buyer in which each payment is based on the amount by which a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance, or value of one or more underlying interests.
“Forward” means an agreement, other than a future, to make or take delivery in the future of one or more underlying interests, or effect a cash settlement, based on the actual or expected price, level, performance, or value of those underlying interests, but does not mean or include spot transactions effected within customary settlement periods, when issued purchases, or other similar cash market transactions.
“Future” means an agreement traded on an organized and qualified futures exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance, or value of, one or more underlying interests.
“Hedging transaction” means a derivative transaction that is entered into and at all times maintained to reduce (A) risk due to a change in the value, yield, price, cashflow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring or (B) risk due to changes in the currency exchange rate or the degree of exposure as to assets or liabilities denominated in a foreign currency that an insurer has acquired or incurred or anticipates acquiring or incurring.
“Option” means an agreement giving the buyer the right to buy or receive, sell, or deliver, enter into, extend, or terminate or effect a cash settlement based on the actual or expected price, spread, level, performance, or value of one or more underlying interests.
For purposes of this paragraph, an agreement giving the buyer the right to buy or receive may also be called a “call option.”
For purposes of this paragraph, an agreement giving the buyer the right to sell or deliver may be called a “put option.”
“Potential exposure” means the amount determined in accordance with the National Association of Insurance Commissioners Annual Statement Instructions.
“Qualified bank” means a bank or trust company that meets all of the following:
The bank or trust company is organized and existing, or in the case of a branch or agency of a foreign banking organization is licensed, under federal law or the law of any state.
The bank or trust company is regulated, supervised, and examined by the United States federal or state authorities having regulatory authority over banks and trust companies.
The bank or trust company has assets in excess of five billion dollars ($5,000,000,000).
The bank or trust company has senior obligations outstanding, or has a parent corporation that has senior obligations outstanding, rated AA or better, or the equivalent, by two independent nationally recognized statistical rating organizations.
The bank or trust company has a ratio of primary capital to total assets of at least 512 percent and a ratio of total capital to total assets of at least 6 percent.
“Qualified counterparty” is a qualified broker or dealer or a qualified bank or other counterparty rated AA- or Aa3 or higher by a nationally recognized statistical rating organization.
“Qualified broker or dealer” means a broker or dealer that is organized under the laws of a state and is registered under the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78a et seq.), and has net capital in excess of two hundred fifty million dollars ($250,000,000).
“Replication transaction” means a derivative transaction or combination of derivative transactions effected either separately or in conjunction with cash market investments included in the insurer’s investment portfolio in order to replicate the investment characteristic of another authorized transaction, investment, or instrument or that may operate as a substitute for cash market investments. A derivative transaction entered into by the insurer as a hedging transaction authorized pursuant to this section shall not be considered a replication transaction.
“Swap” means an agreement to exchange or to net payments or income streams at one or more times based on the actual or expected price, yield, level, performance, or value of one or more underlying interests.
“Swaption” means an option to purchase or sell a swap at a given price and time or at a series of prices and times. A swaption does not mean a swap with an embedded option.
“Underlying interest” means the assets, liabilities, other interests, or a combination thereof, underlying a derivative instrument, such as any one or more securities, currencies, rates, indices, commodities, or derivative instruments.
“Warrant” means an instrument that gives the holder the right to purchase or sell the underlying interest at a given price and time or at a series of prices and times outlined in the warrant agreement.
Any domestic incorporated insurer having admitted assets, as of the preceding December 31, of at least one billion dollars ($1,000,000,000) and capital and surplus of at least two hundred million dollars ($200,000,000), after investing an amount equal to its required minimum paid-in capital in securities specified in Article 3 (commencing with Section 1170), may engage in derivative transactions pursuant to, and in compliance with, this section.
An insurer may only use derivative instruments under this section to engage in hedging transactions and replication transactions authorized pursuant to this section.
An insurer that engages in hedging transactions or replication transactions as authorized pursuant to this section shall do both of the following:
Maintain its position in any outstanding derivative instrument used as part of a hedging transaction or replication transaction for only as long as the hedging transaction or replication transaction, as the case may be, continues to be effective in meeting the objective and the rationale the insurer identifies at the point of inception of the hedging or replication transaction.
Be able to demonstrate to the commissioner, upon request, that any hedging transaction or replication transaction continues to be effective in meeting that objective and rationale.
The aggregate statement value, and potential exposure, of all transactions held under the authority of this section at any one time shall not be in excess of 712 percent of the insurer’s admitted assets, as of the preceding December 31.
Hedging transactions under this section may only be made if, as a result of, and after giving effect to the transaction, all of the following is established:
Excluding options acquired under Section 1212, the aggregate statement value of options, swaptions, caps, floors, and warrants purchased pursuant to this section does not exceed 712 percent of its admitted assets as of the preceding December 31.
Excluding options acquired under Section 1212, the aggregate statement value of options, swaptions, caps, and floors written pursuant to this section does not exceed 3 percent of its admitted assets as of the preceding December 31.
Excluding futures entered into under Section 1212, the aggregate potential exposure of collars, swaps, forwards, and futures, entered into and, except for options acquired under Section 1212, options, swaptions, caps, and floors written pursuant to this section does not exceed 612 percent of its admitted assets as of the preceding December 31.
An insurer may purchase or sell one or more derivative instruments to offset any derivative instrument previously purchased or sold, as the case may be, without regard to the quantitative limitations of this section, provided that the derivative instrument is an exact offset to the original derivative instrument being offset.
The board of directors of any domestic insurer that makes investments pursuant to this section shall first adopt written guidelines for the making of the investments. The guidelines shall cover factors including concentration and diversification of counterparty risk, quality, maturity, and diversification of derivative investments, and other specifications, including investment strategies, asset liability management practices, the insurer’s liquidity needs and its capital and surplus, and other factors that the board of directors deems appropriate. The guidelines shall also include processes and practices that will facilitate the monitoring of derivative transactions through cashflow testing or other methods to substantiate the effectiveness of the hedging strategies and derivative transactions and provide the board of directors of the committee thereof charged with the responsibility for supervising investments the opportunity to assure itself of the training, sufficient understanding, and competency of pertinent personnel implementing the derivative transactions.
In order to address the need for appropriate oversight by senior management and by the board of directors, or a committee thereof charged with the responsibility for supervising investments, and to provide for a comprehensive risk management process, an insurer shall establish the following with respect to derivative transactions:
Appropriate limits for various identified risks relevant to the derivative transactions used by the insurer.
Procedures and practices that control the nature and amount of those risks.
Adequate systems or processes for identifying and measuring those risks.
Systems or processes for documenting, monitoring, and reporting risk exposures on a timely basis.
Systems or processes of internal review and audit to ensure the integrity of the overall risk management process.
The board of directors, or a committee thereof charged with the responsibility for supervising investments, shall receive and review quarterly reports which shall include all of the following:
Information to ascertain that all derivative transactions have been made in accordance with delegations, standards, limitations, and investment objectives contained in the derivative guidelines.
The outstanding derivative positions.
The unrealized gains or losses thereon.
The derivative transactions closed during the report period.
A performance review of the derivative transactions.
An evaluation of the risks and benefits of the derivative transactions.
Other information necessary to ensure that the internal control procedures are being followed.
The board of directors, or a committee thereof charged with the responsibility for supervising investments, shall establish the following management oversight standards for derivative transactions:
The board of directors, or a committee thereof charged with the responsibility for supervising investments, has an affirmative obligation to inform management of its desired risk tolerance levels. Management shall appropriately translate these risk tolerance levels into effective policies and procedures that address both individual transactions and entire portfolios.
Management and the board of directors, or a committee thereof charged with the responsibility for supervising investments, shall receive sufficient information to assess the strengths and limitations of the insurer’s risk measurement systems in order to determine appropriate risk limits. The board of directors, or a committee thereof charged with the responsibility for supervising investments, shall also review management’s response to strengths and limitations identified through oversight processes such as stress testing, independent validation, and back-testing of risk measurement models. Management and the board of directors, or a committee thereof charged with the responsibility for supervising investments, shall consider the information identified by the oversight processes, including the potential for indirect effects of downside performance beyond the insurer’s finances, when they determine and communicate their risk profile.
When management or the board of directors, or a committee thereof charged with the responsibility for supervising investments, identifies weaknesses in the risk management process, they shall consider alternatives and take steps to strengthen that process and maintain detailed documentation of steps and actions taken.
Actions shall be taken to correct any deficiencies in internal controls relative to derivative transactions, including any deficiencies determined by the independent certified public accountant in the evaluation of accounting procedures and internal controls and maintain detailed documentation of steps and actions taken.
Personnel responsible for risk oversight functions shall possess independence, authority, and expertise.
Issuer and counterparty credit decisions for each transaction shall be consistent with the overall credit standards of the insurer.
In connection with each derivative transaction under this section, insurers shall maintain a statement in their records listing any member of the board of directors who is employed by, or a partner in, a party involved in the derivative transaction.
The board of directors or committee charged with the responsibility of supervising investments shall determine at least quarterly whether all derivative transactions have been made in accordance with delegations, standards, limitations, and investment objectives prescribed in the guidelines. If the determinations are made by a committee of the board of directors, the minutes of the committee reflecting the determinations shall be recorded and a report thereon shall be submitted to the board for its review at the board’s next meeting.
The commissioner shall require the guidelines to be submitted and shall disapprove the guidelines if the insurer is unable to show that the guidelines are found sufficient to prevent financially unsound or hazardous transactions or practices.
An insurer shall comply with applicable financial requirements as promulgated by the commissioner and the National Association of Insurance Commissioners included in the Purposes and Procedures Manual of the National Association of Insurance Commissioners Securities Valuation Office, the National Association of Insurance Commissioners Accounting Practices and Procedures Manual, and the National Association of Insurance Commissioners Annual Statement Instructions, including, but not limited to, the reporting of transfers, if any, of interests in the assets of the insurer pledged as collateral or interests in the assets of counterparties received as collateral in connection with derivative transactions.
The counterparty exposure under a derivative instrument entered into by an insurer authorized to engage in derivative transactions pursuant to this section shall be deemed to be an obligation of the institution to which the insurer is exposed to credit risk and shall be included in determining compliance with any single or aggregate quantitative limitation on investments made by an insurer under this section.
An insurer shall only enter into derivative transactions with counterparties that are rated one by the Securities Valuation Office.
Notwithstanding any single or aggregate quantitative limitation on investments made by an insurer under this section, the aggregate counterparty exposure under one or more derivative transactions to any single counterparty rated one by the Securities Valuation Office, other than a “qualified counterparty,” shall be limited to one-half of 1 percent of an insurer’s admitted assets, and all counterparties rated one by the Securities Valuation Office, other than qualified counterparties, shall be limited to 3 percent of an insurer’s admitted assets.
Investments made pursuant to this section, and related transactions, are deemed excess funds investments and shall be subject to the provisions of Sections 1153.5, 1154, and 1210, and Article 4 (commencing with Section 1190), provided that if an insurer classifies an investment under Section 1210 that investment shall continue to be subject to the limitations of paragraph (1) of subdivision (e). Notwithstanding anything to the contrary, a requirement providing that any derivative transaction be disposed of by the insurer pursuant to Section 1202 shall be deemed conclusive unless the insurer establishes that the derivative transaction or transactions are financially sound and not hazardous. This section shall only be deemed to permit replication of investments or instruments, that are otherwise permitted in this code, and that are reported in compliance with the requirements of the risk-based capital and risk-based capital instructions required by Section 739.2.
Except as permitted in this section, nothing in this section shall be deemed to permit an investment, transaction, or practice that is not authorized by another section of this code. Exposure to risk by use of derivatives shall be consistent with the overall investment guidelines. Insurers shall not enter into derivative transactions in whole or in part with funds borrowed for that purpose, including, but not limited to, on margin.
The commissioner may adopt rules and issue guidelines establishing standards and requirements relative to practices authorized in this section. In connection with any of the actions contemplated by this section to be taken by the commissioner, including review of an insurer’s written guidelines with respect to derivative transactions and review of documentation maintained by an insurer with respect to derivative transactions, the commissioner may deem the actions to be an examination of an insurer subject to the provisions of Sections 730 to 738, inclusive. The commissioner shall issue regulations establishing requirements regarding the disclosure of affiliations and conflicts of interest between an insurer and persons contracted by the commissioner to perform services on behalf of the commissioner in connection with the matters authorized by this section.
An insurer that is not engaged in the issuance of new policies of insurance and that is formed for the purpose of facilitating the rehabilitation of an insolvent insurer under Article 14 (commencing with Section 1010) of Chapter 1, shall, prior to engaging in any derivative transaction, obtain approval for each transaction from the commissioner, and shall otherwise comply with the requirements of this section. However, the insurer may, upon request to the commissioner, and upon showing satisfactory to the commissioner that prior approval of each transaction would not be in the best interests of the policyholders, request that the commissioner waive the requirement of prior approval and the insurer shall, in addition to complying with the requirements of this section, submit monthly written reports of all derivative transactions to the commissioner in the form required by the commissioner within 30 days of the prior month’s end.
Any domestic incorporated insurer having aggregate capital and surplus as of the preceding December 31 of at least twenty-five million dollars ($25,000,000), after investing an amount equal to its required minimum paid-in capital in securities specified in Article 3 (commencing with Section 1170), may purchase insurance futures contracts, purchase call options on insurance futures contracts, and sell put options on insurance futures contracts in bona fide hedging transactions, subject to the limitations set forth in this section.
Domestic insurers may sell insurance futures contracts, sell call options on insurance futures contracts, and purchase put options on insurance futures contracts only for the purpose of a closing transaction. No other sales of insurance futures contracts, sales of call options on insurance futures contracts, or purchases of put options on insurance futures contracts are authorized under this section.
For purposes of this section, “insurance futures contracts” mean contracts based on indices of loss performance of insurance contracts and traded in accordance with the rules and procedures of a board of trade regulated by the Commodity Futures Trading Commission, or any successor agency, and subject to the terms and conditions of the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.), as amended. For purposes of this section, “put and call options on insurance futures contracts” mean put or call options, regulated in accordance with the rules of the board of trade on which the options are traded, on insurance futures contracts.
No domestic insurer may purchase insurance futures contracts, purchase call options on insurance futures contracts, or sell put options on insurance futures contracts unless the insurance futures contracts are required to be settled in cash within nine months after the end of the loss period underlying the insurance futures contracts, and the relevant type of insurance futures contracts have attained an average daily trading volume of at least 250 contracts and an open interest of 1,000 contracts as reported by the relevant board of trade for the one-month period prior to the insurer initiating the transaction.
A transaction will be considered a bona fide hedging transaction only if, upon execution, (1) the insurance futures contract or option is specifically identified with a group of insurance policies issued or reasonably expected to be issued by the insurer in the ordinary course of business and (2) the insurer’s relevant underwriting or insurance-related risk exposures bear a correlation to the risk exposures of the index underlying the insurance futures contracts or options thereon entered into as part of the hedging transaction. For purposes of this section, “correlation” means that the loss experience of the policies hedged is, at the date of purchase of the insurance futures contracts, expected to develop similarly to the loss experience of the policies underlying the insurance futures contract when exposed to similar occurrences and conditions. The insurer shall identify this hedging transaction and the policies and written premiums hedged on its books and records and any insurance futures contract or option position shall be terminated as soon as possible after this correlation does not exist.
Notwithstanding other limitations of this section, an insurer may hold open insurance futures contracts and put and call options on insurance futures contracts which do not exceed the equivalent of 75 percent of the insurer’s written premium for each line of business, as designated in the annual statement required by Section 923, being hedged pursuant to this section. For purposes of this subdivision, equivalence shall be based on the par dollar value of the insurance futures contracts and an insurer’s written premium shall be measured based on the loss period reflected in the underlying futures contracts.
A domestic insurer shall not enter into hedging transactions in insurance futures contracts or options on insurance futures contracts unless the transaction is authorized or approved by the insurer’s board of directors or a committee designated by the board. This authorization or approval shall be entered on the records or minutes of the domestic insurer and, if made upon the authority of a committee of directors, shall be submitted to the full board of directors for ratification at their next meeting. The entry of approval shall show the fact of entering into the hedging transaction, the specific policies hedged, the size of the hedge as measured pursuant to subdivision (e), and the name of each director voting to approve the hedging transaction.
The commissioner may, in his or her discretion, by written order require the disposal of any insurance futures contracts or options on insurance futures contracts made in violation of this section. Pending a disposal pursuant to an order by the commissioner, the insurance futures contracts or options on insurance futures contracts shall not be given any effect on any statement required by this code purporting to show the financial condition of the domestic insurer or in measuring the financial condition of the domestic insurer for the purpose of determining whether the domestic insurer is solvent or insolvent. The commissioner may also, for good cause shown, order the disposal of any insurance futures contract or option on insurance futures contracts.
Insurance futures contracts and put and call options on insurance futures contracts shall not be deemed to be investments for purposes of any investment limitations or authorizations contained in this code.
The commissioner may adopt rules and guidelines establishing standards and requirements relative to practices authorized in this section. The commissioner shall issue a bulletin by June 30, 1994, setting forth the accounting, reporting, and valuation practices and procedures for insurance futures contracts. However, a bulletin shall not be required if, prior to June 30, 1994, accounting practices and procedures are officially promulgated by the National Association of Insurance Commissioners. The bulletin issued pursuant to this subdivision shall not be superseded by any action of the National Association of Insurance Commissioners that conflicts with or that fails to address matters addressed by the bulletin. No insurer shall engage in hedging transactions with respect to insurance futures contracts or put and call options on insurance futures contracts until the earlier of the date a bulletin is issued or the date accounting practices and procedures are officially promulgated by the National Association of Insurance Commissioners and except pursuant to this section.
ARTICLE 4.7. Insurance Holding Company System Regulatory Act [1215. - 1215.18.]
As used in this article, the following terms shall have the respective meanings hereafter set forth, unless the context shall otherwise require:
An “affiliate” of, or person “affiliated” with, a specific person, is a person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.
“Business day” is any day other than Saturday, Sunday, and any other day that is specified or provided for as a holiday in the Government Code.
“Commissioner” means the Insurance Commissioner of the state and any assistant to the Insurance Commissioner designated and authorized by the commissioner while acting under their designation as the Insurance Commissioner.
The term “control” includes the terms “controlling,” “controlled by,” and “under common control with,” and means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, more than 10 percent of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact pursuant to the filing of a disclaimer of affiliation in accordance with subdivision (l) of Section 1215.4. The commissioner may, after furnishing all persons in interest notice and opportunity to be heard, determine that control exists in fact, notwithstanding the absence of a presumption to that effect.
“Enterprise risk” means any activity, circumstance, or event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole, including, but not limited to, anything that would cause the insurer’s risk-based capital to fall into company action level as set forth in Article 4.1 (commencing with Section 739) of Chapter 1 and under Section 739.5 or would cause the insurer to be in hazardous financial condition and allow the commissioner to take actions that are necessary under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), and Article 15.5 (commencing with Section 1077).
“Group capital calculation instructions” means the group capital calculation instructions as adopted by the NAIC and as amended by the NAIC in accordance with the procedures adopted by the NAIC.
“Groupwide supervisor” means the insurance official authorized to engage in conducting and coordinating groupwide supervision activities who is determined or acknowledged by the commissioner pursuant to subdivision (a) of Section 1215.75 to have sufficient significant contacts with the internationally active insurance group.
An “insurance holding company system” consists of two or more affiliated persons, one or more of which is an insurer.
“Insurer” shall have the same meaning as set forth in Section 826, excluding subdivisions (e) and (f) of that section.
“Internationally active insurance group” means an insurance holding company system that includes an insurer registered pursuant to Section 1215.4 and that meets the following criteria:
Insurers that are part of the insurance holding company system write premiums in at least three countries.
The percentage of gross premiums written outside the United States is at least 10 percent of the insurance holding company system’s total gross written premiums.
Based on a three-year rolling average, the total assets of the insurance holding company system are at least fifty billion dollars ($50,000,000,000) or the total gross written premiums of the insurance holding company system are at least ten billion dollars ($10,000,000,000).
“NAIC” means the National Association of Insurance Commissioners.
The “NAIC Liquidity Stress Test Framework” is an NAIC publication that includes a history of the NAIC’s development of regulatory liquidity stress testing, the scope criteria applicable for a specific data year, and the liquidity stress test instructions and reporting templates for a specific data year. The scope criteria, instructions, and reporting template may be adopted by the NAIC and amended by the NAIC in accordance with the procedures adopted by the NAIC.
“Person” is an individual, a corporation, a limited liability company, a partnership, an association, a joint stock company, a business trust, an unincorporated organization, or any similar entity, or any combination thereof acting in concert.
“Scope criteria,” as detailed in the NAIC Liquidity Stress Test Framework, are the designated exposure bases along with minimum magnitudes thereof for the specified data year, which are used to establish a preliminary list of insurers considered scoped into the NAIC Liquidity Stress Test Framework for that data year.
A “security holder” of a specified person is the holder that owns any security of that person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing.
A “subsidiary” of a specified person is an affiliate controlled by that person directly, or indirectly through one or more intermediaries.
“Voting security” shall include any security convertible into or evidencing a right to acquire a voting security.
Any domestic insurer, either by itself or in cooperation with one or more persons, may organize or acquire one or more subsidiaries subject to the limitations of this section.
In addition to investments in common stock, preferred stock, debt obligations, and other securities permitted under all other sections of this chapter, a domestic insurer may also do one or more of the following:
Invest in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries, amounts that do not exceed the lesser of 10 percent of the insurer’s assets or 50 percent of the insurer’s surplus as regards policyholders. However, after these investments, the insurer’s surplus as regards policyholders shall be reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs. In calculating the amount of these investments, there shall be excluded investments in insurance subsidiaries, and there shall be included (A) total net moneys or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of the subsidiary whether or not represented by the purchase of capital stock or issuance of other securities, and (B) all amounts expended in acquiring additional common stock, preferred stock, debt obligations, and other securities and all contributions to the capital or surplus of a subsidiary subsequent to its acquisition or formation.
“Insurance subsidiary” is an insurer that is organized within the United States and is controlled, directly or indirectly, by a reporting insurer subject to this article. For purposes of this paragraph, “investments in insurance subsidiaries” shall include the following:
Any direct investment in an insurance subsidiary.
The insurer’s proportionate share of any investment in an insurance subsidiary held by any subsidiary of the insurer. This shall be calculated by multiplying the amount of the subsidiary’s investment in the insurance subsidiary by the insurer’s percentage of ownership of the subsidiary.
Invest any amount in common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries, provided that each subsidiary agrees to limit its investments in any asset so that these investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations specified in paragraph (1) or in this chapter applicable to the insurer. For the purpose of this paragraph, “the total investment of the insurer” shall include (A) any direct investment by the insurer in an asset, and (B) the insurer’s proportionate share of any investment of an asset by any subsidiary of the insurer, which shall be calculated by multiplying the amount of the subsidiary’s investment by the percentage of the insurer’s ownership of that subsidiary.
With the approval of the commissioner, invest any amount in common stock, preferred stock, debt obligations, or other securities of one or more subsidiaries, provided that after this investment the insurer’s surplus as regards policyholders shall be reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs.
Investments in common stock, preferred stock, debt obligations, or other securities of subsidiaries made pursuant to subdivision (b) shall neither limit nor be subject to any of the otherwise applicable authorizations, restrictions, or prohibitions contained in this article applicable to these investments of insurers.
Whether any investment pursuant to subdivision (b) meets the applicable requirements thereof is to be determined immediately after the investment is made, taking into account the then outstanding principal balance on all previous investments in debt obligations, and the value of all previous investments in equity securities as of the date they were made.
If an insurer ceases to control a subsidiary, it shall dispose of any investment therein made pursuant to this section within three years from the time of the cessation of control, or within any further time as the commissioner may prescribe, unless at any time after the investment has been made, the investment has met the requirements for investment under any other section of this part.
A person shall not make a tender offer for, or a request or invitation for tenders of, or enter into an agreement to exchange securities for or acquire in the open market, any voting security, or any security convertible into a voting security, of a domestic insurer or of any other person controlling a domestic insurer, if the other person is not substantially engaged either directly or through its affiliates in any businesses other than that of insurance, if, as a result of the consummation thereof, the person would, directly or indirectly, acquire control of the insurer, and a person shall not enter into an agreement to merge with or otherwise to acquire control of a domestic insurer, unless, at the time copies of the offer, purchase, request, or invitation are first published, sent, or given to security holders or the agreement or transaction is entered into, as the case may be, the person has filed with the commissioner, and has sent to the insurer, a statement containing the following information, and any additional information as the commissioner may by rule or regulation prescribe as necessary or appropriate in the public interest or for the protection of policyholders or shareholders:
The background and identity of all persons by whom or on whose behalf the purchases or the exchange, merger, or other acquisition of control are to be effected.
The source and amount of the funds or other consideration used or to be used in making the purchases or in effecting the exchange, merger, or other acquisition of control, and, if any part of the funds or other consideration has been or is to be borrowed or otherwise obtained for the purpose of making the purchases or effecting the exchange, merger, or other acquisition of control, a description of the transaction and the names of the parties thereto. However, where a source of funds is a loan made in the lender’s ordinary course of business, if the person filing the statement so requests, the name of the lender shall not be made available to the public.
Any plans or proposals that those persons may have to liquidate the insurer, to sell its assets or merge it with any person, or to make any other major change in its business or corporate structure or management.
The amount of each class of voting securities or securities that may be converted into voting securities of the insurer or the controlling person that are beneficially owned, and the amount of each class of voting securities or securities that may be converted into voting securities of the insurer or the controlling person concerning which there is a right to acquire beneficial ownership, by each person and by each affiliate of each person, together with the name and address of each affiliate.
Information as to any contracts, arrangements, or understandings with any person with respect to any securities of the insurer or the controlling person, including, but not limited to, transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies, naming the persons with whom the contracts, arrangements, or understandings have been entered into, and giving the details thereof.
All requests or invitations for tenders or advertisements making a tender offer or requesting or inviting tenders of the voting securities of the insurer or the controlling person made by or on behalf of the person, and a copy of the agreement to exchange or otherwise acquire securities or to merge with or otherwise to acquire control of the insurer, shall be filed with the commissioner and sent to the insurer as a part of the statement and shall contain the information contained in the statement as the commissioner may by rule or regulation prescribe. Copies of any additional material soliciting or requesting the tender offers subsequent to the initial solicitation or request, and copies of any amendment to the agreement, shall contain the information as the commissioner may by rule or regulation prescribe as necessary or appropriate in the public interest or for the protection of policyholders or shareholders, and shall be filed with the commissioner and sent to the insurer not later than the time copies of the material are first published or sent or given to security holders or the amendment is entered into.
If the person required to file the statement referred to in subdivision (a) is a partnership, limited partnership, syndicate, or other group, the commissioner may require that the information called for by paragraphs (1) to (5), inclusive, of subdivision (a) shall be given with respect to: (1) each partner of the partnership or limited partnership, (2) each member of the syndicate or group, and (3) each person who controls the partner or member. If a person referred to in paragraph (1), (2), or (3) of this subdivision is a corporation or the person required to file the statement referred to in subdivision (a) is a corporation, the commissioner may require that the information called for by paragraphs (1) to (5), inclusive, of subdivision (a) shall be given with respect to the corporation and each officer and director of the corporation and each person who is directly or indirectly the beneficial owner of more than 10 percent of the outstanding voting securities of the corporation.
If any tender offer, request, or invitation for tenders, or agreement to exchange or otherwise acquire securities or to merge or otherwise acquire control referred to in subdivision (a), is proposed to be made by means of a registration statement under the federal Securities Act of 1933 (15 U.S.C. Sec. 77a et seq.), or in circumstances requiring the disclosure of similar information under the federal Securities Exchange Act of 1934 (15 U.S.C. Sec. 78a et seq.), or under a state law requiring similar registration or disclosure, the person required to file the statement referred to in subdivision (a) may file that registration statement with the commissioner as full satisfaction of the requirement in subdivision (a).
The purchases, exchanges, mergers, or other acquisitions of control referred to in subdivision (a) may not be made until the commissioner approves the purchases, exchanges, mergers, or other acquisitions of control. The commissioner shall approve or disapprove the transaction on or before the latter of 60 days after the statement required by subdivision (a) has been filed with the commissioner or, if a hearing is held pursuant to subdivision (f), 30 days after the close of the hearing held pursuant to subdivision (f). The commissioner may disapprove the transaction if the commissioner finds any of the following:
After the change of control the domestic insurer referred to in subdivision (a) could not satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.
The purchases, exchanges, mergers, or other acquisitions of control would substantially lessen competition in insurance in this state or create a monopoly therein.
The financial condition of an acquiring person might jeopardize the financial stability of the insurer, or prejudice the interests of its policyholders.
The plans or proposals that the acquiring person has to liquidate the insurer, to sell its assets, or to merge it with any person, or to make any other major change in its business or corporate structure or management, are not fair and reasonable to policyholders.
The competence, experience, and integrity of those persons who would control the operation of the insurer indicate that it would not be in the interest of policyholders or the public to permit them to do so.
The commissioner shall require the payment of five thousand six hundred forty-two dollars ($5,642) as a fee for filing an application pursuant to this section, the amount to accompany the application. The application shall be on a form and in a format prescribed by the NAIC.
The commissioner may hold a public hearing after the statement required by subdivision (a) is filed. If a hearing is held, at least 20 days’ notice shall be given by the commissioner to the person filing the statement. Not less than seven days’ notice of the public hearing shall be given by the person filing the statement to the insurer and to other persons as may be designated by the commissioner. At the hearing, the person filing the statement, the insurer, any person to whom notice of hearing was sent, and any other person whose interest may be affected, shall have the right to present evidence, examine and cross-examine witnesses, and offer oral and written arguments, and in connection therewith shall be entitled to conduct proceedings in the same manner as is presently allowed under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). All discovery proceedings shall be concluded not later than three days prior to the commencement of the public hearing.
If the proposed acquisition of control will require the approval of more than one commissioner, the public hearing referred to in paragraph (1) may be held on a consolidated basis upon request of the person filing the statement referred to in subdivision (a). The person shall file the statement referred to in subdivision (a) with the NAIC within five days of making the request for a public hearing. A commissioner may opt out of a consolidated hearing, and shall provide notice to the applicant of the opt-out within 10 days of the receipt of the statement referred to in subdivision (a). A hearing conducted on a consolidated basis shall be public and shall be held within the United States before the commissioners of the states in which the insurers are domiciled. The commissioners shall hear and receive evidence. Any commissioner may attend the hearing, in person or by telecommunication.
This section shall not apply to any offer for or request or invitation for tenders of any voting securities, or any agreement to exchange securities for or otherwise acquire control, if the insurer whose shares are to be acquired remains a direct or indirect subsidiary of the same ultimate controlling company person within the insurer’s insurance holding company system, neither the acquiring person nor any affiliate acquires or incurs any debt, guarantee, or other liability related to the transaction, and no shares are purchased by or sold to a person who is not an affiliated person in that insurance holding company system, or if, and to the extent that, the commissioner, by rule or regulation or by order, exempts the offer, request, invitation, or agreement from the provisions of this section as not comprehended within the purposes thereof.
For purposes of this section, any controlling person of a domestic insurer seeking to divest its controlling interest in the domestic insurer, in any manner, shall file with the commissioner, with a copy to the insurer, confidential notice of its proposed divestiture at least 30 days prior to the cessation of control. The commissioner shall determine those instances in which the party or parties seeking to divest a controlling interest in an insurer shall be required to file for and obtain approval of the transaction. The information shall remain confidential until the conclusion of the transaction unless the commissioner, in his or her discretion, determines that confidential treatment will interfere with enforcement of this article. If the statement referred to in subdivision (a) is otherwise filed, this subdivision shall not apply.
The following shall be violations of this article:
The failure to file the statement required under subdivision (a) of Section 1215.2.
Effectuation or any attempt to effectuate an acquisition or control of, or merger with, a domestic insurer either within the 60-day period referred to in subdivision (d) of Section 1215.2, unless the commissioner has given his approval thereto, or after disapproval of such acquisition of control or merger.
Every insurer that is authorized to do business in this state and that is a member of an insurance holding company system shall register with the commissioner, except a foreign insurer subject to disclosure requirements and standards adopted by statute or regulation in the jurisdiction of its domicile if substantially similar to those contained in this section. The exemption from registration for those foreign insurers shall not apply to any commercially domiciled insurer within this state, as provided in Section 1215.14. Any insurer that is subject to registration under this section shall register within 60 days after the effective date of this article or 15 days after it becomes subject to registration, whichever is later, and annually thereafter by April 30 of each year for the previous calendar year, unless the commissioner for good cause shown extends the time for registration. The commissioner may require a holding company system that is not subject to registration under this section to furnish a copy of the registration statement or other information filed by the insurance company with the insurance regulatory authority of domiciliary jurisdiction.
Every insurer subject to registration shall file a registration statement with the commissioner on a form and in a format prescribed by the NAIC, which shall contain current information about the following:
The capital structure, general financial condition, ownership, and management of the insurer and any person controlling the insurer.
The identity and relationship of every member of the insurance holding company system.
The following agreements in force, relationships subsisting, and transactions currently outstanding or that have occurred during the last calendar year between the insurer and its affiliates:
Loans, extensions of credit, investments, or purchases, sales, or exchanges of securities of the affiliates by the insurer or of the insurer by its affiliates.
Purchases, sales, or exchanges of assets.
Transactions not in the ordinary course of business.
Guarantees or undertakings for the benefit of an affiliate that result in an actual contingent exposure of the insurer’s assets to liability, other than insurance contracts entered into in the ordinary course of the insurer’s business.
All management agreements, service contracts, and cost-sharing arrangements. However, subscription agreements or powers of attorney executed by subscribers of a reciprocal or interinsurance exchange are not required to be reported pursuant to this section if the form of the agreement was in use before 1943 and was not amended in any way to modify payments, fees, or waivers of fees or otherwise substantially amended after 1943.
Reinsurance agreements.
Dividends and other distributions to shareholders.
Consolidated tax allocation agreements.
A pledge of the insurer’s stock, including stock of a subsidiary or controlling affiliate, for a loan made to a member of the insurance holding company system.
If requested by the commissioner, the insurer shall include financial statements of or within an insurance holding company system, including all affiliates. Financial statements may include, but are not limited to, annual audited financial statements filed with the United States Securities and Exchange Commission (SEC) pursuant to the federal Securities Act of 1933, as amended, or the federal Securities Exchange Act of 1934, as amended. An insurer required to file financial statements pursuant to this paragraph may satisfy the request by providing the commissioner with the most recently filed parent corporation financial statements that have been filed with the SEC.
Statements that the insurer’s board of directors is responsible for overseeing corporate governance and internal controls and that the insurer’s officers or senior management have approved, implemented, and continue to maintain and monitor corporate governance and internal control procedures.
Other matters as may be included in registration forms adopted by the NAIC, to the extent otherwise required by the commissioner.
All registration statements shall contain a summary outlining all items in the current registration statement that are changes from the prior registration statement.
Information does not need to be disclosed on the registration statement filed pursuant to subdivision (b) if the information is not material for the purposes of this section. Unless the commissioner provides otherwise, sales, purchases, exchanges, loans or extensions of credit, investments, or guarantees involving one-half of 1 percent or less of an insurer’s admitted assets as of the preceding December 31, are not deemed material for purposes of this section. The description of material in this subdivision does not apply for purposes of the group capital calculation or the NAIC Liquidity Stress Test Framework.
Each registered insurer shall keep current the information required to be disclosed in its registration statement by reporting all material changes or additions within 15 days after the end of the month in which it learns of each change or addition.
Subject to subdivision (g) of Section 1215.5, each registered insurer shall report all dividends and other distributions to shareholders within five business days following declaration. A dividend or other distribution to shareholders shall not be paid until at least 10 business days after receipt by the commissioner, at the office of the department prescribed by the commissioner by notice to all insurers, of a notice of the declaration of the dividend or other distribution.
Every person in an insurance holding company system subject to registration is required to provide the insurer with all information reasonably necessary to enable the insurer to comply with the provisions of this article.
The commissioner shall terminate the registration of any insurer that demonstrates that it no longer is a member of an insurance holding company system.
The commissioner may require or allow two or more affiliated insurers subject to registration hereunder to file a consolidated registration statement or consolidated reports amending their consolidated registration statement or their individual registration statements.
The commissioner may allow any insurer that is authorized to do business in this state that is part of an insurance holding company system to register on behalf of any affiliated insurer that is required to register under subdivision (a), and to file all information and material required to be filed under this article.
The provisions of this section do not apply to any insurer, information, or transaction exempted by the commissioner.
Any person may file with the commissioner a disclaimer of affiliation with any authorized insurer. A disclaimer of affiliation may be filed by an insurer or any member of an insurance holding company system. The disclaimer shall fully disclose all material relationships and bases for affiliation between the person and the insurer, as well as the basis for disclaiming an affiliation. After a disclaimer has been filed, the insurer is relieved of any duty to register or report under this section that may arise out of the insurer’s relationship with the disclaimed person unless and until the commissioner disallows the disclaimer. The commissioner shall disallow the disclaimer only after furnishing all parties in interest with notice and opportunity to be heard and after making specific findings of fact to support the disallowance. If the commissioner at any time determines that the information disclosed in the disclaimer is incomplete or inaccurate, the commissioner may disallow the disclaimer.
The ultimate controlling person of an insurer subject to registration shall also file an annual enterprise risk report. The report shall, to the best of the ultimate controlling person’s knowledge and belief, identify the material risks within the insurance holding company system that could pose enterprise risk to the insurer. The report shall be filed with the lead state commissioner, when applicable, of the insurance holding company system as determined by the procedures within the Financial Analysis Handbook adopted by the NAIC, and if the commissioner is not the lead state commissioner of the insurance holding company system, a copy shall be provided to the commissioner if the insurance holding company system has an insurer domiciled in this state. The first annual enterprise risk report shall be filed with the insurer’s registration statement after July 1, 2013, unless the commissioner establishes a later date either by bulletin or notice.
The ultimate controlling person of an insurer subject to registration shall concurrently file with the registration an annual group capital calculation as directed by the lead state commissioner, except as provided in paragraphs (1) to (4), inclusive. The report shall be completed in accordance with the NAIC Group Capital Calculation Instructions, which may authorize the lead state commissioner to allow a controlling person that is not the ultimate controlling person to file the group capital calculation. The report shall be filed with the lead state commissioner of the insurance holding company system as determined by the commissioner in accordance with the procedures within the Financial Analysis Handbook adopted by the NAIC. All of the following insurance holding company systems are exempt from filing the group capital calculation:
An insurance holding company system that has only one insurer within its holding company structure, that only writes business and is only licensed in its domestic state, and that does not assume business from any other insurer.
An insurance holding company system that is required to perform a group capital calculation specified by the Federal Reserve Board. The lead state commissioner shall request the calculation from the Federal Reserve Board under the terms of information sharing agreements in effect. If the Federal Reserve Board cannot share the calculation with the lead state commissioner, the insurance holding company system is not exempt from the group capital calculation filing.
An insurance holding company system whose non-United States groupwide supervisor is located within a reciprocal jurisdiction, as described in subdivision (a) of Section 922.425, that recognizes the United States’ state regulatory approach to group supervision and group capital.
An insurance holding company system that meets both of the following criteria:
The insurance holding company system provides information to the lead state commissioner that meets the requirements for accreditation under the NAIC financial standards and accreditation program, either directly or indirectly through the groupwide supervisor, who has determined the information is satisfactory to allow the lead state to comply with the NAIC group supervision approach, as detailed in the Financial Analysis Handbook adopted by the NAIC.
The insurance holding company system’s groupwide supervisor that is not located within a reciprocal jurisdiction, as described in subdivision (a) of Section 922.425, recognizes and accepts the group capital calculation as the worldwide group capital assessment for United States insurance groups who operate in that jurisdiction.
A non-United States jurisdiction is considered to “recognize and accept” the group capital calculation if it satisfies the criteria in both subclauses (I) and (II):
Either of the following is met to satisfy this subclause:
(ia) The non-United States jurisdiction recognizes the United States’ state regulatory approach to group supervision and group capital by providing confirmation by a competent regulatory authority in that jurisdiction that insurers and insurance groups whose lead state is accredited by the NAIC under the NAIC Accreditation Program are subject only to worldwide prudential insurance group supervision, including worldwide group governance, solvency and capital, and reporting, as applicable, by the lead state and will not be subject to group supervision, including worldwide group governance, solvency and capital, and reporting, at the level of the worldwide parent undertaking of the insurance or reinsurance group by the non-United States jurisdiction.
(ib) If a United States insurance group does not operate in the non-United States jurisdiction, that non-United States jurisdiction indicates formally in writing to the lead state commissioner with a copy to the International Association of Insurance Supervisors that the group capital calculation is an acceptable international capital standard.
(II) The non-United States jurisdiction provides confirmation by a competent regulatory authority in that jurisdiction that information regarding insurers and their parent, subsidiary, or affiliated entities, if applicable, shall be provided to the lead state commissioner in accordance with a memorandum of understanding or similar document between the commissioner and the jurisdiction, including the International Association of Insurance Supervisors Multilateral Memorandum of Understanding or other multilateral memoranda of understanding coordinated by the NAIC. The commissioner shall determine, in consultation with the NAIC committee process, if the requirements of the information sharing agreements are in force.
A list of non-United States jurisdictions that recognize and accept the group capital calculation shall be published through the NAIC committee process.
Notwithstanding paragraphs (3) and (4) of subdivision (n), a lead state commissioner shall require the group capital calculation for United States operations of any non-United States-based insurance holding company system if, after any necessary consultation with other supervisors or officials, it is deemed appropriate by the lead state commissioner for prudential oversight and solvency monitoring purposes or for ensuring the competitiveness of the insurance marketplace.
Notwithstanding the group capital calculation exemptions in subdivision (n), the lead state commissioner may exempt the ultimate controlling person from filing the annual group capital calculation or accept a limited group capital filing or report pursuant to subparagraph (A) or (B).
If an insurance holding company system has previously filed the annual group capital calculation at least once, the lead state commissioner may exempt the ultimate controlling person from filing the annual group capital calculation if the lead state commissioner makes a determination based upon that filing that the insurance holding company system meets all of the following criteria:
The insurance holding company system has annual direct written and unaffiliated assumed premium, including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, of less than one billion dollars ($1,000,000,000).
The insurance holding company system does not have insurers within its holding company structure that are domiciled outside of the United States or one of its territories.
The insurance holding company system does not include within its structure a banking, depository, or other financial entity that is subject to an identified regulatory capital framework.
The insurance holding company system attests that there are no material changes in the transactions between insurers and noninsurers in the group that have occurred since the last filing of the annual group capital calculation.
The noninsurers within the insurance holding company system do not pose a material financial risk to the insurer’s ability to honor policyholder obligations.
If an insurance holding company system has previously filed the annual group capital calculation at least once, the lead state commissioner may accept a limited group capital filing in lieu of the group capital calculation if all of the following criteria are met:
The insurance holding company system has annual direct written and unaffiliated assumed premium, including international direct and assumed premium, but excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, of less than one billion dollars ($1,000,000,000).
The insurance holding company system does not have insurers within its holding company structure that are domiciled outside of the United States or one of its territories.
The insurance holding company system does not include within its structure a banking, depository, or other financial entity that is subject to an identified regulatory capital framework.
The insurance holding company system attests to both of the following:
That there are no material changes in the transactions between insurers and noninsurers in the group that have occurred since the last filing of the annual group capital calculation.
(II) That the noninsurers within the insurance holding company system do not pose a material financial risk to the insurer’s ability to honor policyholder obligations.
If an insurance holding company has previously met an exemption pursuant to subparagraph (A) or (B), the lead state commissioner may require at any time the ultimate controlling person to file an annual group capital calculation, completed in accordance with the NAIC Group Capital Calculation Instructions, if an insurer within the insurance holding company system meets any of the following criteria:
An insurer is in a risk-based capital action level event as set forth in Article 4.1 (commencing with Section 739) of Chapter 1 or meets a similar standard for a non-United States insurer.
An insurer meets one or more of the standards of an insurer deemed to be in hazardous financial condition as defined in Section 2598.2 of Title 10 of the California Code of Regulations.
An insurer otherwise exhibits qualities of a troubled insurer, as determined by the lead state commissioner based on unique circumstances including the type and volume of business written, ownership and organizational structure, federal agency requests, and international supervisor requests.
If the lead state commissioner determines that an insurance holding company system no longer meets one or more of the requirements for an exemption from filing the group capital calculation under this paragraph, the insurance holding company system shall file the group capital calculation at the next annual filing date, unless the lead state commissioner authorizes an extension based on reasonable grounds shown.
The ultimate controlling person of an insurer subject to registration and also scoped into the NAIC Liquidity Stress Test Framework shall file the results of a specific year’s liquidity stress test. The filing shall be made to the lead state commissioner of the insurance holding company system as determined by the procedures within the Financial Analysis Handbook adopted by the NAIC.
The NAIC Liquidity Stress Test Framework includes scope criteria applicable to a specific data year. These scope criteria are reviewed at least annually by the NAIC Financial Stability Task Force or its successor. Any change to the NAIC Liquidity Stress Test Framework or to the data year for which the scope criteria are to be measured shall be effective on January 1 of the year following the calendar year when those changes are adopted. Insurers meeting at least one threshold of the scope criteria are considered scoped into the NAIC Liquidity Stress Test Framework for the specified data year unless the lead state commissioner, in consultation with the NAIC Financial Stability Task Force or its successor, determines the insurer should not be scoped into the framework for that data year. Similarly, insurers that do not trigger at least one threshold of the scope criteria are considered scoped out of the NAIC Liquidity Stress Test Framework for the specified data year, unless the lead state commissioner, in consultation with the NAIC Financial Stability Task Force or its successor, determines the insurer should be scoped into the NAIC Liquidity Stress Test Framework for that data year.
Because regulators wish to avoid having insurers scoped in and out of the NAIC Liquidity Stress Test Framework on a frequent basis, the lead state commissioner, in consultation with the NAIC Financial Stability Task Force or its successor, shall assess this concern as part of the determination pursuant to paragraph (1).
The performance of, and filing of the results from, a specific year’s liquidity stress test shall comply with the NAIC Liquidity Stress Test Framework’s instructions and reporting templates for that year and any lead state commissioner determinations, in conjunction with the NAIC Financial Stability Task Force or its successor, provided within the framework.
For purposes of subdivisions (n), (o), and (p), “lead state commissioner” means the Insurance Commissioner, as long as, and only if, California is considered the lead state in accordance with the procedures within the Financial Analysis Handbook adopted by the NAIC.
The failure to file a registration statement, summary thereof, amendment to the statement, or report of dividend required by this section within the time specified for the filing is a violation of this article.
Transactions by registered insurers with their affiliates are subject to the following standards:
The terms shall be fair and reasonable and consistent with the current version of Section 19 of the NAIC Insurance Holding Company System Model Regulation, subject to the requirements of this article.
Charges or fees for services performed shall be reasonable.
Expenses incurred and payment received shall be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
The books, accounts, and records of each party to all transactions shall be so maintained as to clearly and accurately disclose the precise nature and details of the transactions, including accounting information that is necessary to support the reasonableness of the charges or fees to the parties.
The insurer’s policyholder’s surplus following any dividends or distributions to shareholder affiliates shall be reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs.
The following transactions involving a domestic insurer or commercially domiciled insurer, as defined in Section 1215.14, and any person in its insurance holding company system, including amendments or modifications of affiliate agreements previously filed pursuant to this section, may be entered into only if the insurer has notified the commissioner in writing of its intention to enter into the transaction at least 30 days prior thereto, or a shorter period as the commissioner may permit, and the commissioner has not disapproved it within that period. The notice for amendments or modifications shall include the reasons for the change and the financial impact on the domestic insurer or commercially domiciled insurer. Informal notice shall be reported, within 30 days after a termination of a previously filed agreement, to the commissioner for determination of the type of filing required, if any. The commissioner shall require the payment of two thousand eight hundred twenty-three dollars ($2,823) as a fee for filings pursuant to this subdivision, and the filings shall be on a form and in a format prescribed by the NAIC. The payment shall accompany the filing.
Sales, purchases, exchanges, loans, extensions of credit, or investments, if the transactions are equal to or exceed:
For a nonlife insurer, the lesser of 3 percent of the insurer’s admitted assets or 25 percent of the policyholder’s surplus as of the preceding December 31.
For a life insurer, 3 percent of the insurer’s admitted assets as of the preceding December 31.
Loans or extensions of credit to a person who is not an affiliate, if made with the agreement or understanding that the proceeds of the transactions, in whole or in substantial part, are to be used to make loans or extensions of credit to, to purchase assets of, or to make investments in, any affiliate of the insurer, if the transactions are equal to or exceed:
For a nonlife insurer, the lesser of 3 percent of the insurer’s admitted assets or 25 percent of the policyholder’s surplus as of the preceding December 31.
For a life insurer, 3 percent of the insurer’s admitted assets as of the preceding December 31.
Reinsurance agreements and pooling agreements and modifications thereto in which the reinsurance premium or a change in the insurer’s liabilities, or the projected reinsurance premium or a change in the insurer’s liabilities in any of the next three years, equals or exceeds 5 percent of the insurer’s policyholder’s surplus, as of the preceding December 31, including those agreements that may require as consideration the transfer of assets from an insurer to a nonaffiliate, if an agreement or understanding exists between the insurer and nonaffiliate that any portion of the assets will be transferred to one or more affiliates of the insurer.
All management agreements, service contracts, tax sharing agreements, and cost-sharing arrangements. However, subscription agreements or powers of attorney executed by subscribers of a reciprocal or interinsurance exchange are not required to be reported pursuant to this section if the form of the agreement was in use before 1943 and was not amended in any way to modify payments, fees, or waivers of fees or otherwise substantially amended after 1943. Payment or waiver of fees or other amounts due under subscription agreements or powers of attorney forms that were in use before 1943 and that have not been amended in any way to modify payments, fees, or waiver of fees, or otherwise substantially amended after 1943 shall not be subject to regulation pursuant to paragraph (2) of subdivision (a).
Guarantees when initiated or made by a domestic or commercially domiciled insurer, provided that a guarantee that is quantifiable as to amount is not subject to the notice requirements of this paragraph unless it exceeds the lesser of one-half of 1 percent of the insurer’s admitted assets or 10 percent of surplus as regards policyholders as of the 31st day of December next preceding. Further, all guarantees that are not quantifiable as to amount are subject to the notice requirements of this paragraph.
Derivative transactions or series of derivative transactions. The written filing to the commissioner shall include the type or types of derivative transactions, the affiliate or affiliates engaging with the insurer in the derivative transactions, the objective and the rationale for the derivative transaction or series of derivative transactions, the maximum maturity and economic effect of the derivative transactions, and any other information required by the commissioner. Derivative transactions entered into pursuant to this subdivision shall comply with the provisions of Section 1211.
Direct or indirect acquisitions or investments in a person that controls the insurer or in an affiliate of the insurer in an amount that, together with its present holdings in those investments, exceeds 2.5 percent of the insurer’s policyholder’s surplus. Direct or indirect acquisitions or investments in subsidiaries acquired under Section 1215.1, or in nonsubsidiary insurance affiliates that are subject to the provisions of this article, or in subsidiaries acquired pursuant to Section 1199, are exempt from this requirement.
Any material transactions, specified by regulation, that the commissioner determines may adversely affect the interests of the insurer’s policyholders.
A domestic insurer may not enter into transactions that are part of a plan or series of transactions with persons within the holding company system if the purpose of those transactions is to avoid the statutory threshold amount and thus avoid review. If the commissioner determines that separate transactions were entered into over any 12-month period to avoid review, the commissioner may exercise his or her authority under Section 1215.11.
The commissioner, in reviewing transactions under subdivision (b), shall consider whether the transactions comply with the standards set forth in subdivision (a) and whether they may adversely affect the interests of policyholders.
The commissioner shall be notified within 30 days of any investment by the insurer in any one corporation if the total investment in the corporation by the insurance holding company system exceeds 10 percent of the corporation’s voting securities.
For purposes of this article, in determining whether an insurer’s policyholder’s surplus is reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs, the following factors, among others, shall be considered:
The size of the insurer, as measured by its assets, capital and surplus, reserves, premium writings, insurance in force, and other appropriate criteria.
The extent to which the insurer’s business is diversified among the several lines of insurance.
The number and size of risks insured in each line of business.
The extent of the geographical dispersion of the insurer’s insured risks.
The nature and extent of the insurer’s reinsurance program.
The quality, diversification, and liquidity of the insurer’s investment portfolio.
The recent past and projected future trend in the size of the insurer’s investment portfolio.
The recent past and projected future trend in the size of the insurer’s surplus, and the policyholder’s surplus maintained by other comparable insurers.
The adequacy of the insurer’s reserves.
The quality and liquidity of investments in subsidiaries made under Section 1215.1. The commissioner may treat those investments as a disallowed asset for purposes of determining the adequacy of the policyholder’s surplus whenever, in his or her judgment, the investment so warrants.
The quality of the company’s earnings and the extent to which the reported earnings include extraordinary accounting items.
An insurer, subject to registration under Section 1215.4, shall not pay any extraordinary dividend or make any other extraordinary distribution to its stockholders until 30 days after the commissioner has received notice of the declaration thereof and has approved the payment or has not, within the 30-day period, disapproved the payment.
For purposes of this section, an extraordinary dividend or distribution is any dividend or distribution that, together with other dividends or distributions made within the preceding 12 months, exceeds the greater of (1) 10 percent of the insurer’s policyholder’s surplus as of the preceding December 31, or (2) the net gain from operations of the insurer, if the insurer is a life insurer, or the net income, if the insurer is not a life insurer, for the 12-month period ending the preceding December 31.
Notwithstanding any other law, an insurer may declare an extraordinary dividend or distribution that is conditional upon the commissioner’s approval. The declaration confers no rights upon stockholders until the commissioner has approved the payment of the dividend or distribution or until the commissioner has not disapproved the payment within the 30-day period referred to in this subdivision.
Notwithstanding the control of a domestic insurer by any person, the officers and directors of the insurer shall not thereby be relieved of any obligation or liability to which they would otherwise be subject to by law, and the insurer shall be managed to ensure its separate operating identity consistent with the provisions of this article. However, nothing in this article shall preclude a domestic insurer from having or sharing a common management or cooperative or joint use of personnel, property, or services with one or more other persons under arrangements meeting the standards of subdivision (a).
The provisions of this section do not apply to any insurer, information, or transaction exempted by the commissioner.
Subject to the limitation contained in this section, and in addition to the powers which the commissioner has under Article 4 (commencing with Section 730) of Chapter 1 of this part relating to the examination of insurers, the commissioner shall also have the power to examine any insurer registered under Section 1215.4 and its affiliates to ascertain the enterprise risk to which the insurer is subjected by the ultimate controlling party, or by any entity or combination of entities within the insurance holding company system, or by the insurance holding company system on a consolidated basis. The commissioner may also order any insurer registered under Section 1215.4 to produce the records, books, or other information or papers in the possession of the insurer or its affiliates, including a report on the enterprise risk to the insurer by the ultimate controlling party, or by any entity or combination of entities within the insurance holding company system, or by the insurance holding company system on a consolidated basis, as shall be necessary to ascertain the financial condition or legality of conduct of that insurer.
The commissioner shall exercise his or her power under subdivision (a) only if the examination of the insurer under Article 4 (commencing with Section 730) of Chapter 1 of this part is inadequate or the interests of the policyholders of that insurer are being adversely affected.
The commissioner may retain at the registered insurer’s expense the attorneys, actuaries, accountants, and other experts not otherwise a part of the commissioner’s staff as shall be reasonably necessary to assist in the conduct of the examination under subdivision (a) of this section. Any persons so retained shall be under the direction and control of the commissioner and shall act in a purely advisory capacity.
Each registered insurer producing for examination records, books, and papers pursuant to subdivision (a) shall be liable for, and shall pay the expense of, that examination in accordance with Section 736.
With respect to any insurer registered under Section 1215.4, and in accordance with subdivision (c), the commissioner shall also have the power to participate in a supervisory college for any domestic insurer that is part of an insurance holding company system with international operations in order to determine compliance by the insurer with this article. The powers of the commissioner with respect to supervisory colleges include, but are not limited to, the following:
Initiating the establishment of a supervisory college.
Clarifying the membership and participation of other supervisors in the supervisory college.
Clarifying the functions of the supervisory college and the role of other regulators, including the establishment of a groupwide supervisor.
Coordinating the ongoing activities of the supervisory college, including planning meetings, supervisory activities, and processes for information sharing.
Establishing a crisis management plan.
In order to assess the business strategy, financial position, legal and regulatory position, risk exposure, risk management, and governance processes, and as part of the examination of individual insurers in accordance with Section 1215.6, the commissioner may participate in a supervisory college with other regulators charged with supervision of the insurer or its affiliates, including other state, federal, and international regulatory agencies. A supervisory college may be convened as either a temporary or permanent forum for communication and cooperation between the regulators charged with the supervision of the insurer or its affiliates. The commissioner may enter into agreements in accordance with subdivision (b) of Section 1215.8 providing the basis for cooperation between the commissioner and the other regulatory agencies, and the activities of the supervisory college. Nothing in this section shall delegate to the supervisory college the authority of the commissioner to regulate or supervise the insurer or its affiliates within its jurisdiction.
An insurer registered under Section 1215.4 that is subject to this section shall be liable for and shall, in accordance with Section 736, pay the reasonable expenses of the commissioner’s participation in a supervisory college pursuant to this section, including reasonable travel expenses, limited to those expenses reasonably related to the regulation of the insurer’s business in this state.
The commissioner is authorized to act as the groupwide supervisor for any internationally active insurance group in accordance with this section. However, the commissioner may otherwise acknowledge another regulatory official as the groupwide supervisor when the internationally active insurance group meets any of the following conditions:
Does not have substantial insurance operations in the United States.
Has substantial insurance operations in the United States, but not in this state.
Has substantial insurance operations in the United States and this state, but the commissioner has determined pursuant to the factors set forth in subdivisions (b) and (f) that the other regulatory official is the appropriate groupwide supervisor.
An insurance holding company system that does not otherwise qualify as an internationally active insurance group may request that the commissioner make a determination or acknowledgment as to a groupwide supervisor pursuant to this section.
In cooperation with other state, federal, and international regulatory agencies, the commissioner shall identify a single groupwide supervisor for an internationally active insurance group. The commissioner may determine that he or she is the appropriate groupwide supervisor for an internationally active insurance group that conducts substantial insurance operations concentrated in the state. However, the commissioner may acknowledge that a regulatory official from another jurisdiction is the appropriate groupwide supervisor for the internationally active insurance group. The commissioner shall consider all of the following factors when making a determination or acknowledgment pursuant to this subdivision:
The place of domicile of the insurers within the internationally active insurance group that hold the largest share of the group’s written premiums, assets, or liabilities.
The place of domicile of the top-tiered insurer or insurers in the insurance holding company system of the internationally active insurance group.
The location of the executive offices or largest operational offices of the internationally active insurance group.
Whether another regulatory official is acting, or is seeking to act, as the groupwide supervisor under a regulatory system that the commissioner determines to be either of the following:
Substantially similar to the system of regulation provided under the laws of this state.
Otherwise sufficient in terms of providing for groupwide supervision, enterprise risk analysis, and cooperation with other regulatory officials.
Whether another regulatory official acting, or seeking to act, as the groupwide supervisor provides the commissioner with reasonably reciprocal recognition and cooperation.
However, a commissioner identified pursuant to this section as the groupwide supervisor may determine that it is appropriate to acknowledge another supervisor to serve as the groupwide supervisor. The acknowledgment of the groupwide supervisor shall be made after consideration of the factors listed in paragraphs (1) to (5), inclusive, and shall be made in cooperation with and subject to the acknowledgment of other regulatory officials involved with supervision of members of the internationally active insurance group, and in consultation with the internationally active insurance group.
Notwithstanding any other law, when another regulatory official is acting as the groupwide supervisor of an internationally active insurance group, the commissioner shall acknowledge that regulatory official as the groupwide supervisor. However, if there is a material change in the internationally active insurance group that results in either (1) the internationally active insurance group’s insurers domiciled in this state holding the largest share of the group’s premiums, assets, or liabilities, or (2) this state being the place of domicile of the top-tiered insurer or insurers in the insurance holding company system of the internationally active insurance group, the commissioner shall make a determination or acknowledgment as to the appropriate groupwide supervisor for that internationally active insurance group pursuant to subdivision (b).
Pursuant to Section 1215.6, the commissioner is authorized to collect from any insurer registered pursuant to Section 1215.4 all information necessary to determine whether the commissioner may act as the groupwide supervisor of an internationally active insurance group or if the commissioner may acknowledge another regulatory official to act as the groupwide supervisor. Prior to issuing a determination that an internationally active insurance group is subject to groupwide supervision by the commissioner, the commissioner shall notify the insurer registered pursuant to Section 1215.4 and the ultimate controlling person within the internationally active insurance group. The internationally active insurance group shall have not less than 30 days to provide the commissioner with additional information pertinent to the pending determination. The commissioner shall publish on the department’s Internet Web site the identity of internationally active insurance groups that the commissioner has determined are subject to groupwide supervision by the commissioner.
If the commissioner is the groupwide supervisor for an internationally active insurance group, the commissioner is authorized to engage in any of the following groupwide supervision activities:
Assess the enterprise risks within the internationally active insurance group to ensure both of the following:
The material financial condition and liquidity risks to the members of the internationally active insurance group that are engaged in the business of insurance are identified by management.
Reasonable and effective mitigation measures are in place.
Request, from any member of an internationally active insurance group subject to the commissioner’s supervision, information necessary and appropriate to assess enterprise risk, including, but not limited to, information about the members of the internationally active insurance group regarding any of the following:
Governance, risk assessment, and management.
Capital adequacy.
Material intercompany transactions.
Coordinate and, through the authority of the regulatory officials of the jurisdictions where members of the internationally active insurance group are domiciled, compel development and implementation of reasonable measures designed to ensure that the internationally active insurance group is able to timely recognize and mitigate enterprise risks to members of that internationally active insurance group that are engaged in the business of insurance.
Communicate with other state, federal, and international regulatory agencies for members within the internationally active insurance group and share relevant information subject to the confidentiality provisions of Section 1215.8, through supervisory colleges as set forth in Section 1215.7 or otherwise.
Enter into agreements with, or obtain documentation from, any insurer registered pursuant to Section 1215.4, any member of the internationally active insurance group, and any other state, federal, and international regulatory agencies for members of the internationally active insurance group, providing the basis for or otherwise clarifying the commissioner’s role as groupwide supervisor, including provisions for resolving disputes with other regulatory officials. These agreements or documentation shall not serve as evidence in any proceeding that any insurer or person within an insurance holding company system not domiciled or incorporated in this state is doing business in this state or is otherwise subject to jurisdiction in this state.
Other groupwide supervision activities, consistent with the authorities and purposes enumerated above, as considered necessary by the commissioner.
If the commissioner acknowledges that another regulatory official from a jurisdiction that is not accredited by the NAIC is the groupwide supervisor, the commissioner is authorized to reasonably cooperate, through supervisory colleges or otherwise, with groupwide supervision undertaken by the groupwide supervisor if the following conditions are satisfied:
The commissioner’s cooperation is in compliance with the laws of this state.
The regulatory official acknowledged as the groupwide supervisor also recognizes and cooperates with the commissioner’s activities as a groupwide supervisor for other internationally active insurance groups when applicable. When that recognition and cooperation is not reasonably reciprocal, the commissioner is authorized to refuse recognition and cooperation.
The commissioner is authorized to enter into agreements with, or obtain documentation from, any insurer registered pursuant to Section 1215.4, any affiliate of the insurer, and other state, federal, or international regulatory agencies for members of the internationally active insurance groups, that provide the basis for, or otherwise clarify, a regulatory official’s role as groupwide supervisor.
A registered insurer subject to this section shall be liable for and shall pay the reasonable expenses of the commissioner’s participation in the administration of this section, including the engagement of attorneys, actuaries, and any other professionals and all reasonable travel expenses.
All information, documents, and copies thereof obtained by or disclosed to the commissioner or any other person in the course of an examination or investigation made pursuant to Section 1215.4, 1215.5, 1215.6, 1215.7, or 1215.75, and all information reported or provided pursuant to Section 1215.4, 1215.5, 1215.6, 1215.7, or 1215.75 are recognized as being proprietary and containing trade secrets, shall be kept confidential, are not subject to disclosure by the commissioner pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), are not subject to subpoena, and are not subject to discovery from the commissioner or admissible into evidence in a private civil action if obtained from the commissioner. This information shall not be made public by the commissioner or any other person, except to insurance departments of other states, without the prior written consent of the insurance company to which it pertains, unless the commissioner, after giving the insurer and its affiliates who would be affected thereby notice and opportunity to be heard, determines that the interests of policyholders, shareholders, or the public will be served by the publication of the information, in which event the commissioner may publish all or any part of the information in a manner as the commissioner may deem appropriate.
For purposes of the information reported and provided to the department pursuant to subdivisions (n) and (o) of Section 1215.4, the commissioner shall maintain the confidentiality of the group capital calculation, the group capital ratio produced within the calculation, and any group capital information received from an insurance holding company system supervised by the Federal Reserve Board or a United States groupwide supervisor.
For purposes of the information reported and provided to the department pursuant to subdivision (p) of Section 1215.4, the commissioner shall maintain the confidentiality of the liquidity stress test results, supporting disclosures, and any liquidity stress test information received from an insurance holding company system supervised by the Federal Reserve Board and non-United States groupwide supervisors.
In order to assist in the performance of the commissioner’s duties, the commissioner:
May, upon request, be required to share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subdivision (a), including proprietary and trade secret documents and materials, with other state, federal, and international regulatory agencies, with the NAIC, with a third-party consultant designated by the commissioner, and with state, federal, and international law enforcement authorities, including members of any supervisory college described in Section 1215.7, provided that the recipient agrees in writing to maintain the confidentiality and privileged status of the documents, materials, or other information, and has verified in writing the legal authority to maintain confidentiality.
Notwithstanding paragraph (1), may only share confidential and privileged documents, materials, or information reported pursuant to subdivision (m) of Section 1215.4 with commissioners of states having statutes or regulations substantially similar to subdivision (a) and who have agreed in writing not to disclose the information.
May receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, including proprietary and trade secret information, from the NAIC and its affiliates and subsidiaries and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any documents, materials, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the documents, materials, or information.
May enter into written agreements with the NAIC and a third-party consultant designated by the commissioner governing sharing and use of information provided pursuant to this subdivision consistent with this subdivision that shall do the following:
Specify procedures and protocols regarding the confidentiality and security of information shared with the NAIC or a third-party consultant designated by the commissioner pursuant to this subdivision, including procedures and protocols for sharing by the NAIC with other state, federal, or international regulators. The agreement shall provide that the recipient agrees in writing to maintain the confidentiality and privileged status of the documents, materials, or other information and has verified in writing the legal authority to maintain its confidentiality.
Specify that ownership of information shared with the NAIC or a third-party consultant designated by the commissioner pursuant to this subdivision remains with the commissioner and the NAIC’s or third-party consultant’s use of the information is subject to the direction of the commissioner.
Prohibit the NAIC or a third-party consultant designated by the commissioner from storing the information shared pursuant to this article in a permanent database after the underlying analysis is completed, except for the documents, materials, or information reported pursuant to subdivision (p) of Section 1215.4.
Require prompt notice to be given to an insurer whose confidential information in the possession of the NAIC or a third-party consultant designated by the commissioner pursuant to this subdivision is subject to a request or subpoena to the NAIC or a third-party consultant designated by the commissioner for disclosure or production.
Require the NAIC or a third-party consultant designated by the commissioner to consent to intervention by an insurer in any judicial or administrative action in which the NAIC or a third-party consultant designated by the commissioner may be required to disclose confidential information about the insurer shared with the NAIC or a third-party consultant designated by the commissioner pursuant to this subdivision.
For an agreement with a third-party consultant designated by the commissioner, provide for notification of the identity of the consultant to applicable insurers reporting or submitting documents, materials, or information pursuant to subdivision (p) of Section 1215.4.
The sharing of information by the commissioner pursuant to subdivision (b) shall not constitute a delegation of regulatory authority or rulemaking, and the commissioner is solely responsible for the administration, execution, and enforcement of the provisions of this article.
A waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information shall not occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in subdivision (b).
Documents, materials, or other information filed in the possession or control of the NAIC or a third-party consultant designated by the commissioner pursuant to this subdivision shall be confidential by law and privileged, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action.
The group capital calculation and resulting group capital ratio required pursuant to subdivision (n) of Section 1215.4 and the liquidity stress test, along with its results and supporting disclosures, required pursuant to subdivision (p) of Section 1215.4 are regulatory tools for assessing group risks and capital adequacy and group liquidity risks, respectively, and are not intended as a means to rank insurers or insurance holding company systems generally.
Except as otherwise required by this article, an insurer, broker, or other person engaged in the insurance business shall not make, publish, disseminate, circulate, or place before the public, or directly or indirectly cause to be made, published, disseminated, circulated, or placed before the public in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, over a radio or television station or any electronic means of communication available to the public, or in any other way as an advertisement, announcement, or statement containing a representation or statement with regard to the group capital calculation, group capital ratio, liquidity stress test results, supporting disclosures for the liquidity stress test of an insurer or an insurer group, or of any component derived in the calculation.
If a materially false statement regarding an insurer’s or insurer group’s group capital calculation, resulting group capital ratio, liquidity stress test result, or supporting disclosures for the liquidity stress test, or an inappropriate comparison of any amount to an insurer’s or insurance group’s group capital calculation, resulting group capital ratio, liquidity stress test result, or liquidity stress test supporting disclosures, is published in a written publication and the insurer is able to demonstrate to the commissioner with substantial proof the falsity or inappropriateness of the statement, then the insurer, notwithstanding paragraph (2), may publish announcements in a written publication if the sole purpose of the announcement is to rebut the materially false statement.
The commissioner may, upon notice and opportunity for all interested persons to be heard, issue such rules, regulations, and orders as shall be necessary to carry out the provisions of this article.
Whenever it appears to the commissioner that any insurer or any director, officer, employee, or agent thereof has committed or is about to commit a violation of this article or of any rule, regulation, or order issued by the commissioner hereunder, the commissioner may apply to the superior court for the county in which the principal office of the insurer is located, or if such insurer has no such office in this state, then to the Superior Court for the County of Los Angeles, or for the City and County of San Francisco, for an order enjoining such insurer or such director, officer, employee, or agent thereof from violating or continuing to violate this article or any such rule, regulation, or order, and for such other equitable relief as the nature of the case and the interests of the insurer’s policyholders, creditors, and shareholders or the public may require.
No security which is the subject of any agreement or arrangement regarding acquisition, or which is acquired or to be acquired in contravention of the provisions of this article or of any rule, regulation, or order issued by the commissioner hereunder, may be voted at any shareholders’ meeting, or may be counted for quorum purposes, and any action of shareholders requiring the vote of an affirmative percentage of shares may be taken as though such securities were not issued and outstanding. If an insurer or the commissioner has reason to believe that any security of the insurer has been or is about to be acquired in contravention of the provisions of this article or of any rule, regulation, or order issued by the commissioner hereunder, the insurer or the commissioner may apply to the Superior Court for the County of Los Angeles or for the City and County of San Francisco or to the superior court for the county in which the insurer has its principal place of business for equitable relief to enjoin the voting of any such security or to void any vote of such security already cast, at any meeting of shareholders.
Any insurer that fails to file a statement, report, or request for approval required by this article in a timely manner shall be subject to the late filing fees set forth in Section 924.
Every director or officer of an insurance holding company system who knowingly violates, participates in, or assents to, or who knowingly permits any of the officers or agents of the insurer to engage in transactions or make investments which have not been properly reported or submitted pursuant to Sections 1215.4 and 1215.5, or which violate this article, shall pay, in their individual capacity, a civil forfeiture of not more than fifty thousand dollars ($50,000) per violation, after notice and hearing before the commissioner. In determining the amount of the civil forfeiture, the commissioner shall take into account the appropriateness of the forfeiture with respect to the gravity of the violation, the history of previous violations, and any other matters as justice may require.
Whenever it appears to the commissioner that any insurer subject to this article or any director, officer, employee, or agent thereof has engaged in any transaction or entered into a contract which is subject to Section 1215.5 and which would not have been approved had approval been requested, the commissioner may order the insurer to cease and desist immediately any further activity under that transaction or contract. After notice and hearing the commissioner may also order the insurer to void any contracts and restore the status quo if this action is in the best interest of the policyholders, creditors, or the public.
Whenever it appears to the commissioner that any insurer or any director, officer, employee, or agent thereof has committed a willful violation of this article, the commissioner may cause criminal proceedings to be instituted in the county in which the principal office of the insurer is located, or if such insurer has no such office in the state then by the Attorney General against such insurer or the responsible director, officer, employee, or agent thereof. Any insurer which willfully violates this article shall be fined not more than ten thousand dollars ($10,000). Any individual who willfully violates this article shall be fined not more than three thousand dollars ($3,000) or, if such willful violation involves the deliberate perpetration of a fraud upon the commissioner, imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or both.
Whenever it appears to the commissioner that any person has committed a violation of Section 1215.4 that prevents the full understanding of the enterprise risk to the insurer by affiliates or by the insurance holding company system, the violation may serve as an independent basis for disapproving dividends or distributions or for placing the insurer under an order of supervision in accordance with Article 14 (commencing with Section 1010) of Chapter 1.
Any officer, director, or employee of an insurance holding company system who willfully and knowingly subscribes to or makes or causes to be made any materially false statements, reports, or filings with the intent to deceive the commissioner in the performance of his or her duties under this article, upon conviction thereof, shall be fined not more than three thousand dollars ($3,000) or, if the willful violation of this subdivision involves the deliberate perpetration of a fraud upon the commissioner, imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or both that imprisonment and fine. Any fines imposed shall be paid by the officer, director, or employee in his or her individual capacity.
Whenever it appears to the commissioner that any person has committed a violation of this article which so impairs the financial condition of a domestic insurer as to threaten insolvency or make the further transaction of business by it hazardous to its policyholders, creditors, shareholders, or the public, then the commissioner may proceed as provided in Article 14 (commencing with Section 1010) of Chapter 1 of this part to take possession of the property of the domestic insurer and to conduct the business thereof.
Whenever it appears to the commissioner that any person has committed a violation of this article which makes the continued operation of an insurer contrary to the interests of policyholders or the public, the commissioner may, after giving notice and an opportunity to be heard, suspend, revoke, or refuse to renew that insurer’s license or authority to do business in this state for the period that he or she finds is required for the protection of policyholders or the public.
For the purposes of this article only, every foreign insurer, except an insurer described in Article 2 (commencing with Section 12350) of Chapter 1 of Part 6 of Division 2, that is authorized to do business in this state and that, during its three preceding fiscal years taken together, or during any lesser period of time if it has been licensed to transact its business in California only for such lesser period of time, has written an average of more direct premiums in the State of California than it has written in its state of domicile during the same period, and those direct premiums written constitute 33 percent or more of its total direct premiums written everywhere in the United States for that three-year or lesser period, as reported in its three most recent annual statements, shall be deemed a “commercially domiciled insurer” within the State of California.
The commissioner may exempt from the provisions of this article any commercially domiciled insurer made subject to this article by subdivision (a) if he or she determines that it has a sufficiently large amount of assets and the evidences of title thereto physically located in California, or that the ratio of those assets to its California policyholder liability is sufficiently large, as to justify the conclusion that there is no reasonable danger that the operations or conduct of the business of the insurer could present a danger of loss to California policyholders. The commissioner may also exempt from the provisions of this article any commercially domiciled insurer made subject to this article by subdivision (a) under the circumstances that he or she deems appropriate.
This section does not exempt any foreign insurer that is authorized to do business in this state, including a commercially domiciled insurer, from the provisions of any other sections of this article that may be applicable to the insurer.
The provisions of this article shall not apply to any party or entity participating in any investment by a home protection company in its subsidiary or affiliate or any debt or security instruments thereof, an effectuation or attempt to effectuate an acquisition of control or a liquidation of, or merger with, a home protection company, or any material transaction by a home protection company with its affiliate if the investment, effectuation, attempt, or transaction occurred prior to December 31, 1978.
The registration required by Section 1215.4 shall first be applicable to home protection companies who are members of an insurance holding company system on January 1, 1980.
All laws and parts of laws of this state inconsistent with this article are hereby superseded with respect to matters covered by this article.
If any provision of this article or the application thereof to any person or circumstance is held invalid, the invalidity shall not affect other provisions or applications of this article which can be given effect without the invalid provision or application, and for this purpose the provisions of this article are severable.
If an order for liquidation or rehabilitation of a domestic insurer has been entered, the receiver appointed under that order shall have a right to recover on behalf of the insurer (1) from any parent corporation or holding company or person or affiliate who otherwise controlled the insurer, the amount of distributions other than distributions of shares of the same class of stock paid by the insurer on its capital stock, or (2) any payment in the form of a bonus, termination settlement, or extraordinary lump sum salary adjustment made by the insurer or its subsidiary to a director, officer, or employee, where the distribution or payment pursuant to (1) or (2) is made at any time during the one year preceding the petition for liquidation, conservation, or rehabilitation, as the case may be, subject to the limitations of subdivisions (b), (c), and (d).
No distribution shall be recoverable if the parent or affiliate shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.
Any person who was a parent corporation or holding company or a person who otherwise controlled the insurer or affiliate at the time the distributions were paid shall be liable up to the amount of distributions or payments under subdivision (a) that the person received. Any person who otherwise controlled the insurer at the time the distributions were declared shall be liable up to the amount of distributions he or she would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they shall be jointly and severally liable.
The maximum amount recoverable under this section shall be the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay the contractual obligations of the impaired or insolvent insurer and to reimburse any guaranty funds.
To the extent that any person liable under subdivision (c) is insolvent or otherwise fails to pay claims due from it pursuant to that subdivision, its parent corporation or holding company or person who otherwise controlled it at the time the distribution was paid, shall be jointly and severally liable for any resulting deficiency in the amount recovered from the parent corporation or holding company or person who otherwise controlled it.
ARTICLE 4.8. Business Transacted with Producer Controlled Insurer [1216. - 1216.6.]
This article may be cited as the Business Transacted with Producer Controlled Insurer Act.
As used in this article, the following terms have the following meanings:
“Accredited state” means a state in which the insurance department or regulatory agency having jurisdiction over the business of insurance has qualified as meeting the minimum financial regulatory standards promulgated and established from time to time by the National Association of Insurance Commissioners’ (NAIC) Financial Regulation Standards and Accreditation Program.
“Control” or “controlled” has the meaning ascribed in Section 1215.
“Controlled insurer” means an admitted insurer which is controlled, directly or indirectly, by a producer.
“Controlling producer” means a producer who, directly or indirectly, controls an insurer.
“Admitted insurer” or “insurer” means any person, firm, association, or corporation admitted to transact any property or casualty insurance business in this state. The following are not insurers for the purposes of this article:
All residual market pools and joint underwriting authorities or associations.
All captive insurers, other than risk retention groups as defined in the federal Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C. Sec. 9671), the federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901 et seq.), and the California Risk Retention Act of 1991 (Chapter 1.5 (commencing with Section 125) of Part 1). For the purposes of this article, captive insurers are either insurance companies which are owned by another organization and whose exclusive purpose is to insure risks of the parent organization and affiliated companies, or in the case of groups and associations, insurance organizations which are owned by the insureds and whose exclusive purpose is to insure risks of member organizations and group or association members and their affiliates.
“Producer” means a fire and casualty licensee or licensees or any other person, firm, association, or corporation, when, for any compensation, commission, or other thing of value, the person, firm, association, or corporation acts or aids in any manner in soliciting, negotiating, or procuring the making of any insurance contract on behalf of an insured other than the person, firm, association, or corporation.
This article shall apply to insurers as defined in subdivision (e) of Section 1216.1, either domiciled in this state or domiciled in a state that is not an accredited state which has in effect a substantially similar law. All provisions of Article 4.7 (commencing with Section 1215) of Chapter 2 of Part 2 of Division 1, to the extent that this article does not confer greater authority upon the commissioner or impose more restrictive requirements upon any person, shall continue to apply to all parties within insurance holding company systems which are subject both to Article 4.7 and to this article.
The provisions of this section shall apply if, in any calendar year, the aggregate amount of gross written premium of business placed with a controlled insurer by a controlling producer is equal to or greater than 5 percent of the admitted assets of the controlled insurer, as reported in the controlled insurers’ quarterly statement filed as of September 30 of the prior year.
Notwithstanding paragraph (1) of subdivision (a), the provisions of this section shall not apply if:
The controlling producer both (i) places insurance only with the controlled insurer, or only with the controlled insurer and a member or members of the controlled insurer’s holding company system, or the controlled insurer’s parent, affiliate, or subsidiary and receives no compensation based upon the amount of premiums written in connection with that insurance; and (ii) accepts insurance placements only from nonaffiliated subproducers, and not directly from insureds.
The controlled insurer, except for insurance business written through a residual market facility such as the California Automobile Assigned Risk Plan, accepts insurance business only from a controlling producer, a producer controlled by the controlled insurer, or a producer that is a subsidiary of the controlled insurer.
A controlled insurer shall not accept business from a controlling producer and a controlling producer shall not place business with a controlled insurer unless there is a written contract between the controlling producer and the insurer specifying the responsibilities of each party, and the contract has been approved by the board of directors of the insurer and contains the following minimum provisions:
The controlled insurer may terminate the contract for cause upon written notice to the controlling producer. The controlled insurer shall suspend the authority of the controlling producer to write business during the pendency of any dispute regarding the cause for the termination.
The controlling producer shall render accounts to the controlled insurer detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the controlling producer.
The controlling producer shall remit all funds due under the terms of the contract to the controlled insurer on at least a monthly basis. The due date shall be fixed so that premiums or installments of premiums collected shall be remitted no later than 90 days after the effective date of any policy placed with the controlled insurer under this contract.
All funds collected for the controlled insurer’s account shall be held by the controlling producer in a fiduciary capacity, in one or more appropriately identified bank accounts in banks that are members of the Federal Reserve System, in accordance with the provisions of the insurance law as applicable. However, funds of a controlling producer not required to be licensed in this state shall be maintained in compliance with the requirements of the controlling producer’s domiciliary jurisdiction.
The controlling producer shall maintain separately identifiable records of business written for the controlled insurer.
The contract shall not be assigned in whole or in part by the controlling producer.
The controlled insurer shall provide the controlling producer with its underwriting standards, rules and procedures, manuals setting forth the rates to be charged, and the conditions for the acceptance or rejection of risks. The controlling producer shall adhere to the standards, rules, procedures, rates, and conditions. The standards, rules, procedures, rates, and conditions shall be the same as those applicable to comparable business placed with the controlled insurer by a producer other than the controlling producer.
The rates and terms of the controlling producer’s commissions, charges or other fees, and the purposes for those charges or fees. The rates of the commissions, charges, and other fees shall be no greater than those applicable to comparable business placed with the controlled insurer by producers other than controlling producers. For purposes of this paragraph and paragraph (7), examples of “comparable business” includes the same lines of insurance, same kinds of insurance, same kinds of risks, similar policy limits, and similar quality of business.
If the contract provides that the controlling producer, on insurance business placed with the insurer, is to be compensated contingent upon the insurer’s profits on that business, then this compensation shall not be determined and paid until at least five years after the premiums on liability insurance are earned and at least one year after the premiums are earned on any other insurance. In no event shall the commissions be paid until the adequacy of the controlled insurer’s reserves on remaining claims has been independently verified pursuant to paragraph (1) of subdivision (d).
A limit on the controlling producer’s writings in relation to the controlled insurer’s surplus and total writings. The insurer may establish a different limit for each line or subline of business. The controlled insurer shall notify the controlling producer when the applicable limit is approached and shall not accept business from the controlling producer if the limit is reached. The controlling producer shall not place business with the controlled insurer if it has been notified by the controlled insurer that the limit has been reached.
The controlling producer may negotiate but shall not bind reinsurance on behalf of the controlled insurer on business the controlling producer places with the controlled insurer, except that the controlling producer may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the controlled insurer contains underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which those automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured and commission schedules.
Every controlled insurer shall have an audit committee of the board of directors composed of independent directors. The audit committee shall annually meet with management, the insurer’s independent certified public accountants, and an independent casualty actuary, or other independent loss reserve specialist acceptable to the commissioner, to review the adequacy of the insurer’s loss reserves.
The controlling producer shall, prior to the effective date of the policy, deliver written notice to the prospective insured disclosing the relationship between the producer and the controlled insurer; except that, if the business is placed through a subproducer who is not a controlling producer, the controlling producer shall retain in its records a signed commitment from the subproducer that the subproducer is aware of the relationship between the insurer and the producer and that the subproducer has or will notify the insured of the relationship between the controlling producer and the controlled insurer.
If the commissioner believes that the controlling producer or any other person has not materially complied with this article, or any regulation or order issued or promulgated pursuant to this article, and after notice and an opportunity to be heard, the commissioner may order the controlling producer to cease placing business with the controlled insurer.
If the commissioner finds that because of any material noncompliance that the controlled insurer or any policyholder thereof has suffered any loss or damage, the commissioner may bring a civil action or intervene in an action brought by or on behalf of the insurer or policyholder for recovery of compensatory damages for the benefit of the insurer or policyholder or other appropriate relief.
Nothing in paragraph (1) shall be construed to limit any authority granted to the commissioner by any other provision of law to issue orders or take actions prior to the holding of a hearing.
If an order for liquidation or rehabilitation of the controlled insurer has been entered pursuant to Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1, and the receiver appointed under that order believes that the controlling producer or any other person has not materially complied with this article, or any regulation or order issued or promulgated pursuant to this article, and the insurer suffered any loss or damage therefrom, the receiver may maintain a civil action for recovery of damages or other appropriate sanctions for the benefit of the insurer.
Nothing contained in this section shall affect the right of the commissioner to impose any other penalties authorized by any other provision of law.
Nothing contained in this section is intended to or shall in any manner limit or diminish the rights of policyholders, claimants, creditors, or other third parties.
ARTICLE 5. Life Insurance Policies [1220. - 1221.]
Domestic incorporated life insurers may also invest any funds in loans upon any of their own policies in an amount not exceeding the reserve against such policy at the time the loan is made, but policy loans shall not be deposited with the commissioner under Article 2, Chapter 5, Part 2, Division 2.
The amount thus loaned by an insurer upon its own policies shall be credited to the insurer in determining the amount of deposit required to comply with the provisions of Article 2, Chapter 5, Part 2, Division 2. Such loans shall be deducted from the net value of the registered policies.
ARTICLE 5.5. Life Insurance Policy Loans [1230. - 1239.5.]
The Legislature declares that the purpose of this article is to establish guidelines for life insurers to use in life insurance policies which contain a provision for periodic adjustment of policy loan interest rates and are issued after the effective date of this article.
It is the intent of the Legislature that the life insurance industry make available to the people of the State of California who purchase new life insurance policies after the effective date of this act the benefits of higher dividends or lower premiums, or both, resulting from the increased earnings through the use of higher policy loan interest rates.
For the purposes of this article the “published monthly average” means:
Moody’s Corporate Bond Yield Average-Monthly Average Corporates as published by Moody’s Investors Service, Inc. or any successor thereto.
In the event that Moody’s Corporate Bond Yield Average-Monthly Average Corporates is no longer published, a substantially similar average, established by the Legislature.
Policies issued on or after the effective date of this article shall provide for policy loan interest rates at either of the following rates:
A provision permitting a maximum interest rate of not more than 8 percent per annum.
A provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law.
The rate of interest charged on a policy loan made under paragraph (2) of subdivision (a) shall not exceed the higher of the following:
The published monthly average for the calendar month ending two months before the date on which the rate is determined.
The rate used to compute the cash surrender values under the policy during the applicable period plus 1 percent per annum.
Any insurer offering insurance policies with an adjustable policy loan interest rate shall establish a written pricing or dividend policy in order that the holders of the policies shall receive a benefit from any earnings of the insurer resulting from the use of the adjustable rate, either by means of higher dividends or lower premiums or a combination of both.
If the maximum rate of interest is determined pursuant to paragraph (2) of subdivision (a) of Section 1232, the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy.
The maximum rate for each policy shall be determined at regular intervals at least once every 12 months, but not more frequently than once in any three-month period.
At the intervals specified in the policy:
The rate being charged may be increased whenever the increase as determined under subdivision (b) of Section 1232 would increase that rate by one-half of 1 percent or more per annum.
The rate being charged shall be reduced whenever the reduction as determined under subdivision (b) of Section 1232 would decrease that rate by one-half of 1 percent or more per annum.
The life insurer shall do all of the following:
Notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan.
Notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan. Notice need not be given to the policyholder when a further premium loan is added, except as provided in paragraph (3).
Send to policyholders with loans reasonable advance notice of any increase in the rate.
The loan value of the policy shall be equivalent to the cash surrender value of the policy, the minimum requirements of which are specified in Sections 10160 through 10165 for life insurance and in Section 11043, for fraternal benefit society policies or certificates, but no policy shall terminate in a policy year as the sole result of change in the interest rate during that policy year. The life insurer shall maintain coverage during that policy year until the time at which it would otherwise have terminated if there had been no change during that policy year.
For the purposes of this section:
The rate of interest on policy loans permitted under this section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy.
“Policy loan” includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they fell due.
“Policyholder” includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer.
“Policy” includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans.
No other provision of law shall apply to policy loan interest rates unless made specifically applicable to these rates.
The provisions of this article shall not apply to any insurance contract issued before the effective date of this article unless the policyholder agrees in writing to the applicability of these provisions.
ARTICLE 6. Foreign Investments [1240. - 1242.]
The following definitions shall apply in this article:
“Foreign currency” means a currency other than that of the United States.
“Foreign investment” means an investment in a foreign jurisdiction, or an investment in a person, real estate, or asset domiciled in a foreign jurisdiction, that is substantially of the same kind, class, and investment grade as those eligible for investment under this code, other than under Section 1210 or 1241. An investment shall not be a foreign investment if the issuing person, qualified primary credit source, or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless both of the following apply:
The issuing person is a shell business entity.
The investment is not assumed, accepted, guaranteed, or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.
For purposes of subdivision (b), the following definitions apply:
“Qualified primary credit source” means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.
“Foreign jurisdiction” means a jurisdiction other than the United States or any of its political subdivisions.
Subject to the limitation in Section 1242, and except for those foreign investments permitted under Section 1192.95, a domestic insurer may acquire foreign investments of substantially the same type as those that an insurer is permitted to acquire pursuant to this code, if, as a result of the acquisition and after giving effect to the investment, both of the following apply:
The aggregate amount of foreign investments then held by the insurer does not exceed:
Twenty percent of admitted assets, for an insurer with admitted assets equal to or in excess of five hundred million dollars ($500,000,000).
Five percent of admitted assets, for an insurer with admitted assets less than five hundred million dollars ($500,000,000).
The aggregate amount of foreign investments then held by the insurer in a single foreign jurisdiction does not exceed:
Ten percent of admitted assets, for any foreign jurisdiction that has a sovereign debt rating of SVO 1.
Three percent of admitted assets, for any foreign jurisdiction that has a sovereign debt rating lower than SVO 1.
Subject to the limitations of Section 1242, an insurer may acquire investments denominated in foreign currencies, whether or not they are foreign investments acquired under subdivision (a) of this section, or additional foreign currency exposure as a result of the termination or expiration of a hedging transaction as defined in Section 1211 with respect to investments denominated in a foreign currency, if the following requirements are met:
The aggregate amount of investments then held by an insurer under this subdivision denominated in foreign currencies does not exceed:
Ten percent of admitted assets, for an insurer described in subparagraph (A) of paragraph (1) of subdivision (a).
Three percent of admitted assets, for an insurer described in subparagraph (B) of paragraph (1) of subdivision (a).
The aggregate amount of investments then held by an insurer under this subdivision denominated in the foreign currency of a single foreign jurisdiction does not exceed:
Ten percent of admitted assets, for an insurer described in subparagraph (A) of paragraph (1) of subdivision (a) for a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3 percent of admitted assets as to any other foreign jurisdiction.
Three percent of admitted assets, for an insurer described in subparagraph (B) of paragraph (1) of subdivision (a).
An investment shall not be considered denominated in a foreign currency if the acquiring insurer enters into one or more contracts in transactions permitted under Section 1211 and the business entity counterparty agrees under the contract or contracts to exchange all payments made on the foreign currency denominated investment for United States currency at a rate that effectively insulates the investment cashflows against future changes in currency exchange rates during the period the contract or contracts are in effect.
In addition to investments permitted under subdivisions (a) and (b), a domestic insurer that is authorized to do business in a foreign jurisdiction, and that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in the foreign currency of that jurisdiction may acquire foreign investments respecting that jurisdiction, subject to the limitations of Section 1242. However, investments made under this subdivision in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises shall not be subject to the limitations of Section 1242 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer shall not exceed the greater of the following:
In addition to investments permitted under subdivisions (a) and (b), an insurer that is not authorized to do business in a foreign jurisdiction, but that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in the foreign currency of that jurisdiction may acquire foreign investments respecting that jurisdiction, and may acquire investments denominated in the currency of that jurisdiction subject to the limitations of Section 1242. However, investments made under this subdivision in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises shall not be subject to the limitations of Section 1242 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer shall not exceed 105 percent of the amount of the insurer’s reserves, net of reinsurance and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.
Nothing in this section shall in any way restrict or limit Canadian investments otherwise permitted by this code. Canadian investments acquired under other sections of this code shall not be considered foreign investments for purposes of the limitations set forth in this section.
Investments made pursuant to Section 1192.9 in investment companies shall be governed by this article to the extent specified in Section 1192.9.
No domestic insurer shall acquire any investment respecting a foreign jurisdiction, or any investment denominated in the currency of that foreign jurisdiction, if that jurisdiction is designated as a state sponsor of terrorism by the United States Secretary of State pursuant to Section 6(j) of the Export Administration Act, Section 40 of the Arms Export Control Act, and Section 620A of the Foreign Assistance Act.
If any investment made pursuant to Section 1241 later becomes prohibited by this section, that investment shall not be retained as an investment made pursuant to this code.
The Legislature finds and declares all of the following:
The federal Securities and Exchange Commission has determined that business activities in foreign states sponsoring terrorism, such as Iran, that are subject to sanctions by the United States may materially harm the share value of foreign companies. Shares in these foreign companies may be held in the portfolio of insurance companies issuing policies to California consumers.
Publicly traded companies in the United States are substantially restricted in doing business in or with foreign states, such as Iran, that the United States Department of State has identified as sponsoring terrorism.
Identifying companies with business activities in foreign states, such as Iran, that sponsor terrorism and ensuring that those investments are financially sound is an important public policy priority.
It is the government of Iran, and not the people of Iran, that is responsible for Iran’s support of terrorism and that commits egregious violations of human rights under which its own citizens are required to live.
As used in this section, the following definitions shall apply:
“Business operations” means maintaining, selling, or leasing equipment, facilities, personnel, or any other apparatus of business or commerce in Iran, including the ownership or possession of real or personal property located in Iran.
“Company” means a sole proprietorship, organization, association, corporation, partnership, venture, or other entity, its subsidiary or affiliate that exists for profitmaking purposes or to otherwise secure economic advantage. “Company” also means a company owned or controlled, either directly or indirectly, by the government of Iran, that is established or organized under the laws of or has its principal place of business in the Islamic Republic of Iran.
“Government of Iran” means the government of Iran or its instrumentalities or political subdivisions. “Government of Iran” also means an individual, company, or public agency located in Iran that provides material or financial support to the Islamic Republic of Iran.
“Invest” or “investment” means the purchase, ownership, or control of stock of a company, association, or corporation, the capital stock of a mutual water company or corporation, bonds issued by the government or a political subdivision of Iran, corporate bonds or other debt instruments issued by a company, or the commitment of funds or other assets to a company, including a loan or extension of credit to that company.
“Iran” means the Islamic Republic of Iran or a territory under the administration or control of Iran.
The insurer shall provide the department, on an annual basis, a list of investments the insurer has in companies included on the Department of General Services list described in subdivision (c), including, but not limited to, the issuer, by name, of the stock, bonds, securities, and other evidence of indebtedness.
If the insurer sells or transfers all of its investments in companies included on the Department of General Services list described in subdivision (c), this section shall not apply to that insurer.
This section shall cease to be operative if both of the following apply:
Iran is removed from the United States Department of State’s list of countries that have been determined to repeatedly provide support for acts of international terrorism.
Pursuant to the appropriate federal statute, the President of the United States determines and certifies to the appropriate committee of the Congress of the United States that Iran has ceased its efforts to design, develop, manufacture, or acquire a nuclear explosive device or related materials and technology.
The provisions of this section are severable. If any provision of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
Except as otherwise specified in Section 1241, a domestic insurer shall not acquire directly or indirectly through an investment subsidiary, an investment under Section 1241 if, as a result of and after giving effect to the investment, the insurer would hold more than 3 percent of its admitted assets in investments of all kinds issued, assumed, accepted, insured, or guaranteed by a single person, or 5 percent of its admitted assets in investments in the voting securities of a depository institution or any company that controls the institution.
The 3 percent limitation in paragraph (1) shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.
A domestic insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under Section 1241 if, as a result of and after giving effect to the investment, the insurer’s aggregate medium and lower grade investments do not comply with the limitations of Section 1196.1.
ARTICLE 7. Valuation of Investments [1250. - 1254.]
When any domestic incorporated insurer has, pursuant to the laws of this State, invested any of its funds in purchases of, or loans upon, the stock or obligations of a corporation or of a nation, state, or political or municipal division of a state, if the commissioner has reason to believe that such stock or obligations are not amply secured or are not yielding an income, he may direct the insurer to report to him under oath the amount of the stock or obligation, the security therefor and its market value.
A stock, bond or other evidence of debt if in default as to principal or interest, or if not amply secured, shall not be valued as an asset of the insurer above its market value.
All bonds or other evidences of debt held by an admitted incorporated insurer if amply secured and if not in default as to principal or interest may, in the discretion of the commissioner, be valued as follows:
If purchased at par, at the par value.
If purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield the effective rate of interest on the price at which the purchase was made.
In such valuation, the purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase.
The commissioner shall have full discretion in determining the method of calculating values according to the foregoing rule, the values found by him in accordance with such method being final and binding.
Any such insurer may report such bonds or other evidence of debt at market value or book value, but in no event at an aggregate value exceeding the aggregate of the values calculated according to the rule prescribed by section 1252.
Any asset of an insurer which is found by the commissioner to be insolvent or threatened with insolvency shall be reduced in value, if necessary, to reflect its proper value.
Where the asset is subject to an offset or lien which the commissioner has reasonable grounds to believe is about to be exercised or enforced, the commissioner may require that the asset and the liability which gives rise to the offset or lien be reduced proportionately.
The commissioner shall grant a hearing to establish the value of an asset upon written demand of the insurer.
ARTICLE 8. Reinsurance Transactions [1260. - 1260.]
Incorporated insurers or reciprocal insurers who are members of what is commonly known as a “group” or “fleet” may enter into reinsurance transactions between members of the same “group” or “fleet” unless otherwise specifically prohibited by law.
CHAPTER 3. Reciprocal Insurers [1280. - 1560.19.]
ARTICLE 1. General Provisions [1280. - 1284.]
This chapter shall not in any way affect the rights, duties, or obligations of members of or subscribers at any reciprocal or interinsurance exchange which has been adjudged insolvent and ordered to be liquidated prior to the date this code takes effect. All such rights, duties, or obligations shall be governed by the law applicable thereto prior to such date.
This chapter and the other provisions of this code shall not apply to nor affect unincorporated interindemnity or reciprocal or interinsurance contracts between members of, or persons marketing their products through, nonprofit cooperative marketing associations organized and operating under Chapter 4 (commencing with Section 11701) of Division 6 of the Food and Agricultural Code which indemnify solely in respect to losses to those members or persons from damage to, or destruction of, crops in process of handling or marketing, or facilities at a fixed location for processing, handling or marketing the crops, and which do not collect in advance of loss moneys other than for necessary expense of administration.
This chapter and the other provisions of this code, except as set forth in this paragraph, shall not apply to or affect unincorporated interindemnity or reciprocal or interinsurance contracts between members of a cooperative corporation, organized and operating under Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, whose members consist solely of physicians and surgeons licensed in California, which contracts indemnify solely in respect to medical malpractice claims against those members, and which do not collect in advance of loss any moneys other than contributions by each member to a collective reserve trust fund or for necessary expenses of administration. However, interindemnity, reciprocal, or interinsurance contracts with respect to the following types of claims, in addition to medical malpractice claims, may be entered into in conjunction with contracts with respect to medical malpractice claims if the reserve trust fund is at least twenty million dollars ($20,000,000):
Bodily injury or property damage arising out of the conduct and of the operations of the member’s professional practice occurring on the member’s premises.
Officers’, directors’, and administrators’ liability, to the extent that the member’s professional practice is operated as a professional corporation or group.
Nonowned automobile coverage.
The provisions of Chapter 3 (commencing with Section 330) of Part 1 of Division 1 shall apply to unincorporated interindemnity or reciprocal or interinsurance contracts. Those unincorporated interindemnity or reciprocal or interinsurance contracts shall comply with all of the following requirements:
Each participating member shall enter into and, concurrently therewith, receive an executed copy of a trust agreement, which shall govern the collection and disposition of all funds of the interindemnity arrangement.
The trust agreement shall, at a minimum, contain provision for all the following matters:
An initial trust corpus of not less than ten million dollars ($10,000,000), which corpus shall be a trust fund to secure enforcement of the interindemnity arrangement. The average contribution to the initial trust corpus shall be not less than twenty thousand dollars ($20,000) per member participating in the interindemnity arrangement. The average contribution to the trust fund shall continue at all times to be not less than twenty thousand dollars ($20,000) per participating member unless the interindemnity arrangement is qualified to admit members under the terms of subdivision (k). No such interindemnity arrangement shall become operative until the requisite minimum reserve trust fund has been established by contributions from not fewer than 500 participating members.
The reserve trust fund created by the trust agreement shall be administered by a board of trustees of three or more members, all of whom shall be physicians and surgeons licensed in California, participating members in the interindemnity arrangement, and elected biennially or more frequently by at least a majority of all members participating in the interindemnity arrangement.
The members of the board of trustees are fiduciaries and the board shall be the custodian of all funds of the interindemnity arrangement, and all those funds shall be deposited in the bank or banks and savings and loan associations in California as the board may designate. Each account shall require two or more signatories for withdrawal of funds in excess of ten thousand dollars ($10,000). The authorized signatories shall be appointed by the board and, as to any withdrawal in excess of one hundred thousand dollars ($100,000), at least one of the two or more authorized signatories shall be a physician and surgeon licensed in California and a participating member in the interindemnity arrangement. Each signatory on those accounts shall maintain, at all times while empowered to draw on those funds, for the benefit of the interindemnity arrangement, a bond against loss suffered through embezzlement, mysterious disappearance, holdup or burglary, or other loss issued by a bonding company licensed to do business in California in a penal sum of not less than one hundred thousand dollars ($100,000).
All funds held in trust that are in excess of current financial needs shall be invested and reinvested from time to time, under the direction of the board of trustees, in eligible securities, as defined in Section 16430 of the Government Code, in portfolios of eligible securities, in exchange traded financial futures contracts or exchange traded options contracts to hedge investment in those eligible securities, or in certificates of deposits or time deposits issued by banks and savings and loan associations in California duly insured by instrumentalities of the United States government.
Pursuant to the authority contained in Section 1 of Article XV of the California Constitution, the restrictions upon rates of interest contained in Section 1 of Article XV of the California Constitution shall not apply to any obligations of, loans made by, or forbearances of, any trust established by a cooperative corporation providing indemnity pursuant to this section.
The income earned on the corpus of the trust fund shall be the source for the payment of the claims, costs, judgments, settlements, and costs of administration contemplated by the interindemnity arrangement, and to the extent the income is insufficient for those purposes, the board of trustees shall have the power and authority to assess participating members for all amounts necessary to meet the obligations of the interindemnity arrangement in accordance with the terms thereof. If necessary in the best interests of the interindemnity arrangement, the board of trustees may make assessments to increase the corpus of the trust fund in accordance with the terms of the interindemnity arrangement. Any assessment levied against a member shall be the personal obligation of the member. Any person who obtains a final judgment of recovery for medical malpractice or other liability authorized by this section against a member of the interindemnity arrangement shall have, in addition to any other remedy, the right to assert directly all rights to indemnification that the judgment debtor has under the interindemnity arrangement. The final judgment shall be a lien on the reserve trust fund to secure payment of the judgment, limited to the extent of the judgment debtor’s rights to indemnification.
Any change in the assessment agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by ballot, a ballot shall be sent to each member by first-class mail, postage prepaid, or by electronic transmission. Within 45 days after the posted date on the ballot, each member who decides to vote on the assessment change shall return their mail or electronic ballot to the interindemnity arrangement for the tallying of the ballots. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the assessment agreement.
If a change in the assessment agreement is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed assessment change by first-class mail, postage prepaid, or by electronic transmission at least 45 days prior to the meeting. Seventy-five percent of those present in person or by proxy at the meeting shall be required to effectuate any change in the assessment agreement.
Each participating member shall be covered by the interindemnity arrangement for not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section, with the terms and conditions of the coverage to be specified in the trust agreement, except that the interindemnity arrangement may provide participating members with an aggregate limit for all payments on behalf of the member and may provide participating members with less than one million dollars ($1,000,000) of coverage for each occurrence of professional negligence or other liability authorized by this section if the interindemnity arrangement obtains for the benefit of the members reinsurance of excess limits coverage in an amount that when added to the coverage provided by the interindemnity arrangement would equal not less than one million dollars ($1,000,000) for each occurrence of professional negligence or other liability authorized by this section.
Any change in the coverage provided by the trust agreement between the interindemnity arrangement and its membership shall be submitted to the entire membership for ratification. If the ratification process is to be performed by ballot, a ballot shall be sent to each member by first-class mail, postage prepaid, or by electronic transmission. Within 45 days after the posted date on the ballot, each member who decides to vote on the coverage change shall return their mail or electronic ballot to the interindemnity arrangement for the tallying of the ballot. An affirmative vote of 75 percent of those voting shall be required to effectuate any change in the coverage provided by the trust agreement, except that at least 50 percent of the entire membership must agree to any change.
If any change is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and the proposed coverage change by first-class mail, postage prepaid, or by electronic transmission at least 45 days prior to the meeting. An affirmative vote of 75 percent of the membership present at the meeting, in person or by proxy, shall be required to effectuate any change, except that at least 50 percent of the entire membership must agree to any change.
Withdrawal of all, or any portion of, the corpus of the reserve trust fund shall be upon the written authorization signed by at least two-thirds of the members of the board of trustees.
The board of trustees shall cause both of the following to be furnished to each member participating in the interindemnity arrangement by first-class mail, postage prepaid, or by electronic transmission, and to be filed with the Commissioner of Financial Protection and Innovation:
Within 90 days after the end of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of that year, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for that year, in each case accompanied by a certificate signed by a firm of independent certified public accountants selected by the board of trustees indicating that the firm has conducted an audit of those statements in accordance with generally accepted auditing standards and indicating the results of the audit.
Within 45 days after the end of each of the first three quarterly periods of each fiscal year, a statement of the assets and liabilities of the interindemnity arrangement as of the end of the quarterly period, a statement of the revenue and expenditures of the interindemnity arrangement, and a statement of the changes in corpus of the reserve trust for the period, in each case accompanied by a certificate signed by a majority of the members of the board of trustees to the effect that the statements were prepared from the official books and records of the interindemnity arrangement.
In addition to the statements required to be filed pursuant to this paragraph, the board of trustees shall annually file with the Commissioner of Financial Protection and Innovation an authorization for disclosure to the commissioner of all financial records pertaining to the interindemnity arrangement. For the purpose of this subparagraph, the authorization for disclosure shall also include the financial records of any association, partnership, or corporation that has management or control of the funds or the operation of the interindemnity arrangement.
The trust agreement shall also provide for all the following:
In the event a participating member who is in full compliance with the trust agreement, including the payment of all outstanding dues and assessments, dies, the initial contribution made by the decedent shall be returned to the member’s estate or designated beneficiary; the indemnity coverage shall continue for the benefit of the decedent’s estate in respect of occurrences during the time the decedent was a participating member; and neither the person receiving the repayment of the initial contribution nor the decedent’s estate shall be responsible for any assessments levied following the death of the member.
A participating member who is then in full compliance with the trust agreement and who has reached the age of 65 years and who has retired completely from the practice of medicine may elect to retire from the interindemnity arrangement, in which case the member shall not be responsible for assessments levied following the date notice of retirement is given to the trust. Following that retirement, the indemnity coverage shall continue for the benefit of the member in respect of occurrences prior to the time the member retired from the interindemnity arrangement. That retired member’s initial contribution shall be repaid 10 years from the date the notice of retirement is received by the trust, or an earlier date as specified in the trust agreement. The board of trustees may reduce the age for retirement to not less than 55 years subject to all other requirements in this paragraph and any additional requirements deemed necessary by the board.
During any period in which a participating member, who is then in full compliance with the trust agreement, has, in the judgment of the board of trustees, become unable to perform any and every duty of their regular professional occupation, the participating member may request disability status in accordance with the terms of the interindemnity arrangement. During any period of disability status, the member shall not be responsible for assessments levied during the period and, if so provided in the interindemnity arrangement, all indemnity coverage, both as to defense and payment of claims, shall terminate as to occurrences arising out of the actions of the participating member during the period of disability status.
In the event a participating member fails to pay any assessment when due, the board of trustees may terminate that person’s membership status if the failure to pay is not cured within 30 days from the date the assessment was due. Upon that termination the former participating member shall not be entitled to the return of all or any part of their initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against that person and in respect to all occurrences prior to the date of that termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following that termination.
In the event a participating member fails to comply with any provision of the trust agreement (other than a failure to pay assessments when due), the board of trustees may terminate that person’s membership status if the failure to comply is not cured within 60 days from the date the person is notified of the failure, provided that before that membership status may be terminated the person shall be given the right to call for a hearing before the board of trustees (to be held before the expiration of the 60-day period), at which hearing the person shall be given the opportunity to demonstrate to the board of trustees that no failure to comply has occurred or, if it has occurred, that it has been cured. Upon that termination, the former participating member shall not be entitled to the return of all or any part of their initial contribution, and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to that person, the interindemnity arrangement shall continue to provide those services for a period of 10 days following the termination.
A participating member who is then in full compliance with the trust agreement may elect voluntarily to terminate their membership in the interindemnity arrangement. Upon that voluntary termination, that person may further elect to cease being responsible for future assessments, or to continue to pay those assessments until the time as the person’s initial contribution is repaid. In the event the person elects to cease being responsible for future assessments, the indemnity coverage shall thereupon terminate and the person shall either be responsible for their own exposure for acts committed while a participating member in the interindemnity arrangement, or they may request the interindemnity arrangement to purchase or provide, at the cost of the person, coverage for that exposure. The initial contribution of the person shall be repaid on the 10th anniversary of the date the contribution was made. In the event the person elects to continue to be responsible for assessments, the indemnity coverage shall continue in respect of occurrences prior to the date of the voluntary termination, and the initial contribution of the person shall be repaid at the time as the board of trustees is satisfied that (i) there are no claims pending against the person in respect of occurrences during the time the person was a participating member, and (ii) the statute of limitations has run on all claims that might be asserted against that person in respect of occurrences during that time. In no event shall that repayment be made earlier than the 10th anniversary of the date the contribution was made.
Any person whose membership in an interindemnity arrangement is involuntarily terminated for failure to pay assessments or who voluntarily terminates that membership and elects to be responsible for their own exposure for acts committed while a participating member, shall not be eligible to become a member of any other interindemnity arrangement for a period of five years after the termination unless, on the effective date of the act which amended this section during the 1985–86 Regular Session, the person had on file with the Department of Financial Protection and Innovation a copy of a subscription agreement signifying the person’s agreement to transfer membership or had paid a minimum of ten thousand dollars ($10,000) to another interindemnity arrangement that was granted a permit to organize prior to January 1, 1985.
The board of trustees shall have the right to terminate the membership of a participating member if the board of trustees determines that the termination is in the best interests of the interindemnity arrangement even though that person has complied with all of the provisions of the trust agreement. A termination may be effected only if at least two-thirds of the members of the board of trustees indicate in writing their decision to terminate. If the board of trustees proposes to terminate a member, the member shall have the right to call a special meeting of all participating members in accordance with the rules established by the board of trustees for the purpose of voting on whether or not the member shall be terminated. The member shall not be terminated if at least two-thirds of the participating members present, in person or by proxy, indicate that the member should not be terminated. In the event a member is terminated, the person shall elect either: (i) to request the return of their initial contribution, in which case the contribution shall be repaid and the indemnity coverage shall thereupon terminate as to all claims then pending against the person and in respect to all occurrences prior to the date of the termination of membership. However, in the event the interindemnity arrangement is then providing legal defense services to the person, the interindemnity arrangement shall continue to provide those services for a period of 30 days to enable the person to assume their own defense; or (ii) to release all rights to the return of the initial contribution, in which case the indemnity coverage shall continue for the benefit of the member in respect of occurrences during the time the person was a participating member and the person shall have no responsibility for assessments levied following that termination. The interindemnity arrangement may provide that if a member is terminated and fails to make the election set forth herein within 45 days of the date of notification of termination of membership, the participating member shall be deemed to have elected to release all rights to a return of their initial contribution, in which case indemnity coverage shall apply for the benefit of the member with respect to occurrences occurring prior to the termination.
Each member participating in the interindemnity arrangement shall have the right of access to, and the inspection of, the books and records of the interindemnity arrangement, which rights shall be similar to the corporate shareholders pursuant to Section 3003 of the Corporations Code, or, commencing January 1, 1977, Sections 1600 to 1605, inclusive, of the Corporations Code.
There shall be a meeting of all members participating in the interindemnity arrangement, at least annually, after not less than 10 days’ written notice has been given, at a location reasonably convenient to the participating members and on a date that is within a reasonable period of time following the distribution of the annual financial statements.
Notwithstanding Sections 12453 and 12703 of the Corporations Code, on any matter to be voted upon by the membership at either a regular or special meeting, a member shall have the right to vote in person or by written proxy filed with the corporate secretary prior to the meeting. No proxy shall be made irrevocable, nor be valid beyond the earliest of the following dates:
The date of expiration set forth in the proxy.
The date of termination of membership.
Eleven months from the date of execution of the proxy.
Such time as may be specified in the bylaws, not to exceed 11 months.
The interindemnity arrangement, and the reserve trust fund incident thereto, shall be subject to termination at any time by the vote or written consent of not less than three-fourths of the participating members.
The board of trustees shall cause to be recorded with the office of the county recorder of the county of the principal place of business of the interindemnity arrangement within 90 days following the end of each fiscal year, a written statement, executed by a majority of the board of trustees under penalty of perjury, reciting that each member participating in the interindemnity arrangement was mailed a copy of the annual financial statement and quarterly audit certificates by first-class mail, postage prepaid, required pursuant to paragraph (8) of subdivision (a).
Each person solicited to become a participating member in an interindemnity arrangement shall receive in writing, at least 48 hours prior to the execution by the prospective participating member of the trust agreement, and at least 48 hours prior to the payment by the prospective participating member of any consideration in connection with the interindemnity arrangement, the following information:
The amount, nature, and terms and conditions of the professional negligence or other liability relating to a member’s professional practice coverage available under the interindemnity arrangement.
The amount of the initial contribution required of each participating member and a statement of the minimum number of members and aggregate contributions required for the interindemnity arrangement to commence.
The names, addresses, and professional experience of each member of the board of trustees.
The requirements for admission as a participating member.
A statement of the services to be provided under the interindemnity arrangement to each participating member.
A statement regarding the obligation of each member to pay assessments and the consequences for failure to do so.
A statement of the rights and obligations of a participating member in the event the member dies, retires, becomes disabled, or terminates participation for any reason, or the interindemnity arrangement terminates for any reason.
A statement regarding the services to be provided, indicating whether these services will be delegated to others pursuant to a contractual arrangement. For those services delegated to others pursuant to a contractual arrangement, a statement fully disclosing and itemizing all consideration received directly or indirectly under the arrangement, and indicating what the consideration is for, and how, when, and to whom the consideration will be paid.
A statement of the voting rights of the members and the circumstances under which participation of a member may be terminated and under which the interindemnity arrangement may be terminated.
If any statement of estimated or projected financial information for the interindemnity arrangement is used, a statement of the estimation or projection and a summary of the data and assumptions upon which it is based.
No officer, director, trustee, employee, or member of the interindemnity arrangement or the cooperative corporation shall receive, or be entitled to receive, any payment, bonus, salary, income, compensation, or other benefit whatsoever, either from the reserve trust fund or the income therefrom or from any other funds of the interindemnity arrangement or the members thereof based on the number of participating members, or the amount of the reserve trust fund or other funds of the interindemnity arrangement.
A peer review committee or committees shall be established by the trust agreement to review the qualifications of any physician and surgeon to participate or continue to participate in the interindemnity arrangement, and to review the quality of medical services rendered by any participating member, as well as the validity of medical malpractice claims made against participating members. Any physician and surgeon, prior to becoming a participating member of the interindemnity arrangement, shall be reviewed and approved by a majority of the members of the peer review committee. No peer review committee, or any of its members, shall be liable for any action taken by the committee in reviewing the qualifications of a physician and surgeon to participate or continue to participate, or the quality of medical services rendered, or the validity of a medical malpractice claim, unless it is alleged and proved that the action was taken with actual malice.
The following are hereby defined as unfair methods of competition and deceptive acts or practices with respect to cooperative corporations or interindemnity arrangements provided for in this section:
Making any false or misleading statement as to, or issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, or statement misrepresenting the terms of any interindemnity arrangement or the benefits or advantages promised thereby, or making any misleading representation or any misrepresentation as to the financial condition of the interindemnity arrangement, or making any misrepresentation to any participating member for the purpose of inducing or tending to induce the member to lapse, forfeit, or surrender their rights to indemnification under the interindemnity arrangement. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes “insurance” or an “insurance company” or an “insurance policy.”
Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to those cooperative corporations or interindemnity arrangements, or with respect to any person in the conduct of those cooperative corporations or interindemnity arrangements, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading. It shall be a false or misleading statement to state or represent that a cooperative corporation or interindemnity arrangement is or constitutes “insurance” or an “insurance company” or an “insurance policy.”
Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in or tending to result in an unreasonable restraint of, or monopoly in, those cooperative corporations or interindemnity arrangements.
Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, or delivered to any person, or placed before the public any false statement of financial condition of a cooperative corporation or interindemnity arrangement with intent to deceive.
Making any false entry in any book, report, or statement of a cooperative corporation or interindemnity arrangement with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into any of its affairs, or any public official to whom a cooperative corporation or interindemnity arrangement is required by law to report, or who has authority by law to examine into its condition or into any of its affairs, or, with like intent, willfully omitting to make a true entry of any material fact pertaining to a cooperative corporation or interindemnity arrangement in any book, report, or statement of a cooperative corporation or interindemnity arrangement.
Making or disseminating, or causing to be made or disseminated, before the public in this state, in any newspaper or other publication, or any other advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, whether directly or by implication, any statement that a cooperative corporation or interindemnity arrangement is a member of the California Insurance Guarantee Association, or insured against insolvency as defined in Section 119.5. This paragraph shall not be interpreted to prohibit any activity of the California Insurance Guarantee Association or of the commissioner authorized, directly or by implication, by Article 14.2 (commencing with Section 1063) of Chapter 1.
Knowingly committing or performing with a frequency as to indicate a general business practice any of the following unfair claims settlement practices:
Misrepresenting to claimants pertinent facts or provisions relating to any coverage at issue.
Failing to acknowledge and act promptly upon communications with respect to claims arising under those interindemnity arrangements.
Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under those interindemnity arrangements.
Failing to affirm or deny coverage of claims within a reasonable time after proof of claim requirements have been completed and submitted by the participating member.
Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
Compelling participating members to institute litigation to recover amounts due under an interindemnity arrangement by offering substantially less than the amounts ultimately recovered in actions brought by those participating members when those participating members have made claims under those interindemnity arrangements for amounts reasonably similar to the amounts ultimately recovered.
Attempting to settle a claim by a participating member for less than the amount to which a reasonable person would have believed they were entitled by reference to written or printed advertising material accompanying or made part of an application for membership in an interindemnity arrangement.
Attempting to settle claims on the basis of an interindemnity arrangement that was altered without notice to the participating member.
Failing, after payment of a claim, to inform participating members, upon request by them, of the coverage under which payment has been made.
Making known to claimants a practice of the cooperative corporation or interindemnity arrangement of appealing from arbitration awards in favor of claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
Delaying the investigation or payment of claims by requiring a claimant, or their physician, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
Failing to settle claims promptly, where liability has become apparent, under one portion of an interindemnity arrangement in order to influence settlements under other portions of the interindemnity arrangement.
Failing to provide promptly a reasonable explanation of the basis relied on in the interindemnity arrangement, in relation to the facts of applicable law, for the denial of a claim or for the offer of a compromise settlement.
Directly advising a claimant not to obtain the services of an attorney.
Misleading a claimant as to the applicable statute of limitations.
Notwithstanding any contrary provisions of Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code, it shall not be necessary to hold a meeting of members of the cooperative corporation for the purpose of electing directors if the bylaws provide the election may be held by first-class mail balloting or balloting by electronic transmission. First-class mail balloting or balloting by electronic transmission may also be used in conjunction with a meeting at which directors are to be elected and all mail and electronic ballots shall count toward establishing a quorum for the meeting for the limited purpose of the issues set forth in the mail and electronic ballot. Directors shall be elected as follows:
The candidates receiving the highest number of votes, up to the number of directors to be elected, by a specified date at least 45 days but not later than 60 days after the ballots are first mailed, postage prepaid, to the members (or the date of a meeting of members held in conjunction therewith) shall be elected.
In the event that no candidate receives a majority of the votes cast for a vacant office, a runoff election shall be held between the two candidates receiving the highest number of votes cast. The runoff election shall be held at least 45 days but not more than 60 days after the ballots for the election are mailed, postage prepaid. In the event that there is more than one office for which no candidate receives a majority of the votes cast, the candidates for the runoff shall be twice the number of vacant offices, and shall be those persons who received the highest number of votes therefor.
A record of the mail and electronic ballots shall be kept on file for a period of three months after all vacant board positions have been filled, and shall be subject to inspection at any reasonable time by any members of the cooperative corporation.
No officer, director, trustee, or member of the interindemnity arrangement or the cooperative corporation, or any entity in which that person has a material financial interest, shall enter into or renew any transaction or contract with the trust unless the material facts as to the transaction or contract and as to the interest of the person are fully disclosed to the participating members, and the transaction or contract is approved by an affirmative vote of at least 75 percent of the membership present at a meeting, in person or by proxy. If any transaction or contract is to be submitted to members at a properly called meeting, the membership shall be notified of the meeting and of the transaction or contract by first-class mail, postage prepaid, or by electronic transmission at least 45 days prior to the meeting.
Services provided to the trust pursuant to a delegated contractual arrangement shall be embodied in a written contract. Each written contract shall provide for reasonable consideration to the parties. In addition, each written contract shall be disclosed annually to participating members in a disclosure report containing the information described in subparagraph (H) of paragraph (3) of subdivision (d). The disclosure report shall be sent to participating members by first-class mail, postage prepaid, or by electronic transmission, and shall be sent separately from any statements, records, or other documents. The disclosure requirements of this subdivision shall apply to all existing and future written contracts.
Upon request of the Commissioner of Financial Protection and Innovation, an interindemnity arrangement shall immediately forward to the commissioner a current list of participating members, including the names, addresses, and telephone numbers of those members.
Notwithstanding any provision to the contrary, whenever the membership of a cooperative organization, organized pursuant to Part 2 (commencing with Section 12200) of Division 3 of Title 1 of the Corporations Code and consisting solely of physicians and surgeons licensed in this state amounts to 2,000 or more members and the trust fund is at least forty million dollars ($40,000,000), which is available to the public for malpractice claims or other claims authorized by this section, the cooperative is authorized to admit members without a contribution to that trust fund if assessments are charged to each of those members within the first 50 months in an amount equal to the amount of the contribution to the reserve fund that would otherwise be required.
Reciprocal or interinsurance contracts, the exchange thereof, the subscribers, attorneys in fact, agents, and representatives, and all matters incident to or concerned with such contracts and relationship, shall be subject to and regulated by all of the provisions of this code, whether or not such provisions specifically refer to reciprocals or interinsurance exchanges, except as otherwise exempted in this chapter.
When any provision of this code, other than in this chapter, is made applicable to reciprocal insurers, such provision shall be construed in accordance with the fundamental nature of a reciprocal insurer. In the event of any direct conflicts between such other law and the provisions of this chapter, the latter shall prevail. Such other law may, however, be used to supplement or explain the provisions of this chapter.
The following provisions of this code shall not be applicable to reciprocal or interinsurance exchanges and their contracts, subscribers, attorneys in fact, agents, and representatives, unless such provisions are referred to and specifically made applicable or incorporated by reference by other portions of this code, and, in such event, such provisions shall be applicable only to the extent required by such reference or incorporation:
Section 760.5;
Sections 984, 986, and 987 of Article 13 (commencing with Section 980) of Chapter 1, Part 2, Division 1, relating to insolvency;
Section 1140;
Section 1140.5, except with respect to incorporated attorneys in fact;
Section 1152;
Article 2.5 (commencing with Section 1160.1) of Chapter 2, Part 2, Division 1, relating to life insurer investments in housing projects;
Section 1194.8;
Article 5 (commencing with Section 1220) of Chapter 2, Part 2, Division 1, relating to investments in loans on life insurance policies;
Article 2 (commencing with Section 1580) of Chapter 4, Part 2, Division 1, relating to alien insurers;
Article 3 (commencing with Section 1600) of Chapter 4, Part 2, Division 1, relating to agent for service of process;
Article 16 (commencing with Section 1758.1) of Chapter 5, Part 2, Division 1, relating to variable contract agents;
Chapter 6 (commencing with Section 1760) of Part 2, Division 1, relating to surplus line brokers;
Chapter 8 (commencing with Section 1831) of Part 2, Division 1, relating to life insurance analysts;
Articles 1 (commencing with Section 3010) and 2 (commencing with Section 3030) of Chapter 3, Part 1, Division 2, relating to incorporated fire and marine insurers;
Chapter 4 (commencing with Section 4010) of Part 1, Division 2, relating to general mutual insurers;
Chapter 5 (commencing with Section 5050) of Part 1, Division 2, relating to county mutual fire insurers;
Chapter 6 (commencing with Section 7080) of Part 1, Division 2, relating to county mutual fire reinsurers;
Chapter 7 (commencing with Section 9080) of Part 1, Division 2, relating to fraternal fire insurers;
Chapter 2 (commencing with Section 10200) of Part 2, Division 2, relating to group life policies;
Chapter 2.5 (commencing with Section 10220) of Part 2, Division 2, relating to blanket life policies;
Chapter 3 (commencing with Section 10240) of Part 2, Division 2, relating to burial contracts;
Articles 1a (commencing with Section 10440), 2 (commencing with Section 10450), 3 (commencing with Section 10478), 3a (commencing with Section 10489.1), 4 (commencing with Section 10490), and 5 (commencing with Section 10506) of Chapter 5, Part 2, Division 2, relating to internal affairs of mutual insurers, registration and valuation of life policies, standard valuation law, exempt societies, pension funds and separate accounts;
Chapter 6 (commencing with Section 10510) of Part 2, Divison 2, relating to incorporated life insurers issuing policies on a reserve basis;
Chapter 10 (commencing with Section 10970) of Part 2, Division 2, relating to fraternal benefit societies;
Chapter 10A (commencing with Section 11400) of Part 2, Division 2, relating to firemen’s, policemen’s, or peace officers’ benefit and relief associations;
Chapter 11 (commencing with Section 11420) of Part 2, Division 2, relating to change by assessment plan life insurers to reserve plan;
Chapter 11A (commencing with Section 11491) of Part 2, Division 2, relating to nonprofit hospital service plans;
Chapter 12 (commencing with Section 11520) of Part 2, Division 2, relating to grants and annuities societies;
Chapter 13 (commencing with Section 11525) of Part 2, Division 2, relating to voluntary mutualization of certain incorporated insurers;
Article 3 (commencing with Section 11600), of Chapter 1, Part 3, Division 2, relating to capital requirements of incorporated insurers;
Chapter 4 (commencing with Section 11770) of Part 3, Division 2, relating to the State Compensation Insurance Fund;
Part 5 (commencing with Section 12140) of Division 2, relating to motor clubs;
The provisions of Part 7, Division 2 of the Revenue and Taxation Code shall be applicable to reciprocal or interinsurance exchanges.
Notwithstanding any other provision of this chapter or of this code, any reciprocal or interinsurance exchange which meets all of the conditions of this section shall be exempted from all reserve requirements of this code to which it would otherwise be subject:
The subscribers are comprised of a local hospital district formed pursuant to Division 23 (commencing with Section 32000) of the Health and Safety Code and the individual participating members of its attending medical staff, or any hospital (as defined in Section 1250 of the Health and Safety Code) and the individual participating members of its attending medical staff. As used in this section, “attending medical staff” refers to licensed physicians and surgeons, podiatrists, and dentists who have hospital privileges at any hospital and not to interns or residents who are employees of such hospital.
The physicians and surgeons on the attending medical staff are independent contractors, whether individually, through professional corporations, or through partnership or clinic arrangements, and the creation of the reciprocal or interinsurance exchange will not affect the prerogatives of such physicians and surgeons in accepting patients, charging fees, or similar issues in the management of a medical practice. This subdivision shall not be construed to limit the authority of a peer review committee to impose such restrictions on the staff privileges of a participating member of the attending medical staff as deemed warranted by the peer review procedure and medical audit methods provided by subdivision (h).
The initial capitalization for the reciprocal or interinsurance exchange specified in subdivisions (d), (e), and (f) shall be equivalent to the total professional and comprehensive general patient liability losses paid by the hospital and its participating medical staff members during the 10 calendar years immediately preceding the year in which the application for the organizational permit is filed. For the medical staff, “total professional and comprehensive general patient liability losses” shall include all losses paid by the participating medical staff members, whether based on their practice in the hospital or outside the hospital. Such combined total shall be funded or secured by equal contributions from the hospital and, collectively, the individual participating members of its attending medical staff. Such funds shall be used to pay for the losses incurred for awards, settlements, and legal fees relating to alleged acts of medical malpractice committed by the hospital or any or all of its participating medical staff members, whether committed in or out of the hospital, and for the operational costs of the reciprocal or interinsurance exchange. Upon determination of the aggregate paid professional and comprehensive general patient liability claims of the preceding 10 years by a survey, such paid claims shall be categorized as provided by subdivisions (d) and (e). In the case of a hospital which has been in existence for less than 10 years, or which has substantially expanded its facilities over the preceding 10 years, or which has paid for no professional liability losses during the preceding 10 years, the commissioner may establish such capitalization requirements as he deems necessary and proper as compared to the amounts specified in subdivisions (d) and (e).
A primary medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims of one hundred thousand dollars ($100,000) or less per each incident for both the hospital and the participating members of the attending medical staff as provided by subdivision (c).
A catastrophic medical liability risk fund shall be maintained in an amount at least equivalent to the aggregate dollar amount of paid incident claims in excess of one hundred thousand dollars ($100,000) per incident for both the hospital and the participating members of the attending medical staff as provided in subdivision (c). These funds shall be either (1) deposited as cash or secured by letters of credit, certificates of deposit or promissory notes, or (2) be obtained through an executed and delivered loan commitment with a duration of at least one year by a banking institution qualified to do business in California or other forms of credit or assets readily convertible to cash to meet liabilities of the reciprocal or interinsurance exchange organized pursuant to this section.
All funds or assets collected by a reciprocal or interinsurance exchange established under this section and maintained in a form as set forth in subdivisions (d) and (e) shall be admitted assets valued at face value and be held in accordance with Section 1370 of the Insurance Code, except that a credit commitment shall not be considered an admitted asset for the purpose of regulating investment of assets.
The reciprocal or interinsurance exchange may seek from a licensed insurer, or secure in accordance with Chapter 6 (commencing with Section 1760) of Part 2 of Division 1, excess risk coverage for amounts above the self-retention limit of subdivisions (c), (d), and (e). The hospital and the individual members of the attending medical staff shall have unlimited several liability pursuant to Section 1395 to contribute to any liability not covered by such excess risk coverage insurance. Such liability shall be based upon each subscriber’s share of the total liability of the reciprocal or interinsurance exchange as determined by a formula adopted by its board of directors. In the event that a subscriber fails to pay any portion of an assessment, then, without releasing the defaulting subscriber from any obligation to the reciprocal or interinsurance exchange, the remaining subscribers shall be charged with the unpaid assessment in accordance with the adopted formula.
The amounts specified in subdivisions (d), and (e) shall be available in the aggregate to meet the professional and comprehensive general patient liabilities of the hospital and the participating members of the attending medical staff, and shall be replenished annually, or more frequently, if necessary, to an amount equivalent to that specified in subdivision (c) or (q), whichever is greater. Such total shall be maintained by a ratio of contributions annually determined by the governing board of the reciprocal or interinsurance exchange as fair, just and reasonable between the hospital and the participating members of the attending medical staff. Assessments may be required as determined to be necessary by the governing board and shall be due within 60 days of notice thereof. Failure to pay such assessments when due shall constitute grounds for termination of policy benefits or coverage.
Any member of the attending medical staff participating in the program shall, as a condition of such participation, be subject to an extensive peer review procedure and a medical audit method of documenting the quality of medical care.
Any system of rating or assessing individual participating members of the attending medical staff on the basis of their respective risk exposure shall be fair, just and reasonable.
A promissory note, for the purposes of subdivision (e), shall be secured, and such security shall be perfected, by real or personal property having a market value one and one-half times the face value of the note.
“Hospital,” as used in this section, shall also include any two or more hospitals when either of the following conditions is met:
Where there is a medical staff subject to a unified medical audit and peer review procedure.
Any reciprocal or interinsurance exchange which meets all of the conditions of this section shall be exempt from the California Insurance Guarantee Association established pursuant to Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
For the purposes of Section 985, minimum capitalization shall be either the initial capitalization as provided in subdivision (c) or the minimum capitalization required by subdivision (q), whichever is greater.
In the event that the reciprocal or interinsurance exchange has reasonable cause to believe that its minimum capitalization may be impaired by current liabilities, including reported claims, it shall issue within 30 days to its subscribers notices of assessments in amounts sufficient to cure the impairment. Within 30 days of such notice the subscribers shall pay the assessment or present forms of indebtedness as provided by subdivision (e), except that with regard to a promissory note issued by a person or entity other than a banking institution qualified to do business in California, such note shall be secured by assets sufficient to assure payment of the debt should a default occur.
Any notice of assessment issued pursuant to this section shall be considered an admitted asset at face value and reported as such for the purpose of determining solvency under Section 985.
Minimum capitalization of a reciprocal or interinsurance exchange organized and conducted pursuant to this section shall be determined annually. For the first year following issuance of a certificate of authority, the minimum capitalization shall be that specified in subdivision (c). Each year thereafter, the reciprocal or interinsurance exchange shall conduct a new survey of its subscribers to reestablish their total professional and comprehensive patient liability loss history as provided by subdivision (r). If such recalculation of such history discloses total losses exceeding the existing minimum capitalization by 20 percent, the minimum capitalization shall be increased to the amount of such new loss history within six months. Nothing in this subdivision shall be construed to preclude the reciprocal or interinsurance exchange from capitalizing at a level exceeding the minimum capitalization required by this section.
The survey of subscribers which establishes total and comprehensive general patient loss liability history shall be annually recalculated to reflect the following:
All such losses paid by, or on behalf of, the hospital for the immediately preceding 10 years;
All such losses paid by, or on behalf of, participating individual members for the immediately preceding 10-calendar-year period during which they held staff privileges at the subscriber hospital; and
All such losses paid by, or on behalf of, participating individual members of the attending medical staff during any portion of the immediately preceding five-calendar-year period in which they were not members of the subscriber hospital staff.
ARTICLE 2. Organization of Exchange [1300. - 1315.]
Any persons may exchange reciprocal or interinsurance contracts with one another providing insurance, other than life, title, mortgage, mortgage guaranty, or insolvency insurance, among themselves against any loss which may be insured against under other provisions of law.
Such persons are termed subscribers.
Any domestic corporation, in addition to the rights, powers and franchises specified in its articles of incorporation, has full power and authority to enter into insurance contracts of the kind and character mentioned in this chapter. The right to enter into such contracts is incidental to the purposes for which such corporations are organized and as fully granted as the rights and powers expressly conferred.
The organization under which such subscribers so exchange contracts is termed a reciprocal or interinsurance exchange, and shall be deemed the insurer while each subscriber shall be deemed an insured.
Such contracts may be executed by an attorney-in-fact, agent or other representative duly authorized and acting for such subscribers under powers of attorney. Such authorized person is termed the attorney, and may be a corporation.
The principal office of the attorney shall be maintained at a place designated by the subscribers in the power of attorney.
The power of attorney and contracts made thereunder may:
Provide for the right of substitution of attorney and revocation of the contract or power.
Impose such restrictions upon the exercise of the power as are agreed upon by the subscribers.
Provide for and limit the maximum amount to be paid by subscribers, except that contracts of exchanges writing either liability or workers’ compensation insurance shall be subject to the provisions of Article 6 of this chapter.
Provide for the exercise of any right reserved to the subscribers directly or through a board or other body.
The body exercising the subscribers’ rights shall be selected under such rules as the subscribers adopt. It shall supervise the finances of the exchange and shall supervise its operations to such extent as to assure conformity with the subscriber’s agreement and power of attorney.
Such body shall have authority to procure the audit of the accounts and records of the exchange and of the attorney-in-fact, at the expense of the exchange.
Such body shall be composed of subscribers or agents of subscribers. Not more than one-third of the members serving on such body shall be agents, employees or shareholders of the attorney.
The board of a reciprocal or interinsurance exchange operating pursuant to Section 1284 shall be composed of members of the governing board of the hospital, the participating members of its attending medical staff, and health care consumers.
A reciprocal or interinsurance exchange may engage in the surety insurance business in this state only provided its surplus is at least twice the amount required as paid-in capital of an incorporated insurer writing the same classes of insurance by the provisions of Section 700.01. Paid-in capital as used in this section shall not include any of the surplus amounts required of incorporated insurers by the provisions of Sections 700.02, 700.03 and 700.05 of this code.
Any such reciprocal or interinsurance exchange shall be subject to such of the provisions of Chapter 1, except Sections 12050, 12051, and 12052, Part 4, Division 2, as can be made applicable to the nature of a reciprocal or interinsurance exchange.
Any reciprocal or interinsurance exchange, domestic or foreign, which has obtained a certificate of capability to reinsure or a favorable order under Section 1401.5 and whose subscribers by such order have no liability for assessment, may accept reinsurance of risks for all classes of insurance which it writes in California including the class in which such reinsurance is to be accepted.
Contracts accepting such reinsurance shall be entered into between the ceding insurer and the reinsuring reciprocal or interinsurance exchange by its attorney in fact. The ceding insurer need not become a member of or a subscriber to the reinsuring reciprocal or interinsurance exchange and such contracts of reinsurance may contain any or all of the terms and conditions customary in reinsurances of the classes of insurance covered.
Nothing in Chapter 504 of the Statutes of 1965 shall limit or affect the right of an admitted foreign reciprocal or interinsurance exchange to accept reinsurance.
Any reciprocal or interinsurance exchange, domestic or foreign, which has obtained a certificate of surplus under Section 1401, and whose subscribers by such order have no liability for assessment, may issue a policy of insurance required under Article 4 (commencing with Section 11620) of Chapter 1 of Part 3 of Division 2 of this code without requiring such insured to become a member of or a subscriber to such reciprocal or interinsurance exchange.
The attorney-in-fact, agent, or other representatives duly authorized and acting for the regular subscribers of such reciprocal or interinsurance exchange, shall have the same power and authority to act for any such person becoming an insured under Article 4 (commencing with Section 11620) of Chapter 1 of Part 3 of Division 2 of this code as authorized or required under any documents required to be filed with the commissioner under Article 3 (commencing with Section 1320) of Chapter 3 of Part 2 of Division 1 of this code.
A reciprocal exchange or interinsurance exchange may borrow money to defray the expenses of its organization, provide it with surplus funds, or for any purpose of its business, upon a written agreement that the money is required to be repaid only out of the exchange’s surplus in excess of that stipulated in the agreement. The agreement may provide for fixed or variable interest not exceeding an amount allowed by the commissioner, which interest shall or shall not constitute a liability of the exchange as to its funds other than the excess that is stipulated in the agreement. Any agreement of this type shall provide that all interest payments and principal repayments require prior approval by the commissioner. Unless otherwise approved by the commissioner, written agreements evidencing this borrowed money shall not be issued in units of less than ten thousand dollars ($10,000). Unless otherwise allowed by the commissioner, no commission or promotion expense shall be paid in connection with any loan of this type. An agreement to borrow money to provide surplus funds, or for any business purpose, may be termed a surplus note. No surplus note or other agreement may be issued unless it conforms to the requirements set forth at the time the note is issued in the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners for the reporting of agreements as surplus and not as debt in the financial statements required to be filed by an insurer with the commissioner. No permit or other agreement shall constitute authorization or approval for any other issuance of securities that is connected to the note or agreement in any way.
ARTICLE 3. Filing of Documents [1320. - 1330.]
The attorney of every admitted reciprocal or interinsurance exchange shall verify and cause to be filed with the commissioner copies of the following forms used by the exchange:
The form of every amendment to, revision of, or substitution for the power of attorney in use at the time of admission.
The form of each application for insurance and the form of each contract for exchange of indemnity which would have to be filed with or approved by the commissioner if such insurer were a capital stock insurer, including where applicable the rates to be used therewith.
Every amendment, revision or replacement of forms described in subdivision (b).
Such other specific forms of applications for insurance or specific contracts for exchange of indemnity as the commissioner may from time to time by written order require be filed.
The commissioner may disapprove of any form filed in accordance with this section if:
It be contrary to law, or
He finds it contains any material which is unintelligible, uncertain, unfair, ambiguous, or obtuse, or likely to mislead a person to whom the form is offered, delivered, or issued.
The procedure for such disapproval shall be that specified in Section 12957 for withdrawal of approval of previously approved forms of other insurers.
It shall be unlawful for such insurer to use any such form after such disapproval has become final.
If the name of the exchange does not contain either the words “interinsurance,” “reciprocal” or “exchange,” then such forms shall have printed under such name the words “an interinsurance exchange” in a prominent place on each of such forms.
The attorney prior to admission shall file with the commissioner a declaration verified by his oath or, where such attorney is a corporation, by the oath of its duly authorized officers. Such declaration shall set forth or have annexed thereto:
The name of the attorney and the name under which contracts are to be made.
The location of the principal office of the exchange.
The classes of insurance to be exchanged.
A copy of each form of policy under or by which insurance is to be exchanged.
A copy of the form of the power of attorney or agreement under and by which such insurance is to be exchanged.
A statement that executed contracts or bona fide applications, to be concurrently effective, have been made for the exchange of indemnities by at least 100 separate subscribers, except that such statement shall not be required for organizations operating pursuant to Section 1284.
In the case of employer’s liability or workmen’s compensation insurance, a statement that there have been executed contracts or bona fide applications, to be concurrently effective, representing annual payroll having a total of not less than one million dollars ($1,000,000).
A statement that there are in the possession of such attorney subject to the supervision of the advisory board, assets conforming to the requirements of Article 5 of this chapter.
A financial statement under oath in the form prescribed by the commissioner for the annual statement.
The instrument authorizing service of process as provided in this chapter.
A certificate showing any deposits of funds or securities.
Concurrently with the filing of the declaration provided for by the terms of section 1322 the attorney shall file with the commissioner an instrument in writing executed by him, providing that after the issuance of the certificate of authority actions against the exchange may be brought either in the county in which the person or property insured is located, or in which the exchange has its principal office or place of business in the State; and also providing that service of process may be had upon the attorney-in-fact or upon the commissioner in suits against the exchange.
Such bond shall be executed by the attorney with an admitted surety insurer as surety.
Such attorney may deposit with the commissioner, in lieu of the bond executed by him, securities of a value equal to the required amount of the bond and of the kinds set forth in sections 1170 and 1240. Such deposit shall be subject to the provisions of Article 11, Chapter 1, Part 2, Division 1, of this code. Such deposit shall be subject to levy of execution upon judgments against the attorney.
The attorney’s bond shall be in the penal sum of fifty thousand dollars ($50,000), conditioned that the attorney will faithfully account for all moneys and other property which come into his or her hands or are handled by him or her under the terms of the power of attorney and the rules of the exchange, and that the attorney will neither withdraw nor cause to be withdrawn nor appropriate for his or her own use, from the funds of the exchange, anything of value to which he or she is not entitled under the terms of the power of attorney and the rules.
The attorney’s bond may be sued upon in one and the same action either by any subscriber or any number of subscribers suffering loss through a violation of its conditions or by the receiver or trustee in liquidation of the exchange. Liability thereunder may be enforced by any one or more of such parties.
Any amount recovered on the attorney’s bond shall be deposited in and become a part of the funds of the exchange.
Where provision is made, by the power of attorney executed by the subscribers or the rules adopted by the exchange, for the bonding of the attorney-in-fact against fraud and dishonesty with a bond executed as prescribed in Section 1325 and conditioned as provided by this chapter and in a penal sum at least equal to the amount set forth in Section 1326, such bond may be filed with the commissioner in lieu of any other bond required by this chapter and shall be actionable in similar manner and for similar purposes as such other bond.
Where the home office of an exchange is located outside of this State and the attorney files such a bond in the home State, there may be filed with the commissioner, in lieu of such bond, either a certified copy or duplicate thereof or an affidavit from the insurance authority of the home State to the effect that such a bond has been filed with it.
ARTICLE 4. Certificate of Authority [1350. - 1350.5.]
The commissioner shall issue a certificate of authority to the attorney upon compliance with the requirements of this chapter, and the payment of the application fee prescribed by Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1. The certificate shall authorize the making, by the attorney, of contracts of insurance under this chapter. It shall also specify all of the following:
The classes of insurance to be effected.
The name of the attorney.
The location of the principal office.
The name under which the contracts of insurance are issued.
In the event of substitution of attorney or a change in any of the matters specified in the certificate of authority pursuant to Section 1350, the attorney shall apply to the commissioner for an amended certificate of authority.
ARTICLE 5. Finances [1370. - 1375.]
Every exchange shall maintain its required assets in any one, or more, or all of the following forms:
In cash or deposits in solvent banks.
Invested in securities of the kind designated for the investment of assets of incorporated insurers having a capital stock by the laws of the state where the principal office is located.
Invested in real property acquired by or for it to secure the payment of loans heretofore contracted or for moneys heretofore due, or purchased at sales upon deeds of trust or upon judgments obtained for the loans or debts, or conveyed to it in satisfaction of debts heretofore contracted in the course of its dealings. The real property may be acquired, held, and conveyed on behalf of the exchange in trust by the attorney, but shall be sold and disposed of within five years after acquisition of title thereto unless the time for any such sale or disposal is extended by the commissioner in writing.
Excess fund investments may be made in real estate and in making improvements thereon for business or residential purposes as an investment for the production of income. “Business or residential purposes” does not include real estate primarily intended for use or valued as agricultural, horticultural, farm, ranch, or mineral property. Any such investment may be made only by admitted exchanges having admitted assets aggregating in value not less than twenty-five million dollars ($25,000,000). Real estate acquired and improvements made thereon shall not exceed an amount equal to 5 percent of the admitted assets of the exchange. Any investment in a single parcel of real estate including improvements thereon made under the authority of this subdivision shall not be made in an amount in excess of 1 percent of the admitted assets of the exchange. The percentage or dollar value of assets as provided in this subdivision shall be determined by the exchange’s last preceding annual statement of conditions and affairs made as of the December 31 last preceding and which has been filed with the commissioner pursuant to law.
In addition to the investments authorized by subdivisions (a) to (d), inclusive, every exchange may purchase, hold, or reconvey real estate for any of the following purposes:
The building, and the land upon which that building stands, owned by it and in which is located its home office or principal office in this state by virtue of the occupancy thereof, in whole or in part, by its attorney-in-fact. The exchange may make any type of arrangement which is fair and reasonable for the occupation of the building, in whole or in part, by its attorney.
Real estate requisite for its accommodation in the convenient transaction of its business.
Subject to the limitations established under subdivisions (c), (d), and (e), every exchange in its own name as in the case of an individual, may purchase, receive, own, hold, lease, mortgage, pledge, or encumber, by deed of trust or otherwise, manage, and sell real estate for the purposes and objects of the exchange.
Except as in this article (commencing with Section 1370) otherwise provides, every exchange subject to this chapter (commencing with Section 1280) shall on and after October 1, 1961, be governed for all purposes as to required minimum surplus, (including that for admission, amendment of certificate of authority and solvency) by the same standards for minimum paid-in capital and surplus applicable to capital stock insurers. As used in this chapter surplus of an exchange is the amount by which its assets exceed a sum sufficient to discharge all its liabilities. When the standard prescribed for capital stock insurers consists of an amount of minimum paid-in capital the minimum surplus required of the exchange shall be such amount, and when the standard prescribed for capital stock insurers consists of an amount of minimum paid-in capital and an amount of surplus the minimum surplus required of the exchange shall be the aggregate of such amounts.
This section shall not affect the provisions of Section 1401.
An exchange admitted prior to October 1, 1961, shall be exempt from the provisions of Section 1370.2 until it replaces its attorney in fact, except when the replacement is in strict compliance with a contract between the exchange and its current attorney in fact entered into prior to October 1, 1961, or the effective legal control of its attorney in fact passes, by means other than by way of judicial process (including but not limited to: probate proceedings, bankruptcy proceedings or an action by a dissident minority interest to force a sale or partition of the attorney in fact) to persons none of whom had a proprietary interest therein on October 1, 1961, subject to the further provisions of this section and to the provisions of Section 1370.8.
While exempted from the provisions of Section 1370.2 as modified by Section 1370.8, such an exchange shall be subject to and comply with the surplus requirements provided in this chapter (commencing with Section 1280) immediately prior to October 1, 1961.
The exemption from Section 1370.2 provided by this section shall be progressively abolished so that on and after the dates specified in the left-hand column of the following table every exchange shall be required to maintain at least a minimum surplus equal to that percentage of the minimum paid-in capital required by this code of capital stock insurers transacting the same classes of insurance which is set forth in the right-hand column of the following table.
In a case where the provisions of Section 1370.8 become applicable any additional minimum surplus required by that section shall be in addition to any required under the provisions of this paragraph.
Any exchange exempted at any time from the provisions of Section 1370. 2 shall irrespective of such exemption be subject to the provisions of this section. No amended certificate of authority adding classes of insurance shall be issued to the attorney in fact of any such exchange on or after October 1, 1961, unless at the time of the amendment the exchange has a surplus equal in the aggregate to the sum of the surplus amount it was required to maintain by the provisions of this chapter (commencing with Section 1280) as the same were in effect immediately prior to October 1, 1961, plus the aggregate amount of additional minimum amount of capital and surplus which, at the time of such amendment, would be required of a capital stock insurer by the provisions of this code in order to add the same classes of insurance to its certificate of authority if it were authorized at the time of the amendment to transact the same classes of insurance as those which the attorney in fact of such reciprocal is authorized to transact.
If an exchange does either liability or workers’ compensation insurance, it shall at all times maintain assets in a sum sufficient to discharge all liabilities and to provide a surplus over all liabilities of one hundred thousand dollars ($100,000).
An exchange subject to the provisions of this section is also subject to the provisions of Sections 1370.2, 1370.4, and 1370.8.
Every other exchange shall maintain at all times assets in a sum sufficient to discharge all liabilities and to provide a surplus over all liabilities of fifty thousand dollars ($50,000).
An exchange subject to the provisions of this section is also subject to the provisions of Sections 1370.2, 1370.4, and 1370.8.
No certificate of authority, other than a renewal certificate of authority, shall be issued to the attorney within three years from and after the time when the exchange commences business as an insurer nor within three years from and after the time it is first organized unless assets equal to the sum of its liabilities and the minimum surplus required by this chapter are maintained in cash or one or more of the following:
Bonds specified in Section 1176, if such bonds are legal for investment of savings banks in this State;
Premiums in course of collection, or agents’ balances representing premiums, on policies effected not more than 90 days prior to the date on which such premiums or balances are valued for the purposes of this section, and earned service fees receivable, not over 90 days due, and evidences of debt representing such assets;
Interest accrued and dividends declared, receivable on any of the assets specified in subsections (a) to (d), inclusive, no part of which interest or dividends has been due in excess of one year;
Amount of reinsurance recoverable from admitted insurers.
Except as provided in subsection (b) hereof, an exchange, the attorney for which holds a certificate of authority, which has been in business as an insurer less than three years from and after the time when it commenced business as an insurer shall maintain its assets during the balance of such three-year period in the type of assets specified in Section 1373.1, excepting such of its assets as are in excess of the sum of its liabilities and the surplus required for issuance of a certificate of authority, other than a renewal certificate of authority. Upon its failure so to do the commissioner may revoke the certificate of authority. The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
This section shall not apply to an exchange, the attorney for which holds a certificate of authority on the effective date hereof, until January 1, 1954.
In estimating the financial condition of any exchange the commissioner shall observe the following rules:
He or she shall charge as liabilities the same reserves as are required of incorporated insurers issuing nonassessable policies on a reserve basis.
Surplus deposits of subscribers shall not be charged as a liability.
All premium deposits and surplus deposits of subscribers due and unpaid for a period not exceeding 90 days shall be allowed as admitted assets, as in the case of incorporated insurers issuing nonassessable policies on a reserve basis.
An assessment levied as provided in this chapter, and not collected shall in no event be allowed as an asset.
The computation of reserves shall be based upon premium deposits without any deduction for the compensation of the attorney.
“Surplus deposits of subscribers,” as used in this chapter, means amounts, over and above any premium charges, which are contributed by subscribers and which are used for the purpose of funding the surplus of a reciprocal or interinsurance exchange. No subscriber shall have a secured or preferred claim against any of the assets of the reciprocal or interinsurance exchange arising out of surplus deposits. All assets, including the surplus deposits, shall be held by the reciprocal or interinsurance exchange and made available for payment of claims of policyholders and creditors of the reciprocal or interinsurance exchange in preference to any claim for withdrawal by a subscriber. A subscriber may, upon withdrawal from membership and cancellation of all such insurance contracts held by the subscriber with the insurer, withdraw the amount of the subscriber’s surplus deposits, less such surrender charges as may be deducted pursuant to the subscriber’s or insured’s agreement, but only if the subscriber has given written notice to the attorney-in-fact at least 60 days in advance of the withdrawal.
Withdrawal of surplus deposits of subcribers shall not be permitted after an order of conservation or liquidation of, or the appointment of a conservator or liquidator for, any such reciprocal or interinsurance exchange.
Where the subscribers are grouped by industries or otherwise under any ruling or agreement which exempts the funds of one group from liability in whole or in part for the payment of losses or expenses chargeable against another group, each such independent group shall maintain the reserves and surplus required for a separate exchange and the requirements of subdivisions (f) and (g) of section 1322 relative to the number and amount of risks to be assumed must be observed as to each group.
ARTICLE 6. Assessment of Insurers [1390. - 1402.]
The provisions of this article shall apply only to exchanges writing liability, common carrier liability, or workers’ compensation insurance, except that any exchange may apply for and receive the certificate provided for by Section 1401.
Whenever an exchange subject to this article, is not possessed of admitted assets sufficient to discharge all liabilities and to maintain the required surplus, the attorney may make an assessment for the amount, subject to the limits provided by this article, needed to make up the deficiency. If the attorney fails to make the assessment within 30 days after the commissioner orders him to do so, the commissioner may make the assessment. If liquidation of such an exchange is ordered, the assessment may be levied for such an amount, subject to limits provided by this article, as the commissioner determines to be necessary to discharge all liabilities of the exchange, including the reasonable cost of liquidation.
Except as provided by Sections 1397, 1398, 1400 and 1401, every subscriber of an exchange subject to this article shall be liable to pay, and shall pay, his proportionate part of any such assessment, in accordance with law and his contract covering any such deficiency assessment (a) if he is notified by either the attorney or the commissioner of intention to levy such assessment within one year after the expiration or cancellation of his policy, or, (b) if an order appointing a conservator or liquidator of such exchange is entered, within one year after such expiration or cancellation.
The period to be covered by the assessment shall be the period of one year immediately preceding (a) the date of notification by either the attorney or the commissioner of the intention to levy such assessment, or, (b) the date of entry of an order appointing a conservator or liquidator of such exchange, as the case may require.
Each such subscriber’s share of the deficiency for which an assessment is made pursuant to this article, shall be determined by applying to the premium earned on the member’s policy or policies during the period to be covered by the assessment, the ratio of the total deficiency to the total premiums earned during such period, upon all policies subject to such assessment. For the purpose of this section, premium earned is to be calculated upon the basis of the amount of the consideration for which the policy is issued, without the deduction of attorney-in-fact fees, policy fees, or other charges, excepting charges which do not recur upon the renewal or extension of the policy.
Subscribers liable to assessment under this article shall pay the same without offsetting any claim for unearned premiums or losses payable to or for the account of the subscriber.
Assessments under this article shall be made upon the members liable to assessment therefor, in proportion to their several liabilities.
Notice of all such proposed assessments shall be filed with the commissioner and the assessments shall not take effect until approved by him after such investigation as he deems necessary.
Assessments under this article, whether levied by the attorney, or the commissioner in the liquidation of such an exchange or otherwise, shall be of no greater amount than specified in the power of attorney.
The power of attorney of an exchange subject to this article may limit the contingent liability of the subscriber for assessment, but such contingent liability shall not be less than an amount equal to and in addition to the amount of the premium deposit provided in the policy.
Each subscriber to an exchange subject to this article may maintain with the exchange, in addition to the premium deposit provided in the policy, a further deposit to be held as the surplus deposit of such subscriber.
Each such subscriber maintaining a surplus deposit equal to, and in addition to, the amount of the total current annual premium deposit provided in his policy, shall have no liability for assessment during the period such surplus deposit is so maintained.
If an exchange has a surplus of admitted assets over all liabilities in a sum equal to 112 times the minimum paid-in capital required of incorporated insurers issuing policies on a reserve basis and doing the same classes of insurance, then the Insurance Commissioner, upon written request, shall issue his certificate stating such fact. Subscribers at an exchange so certified shall have no liability for assessment on policies issued while such certificate remains in effect. Whenever the commissioner finds such fact does not exist, he shall revoke and require the surrender of his certificate. Upon revocation of such certificate no policy shall thereafter be issued nor be permitted to remain in force beyond the date fixed for the next payment of premium without written endorsement thereon providing for assessment liability in accordance with the terms of this chapter.
When the commissioner finds after a public hearing that a reciprocal or interinsurance exchange has at all times during any consecutive five-year period terminating on December 31, 1964, or on the last day of any subsequent calendar year, as shown by its annual statements, as filed or as adjusted by the commissioner, as the case may be, maintained a surplus of admitted assets over all liabilities of at least three million dollars ($3,000,000) the commissioner may make an order that the reciprocal or interinsurance exchange need not obtain the certificate provided in Section 1401 and that its subscribers shall thereafter in perpetuity have no liability for assessment on policies issued or renewed at any time after that order becomes final or may, if the reciprocal desires not to become nonassessable, issue a certificate of capability to reinsure. To request the order, the reciprocal or interinsurance exchange shall file a petition with the commissioner, on a form prescribed by the commissioner. The filing fee for the petition shall be five hundred sixty-seven dollars ($567). The commissioner shall give notice of the hearing in the insurance press and in any other ways as he or she deems advisable and to the extent he or she deems advisable. That order is subject to the provisions of Section 12940 and any person with sufficient relevant interest shall be authorized to bring any permitted action thereunder.
When the order of the commissioner becomes final any domestic reciprocal or interinsurance exchange obtaining that order shall no longer be subject to or entitled to the benefits of: subdivision (c) of Section 1307, subdivision (b) of Section 1374, and Article 6 (commencing with Section 1390) of this chapter.
At the time all reciprocal or interinsurance exchanges conducting insurance business in this state are by law governed for all purposes as to required minimum surplus (including that for admission, amendment of certificate of authority, and solvency) by the same standards for minimum paid-in capital and surplus as are then applicable to capital stock insurers, any domestic reciprocal or interinsurance exchange may obtain the order provided in subdivision (a), subject to the provisions in subdivision (a) by showing that it has maintained the minimum paid-in capital and surplus requirement applicable to capital stock insurers for at least five consecutive years in lieu of the three million dollars ($3,000,000) surplus prescribed in subdivision (a).
If the power of attorney or any policy of any domestic reciprocal or interinsurance exchange obtaining the order provided by subdivision (a) contains language directly or indirectly creating a liability for assessment, in respect to policies issued prior to or issued after the order becomes final that power of attorney and all those policies shall be deemed in law to have been amended to delete and repeal any and all of those assessment provisions as of the date that the order becomes final without any further action on the part of the reciprocal or interinsurance exchange, its subscribers, its attorney-in-fact, or the body exercising the subscriber’s rights.
All funds of such exchange and the proceeds of the contingent liability of its subscribers shall be available for the payment of any liability of the exchange.
ARTICLE 7. Dividends [1420. - 1420.]
Savings or credits may be returned to the subscribers irrespective of the source from which such savings or credits accrue whenever such returns do not constitute an impairment of the assets or reserves required to be maintained.
ARTICLE 8. Reports and Examination [1430. - 1434.]
The attorney shall make a report, under oath, to the commissioner covering each calendar year. Such report shall be made annually during the time limited for the filing of annual statements by insurers transacting the same class of insurance. It shall show the financial condition of the exchange.
The attorney shall at any time furnish such additional information and reports, other than names and addresses of subscribers, as the commissioner requires. The attorney shall not be required to furnish the names or addresses of any subscribers except in case of an unpaid final judgment against the exchange.
The assets, business affairs and records of every exchange and its attorney shall be subject to examination by the commissioner at any reasonable time. The cost and expense of such examination shall be paid as prescribed in Section 736.
The commissioner has:
The right of examination of and supervision over reciprocal or interinsurance exchanges, their attorneys, agents and brokers.
The right to hold and conduct hearings in the manner and under the same procedure as in the case of other insurers.
The commissioner’s right of examination shall include the right to examine the records containing the names and addresses of the subscribers. Any information obtained from such records shall be confidential and the disclosure thereof, except under order of court, constitutes a breach of official duty.
Where the principal office of the attorney is located in another State, the commissioner, in lieu of examination may accept a certified copy of the report of examination made by the insurance authority of another State.
ARTICLE 9. Suits [1450. - 1453.]
The exchange may sue or be sued in its own name as in the case of an individual. Any judgment rendered against the exchange shall be binding upon each subscriber only in such proportion as his interests may appear.
No action shall lie against any subscriber, upon any obligation made or incurred in the name of the exchange, until a final judgment has been obtained against the exchange and remains unsatisfied for thirty days.
Process may be served upon the commissioner as provided in Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.
A judgment rendered in any case where service of process has been made on the commissioner shall be binding against the subscribers as their interests appear.
ARTICLE 10. Policy [1470. - 1470.]
In any form of policy prescribed by this code, the attorney may insert provisions or conditions required by the plan of reciprocal or interinsurance if the plan is not inconsistent with, or in conflict with, any law of this State.
ARTICLE 12. Agents and Brokers [1500. - 1500.]
The provisions of this code regarding the appointment, licensing, qualification and regulation of insurance agents, brokers and solicitors, apply neither to the attorney-in-fact of a reciprocal or interinsurance exchange, nor to the salaried representatives of such exchange or attorney who receive no commissions, but do apply in the case of any agent, broker or solicitor of any reciprocal or interinsurance exchange who receives any commission.
ARTICLE 13. Penalties [1510. - 1512.]
Any attorney-in-fact or representative of such an attorney who exchanges, or solicits or negotiates the exchange of, any contracts of insurance of the kind and character specified in this chapter, except as provided in section 1511, without compliance by the attorney with the provisions of this chapter, is guilty of a misdemeanor.
For the purpose of organization, and upon issuance of permit by the commissioner, powers of attorney and applications for such policies may be solicited without compliance with the provisions of this chapter, but no attorney, agent or other person shall execute any such policies until all of the provisions of this chapter are complied with.
In addition to the foregoing penalties and where not otherwise provided, the penalty for failure or refusal to comply with any or all of the provisions of this chapter upon the part of the attorney, shall be the refusal, suspension or revocation of certificate of authority. Before such refusal, suspension or revocation, notice and hearing shall be given such attorney in accordance with the procedure provided in Section 704.
ARTICLE 14. Tax Provisions [1530. - 1531.]
In lieu of all other taxes, licenses or fees whatever, state or local, each exchange and its corporate attorney in fact considered as a single unit shall together pay annually on account of the transaction of such business in this state, the same fees as are paid by mutual insurers transacting the same kind of business, and the annual tax imposed by Section 28 of Article XIII of the Constitution of the State of California and by the applicable provisions of the Revenue and Taxation Code, except that each corporate attorney in fact of a reciprocal or interinsurance exchange shall be subject to all taxes imposed upon other corporations doing business in the state, other than taxes directly attributable to property used exclusively in or on income derived from its principal business as corporate attorney in fact. In any event, such corporate attorney in fact shall file an annual return and pay the minimum tax provided for by Section 23151 of the Bank and Corporation Tax Law. For the purposes of Section 12221 of the Revenue and Taxation Code, the term gross premiums, as applied to reciprocal or interinsurance exchanges, includes all sums paid by subscribers in this state by reason of the insurance exchange, whether termed premium deposit, membership fee, or otherwise, after deducting therefrom premium deposit returns or cancellations, and all amounts returned to subscribers or credited to their accounts as savings, but does not include such sums received for reinsurance and for ocean marine insurance.
A corporate attorney in fact of each exchange shall annually compute the amount of tax that would be payable by it under the provisions of the Bank and Corporation Tax Law (Part 11 (commencing with Section 23001) of Division 2 of the Revenue and Taxation Code) except for the provisions of this section, and any management fee due from each exchange to its corporate attorney in fact shall be reduced pro tanto by a sum equivalent to the amount so computed.
On and after January 1, 1994, and before January 1, 1995, every exchange and its corporate attorney in fact that is considered a single unit whose annual taxes exceed fifty thousand dollars ($50,000) shall make payment by electronic funds transfer. On and after January 1, 1995, every exchange and its corporate attorney in fact that is considered a single unit whose annual taxes exceed twenty thousand dollars ($20,000) shall make payment by electronic funds transfer. The exchange and its corporate attorney in fact considered as a single unit shall choose one of the acceptable methods described in Section 45 for completing the electronic funds transfer.
Payment is deemed complete on the date the electronic funds transfer is initiated, if settlement to the state’s demand account occurs on or before the banking day following the date the transfer is initiated. If settlement to the state’s demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs.
Any exchange and its corporate attorney in fact considered as a single unit required to remit taxes by electronic funds transfer pursuant to this section who remits those taxes by means other than an appropriate electronic funds transfer, shall be assessed a penalty in an amount equal to 10 percent of the taxes due at the time of the payment.
If the department finds that the failure of an exchange and its corporate attorney in fact, considered as a single unit, to make payment by an appropriate electronic funds transfer in accordance with subdivision (a) is due to reasonable cause or circumstances beyond the exchange’s and its corporate attorney in fact’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect, that exchange and its corporate attorney in fact shall be relieved of the penalty provided in paragraph (1).
Any exchange and its corporate attorney in fact seeking to be relieved of the penalty provided in paragraph (1) shall file with the department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.
ARTICLE 15. Merger [1540. - 1540.]
Any two or more domestic reciprocal insurers, upon affirmative vote of not less than two-thirds of the subscribers of each such insurer who vote on such merger pursuant to due notice and the prior approval of the commissioner of the terms of such notice, of the manner and form of such voting and of such proposed merger, may merge. The commissioner shall not approve any plan for such merger which is inequitable to subscribers, or in any case where the bylaws or other rules, regulations, power of attorney or other instrument affecting the rights of subscribers of either such reciprocal, has been amended within one year prior to the date of filing with the commissioner of the application for such approval.
ARTICLE 16. Merger of Certain Reciprocal Insurers [1550. - 1559.]
This article shall apply only to domestic reciprocal insurers organized after 1974 to provide medical malpractice insurance.
By following the procedure specified in this article, any domestic reciprocal insurer described in this article may merge, consolidate, or otherwise unite with or become a part of, or may reinsure all of its policies with, and, upon assumption of all of its liabilities, may transfer all of its assets to, any other domestic reciprocal insurer or an incorporated insurer, domestic or foreign. If an insurer not admitted in California is the surviving entity in the transaction, the plan and agreement shall provide either for that insurer to be admitted to transact insurance in California or for any nonsurviving insurer admitted in California to withdraw from the state. The plan and agreement by which the transaction is to be effected shall be approved by a resolution of a majority of the body exercising the subscribers’ rights selected pursuant to Section 1308 for each domestic reciprocal insurer that is a party to the transaction or by such higher number as may be required by the documents governing the reciprocal, before it is submitted to the subscribers for their consideration. The resolution shall specify the reasons for and the purposes of the proposed transaction and the manner in which the transaction is expected to benefit and serve the best interests of the domestic reciprocal insurer and its subscribers. The plan and agreement shall be approved on behalf of each constituent other party by those persons required to approve those transactions by the laws under which that other party is organized or is otherwise governed.
The plan and agreement by which the transaction is to be effected shall be submitted to the commissioner, who shall examine it and require those provisions to be inserted in the agreement and any actions to be taken in connection with the transaction, including, but not limited to, (a) the terms and conditions of the transaction, (b) any fee, commission, right, option, benefit, or other valuable consideration paid or offered to or for the benefit of any director, officer, employee, subscriber, agent, or broker of each domestic reciprocal insurer or the insurer’s attorney-in-fact in connection with the transaction, (c) the contents of the notice of the vote on the transaction by the subscribers of each domestic reciprocal insurer that is a party thereto, (d) the manner and form of voting thereon by the subscribers of each domestic reciprocal insurer, and (e) any other change, that he or she may deem necessary in order that the transaction may be fair, just, and equitable to the subscribers of each domestic reciprocal insurer that is a party to the transaction, and the transaction is otherwise fair, just, and equitable to the parties to the transaction and their respective policyholders, owners, creditors, and the public. The commissioner shall not approve any transaction if the bylaws, rules, regulations, power of attorney, or instrument affecting the voting or distribution rights of subscribers of a domestic reciprocal insurer have been amended to change those rights within one year prior to the date of filing of the plan and agreement with the commissioner. The subscribers of a domestic reciprocal insurer who shall be eligible to participate in the transaction shall be those persons who are current subscribers of the domestic reciprocal insurer at the date the commissioner approves the plan and agreement for submission to the subscribers for approval pursuant to Section 1553, or at another date determined by the commissioner. No director, officer, agent, or employee of the domestic reciprocal insurer or the insurer’s attorney-in-fact shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the transaction, except as set forth in the plan and agreement approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the insurer.
When the plan and agreement has been approved by the commissioner, with any changes required by him or her, it shall require the approval of each domestic reciprocal insurer that is a party to the transaction by not less than two-thirds of the votes cast by its subscribers represented in person or by proxy at a meeting called to consider the plan and agreement. At least 30 days before the day fixed for the meeting, notice of the meeting and its purpose shall be given to the subscribers at their addresses appearing on the books maintained at the home office of the insurer. With respect to subscribers whose addresses do not appear on the books of the insurer, notice shall be deemed to have been given if published at least once in some newspaper of general circulation in the county in which the principal office of the insurer is located. At the meeting, the presence in person or by proxy of 10 percent of the subscribers of the insurer shall constitute a quorum. In the absence of a quorum, the subscribers present at the meeting in person or by proxy may adjourn the meeting to a later date. If the meeting is adjourned to the next business day, no further notice need be given of the date to which the meeting is adjourned. If the meeting is adjourned to a date later than the next business day, notice of the date to which the meeting is adjourned shall be given to the subscribers at least 15 days prior to the adjourned meeting date.
If the vote is in the affirmative, a certified copy of all proceedings relating to the proposed transaction shall be filed with the commissioner. If one of the insurers that is a party to the transaction is a foreign incorporated insurer, there shall also be filed with the commissioner evidence of that approval, consent, or authorization that is required by the laws of the state of incorporation of the foreign insurer. If the commissioner finds that the proceedings have been in accordance with the law and his or her requirements, the commissioner shall issue a certificate approving the plan and agreement and the transaction shall become effective (1) in the case of a merger, when the certificate, the agreement of merger, or the certificate of merger, as applicable, and any other documents required by law have been filed with the Secretary of State, unless a future effective date or time is provided in the agreement of merger or certificate of merger, in which event the merger shall be effective at that future effective date or time, (2) in the case of a consolidation, when any documents required by the commissioner have been filed with and approved by the commissioner, unless a future effective date or time is provided in the agreement of consolidation, in which event the consolidation shall be effective at that future effective date or time, or (3) in the case of another form of transaction, when determined by the commissioner.
The fee of the commissioner for considering the proposed transaction and issuing a certificate approving the transaction shall be four thousand two hundred fifty dollars ($4,250), payable in advance with the filing with the commissioner of the first papers relating to the proposed transaction. Five dollars ($5) shall be charged for each signed and sealed or certified copy of the certificate issued as part of the same transaction in which the original certificate is issued.
If the surviving entity is a domestic incorporated insurer in a merger in which a domestic reciprocal insurer is a constituent party, after approval of the merger by the constituent reciprocal insurer and constituent incorporated insurer, the surviving incorporated insurer shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (1) of subdivision (g) of Section 1113 of the Corporations Code.
If the surviving entity is a domestic reciprocal insurer in a merger in which a domestic incorporated insurer is a constituent party, after approval of the merger by the constituent disappearing domestic incorporated insurer and constituent reciprocal insurer, the surviving reciprocal insurer shall file in the office of the Secretary of State a copy of the agreement of merger and attachments required under paragraph (2) of subdivision (g) of Section 1113 of the Corporations Code.
Any plan of merger, consolidation, or other unification under this article shall provide that all rights and properties of the parties to the plan of merger, consolidation, or other unification shall accrue to, and become the rights and properties of, the surviving or consolidated or continuing insurer which shall succeed to and assume all the obligations and liabilities of the merged, consolidating, or transferring insurer in the same manner as if incurred or contracted by the surviving, consolidated, or continuing insurer.
All rights of creditors and all liens upon the property of each of the constituent incorporated insurers and constituent reciprocal insurers shall be preserved unimpaired, provided that those liens upon property of a disappearing incorporated insurer or disappearing reciprocal insurer shall be limited to the property affected thereby immediately prior to the time the merger is effective.
Any action or proceeding pending by or against any disappearing incorporated insurer or disappearing reciprocal insurer may be prosecuted to judgment, which shall bind the surviving incorporated insurer or surviving reciprocal insurer, or the surviving incorporated insurer or surviving reciprocal insurer may be proceeded against or substituted in its place.
In the event a domestic reciprocal insurer is merged, is consolidated, or is part of a reorganization pursuant to the procedures specified in this article and the surviving, consolidated, or continuing company is a stock incorporated insurer, the plan shall provide for the manner of converting or exchanging the equity interests of current subscribers in the reciprocal insurer’s equity into (a) shares, interests, or other securities of the surviving corporation, and (b) if any interests of the subscribers are not to be converted solely into shares, interests, or other securities of the surviving corporation, cash, property rights, interests, warrants, options, premium credits, or securities that may be in addition to, or in lieu of, shares, interests, or other securities of the surviving corporation. However, notwithstanding the foregoing, the equity interests of current subscribers in the reciprocal insurer’s equity may be converted or exchanged solely into premium credits if the plan and agreement so provide but only at the subscriber’s election. The conversion or exchange of the equity interests of subscribers shall be on terms fair, just, and equitable to the parties to the transaction, their subscribers, shareholders, owners, and creditors, as approved by the commissioner, and the commissioner shall require an opinion as to the fairness of those terms and an appraisal of the fair value of the domestic reciprocal insurer, together with the respective equity interests therein, by one or more qualified disinterested persons appointed by the reciprocal insurer with the approval of the commissioner, unless the commissioner finds that such an opinion or appraisal is not necessary to protect the interest of current subscribers of the reciprocal insurer. The expense of any such opinion and appraisal shall be borne by the reciprocal insurer. Any person holding a subscription note or other debt instrument evidencing a capital contribution to the domestic reciprocal insurer shall be entitled upon demand to have redeemed that note or debt instrument for cash or securities if securities are offered to current policyholders as part of the transaction. The plan may authorize the sale of securities to members of the governing board, officers, or employees of the domestic reciprocal insurer or its attorney-in-fact, or to subscribers or former subscribers of the domestic reciprocal insurer, in accordance with the provisions of Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. Nothing in this section shall preclude the issuance of different securities, subject to the approval of the commissioner, provided that comparable securities shall be issued at prices not less than the conversion or exchange values of any such securities distributed to current subscribers. The conversion or exchange shall constitute full payment and discharge of the subscribers’ equity interests in the domestic reciprocal insurer, and the subscribers shall have no other rights with respect thereto, except for rights relating to a continuing debt or equity interest that a former subscriber holds in the surviving insurer.
For all purposes for a merger in which the surviving entity is a domestic reciprocal insurer and a domestic incorporated insurer is not a constituent corporation as that term is defined under Section 161 of the Corporations Code, a copy of the certificate of merger duly certified by the commissioner is conclusive evidence of the merger of the constituent reciprocal insurers, either by themselves or together with any foreign incorporated insurers, into the surviving reciprocal insurer.
For all purposes for a merger in which the surviving entity is a domestic reciprocal insurer and a domestic incorporated insurer is a “constituent corporation” as that term is defined under Section 161 of the Corporations Code, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent reciprocal insurers, either by themselves or together with constituent incorporated insurers, into the surviving reciprocal insurers.
For all purposes for a merger in which the surviving entity is a domestic incorporated insurer and the disappearing entity is a domestic reciprocal insurer, a copy of the certificate of merger duly certified by the Secretary of State is conclusive evidence of the merger of the constituent insurers.
ARTICLE 17. Conversion of Certain Reciprocal Insurers to Incorporated Stock Insurers [1560. - 1560.19.]
This article shall apply only to domestic reciprocal insurers organized after 1974 to provide medical malpractice insurance.
By following the procedure specified in this article, any domestic reciprocal insurer described in Section 1560 may be converted into an incorporated stock insurer. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this article.
The definitions in this section apply to the following terms when used in this article:
“Adoption date” means the date the governing body adopts the plan of conversion.
“Converted insurer” means the incorporated stock insurer into which a domestic reciprocal insurer has been converted in accordance with the provisions of this article.
“Converting insurer” means, for a plan of conversion under this article, the domestic reciprocal insurer that is converting under the plan.
“Effective date” means the date upon which the conversion of a domestic reciprocal insurer is effective, as specified in the amended articles of incorporation of the reciprocal holding company filed with the Secretary of State, as a result of conversion proceedings under this article.
“Eligible subscribers” means the subscribers of the domestic reciprocal insurer who are of record, fully paid-up, and otherwise in good standing on the domestic reciprocal insurer’s adoption date and on its effective date, but shall not include those persons covered solely under a reporting endorsement to a claims-made policy on either date.
“Governing body” means the body exercising subscribers’ rights selected pursuant to Section 1308 for the domestic reciprocal insurer.
“Independent director” means a member of the governing body of the reciprocal holding company who does not own shares, options, or any other equity interests in the stock holding company.
“Person” means an individual, partnership, firm, association, corporation, joint-stock company, limited liability company, trust, government or governmental agency, state or political subdivision of a state, public or private corporation, board, association, estate, trustee, or fiduciary, or any similar entity.
“Plan of conversion” or “plan” means a plan adopted by a domestic reciprocal insurer in compliance with this article.
“Policy” means an individual or group policy of insurance issued by a domestic reciprocal insurer. If a policy takes a form other than an individual form but holders of certificates or other interests under the policy are treated by the domestic reciprocal insurer as if they were holders of individual policies, the domestic reciprocal insurer may provide in its plan of conversion under this article that such a certificate or other interest is deemed to be a policy and deem the holder of the certificate or other interest to be an owner of a policy. Such a provision shall be for the sole purpose of determining the rights, if any, of policyholders of the domestic reciprocal insurer to vote upon and receive consideration under the plan of conversion and shall not affect the other voting rights and qualifications of members of the domestic reciprocal insurer.
“Policyholder” means the holder of a policy other than a reinsurance contract or a person covered solely under a reporting endorsement to a claims-made policy.
“Reciprocal holding company” means a corporation organized under the laws of this state subject to the General Corporation Law as set forth in the Corporations Code. The articles of incorporation of a reciprocal holding company shall contain provisions stating the following:
It is a reciprocal holding company organized under this article.
One purpose of the reciprocal holding company is to hold not less than 51 percent of the voting stock of a stock holding company, which in turn holds all of the voting stock of a converted insurer. In addition, the reciprocal holding company shall own not less than 51 percent of the total stockholders’ equity of the stock holding company at all times.
It is not authorized to issue voting stock.
Its subscribers have the rights specified in Section 1560.11 and in its articles of incorporation and bylaws.
“Rights in surplus” for a domestic reciprocal insurer, means rights of subscribers to a return of that portion of the surplus that has not been apportioned or declared by the governing body for policyholder dividends. “Rights in surplus” includes rights of subscribers to a distribution of surplus in liquidation or conservation of the insurer under this code, or in a dissolution or winding up. “Rights in surplus” does not include any right expressly conferred solely by the terms of an insurance policy.
“Stock holding company” means a corporation authorized to issue one or more classes of capital stock, the corporate purposes of which include holding all of the voting stock in an insurer that has been converted from a domestic reciprocal insurer into a stock insurer in proceedings under this article in which a reciprocal holding company is formed.
“Subscriber” means a person who, by the records of the domestic reciprocal insurer and its rules and regulations, is deemed to be a holder of a subscriber’s interest in the domestic reciprocal insurer. On and after the effective date of a plan of conversion, the term “subscriber” means a member of a reciprocal holding company, as provided in Section 1560.11.
“Subscriber interests” mean the interests of subscribers arising under this code and the rules and regulations of the domestic reciprocal insurer or otherwise by law.
“Voting stock” means securities of any class or any ownership interest having voting power for the election of directors, trustees, or management of a person, other than securities having voting power only because of the occurrence of a contingency. All references to a specified percentage of voting stock of any person mean securities having the specified percentage of the voting power in that person for the election of directors, trustees, or management of that person, other than securities having voting power only because of the occurrence of a contingency.
A plan of conversion adopted by a domestic reciprocal insurer for the establishment of a reciprocal holding company shall provide that the domestic reciprocal insurer will become a stock insurer, that the subscribers of the domestic reciprocal insurer will become subscribers of a reciprocal holding company, that the reciprocal holding company will acquire at least 51 percent of the voting stock of the stock holding company, and that the stock holding company will acquire all of the voting stock of the converted insurer. The plan of conversion shall include appropriate proceedings for amending the domestic reciprocal insurer’s rules and regulations and other charter documents to give effect to the conversion from a domestic reciprocal insurer into a stock corporation. The plan shall be:
As approved by a resolution of two-thirds of the governing board. The resolution shall specify the reasons for and the purposes of the proposed conversion of the domestic reciprocal insurer and the manner in which the conversion is expected to benefit and serve the best interests of the policyholders.
Submitted to the commissioner for consent in writing, subject to the provisions of Section 1560.05, by an application executed by an authorized officer of the domestic reciprocal insurer and accompanied by the following documents, or true and correct copies of the following documents:
The proposed plan of conversion.
The proposed articles of incorporation of each corporation that is a constituent corporation of the conversion.
The proposed bylaws of each corporation that is a constituent corporation of the conversion.
A list of the officers and directors, together with their biographies in the form customarily required by the commissioner, of each corporation that is a constituent corporation of the conversion.
The resolution of the governing board of the domestic reciprocal insurer, certified by the secretary of the domestic reciprocal insurer, authorizing the conversion under this article, and a report of the percentage of directors approving the resolution.
Financial statements, which may be prepared on a pro forma basis, in the form required by the commissioner.
A plan of operations for the converted insurer.
A summary of the plan of conversion and drafts of written materials to be mailed to subscribers seeking their approval of the plan, including an information statement containing, at a minimum, the information required under Section 1560.06.
A description of any plans for an initial public offering, including a description of the maximum percentage of stock to be sold, the process to be used in offering the stock and setting the initial sale price for the stock, and how policyholders would be treated in an initial public offering.
A description of any plans for the transfer of assets and liabilities, including any subsidiaries, to the reciprocal holding company.
Any final rulings relating to the plan of reorganization obtained from any federal government agency, and all supporting documents submitted to the agency in connection with the rulings.
A copy of the proposed form of notice of special meeting to be sent to members pursuant to Section 1560.06.
Other relevant information that the commissioner may require.
Approved by two-thirds vote of the subscribers of the domestic reciprocal insurer voting at a meeting of the subscribers called for that purpose, subject to the provisions of Section 1560.06.
The commissioner shall examine the plan submitted pursuant to Section 1560.03. As a part of the examination the commissioner shall order a public hearing of the plan after written notice of the hearing to the domestic reciprocal insurer and its subscribers and the public, all of whom shall have the right to appear at the hearing. The hearing shall occur before the policyholder vote. The commissioner may require as a condition of consent that the domestic reciprocal insurer make modifications of the proposed plan that the commissioner finds necessary for the protection of policyholders. The commissioner shall consent to the plan if he or she finds all of the following:
The plan is fair, just, and equitable to the insurer and its policyholders.
The plan does not violate the law.
The converted insurer will, after the conversion, satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.
The plan will not require subscribers to pay additional funds to retain their rights in surplus, but nothing herein is intended to prohibit or restrict a reciprocal insurer that is converting to a stock insurer by establishing a reciprocal holding company from offering to its subscribers subscription rights that are in addition to the rights in surplus to be held in the reciprocal holding company.
Any stock issued to officers, directors, employees, or employee benefit plans for their benefit, if any, will be fair, just, and equitable and not hazardous to policyholders, stockholders, or creditors.
The plan provides sufficient means for the accumulated earnings, cash, and/or other non-operating assets held by the reciprocal holding company to inure to the exclusive benefit of its members.
The commissioner may appoint one or more actuarial, financial, or other consultants, including legal counsel, as the commissioner finds necessary to advise the commissioner in making the determination of whether the proposed plan of conversion meets the applicable requirements of this article. The domestic reciprocal insurer is responsible for the reasonable fees and expenses of any actuarial, financial, or other consultants, including legal counsel, appointed, and for the mailing and publication of notices to the domestic reciprocal insurer and its members.
The meeting of subscribers prescribed by subdivision (c) of Section 1560.03 shall be called by the governing board, the chairperson of the board, or the president of the domestic reciprocal insurer. Notice of the meeting shall be given to eligible subscribers by mail at least 45 days prior to the date set for the meeting to subscribers of the domestic reciprocal insurer of record on the date the plan of conversion was adopted by the governing board. The notice shall be accompanied by an information statement describing the proposed reorganization. The information statement shall include, at a minimum, all of the following items:
A full copy and summary of the plan of reorganization.
A discussion addressing the reasons and purposes of the proposed restructuring, which shall include a comparison to a dereciprocalization.
An analysis of the benefits and risks associated with the proposed reorganization to the reciprocal company and its policyholders.
An explanation of how the restructuring will benefit policyholders, as well as a description of any potential risks to policyholder interests and a description of how the policyholders’ rights differ at the reciprocal holding company level from those in the existing company.
A description of any stock issuance, including any shares or options to be issued to directors, officers, agents, employees, or employee benefit plans, for their benefit, that will be made in conjunction with the plan of conversion, if any, and the guidelines and parameters that shall apply in the event stock is to be issued, including a detailed discussion of subscription rights that are to be granted to policyholders.
The converted insurer’s proposed articles of incorporation and bylaws.
Any proposed articles and bylaws of the reciprocal holding company and any other entities to be created in the reorganization.
Financial information.
Any other information that the commissioner determines is necessary to make a complete and adequate disclosure to policyholders.
Voting shall be by ballot, in person, or by proxy. A quorum shall consist of 10 percent of the subscribers of the domestic reciprocal insurer entitled to vote at the meeting.
Nothing in this article shall be deemed to prohibit the inclusion in the plan of conversion of provisions under which the insurer’s officers, directors, employees, agents, and employee benefit plans for their benefit may be entitled, in accordance with reasonable classifications of those individuals and employee benefit plans as may be included in the plan, to purchase for cash, at the same price as offered to the public in the initial public offering, voting stock not purchased by subscribers upon exercise of subscription rights. Nothing in this code shall be deemed to prohibit the establishment of stock option, incentive, and share ownership plans customary for publicly traded companies in the same and similar industries. The plan may not permit those persons to acquire any of the following:
Greater than 25 percent of the voting stock issued pursuant to the plan for a domestic reciprocal insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a domestic reciprocal insurer having assets of two hundred million dollars ($200,000,000) or less.
Greater than 25 percent of the stockholders’ equity for a medical malpractice reciprocal insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a medical malpractice reciprocal insurer having assets of less than two hundred million dollars ($200,000,000).
Unexercised options that exceed 20 percent of the number of issued and outstanding shares.
No director, officer, agent, or employee of the domestic reciprocal insurer shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the conversion except as set forth in the plan approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the domestic reciprocal insurer.
At any time before that plan of conversion becomes effective, the domestic reciprocal company may, by resolution of at least two-thirds of the governing board, amend the plan of conversion or withdraw the plan of conversion. Any plan amendment shall require the written consent of the commissioner. For a plan amendment, all references in this article to the plan of conversion shall be deemed to refer to the plan as amended, but no amendment shall be deemed to change the adoption date of the plan of conversion. No amendment may change the plan of conversion in a manner that the commissioner determines is materially disadvantageous to policyholders of the insurer or members of the reciprocal holding company, unless a further public hearing is held on the plan as amended, if the amendment is made after the initial public hearing, or if the plan as amended is submitted for reconsideration by the subscribers if the amendment is made after the plan has been approved by the subscribers.
Upon consent by the commissioner to the plan of conversion of a domestic reciprocal insurer and filing of the plan of conversion in accordance with the provisions of this article, the commissioner shall issue a new certificate of authority to the converted insurer. Upon issuance of the certificate of authority to a domestic reciprocal insurer and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the articles of incorporation of the reciprocal holding company, the stock holding company, and the converted insurer. The plan is effective upon the filing of the articles of incorporation or the certificate of amendment of the articles of incorporation.
Upon the effective date of a plan of conversion in accordance with Section 1560.10, the domestic reciprocal insurer immediately becomes a stock corporation, the interests and rights in surplus of its subscribers are extinguished, the subscribers of the insurer immediately become members of the reciprocal holding company, and are granted rights in surplus in the reciprocal holding company equivalent to those rights in surplus previously held in the converted company, all of the voting stock initially issued by the converted insurer is owned by the stock holding company, and all of the voting stock initially issued by the stock holding company is owned by the reciprocal holding company. Except for the subscribership interests in the reciprocal insurer, which becomes membership interests in the reciprocal holding company, nothing herein is intended to, nor shall eliminate, curtail or otherwise diminish the contract rights of policyholders of a converted company. The stock holding company may thereafter, subject to compliance with Article 8 (commencing with Section 820) of Chapter 1, issue securities to other persons. After the effective date, owners of policies that are issued by a stock insurer that has been converted from a domestic reciprocal insurer pursuant to proceedings under this article shall become members of the reciprocal holding company immediately upon issuance of the policies, except that an owner solely of a reporting endorsement to a claims-made policy shall not be members of the reciprocal holding company.
The converted insurer shall be a continuation of the original reciprocal insurer, and the conversion shall in no way annul, modify, or change any of the original reciprocal insurer’s existing suits, rights, contracts, or liabilities except as provided in the approved plan. The converted insurer shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and shall retain the rights and contracts existing prior to conversion subject to the effect of the plan.
From the effective date, the reciprocal holding company shall hold at least 51 percent of the issued and outstanding voting stock of the stock holding company and the stock holding company thereafter shall at all times hold all of the issued and outstanding voting stock of the converted insurer. The stock holding company may issue additional voting stock to the reciprocal holding company and, in addition, to other persons an amount of voting stock and securities convertible into voting stock, if in the aggregate, the issued and outstanding voting stock of the stock holding company held by the reciprocal holding company is not less than 51 percent of the issued and outstanding voting stock of the stock holding company. For purposes of the 51 percent limitation, any issued and outstanding securities of the stock holding company that are convertible into voting stock are considered issued and outstanding voting stock, provided that securities having voting power only because of the occurrence of a contingency shall not be considered securities convertible into voting stock where the contingency has not occurred.
From the effective date, the reciprocal holding company’s equity interest in the stock holding company shall not be less than 51 percent of the total stockholders’ equity in the stock holding company. For purposes of the 51 percent limitation, any issued and outstanding securities of the stock holding company that are convertible into equity securities, whether voting or nonvoting, shall be considered stockholders’ equity. Debt securities that include a default contingency conversion interest shall not be considered stockholders’ equity for compliance with the foregoing limitation.
The commissioner shall retain jurisdiction over the reciprocal holding company organized pursuant to this article. Except as provided in this code, a reciprocal holding company is subject to the provisions of the General Corporation Law in like manner with other corporations. However, provisions of that law referring to shareholders or subscribers shall be applied as though those provisions referred to the members of a reciprocal holding company. For purposes of Section 1215.5, the reciprocal holding company shall be considered as if it were an insurance company. The commissioner shall retain jurisdiction over the issuance of debt securities in accordance with the protections provided in Article 8 (commencing with Section 820) of Chapter 1.
If any proceedings under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), Article 14.5 (commencing with Section 1065.1), or Article 15.5 (commencing with Section 1077), of Chapter 1, are brought naming as a party a stock insurer created as a result of proceedings authorized by this article, the reciprocal holding company formed as part of the conversion automatically becomes a party to the proceedings. All of the assets of the reciprocal holding company, including, but not limited to, its interest in the stock holding company formed pursuant to this article, are deemed assets of the estate of this stock insurer to the extent necessary to satisfy claims of persons against the stock insurer who have claims falling within the priorities established in paragraphs (1) to (5), inclusive, of subdivision (a) of Section 1033. Claims of persons in their capacity as members of the reciprocal holding company shall be claims falling within the priority established in paragraph (6) of subdivision (a) of Section 1033. A reciprocal holding company may not dissolve, liquidate, or wind up and dissolve without the prior written approval of the commissioner or the court pursuant to proceedings brought pursuant to Article 15 (commencing with Section 1070) of Chapter 1.
With respect to the management, records, and affairs of a reciprocal holding company and except as otherwise provided in this article, a member of a reciprocal holding company has the same character of rights and relationship as a stockholder has toward a domestic stock life insurer subject to the provisions of this code.
Each member of a reciprocal holding company is entitled to one vote on each matter coming to a vote at any meeting of members, regardless of the number of policies that the member holds.
Notice of all meetings of members of a reciprocal holding company, whether annual or special, shall be given in writing to the members entitled to vote. The notice shall be given by the secretary, assistant secretary, or other persons charged with that duty. If there is no officer so charged, or if he or she neglects or refuses this duty, notice may be given by any director. At the option of the converted insurer, the notice may be imprinted on premium notices or receipts or on both. A notice may be given to any member either personally, or by mail, or other means of written communication, charges prepaid, addressed to the member at his or her address appearing on the books of the insurer, or given by the member to the converted insurer for the purpose of notice. If a member gives no address, and if there is no address on the books of the insurer, notice shall be deemed to have been given the member if sent by mail or other means of written communication addressed to the place where the principal office of the converted insurer is situated, or if published at least once in a newspaper of general circulation in the county in which the office is located and in the newspaper that has the largest daily circulation in this state. Notice of any meeting of members shall be sent to each member entitled to notice not less than 14 days before a meeting. Notice of any meeting of members shall specify the place, the day, and the hour of the meeting and the general nature of the business to be transacted.
For any member who gives no address and has no address on the books of the insurer, notice of an annual meeting to be held at the time and place specified is deemed adequate if published at least once in each of four successive weeks in a newspaper of general circulation in the county in which the principal office of the converted insurer is located and in the newspaper that has the largest daily circulation in this state. If the notice is so published, no other notice of the meeting is required.
The presence in person or by proxy of 5 percent of the members of a reciprocal holding company entitled to vote at any meeting constitutes a quorum for the transaction of all business of the reciprocal holding company, including, but not limited to, the amendment of the articles of incorporation or bylaws of the reciprocal holding company.
Any required member approval shall be by the affirmative vote of a majority of the members who vote, or a higher percentage of the members as may be required by law or the articles of incorporation, a quorum being present.
The governing body of the reciprocal holding company shall be comprised of not less than 6 nor more than 18 directors. A majority of the reciprocal holding company directors shall be policyholders of the converted insurer. Unless the plan provides that at least a majority of the directors of the boards of the stock holding company and the converted insurer are also directors of the reciprocal holding company, the commissioner shall determine whether the proposed composition of the boards of directors of each of the constituent corporations of the reciprocal holding company system, as provided in the articles of incorporation and bylaws, facilitate the control of the converted insurer by the reciprocal holding company. No term shall continue longer than six years. In the absence of such provisions, each director shall be elected for a term of one year. All directors shall hold office for the term for which they are elected and until their successors are elected and qualified. The bylaws of the reciprocal holding company shall set forth a procedure for establishing reciprocal holding company independent directors in the event that the stock holding company issues securities. Not less than one of every six directors of the reciprocal holding company shall be so designated. A director may, but need not, be a member of the reciprocal holding company of which he or she is acting as director. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum. Each director so elected shall hold office until the next annual meeting.
Member interests in a reciprocal holding company are exempt from Article 8 (commencing with Section 820) of Chapter 1. A description of the member interests and related factual disclosure shall not be considered to be an inducement to buy insurance in violation of Section 10430. Any promise of returns, profits, or distributions, or representations with regard to the benefits of membership, made as an inducement in connection with the issuance and delivery of a policy is subject to Section 10430 and the remedy provided in Section 10433.
Prior to, and for a period of five years following, the effective date of the plan of conversion, no person or group of persons acting in concert shall directly or indirectly offer to acquire or acquire in any manner the beneficial ownership of 5 percent or more of any class of voting securities of a converted insurer or of a person that controls, as defined by subdivision (c) of Section 1215, the converted insurer, without the prior consent of the commissioner. Any application for that approval shall contain information as the commissioner may require and shall be accompanied by a filing fee in an amount equal to the filing fee specified in Section 1215.2.
In the event of any violation of this section, or of any action that, if consummated, would constitute a violation, all voting securities of the converted insurer or of the person acquired by any person in excess of the maximum amount permitted to be acquired by the person pursuant to this subdivision shall be deemed to be nonvoting securities of the converted insurer or of that person. The violation or action may be enforced or enjoined by an appropriate proceeding commenced by the converted insurer, a person, the commissioner, any policyholder or stockholder of the converted insurer, or the person on behalf of the converted insurer or the person in the superior court in the judicial district in which the converted insurer has its home office or in any other court having jurisdiction. The court may issue any order it finds necessary to cure the violation or to prevent the proposed action. In addition to the foregoing, whenever it appears to the commissioner that any person has committed a violation of this section, the commissioner may proceed as provided in Article 14 (commencing with Section 1010) of Chapter 1 to take possession of the property of the converted insurer and to conduct the business thereof.
For the purposes of this section, “beneficial ownership,” with respect to voting securities, means the sole or shared power to vote, or direct the voting of, voting securities or the sole or shared power to dispose, or direct the disposition, of voting securities.
For the purposes of this section, “voting security” includes voting stock as defined in Section 1560.02, any preorganization certificate or subscription, including subscription rights issued pursuant to a plan of conversion, or any security convertible, with or without consideration, into voting security, or carrying any warrant or right to subscribe for, or purchase any, voting security, or any such warrant or right.
For the purposes of this section, “offer” includes an offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of a security or interest in a security for value.
Unless otherwise provided in the plan of conversion, the governing body and officers of the domestic reciprocal insurer shall serve as directors and officers of the converted insurer until new directors and officers have been duly elected and qualified pursuant to the articles of incorporation and bylaws of the stock company.
Notwithstanding any other provision of law and except as otherwise provided in subdivision (b), actions concerning any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this article or any acts taken or proposed to be taken under this article shall be commenced within one year after the plan of conversion or plan amendment is filed in the office of the commissioner pursuant to subdivision (d) of Section 1560.03 or Section 1560.10, or six months from the effective date of the plan of conversion, whichever is later. If the plan of conversion is withdrawn, the actions or acts shall be commenced within six months from the date the governing body approves a resolution to withdraw the plan. If an action concerns or arises out of a plan amendment or proposed plan amendment made under Section 1560.09, the applicable time period is measured from the filing, effective date, or approval of withdrawal of the plan amendment, whichever is later.
Judicial review of any act of the commissioner or any other governmental body or officer concerning or arising out of any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this article may only be had by filing a petition for a writ of mandate within 30 days of the date of the act. However, any petition seeking judicial review shall be filed no later than 30 days from the effective date of the plan of conversion or plan amendment, whichever is the subject of the petition.
The offer or sale of securities issued pursuant to the plan of conversion developed and approved in accordance with the provisions of this article, shall be exempt from Article 8 (commencing with Section 820) of Chapter 1.
The commissioner shall have the authority from time to time, to make, amend, and rescind any rules and regulations necessary to carry out the provisions of this article. The commissioner shall also have the authority to charge and collect from the insurer for the actual amount of expenses reasonably incurred by the state in discharge of the commissioner’s duties hereunder.
Upon completion of the act of conversion and issuance of the certificate of authority under Section 1560.10, the Secretary of State shall accept for filing a verified copy of the articles of incorporation of the converted insurer.
The articles of incorporation of a converted insurer that have been adopted pursuant to a plan of conversion and filed with the Secretary of State in accordance with Section 1560.10 may be further amended after the effective date pursuant to applicable law. The plan of conversion may be amended in other respects after the effective date of the plan as specified in this section. An amendment of the plan of conversion shall take effect upon filing with the Secretary of State after compliance with the following:
Approval by a resolution of at least two-thirds of the board of directors of the converted insurer. The resolution shall specify the reasons for and the purposes of the proposed amendment.
Submission to the commissioner for consent in writing, subject to the provisions of Section 1560.05.
Approval by at least two-thirds of those members of the corporation who were subscribers of the converting insurer and entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 1560.03 and who vote at a meeting called for that purpose.
Filed in the office of the commissioner after having been consented to and approved as contemplated by paragraphs (2) and (3).
If an amendment proposed under subdivision (a) would adversely affect the rights of one or more classes of subscribers, but not all of those subscribers, then only the subscribers of each class whose rights would be adversely affected by the proposed amendment are entitled to vote on the proposed plan amendment.
A subscriber meeting prescribed by paragraph (3) of subdivision (a) shall be called by the board of directors, the chairperson of the board, or the president of the converted insurer. Notice of the meeting shall be given to subscribers entitled to vote at the meeting by mail at least 45 days prior to the date set for the meeting. Voting shall be by ballot, in person, or by proxy. A quorum consists of 10 percent of the subscribers of the converted insurer entitled to vote at the meeting.
At any time before the plan amendment becomes effective, the converted insurer may, by resolution of at least two-thirds of the board of directors, amend the plan amendment or withdraw its plan amendment. For an amendment to a plan amendment, all references in this section to the plan amendment shall be deemed to refer to the plan amendment as amended. Any amendment of the plan amendment shall require the written consent of the commissioner. No amendment shall be deemed to change the date of adoption of the plan amendment. No amendment made after approval by the subscribers as provided in paragraph (3) of subdivision (a) may change the plan amendment in a manner that the commissioner determines is materially disadvantageous to any of the affected subscribers unless the plan amendment as amended is submitted for reconsideration under the procedures prescribed for the original plan amendment, subscriber approval.
If the name of a domestic reciprocal insurer converting to a stock insurer pursuant to this article includes the word “reciprocal,” the new stock insurer may continue to use the word “reciprocal” in its name if the name includes a word or words that identify the new stock insurer as a stock insurer and the commissioner finds that the continued use of the word “reciprocal” in its name is not likely to mislead or deceive the public.
ARTICLE 11. Rebates [ - ]
CHAPTER 4. Foreign Insurers [1561. - 1620.7.]
ARTICLE 1. Conditions of Doing Business [1561. - 1561.]
Any law or ruling of any state of the United States or any foreign country which shall attempt to assume jurisdiction over, or to authorize regulation or supervision of, a noninsurance affiliate of a domestic insurer, where such attempt is based solely upon the domestic insurer applying for or holding a certificate of authority to do business in such state or foreign country, whether such attempt be by registration or through disclosure, reports, examinations, or other devices imposed on either the insurer or its noninsurance affiliate, directly or indirectly, shall be deemed to be an unreasonable law. Upon finding that such unreasonable law has been applied to a domestic insurer or its noninsurance affiliate by such state or foreign country, the commissioner may refuse to grant an initial certificate of authority, but not a renewal of an existing certificate of authority, to an insurer organized under the laws of such state or foreign country thereafter applying to him for authority to do business in this state.
As used in this section, “affiliate” means a person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the domestic insurer.
ARTICLE 2. Alien Insurers [1580. - 1599.]
As used in this article, the term “alien insurer” means a foreign insurer organized under the laws of any jurisdiction other than a State of the United States.
Except as otherwise expressly provided for particular insurers, an alien insurer shall not transact any insurance in this State without first making the deposit required by this article nor, subject to the exception specified in Section 1582, without first complying with all other provisions of this article.
The amount of such deposit shall be equal to the minimum amount of the paid-in capital required for admission of incorporated insurers issuing policies on a reserve basis and transacting the same classes of insurance which such alien insurer is transacting in the United States, but the commissioner may accept such deposit in excess of such amount. Such deposit may be treated as a part of the assets of the depositing insurer. For the purpose of computing the amount of the deposit, the value of the securities shall not be estimated in excess of the par value nor of the market value thereof.
The deposit required by Section 1581
Shall be continuously maintained so long as any obligation arising out of any insurance transacted by such alien insurer in the United States remains in existence for any purpose whatever;
Shall consist of securities authorized for investment of the assets of domestic incorporated insurers;
Shall be in addition to any deposits required by law for purposes other than those specified in Section 1586;
May be made with the insurance authority, or with the auditor, controller or general fiscal officer of any State of the United States in which such alien insurer is authorized to transact insurance, or otherwise held in trust as provided by the laws of the State of deposit, for the purposes specified in Section 1586.
If such deposit is not so maintained in this State, it shall be deemed to be in existence as required by this article only when a certificate, issued by the proper authority of the State of deposit and showing in detail the constituent securities thereof and the purpose thereof, is delivered to the commissioner at least annually and at such other times as may be required by the commissioner.
Such deposit, if maintained in this State, shall be for the benefit and security of all the policyholders and creditors of such alien insurer in the United States, and if maintained in another State, for the benefit and security of all the policyholders, or of all the policyholders and creditors, of such alien insurer in the United States.
Securities deposited with the commissioner pursuant to this article shall be specially deposited by him in the State Treasury, in packages marked with the name of the insurer from whom the securities were received.
As long as the depositing insurer is solvent and the deposited securities are sufficient under this article, it may collect the income on the deposited securities. From time to time it may withdraw such securities if it deposits other securities, of the character and value specified in this article in the stead of those to be withdrawn, but deposited securities shall not be withdrawn from the State Treasury except upon the written order of the depositing insurer, indorsed by the commissioner or, if such indorsement is refused, under the authority of some court of competent jurisdiction.
Whenever a deposit is made with the commissioner, he or she shall issue to the depositing insurer a certificate under his or her official seal stating the items and amount of securities so deposited, and their value, to the best of his or her knowledge. In case of withdrawal and substitution, he or she shall issue a supplemental certificate of similar nature.
The commissioner shall require the payment of seventy-two dollars ($72), in advance, as a fee for issuing the first certificate provided for in this article to each insurer, and twenty-five dollars ($25) for each additional certificate or each supplemental certificate evidencing any withdrawal, substitution, or other change in the securities deposited. There shall be no other or additional fee for attaching the commissioner’s seal to a securities deposit schedule in those instances. The fees prescribed herein are separate from and not cumulative upon those prescribed by Article 11 (commencing with Section 939), Chapter 1.
The commissioner shall require the payment of forty-four dollars ($44), in advance, as a fee for filing a certificate of deposit of securities under this article.
In addition to complying with all other applicable requirements of this code, every admitted alien insurer shall on or before the first day of March in each year after the year 1941, file with the commissioner a statement on a form prescribed by him, showing as of the 31st day of December then next preceding, the following information:
All of its assets within the United States on deposit with officers of any state thereof for the benefit and security of all the policyholders, or of all the policyholders and creditors, of such alien insurer within the United States. Such assets so deposited are designated “general state deposits.”
All of its assets within the United States, other than general state deposits, on deposit with officers of any state thereof for the benefit and security of all the policyholders, or policyholders and creditors, of such alien insurer within the state of deposit or of certain classes of policyholders, or policyholders and creditors, either within the state of deposit or within the United States. Such assets so deposited are designated “special state deposits.” The value to be allowed in such statement for any special state deposit shall not exceed the liability secured thereby.
All of its assets within the United States, other than general state deposits and special state deposits, held by any trustee for the benefit and security of all the policyholders or of all the policyholders and creditors, of such alien insurer within the United States. Such assets so held are designated “trusteed assets.”
The amount of interest receivable, accrued at the date of such statement on the general state deposits, the special state deposits, and the trusteed assets of such alien insurer, if such interest is collectible by the State or trustee.
All of the reserves and other liabilities arising out of policies or obligations issued, assumed or incurred by such alien insurer in the United States. Said reserves and other liabilities are designated as “liabilities in the United States.”
For the purpose of determining the liabilities in the United States of such alien insurer there may be deducted:
From the amount of such liabilities for unpaid losses, the amount, included therein, of reinsurance recoverable thereon from insurers authorized to do business in any state of the United States, subject to the same limitations as are contained in Sections 922.2 to 922.4, inclusive, and in Sections 922.6 and 922.8.
From the amount of such liabilities for unearned premiums, first, the unearned portion, included in such amount, of premiums receivable by such alien insurer from its agents or policyholders under policies issued by it in the United States and not more than 90 days past due on the date of such statement, and second, subject to the same limitations as are contained in Section 922.4, the unearned portion, included in such amount of reinsurance premiums receivable by such alien insurer from other insurers authorized to do business in any state of the United States.
The ratable portion, included in such liabilities, of the gross liabilities and reserves on risks reinsured, in whole or in part, by an alien insurer which complies with this article and includes in the statements required thereby all reserves and liabilities arising out of such reinsurance, or, subject to the same limitations as are contained in Sections 922.2 to 922.8, inclusive, by another insurer which is authorized to transact insurance in any state of the United States, except in the case of excess loss and catastrophe reinsurance where the deduction shall be on the basis of the actual reinsurance premiums and the actual reinsurance terms.
Those liabilities in the United States, pertaining to any asset in the United States of such alien insurer, other than the assets described in subdivisions (a), (b), (c), and (d), but such deduction shall in no case exceed that portion of the value of such asset which is applicable to the liability pertaining thereto.
If such alien insurer is a life insurer, the amount of the unpaid principal and interest of any loan made by it to the holder of, and solely on the security of, any policy of life insurance or annuity contract issued or assumed by it, on the life of or to any person in the United States. Such amount shall in no case exceed the amount of the reserve required to be maintained on such policy or annuity contract by such insurer. Such amount is designated as “policy loans in the United States.”
Such further information required by the commissioner, as he deems necessary to apply the provisions of this article.
The statement required by Section 1591 shall be verified in the manner prescribed in Sections 903 and 903.5 and the certificate of each trustee in the United States holding trusteed assets of the alien insurer shall be filed, showing the description and amount of the trusteed assets and the purpose for which they are held. The statement shall be filed in quadruplicate by the alien insurer with the office of the department in Los Angeles. Upon receipt of the four copies, the commissioner shall ensure that one copy is maintained at the department’s office in Los Angeles, one copy at the department’s office in the San Francisco Bay area, and one copy at the department’s office in Sacramento.
The commissioner may at other times require an admitted alien insurer to file similar statements, showing the information specified in Section 1591 with respect to another date prescribed by the commissioner.
The excess of the sum of those items in such statement, which are described in subdivision (a), (b), (c) and (d) of Section 1591, over the liabilities in the United States of such alien insurer is designated the “trusteed surplus in the United States” of such alien insurer.
Whenever it appears to the commissioner that the trusteed surplus in the United States of an alien insurer is less than an amount equal to the minimum amount of the capital paid in or available cash assets required by this code for the classes of insurance transacted by such alien insurer in the United States, he shall determine the amount of such deficiency and make requisition upon such alien insurer in writing, addressed to its attorney in the United States or to its United States manager, to repair such deficiency within such time, not less than 60 nor more than 90 days from the service of such requisition, as he may therein designate. The commissioner may revoke or suspend the certificate of authority of such alien insurer or order it to cease issuing new policies in the United States, while such deficiency exists.
If at the expiration of the period designated in such requisition such alien insurer has failed to repair such deficiency, the commissioner may proceed against it under the provisions of Article 14, Chapter 1, Part 2, Division 1 as against an insurer whose condition is such that its further transaction of business will be hazardous to its policyholders, or creditors, or to the public.
Whenever an admitted alien insurer is required or permitted to deposit assets with a trustee for the benefit and security of its policyholders, or of its policyholders and creditors, in the United States, the trustee of any such trust hereafter created shall be a solvent bank or trust company in the United States acceptable to the commissioner and authorized to act as such trustee by the laws of any State or of the United States. All trusteed assets shall be continuously kept within the United States. Any such trust heretofore created and now existing and any such trust hereafter created and existing when such alien insurer seeks to be admitted, shall be continued in accordance with the terms of the instrument creating it, unless inconsistent with the provisions of this article, in which case said instrument shall, after reasonable notice to and hearing of the alien insurer by the commissioner, be amended to conform to the requirements of this article. No amendment of any deed of trust, whether heretofore or hereafter created, shall be effective unless approved in writing by the commissioner. If the trustees of any such trust heretofore created are natural persons, and if the number of such trustees is reduced, by death, resignation, or from any other cause, to less than three, then the commissioner shall require the substitution for such trustees of a solvent bank or trust company in the United States acceptable to him and authorized to act as such trustee by the laws of any State or of the United States. The commissioner may from time to time approve modifications of, or variations in, any deed of trust, which in his judgment are not prejudicial to the interests of the people of this State.
To satisfy the purposes of this article, any alien insurer admitted or seeking to be admitted is hereby authorized to make and execute a deed of trust by virtue of which any assets of an alien admitted insurer are held by a trustee as trusteed assets within the meaning of subdivision (c) of Section 1591. Such deed of trust shall:
Vest the legal title to the trusteed assets in the trustee and its successors lawfully appointed, in trust for the benefit and security of all the policyholders, or of all the policyholders and creditors, of such alien insurer within the United States;
Provide for the substitution of a new trustee in the event of a vacancy by death, resignation or from any other cause, subject to the approval of the commissioner;
Require that the trusteed assets shall at all times be maintained within the United States as a trust fund separate and distinct from all other assets, and that the trustee shall continuously maintain a record at all times sufficient to identify such fund;
Prescribe the conditions, satisfactory to the commissioner and not inconsistent with the purposes of this article, under which any or all income, earnings, dividends or interest accumulations of such fund may be paid over to the United States manager of such alien insurer;
Prohibit the withdrawal, other than as provided in accordance with subdivision (d), of any trusteed assets from such fund without the written approval of the commissioner, except as follows:
1. For the purpose of making general State deposits required by law in any State.
2. For the purpose of paying obligations due from such alien insurer to policyholders and creditors in the United States, and for the purpose of making special State deposits required by law in any State, if such payments and deposits do not impair the trusteed surplus in the United States of such alien insurer to an amount less than the minimum amount specified in Section 1594, and such fact is certified to the trustee by the insurer or its United States manager duly authorized for that purpose.
3. For the purpose of substituting other assets permitted by law and at least equal in value to those to be withdrawn, upon the specific written direction of the United States manager or an assistant United States manager or other representative in the United States of such alien insurer when duly empowered and acting pursuant to either general or specific written authority previously given or delegated by the board of directors thereof, except as provided in the paragraph numbered 5 of this subdivision.
4. For the purpose of transferring such assets to an official conservator, rehabilitator, or liquidator pursuant to an order of a court of competent jurisdiction.
5. In the case of an alien life insurer organized under the laws of the Dominion of Canada or of any province thereof, the provisions of this section applicable to the United States manager or an assistant United States manager or other representative in the United States of such alien insurer shall be deemed to refer to the president, vice president, secretary or treasurer of such insurer at its principal place of business in said Dominion or province thereof, when duly authorized for such purpose.
Trusteed assets may be held by a trustee in the name of a nominee of the trustee, when permitted by and in accordance with the law authorizing the trustee to act as trustee. For the purposes of this article, the trustee is deemed to have legal title to trusteed assets so held.
In respect of the appointment or substitution of a trustee in another state in which an admitted alien insurer is authorized to transact insurance, in respect of withdrawal of trusteed assets held in the other state (except withdrawals as provided in Section 1596), and in respect of the amendment of such deed of trust not affecting the interests or security of the beneficiaries thereof, written approval under any provision in the deed of trust which requires such written approval by the official of such other state, supervising insurance therein, shall be deemed compliance with any applicable approval requirements of Sections 1595 and 1596. Where an alien insurer organized under the laws of the Dominion of Canada or of any province thereof maintains trusteed assets in another state and under the deed of trust written approval is required by an official supervising insurance in any state in which such insurer is authorized to transact insurance and in which it heretofore maintained and hereafter continues to maintain a general state deposit at least equal in amount to the deposit required by Section 1582, written approval by such official in respect of the appointment or substitution of a trustee thereunder, in respect of withdrawal of such trusteed assets (except withdrawals as provided in Section 1596), and in respect of the amendment of such deed of trust not affecting the interests or security of the beneficiaries thereof, shall also be deemed compliance with any applicable approval requirements of Sections 1595 and 1596. The alien insurer shall furnish proof of approvals authorized by this section to and notify the commissioner in writing of such appointment or substitution, of the nature and extent of such withdrawal, and of the text of such amendment.
The commissioner may from time to time examine the trusteed assets of any alien admitted insurer pursuant to Section 736, and may from time to time require the trustee holding trusteed assets of an alien admitted insurer to file with the commissioner a statement, in such form as he may prescribe, certifying such trusteed assets and the amounts thereof. Refusal or neglect on the part of such trustee to comply with such requirement shall be ground for the revocation of such alien insurer’s certificate of authority or for proceedings against it under the provisions of Article 14, Chapter 1, Part 2, Division 1.
The commissioner shall require the payment of twenty-nine dollars ($29), in advance, as a fee for filing each certificate of a trustee required to be filed by Section 1592.
ARTICLE 3. Agent for Service of Process [1600. - 1605.]
The commissioner shall require every foreign insurer, as a condition precedent to receiving and holding a certificate of authority, to file and maintain in the commissioner’s office a writing designating an agent for service of process. The agent designated may be any person residing in this state, including, but not limited to, any corporate officer of the insurer. The writing shall state the name of the agent and his or her place of business in this state with sufficient particularity so that he or she can readily be found by peace officers or process servers. Appointment of an agent reasonably available for service of papers, notice, proof of loss, summons or other process during business hours shall be continuously maintained by every admitted insurer subject to this article while it holds a valid and unrevoked certificate of authority.
An agent designated by a foreign insurer as provided in this article may file with the insurance commissioner a written statement of resignation as such agent which shall be signed and execution thereof shall be duly acknowledged by the agent. Thereupon, the authority of the agent to act in such capacity shall cease and the commissioner shall forthwith give written notice of such resignation by mail to the insurer addressed to its principal office as shown by his records. If an agent who has been appointed by a foreign corporation as provided in this article dies or resigns or removes his residence from the State of California, the insurer shall forthwith file with the commissioner an appointment of a new agent on a form provided by the commissioner for such purpose and pay the filing fee therefor, and such filing shall be deemed to revoke any prior designation of agent.
A fee shall not be charged, except as included in the application for certificate of authority fee provided by Article 3 (commencing with Section 699) of Chapter 1, for filing the initial appointment of an agent for service of process under this article by an applicant for admission.
Thereafter, the commissioner shall require the payment of seventy-two dollars ($72), in advance, as a fee for filing the appointment of an agent for service of process, or stipulation, or both by every admitted foreign or alien insurer pursuant to this article.
Any notice provided by law or by a policy, and any proof of loss, summons or other process may be served on such agent in any action or other legal proceeding against the insurer, and such service gives jurisdiction over the person of such insurer.
The person appointed and designated pursuant to Section 1600 shall be deemed in law a general agent, and shall for service of process be the principal agent of the insurer in this state.
Every foreign insurer, as a further condition precedent to admission and in consideration thereof, shall file with the commissioner an agreement or stipulation, executed by the proper authorities of such insurer, in form and substance as follows:
“The (giving name of insurer) does hereby stipulate and agree, in consideration of the permission granted by the State of California to it to transact insurance business in this State, that if at any time it leaves this State, ceases to transact business in this State or is without an agent for service of process in this State, then in any case where such agent could be served, service may be made upon the Insurance Commissioner, and such service upon the commissioner shall have the same force and effect as if made upon the insurer.”
When a foreign insurer, prior to the date this code takes effect, has filed with the commissioner an agreement for service upon him pursuant to the provisions of section 616 of the Political Code as then in effect, such filing is a compliance with this section while such agreement remains in effect.
Service may be made upon the commissioner under the circumstances described in the agreement or stipulation provided for by this article and in the manner provided in Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.
ARTICLE 4. Actions Against Nonadmitted Insurers [1610. - 1620.]
Any of the acts described in Section 1611, when effected in this State, by mail or otherwise, by a foreign or alien insurer which is nonadmitted at the time of the solicitation, issuance or delivery by it of contracts of insurance to residents of, or to corporations authorized to do business in, this State, is equivalent to and shall constitute an appointment by such insurer of the commissioner and his successor or successors in office to be its true and lawful attorney, upon whom may be served all lawful process in any action, suit, or proceeding instituted by or on behalf of an insured or beneficiary arising out of any such contracts of insurance, and any such act shall be signification of its agreement that such service of process is of the same legal force and validity as personal service of process in this State upon such insurer.
The acts referred to in Section 1610 are:
The issuance or delivery to residents of, or to corporations authorized to do business in, this State of contracts of insurance insuring (a) the lives or persons of residents of this State physically present herein at the time of such issuance or delivery or (b) property or operations located in this State.
The solicitation of applications for such contracts.
The collection of premiums, membership fees, assessments or other considerations for such contracts.
Any other transaction of business arising out of such contracts.
Such service of process may be made as provided in Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.
Before any nonadmitted foreign or alien insurer shall file or cause to be filed any pleading in any action, suit or proceeding instituted against it, the insurer shall either (1) procure a certificate of authority to transact insurance in this state; or (2) give a bond in the action, suit or proceeding in an amount to be fixed by the court sufficient to secure the payment of any final judgment which may be rendered in the action, suit, or proceeding.
The court in any action, suit, or proceeding, in which service of process is effected in the manner provided in Section 1612 may, in its discretion, order such postponement as may be necessary to afford the defendant reasonable opportunity to comply with the provisions of Section 1616 and to defend such action.
In any action against a nonadmitted foreign or alien insurer upon a contract of insurance issued or delivered in this State to a resident thereof or to a corporation authorized to do business therein, if the insurer has failed for 30 days after demand prior to the commencement of the action to make payment in accordance with the terms of the contract, and it appears to the court that such refusal was vexatious and without reasonable cause, the court may allow to the plaintiff a reasonable attorney fee and include such fee in any judgment that may be rendered in such action. Such fee shall not exceed 1212 percent of the amount which the court or jury finds the plaintiff is entitled to recover against the insurer, but in no event shall such fee be less than twenty-five dollars ($25). Failure of an insurer to defend any such action shall be deemed prima facie evidence that its failure to make payment was vexatious and without reasonable cause.
The provisions of the preceding sections of this article shall not apply to any action, suit, or proceeding against any unauthorized foreign or alien insurer arising out of any contract of insurance effected in accordance with Section 1760, 1760.5, 1763, or 1763.1, or, if the contract is governed by and complies with the laws of the state in which the contract was entered. The provisions of Section 1610 shall apply to any action, suit, or proceeding under this section unless the insurer has designated an agent in California for service of process or the contract contains a provision designating a resident of this state or any firm of which one member is a resident of this state to be its true and lawful attorney upon whom may be served all lawful process in any action, suit, or proceeding.
In any action, suit, or proceeding arising out of any such contract of insurance, the court may require the insurer to file a bond, in an amount sufficient to secure the payment of any final judgment which may be rendered unless one or more of the following are applicable:
The insurer makes a showing satisfactory to the court that it maintains in a state of the United States funds or securities in trust or otherwise, sufficient and available to satisfy any such final judgment and that it will pay the judgment without requiring suit to be brought thereon in the state where the securities or funds are located.
At the time the insurer files any pleading in any action, suit, or proceeding instituted against it, the insurer is an eligible surplus line insurer in accordance with Section 1765.1, unless by facts presented to the court there is created a reasonable doubt as to the present ability of the insurer to satisfy any final judgment in the action, suit, or proceeding. Upon request of a party or the court, the unauthorized foreign or alien insurer or reinsurer shall provide the court and the party requesting the bond with copies of documents relating to the financial condition of the insurer, including, but not limited to, copies of the insurer’s most recent annual statement and audited financial report and, where applicable, a certified copy of the trust agreement required by subdivision (b) of Section 1765.2 and a verified copy of the most recent quarterly statement or list of assets in the trust.
ARTICLE 4.5. Unauthorized Insurers False Advertising Process Act [1620.1. - 1620.7.]
The purpose of this article is to subject to the jurisdiction of the commissioner and to the jurisdiction of the courts of this State, insurers not authorized to transact business in this State which place in or send into this State any false advertising designed to induce residents of this State to purchase insurance from insurers not authorized to transact business in this State. The Legislature declares it is in the interest of the citizens of this State who purchase insurance from insurers which solicit insurance business in this State in the manner set forth in the preceding sentence that such insurers be subject to the provisions of this article. In furtherance of such state interest, the Legislature in this article provides a method of substituted service of process upon such insurers and declares that in so doing, it exercises its power to protect its residents and also exercises powers and privileges available to the State by virtue of Public Law 15, 79th Congress of the United States, Chapter 20, 1st Session, S. 340, which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states; the authority provided in such sections to be in addition to any existing powers of this State.
The provisions of this article shall be liberally construed.
As used in this article (commencing with Section 1620.1):
“Unfair Trade Practices Act” means Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1.
No unauthorized foreign or alien insurer shall make, issue, circulate or cause to be made, issued or circulated to residents of this State any estimate, illustration, circular, pamphlet, or letter, or cause to be made in any newspaper, magazine or other publication or over any radio or television station, any announcement or statement to such residents misrepresenting its financial condition or the terms of any contracts issued or to be issued or the benefits or advantages promised thereby, or the dividends or share of the surplus to be received thereon in violation of the Unfair Trade Practice Act, and whenever the commissioner shall have reason to believe that any such insurer is engaging in unlawful advertising, it shall be his duty to give notice of such fact by registered mail to the insurer and to the insurance supervisory official of the domiciliary state of the insurer. For the purpose of this section, the domiciliary state of an alien insurer shall be deemed to be the state of entry or the state of the principal office in the United States.
If after 30 days following the giving of the notice mentioned in Section 1620.3 the insurer has failed to cease making, issuing, or circulating such false misrepresentations or causing the same to be made, issued or circulated in this State, and if the commissioner has reason to believe that a proceeding by him in respect to such matters would be to the interest of the public, and that the insurer is issuing or delivering contracts of insurance to residents of this State or collecting premiums on such contracts or doing any of the acts enumerated in Section 1620.5, he shall take action against the insurer under the Unfair Trade Practice Act.
Any of the following acts in this State, effected by mail or otherwise, by any unauthorized foreign or alien insurer: (1) the issuance or delivery of contracts of insurance to residents of this State, (2) the solicitation of applications for such contracts, (3) the collection of premiums, membership fees, assessments or other considerations for such contracts, or (4) any other transaction of insurance business, is equivalent to and shall constitute an appointment by the insurer of the commissioner and his successor or successors in office, to be its true and lawful attorney, upon whom may be served all statements of charges, notices and lawful process in any proceeding instituted in respect to the misrepresentations set forth in Section 1620.3 under the provisions of the Unfair Trade Practice Act, or in any action, suit or proceeding for the recovery of any penalty therein provided, and any such act shall be signification of its agreement that the service of statement of charges, notices or process is of the same legal force and validity as personal service of the statement of charges, notices or process in this State, upon such insurer.
Service of a statement of charges and notices under the Unfair Trade Practice Act shall be made by any deputy or employee of the Department of Insurance delivering to and leaving with the commissioner or some person in apparent charge of his office, two copies thereof. Service of process issued by any court in any action, suit or proceeding to collect any penalty under the act provided, shall be made by delivering and leaving with the commissioner, or some person in apparent charge of his office, two copies thereof. The commissioner shall forthwith cause to be mailed by registered mail one of the copies of the statement of charges, notices or process to the defendant at its last known principal place of business, and shall keep a record of all statements of charges, notices and process so served. Such service of statement of charges, notices or process shall be sufficient provided they shall have been so mailed and the defendant’s receipt or receipt issued by the post office with which the letter is registered, showing the name of the sender of the letter and the name and address of the person to whom the letter is addressed, and the affidavit of the person mailing the letter showing a compliance herewith are filed with the commissioner in the case of any statement of charges or notices, or with the clerk of the court in which the action is pending in the case of any process, on or before the date the defendant is required to appear or within such further time as may be allowed.
Service of statement of charges, notices and process in any such proceeding, action or suit shall in addition to the manner provided in subsection (b) of this section be valid if served upon any person within this State who on behalf of such insurer is
Soliciting insurance, or
Making, issuing or delivering any contract of insurance, or
Collecting or receiving in this State any premium for insurance;
and a copy of such statement of charges, notices or process is sent within 10 days thereafter by registered mail by or on behalf of the commissioner to the defendant at the last known principal place of business of the defendant, and the defendant’s receipt, or the receipt issued by the post office with which the letter is registered, showing the name of the sender of the letter, the name and address of the person to whom the letter is addressed, and the affidavit of the person mailing the same showing a compliance herewith, are filed with the commissioner in the case of any statement of charges or notices, or with the clerk of the court in which such action is pending in the case of any process, on or before the date the defendant is required to appear or within such further time as the court may allow.
No cease or desist order or judgment by default under this section shall be entered until the expiration of 30 days from the date of the filing of the affidavit of compliance.
Service of process and notice under the provisions of this article (commencing with Section 1620.1) shall be in addition to all other methods of service provided by law, and nothing in these sections shall limit or prohibit the right to serve any statement of charges, notices or process upon any insurer in any other manner now or hereafter permitted by law.
If any provision of this article (commencing with Section 1620.1) or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or application of this article which can be given effect without the invalid provision or application, and to this end the provisions of this article are declared to be severable.
This article (commencing with Section 1620.1) may be cited as the Unauthorized Insurers False Advertising Process Act.
CHAPTER 5. Production Agencies [1621. - 1758.993.]
ARTICLE 1. Definitions [1621. - 1624.]
An insurance agent is a person who transacts insurance, other than life, disability, or health insurance, on behalf of an admitted insurance company. The term “insurance agent” as used in this chapter does not include a life agent as defined in this article.
A life and accident and health or sickness licensee is a person authorized to act on behalf of a life insurer or a disability insurer to transact any of the following:
Life insurance.
Accident and health insurance.
Life and accident and health or sickness insurance.
Licenses to act as a life and accident and health or sickness agent under this chapter shall be of the types set forth in Section 1626.
An insurance broker is a person who, for compensation and on behalf of another person, transacts insurance other than life, disability, or health insurance with, but not on behalf of, an admitted insurer. It shall be presumed that the person is acting as an insurance broker if the person is licensed to act as an insurance broker, maintains the bond required by this chapter, and discloses, in a written agreement signed by the consumer, all of the following:
That the person is transacting insurance on behalf of the consumer.
A description of the basic services the person will perform as a broker.
The amount of all broker fees being charged by the person.
If applicable, the fact that the person may be entitled to receive compensation from the insurer, directly or indirectly, for the consumer’s purchase of insurance as a consequence of the transaction.
If a transaction involves both a retail broker and a wholesale intermediary broker, the wholesale intermediary broker shall be deemed to have satisfied its disclosure obligations under this section if it provides written disclosure to the retail broker of the criteria set forth in paragraphs (2), (3), and (4) of subdivision (a).
The presumption of broker status is rebutted as to any transaction in the admitted market in which any of the following is present:
The licensee is appointed, pursuant to Section 1704, as an agent of the insurer for the particular class or type of insurance being transacted.
The licensee has a written agreement with an insurer containing express terms that authorize the licensee to obligate the insurer without first obtaining notification from the insurer that the insurer has accepted, conditionally or unconditionally, the submitted risk.
The licensee is authorized, pursuant to a written agreement with an insurer, to appoint other licensees as agents of the insurer, pursuant to Section 1704.
The licensee is authorized, pursuant to a written agreement with an insurer, to pay claims on behalf of the insurer.
In all other cases, the presumption of broker status is rebutted based on the totality of the circumstances indicating that the broker-agent is acting on behalf of the insurer.
For purposes of this section, “totality of the circumstances” means evidence indicating whether a broker-agent was acting on behalf of the insurer or was acting on behalf of a third person. In determining the totality of circumstances, all relevant facts and circumstances shall be reviewed and the review is not limited to any particular fact or factors and this section does not require that any particular circumstance receive greater or lesser weight.
“Insurance solicitor” means a natural person employed to aid a property and casualty broker-agent acting as an insurance agent or insurance broker in transacting insurance other than life, disability, or health.
ARTICLE 2. Comprehensive Definitions [1625. - 1630.]
A property licensee or a casualty licensee is a person authorized to act as an insurance agent, broker, or solicitor, and a property broker-agent license or a casualty broker-agent license is a license so to act.
Licenses to act as a property broker-agent under this chapter shall entitle the licensee to transact insurance coverage on the direct or consequential loss or damage to property of every kind.
Licenses to act as a casualty broker-agent shall entitle the licensee to transact insurance coverage against legal liability, including that for death, injury, disability, or damage to real or personal property.
A personal lines licensee is a person authorized to transact automobile insurance, as defined in Section 660, including insurance for recreational vehicles used for noncommercial purposes, personal watercraft insurance, residential property insurance, as defined in Section 10087, including earthquake and flood insurance, inland marine insurance covering personal property, and umbrella or excess liability insurance providing coverage when written over one or more underlying automobile or residential property insurance policies, and a personal lines broker-agent license is a license to so act.
A license under this section shall be applied for and renewed, following successful completion of a qualifying examination on this code, ethics, and products sold under the license, in the same manner as is provided in this chapter for a license to act as a property broker-agent or a casualty broker-agent, except as provided in subdivision (c) or where provided otherwise.
A person licensed as a personal lines agent who makes an application to the commissioner to become a property broker-agent or a casualty broker-agent pursuant to Section 1625 shall do all of the following:
Submit an application on a form provided by the commissioner.
Complete prelicensing education as specified in Section 1749.
Take and pass a qualifying examination pursuant to Section 1676.
Notwithstanding any other provision of law, for a personal lines license:
Upon initial licensing, the license year starts on the date the license is issued.
Subsequently, each license year starts the first day of the month following the month in which the initial license was issued.
A license year ends the following calendar year on the last calendar day of the month in which the initial license was issued.
A limited lines automobile insurance agent is a person authorized to transact automobile insurance, as defined in Section 660. A limited lines automobile insurance agent license is a license to so act.
A license under this section shall be applied for and renewed, following successful completion of a qualifying examination on this code, ethics, and products sold under the license, in the same manner as provided in this chapter for a license to act as a property broker-agent or a casualty broker-agent.
The commissioner shall require in advance a fee for filing any applications, renewals thereof, or changes in outstanding licenses, or for the filing of other required documents at an amount designated in this chapter for a personal lines licensee, and for filing any notice of appointment or notice of termination at an amount specified in Section 1751.3.
Submit an application on a form provided by the commissioner.
Take and pass a qualifying examination pursuant to Section 1676.
“License year” for a limited lines automobile insurance agent shall be determined as follows:
Upon initial licensing, the license year starts on the date the license is issued.
Subsequently, each license year starts the first day of the month following the month in which the initial license was issued.
A license year ends the following calendar year on the last calendar day of the month in which the initial license was issued.
“License term” for a limited lines automobile insurance agent means all of that two-year period beginning as described in subdivision (a) or (b) of Section 1625.56, as applicable, and ending the second succeeding year on the last calendar day of the month in which the initial license was issued.
A life and accident and health or sickness licensee is a person authorized to act as a life and accident and health or sickness agent. Licenses to act as a life and accident and health or sickness agent under this chapter shall be of the following types:
Life, which license shall entitle the licensee to transact insurance coverage on human lives, including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income.
Accident and health or sickness, which license shall entitle the licensee to transact insurance coverage for sickness, bodily injury, or accidental death and may include benefits for disability income.
A license is a permit to act in the capacity specified therein. A person licensed is the holder of the license. In case of a license to act as a life agent, property broker-agent, or casualty broker-agent issued to an organization, the organization is the holder thereof, but the natural person or persons named thereon are thereby permitted to exercise the agency or brokerage powers of the organization in accordance with and subject to the provisions of this chapter and other applicable law. As used in this chapter, the term “license” includes a certificate of convenience and a permanent license, and the term “persons who are licensed” includes the holders of any such certificate or the license, but these definitions and the use of those terms in this chapter shall not confer upon a certificate of convenience or any holder thereof any property right in or to the certificate, the certificate being and remaining only a temporary permit, issued as a matter of convenience, allowing the transaction of insurance without a permanent license, but within the limits, and subject to the conditions of the certificate of convenience issued and the laws applicable thereto.
As used in this chapter, an “organization” means any legal entity other than a natural person. If reference is made to a natural person named on an organization license, the reference shall be to a person who is named to exercise the power and perform the duties under an organization license, pursuant to Section 1656. The natural person named on the organizational license shall meet the qualifications required for the type of license sought by the organization.
“License year” as used in this chapter shall be determined for each entity as follows:
Upon initial licensing, the license year starts on the date the license is issued.
Subsequently, each license year starts the first day of the month following the month in which the initial license was issued.
A license year ends the following calendar year on the last calendar day of the month in which the initial license was issued.
“License term” as used in this chapter means all of that two-year period beginning as described in subdivision (a) or (b) of Section 1629, as applicable, and ending the second succeeding year on the last calendar day of the month in which the initial license was issued.
ARTICLE 3. Licensing [1631. - 1651.]
Unless exempt by the provisions of this article, a person shall not solicit, negotiate, or effect contracts of insurance, or act in any of the capacities defined in Article 1 (commencing with Section 1621) unless the person holds a valid license from the commissioner authorizing the person to act in that capacity. The issuance of a certificate of authority to an insurer does not exempt an insurer from complying with this article.
Nothing in this article shall be deemed to affect the current operations of the Healthy Families Program (Part 6.2 (commencing with Section 12693) of Division 2) or the Access for Infants and Mothers Program (Part 6.3 (commencing with Section 12695) of Division 2).
Unless prohibited in this article, a person otherwise eligible for a license may be authorized to act in one or more of the capacities specified in this chapter.
Any person who transacts insurance without a valid license so to act is guilty of a misdemeanor punishable by a fine not exceeding fifty thousand dollars ($50,000) or by imprisonment in a county jail for a period not exceeding one year, or by both that fine and imprisonment.
It is hereby declared to be the intent of the Legislature in enacting this chapter that the regulations prescribed herein be the exclusive regulations relating to the conduct of insurance business by persons licensed to act in any of the capacities defined hereunder, any local regulations or ordinances notwithstanding.
No license is required under this chapter for a person to act in any of the following capacities:
As a full-time salaried employee of a title insurer, controlled escrow company or an underwritten title company.
As a salaried solicitor or agent of a mortgage insurer or mortgage guaranty insurer provided no part of the compensation of the person is on a commission basis.
As the attorney in fact of a reciprocal or interinsurance exchange.
As a life and disability insurance analyst.
As a surplus line broker or special lines surplus line broker.
As a bail agent, bail solicitor or bail permittee.
As an employee, not paid on a commission basis, of a home protection company, including, but not limited to, soliciting, negotiating, or effecting home protection contracts by the employee.
As an employee of a creditor who secures and forwards information for the purpose of obtaining group credit life, credit disability, or involuntary unemployment insurance, or for enrolling individuals in a group credit life, credit disability, or involuntary unemployment insurance plan or issuing certificates of insurance thereunder where no commission is paid to the employee for those services.
A license is not required under the provisions of this chapter for a person to act in the following capacities or to engage in the following activities, providing a commission is not paid or allowed, directly or indirectly, by the insurer, creditor, retailer, or other person for acting in those capacities or engaging in those activities:
The business of examining, certifying, or abstracting titles to real property.
As a salaried representative of a reciprocal or interinsurance exchange or of its attorney-in-fact.
Employment that does not include the solicitation, negotiation, or effecting of contracts of insurance and the signing of policies or other evidences of insurance.
As an officer of an insurer or a salaried traveling employee of the type commonly known as a special agent or as an agency supervisor, while performing duties and exercising functions that are commonly performed by a special agent or agency supervisor, if the person engaging in the activity does not do either of the following:
Effect insurance.
Solicit or negotiate insurance except as a part of and in connection with the business of a property broker-agent, casualty broker-agent, or life agent licensed under this chapter.
As an officer or salaried representative of a life insurer if the activities of the officer or salaried representative are limited to direct technical advice and assistance to a properly licensed person and the officer or salaried representative’s activities do not include effecting, soliciting, or negotiating insurance except as a part of and in connection with the business of a property broker-agent, casualty broker-agent, or life agent licensed under this chapter.
Employment by an insurer at its home or branch office that does not include the solicitation, negotiation, or effecting of contracts of insurance, and that may as part thereof include the signing of policies or other evidences of insurance.
The completion or delivery of a declaration or certificate of coverage under a running inland marine insurance contract evidencing coverage thereunder and including only those negotiations as are necessary to the completion or delivery if the person performing those acts or the person’s employer has an insurable interest in the risk covered by the certificate or declaration.
As an employee of a licensed property broker-agent or casualty broker-agent, whose employment is one or more of the following:
That of a regularly salaried administrative or clerical employee whose activities do not include the solicitation, negotiation, or effecting of contracts of insurance from the insuring public.
That of a salesperson who devotes substantially all of that salesperson’s activities to selling merchandise and whose solicitation of insurance is limited only to the quoting of a premium for insurance to be included in the purchase price covering the interest retained in the merchandise by the seller.
The solicitation, negotiation, or effectuation of home protection contracts by a person licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code in connection with the person’s licensed function authorized by Section 10131 or 10131.6 of the Business and Professions Code. The receipt of a payment permitted by Section 12760 shall not disqualify the recipient from the licensing exemption provided by this chapter.
Employees of an insurer whose duties are the inspection, processing, adjusting, investigation, settling of claims, conducting safety inspections, or accepting or rejecting business from licensed insurance agents or brokers.
Officers, directors, or employees of an insurer or producer whose executive, administrative, managerial, or clerical activities are only indirectly related to solicitation, negotiation, or effecting the sale of insurance, provided those persons do not have direct contact with consumers in a sales or service capacity except as otherwise provided by this section.
Employees whose activities are limited to making clerical changes in existing policies or providing indirect marketing and servicing support for the purpose of determining general interest in insurance products.
An organization may hold any license or licenses necessary to act in the following capacities under this chapter and no others:
A license to act as a life agent.
A license to act as an accident and health or sickness agent.
A license to act as a property broker-agent.
A license to act as a casualty broker-agent.
A license to act as a cargo shipper’s agent.
A license to act as a personal lines licensee.
A license to act as a credit insurance agent.
A license to act as a car rental agent.
A nonresident license to act as a limited lines licensee pursuant to subdivision (i) of Section 1639.
A license to act as a self-service storage agent.
A license to act as a limited lines automobile insurance agent.
A nonresident license is a license issued to a person not a resident of this state.
A person is a resident of this state if either of the following applies:
A person occupies a dwelling in this state and intends this state to be that person’s domicile.
A person maintains that person’s principal place of business in this state.
A person licensed under this chapter may designate only one state as that person’s resident state.
Unless denied licensure pursuant to Article 6 (commencing with Section 1666), a nonresident person shall receive a production agency license if that nonresident person meets the following requirements:
The person is currently licensed and in good standing in the state, territory of the United States, or province of Canada in which the person is licensed as a resident producer.
The person has submitted the proper request for licensure and has paid the fees required by Section 1750.5.
The person has submitted or transmitted to the Insurance Commissioner the application for licensure that the person submitted to the state, territory of the United States, or province of Canada in which the person is licensed as a resident, or submitted or transmitted to the commissioner, a completed National Association of Insurance Commissioners (NAIC) Uniform Nonresident Application.
The state, territory of the United States, or province of Canada in which the person holds a resident producer license awards nonresident producer licenses to residents of this state on the same basis.
The following types of licenses under this chapter may be issued to nonresidents:
A property broker-agent or a casualty broker-agent if the nonresident is duly licensed to transact those lines of insurance described in Section 1625, under the laws of the state, territory of the United States, or province of Canada where the resident license is maintained.
A personal lines broker-agent if the nonresident is duly licensed to transact those lines of insurance described in Section 1625.5, under the laws of the state, territory of the United States, or province of Canada where the resident license is maintained.
A life agent or an accident and health or sickness agent if the nonresident possesses a resident license in another state, territory of the United States, or province of Canada to transact life insurance or disability insurance.
A nonresident may be granted authority to transact variable life and variable annuity contracts if the person has been granted that authority by the state where the resident license is maintained. To qualify for this authority, the nonresident is required to also be licensed as a life agent in the state where the resident license is maintained.
A surplus line broker and a special lines surplus broker if the nonresident holds that type of license in the state or territory of the United States where the resident license is maintained.
A credit insurance agent if the nonresident holds that type of license in the state, territory of the United States, or province of Canada where the resident license is maintained.
A car rental agent if the nonresident holds that type of license in the state, territory of the United States, or province of Canada where the resident license is maintained.
A cargo shipper’s agent if the nonresident holds that type of license in the state, territory of the United States, or province of Canada where the resident license is maintained.
A limited lines license if the nonresident holds that type of license in the state, territory of the United States, or province of Canada where the resident license is maintained. As used in this section, “limited lines license” means any authority granted by the resident state that restricts the authority of the license to less than the total authority granted by any of the types of licenses identified in this section.
A self-service storage agent if the nonresident holds that type of license in the state, territory of the United States, or province of Canada where the resident license is maintained.
The class or classes of insurance which a nonresident person is licensed to transact under that nonresident person’s resident license shall be determined according to the definitions of classes of insurance in Sections 101 to 120, inclusive. A certificate from the insurance regulatory authority of the nonresident’s home state may be accepted as evidence of the applicant’s license status and the capacity or capacities in which that nonresident person is licensed. The Insurance Commissioner may also verify the producer’s licensing status through the Producer Database maintained by the National Association of Insurance Commissioners, its affiliates or subsidiaries.
A nonresident producer who moves from one state to another state or a resident producer who moves from this state to another state shall file a change of address and provide certification from the new resident state within 30 days of the change of legal residence. No fee or license application is required.
The license authority granted to the nonresident shall not exceed the class or classes of insurance granted by the license issued under the laws of the state, territory of the United States, or province of Canada where the resident license is maintained.
A person authorized to act as an insurance solicitor is not eligible at the same time to act as an insurance agent or broker, and a person authorized to act as either an insurance agent or broker is not eligible at the same time to act as an insurance solicitor.
An insurer or reciprocal or interinsurance exchange is not eligible for any license under this chapter; but a corporation rendering sales services in connection with a separate account may be licensed irrespective of the extent of ownership of the corporation by an insurer. Nothing herein shall be interpreted to prohibit an insurer or reciprocal or interinsurance exchange from licensing its employees who solicit, negotiate, or effect contracts of insurance pursuant to this article.
A person under 18 years of age is not eligible to apply for a license pursuant to this chapter, Chapter 5A (commencing with Section 1759), Chapter 6 (commencing with Section 1760), and Chapter 7 (commencing with Section 1800) of Part 2 of Division 1, and Chapter 1 (commencing with Section 14000) and Chapter 2 (commencing with Section 15000) of Division 5.
An organization is not eligible for a license under this chapter if its articles of incorporation or association or agreement of copartnership forbid it to act in the capacity for which a license is sought.
Each limited liability company, at the time of licensing pursuant to this chapter and, with respect to surplus line brokers, Chapter 6 (commencing with Section 1760), and at all times during which the company holds an active license, is required to provide security for claims against it as follows:
For claims based upon acts, errors, or omissions arising out of the practice of insurance agency, brokerage, or surplus line brokerage, a licensed limited liability company providing insurance agency, brokerage, or surplus line brokerage services shall comply with the requirements of subparagraph (A) or (B), or pursuant to subdivision (b), some combination of those requirements.
Maintain a policy or policies of insurance against liability imposed on or against it by law for damages arising out of claims in an amount for each claim of at least one hundred thousand dollars ($100,000) multiplied by the number of licensees rendering professional services on behalf of the company, with a minimum required amount of five hundred thousand dollars ($500,000); however, the maximum amount of insurance is not required to exceed five million dollars ($5,000,000) for claims initially asserted in any one calendar year, less amounts paid in defending, settling, or discharging those claims. In addition, the policy shall contain, at a minimum, a provision that the policy cannot be nonrenewed, canceled, or terminated, without providing written notice to the commissioner within 10 days.
An applicant who wishes to satisfy the requirements of this section wholly, or in part, by maintaining a policy or policies of insurance as set forth in clause (i) shall submit to the commissioner a certification of coverage pursuant to subdivision (d). If a license is automatically issued or renewed without providing this certification, the license may be inactivated by the commissioner upon discovery of the lack of compliance with this paragraph.
If the policy specified in clause (i) contains a deductible or self-insured retention and the policy provides that the insurer is ultimately responsible for payment of the total amount of the claim up to the policy limits, including the deductible or retention, the policyholder shall not be required to maintain security for payment of its deductible limit or self-insured retention liability under the terms set forth in subparagraph (B).
If the policy specified in clause (i) contains a deductible limit or self-insured retention and does not provide that the insurer is responsible for payment of the total amount of the claim up to the policy limits, the policyholder shall maintain security for payment of its deductible limit or self-insured retention under the terms set forth in subparagraph (B).
Maintain in trust or bank escrow, cash, bank certificates of deposit, United States Treasury obligations, bank letters of credit, or bonds of insurance companies as security for payment of liabilities imposed by law for damages arising out of all claims in an amount of at least one hundred thousand dollars ($100,000) multiplied by the number of licensees rendering professional services on behalf of the company, with a minimum required amount of five hundred thousand dollars ($500,000); however, the maximum amount of security is not required to exceed five million dollars ($5,000,000) for claims initially asserted in any one calendar year, less amounts paid in defending, settling, or discharging those claims.
For purposes of satisfying the security requirements of this section, a limited liability company may aggregate the security provided by it pursuant to subparagraphs (A) and (B) of paragraph (1) of subdivision (a).
At the time of licensing pursuant to this article, limited liability companies shall file with the commissioner information, in the manner prescribed by the commissioner, and accompanied by all documentation requested by the commissioner, demonstrating compliance with the financial security requirements of this section. Limited liability companies shall also file an annual confirmation with the commissioner, at a time and in a manner, and with documentation, prescribed by the commissioner, demonstrating continuing compliance with the financial security requirements of this section.
If the security requirements of this section are satisfied wholly, or in part, with an insurance policy, then a certification of coverage shall be submitted to the commissioner by the licensee or applicant, and signed by an authorized agent or employee of the insurer. The certification of coverage shall be in the following form:
The commissioner may summarily deny or decline to act upon an application for the issuance or renewal of a license, or may summarily inactivate an existing license, for failure to comply with the requirements of this section.
If the commissioner inactivates a license for failure to comply with the requirements of subparagraph (A) of paragraph (1) of subdivision (a), the effective date of the inactivation shall be the date on which the insurance policy or policies used to satisfy that requirement expire or are canceled, as indicated by the expiration date specified on the certification of coverage filed pursuant to subdivision (d) or by a notification received from the insurer of termination, cancellation, or nonrenewal of coverage.
If the commissioner inactivates a license for failure to comply with the requirements of subparagraph (B) of paragraph (1) of subdivision (a), or with the requirements of subdivision (b), the effective date of the inactivation shall be the date set by the commissioner as the deadline for demonstrating compliance with those provisions.
Within 10 working days of the date of inactivation under this section, the commissioner shall send by certified mail to the licensee’s address, as reflected in the commissioner’s records, a notice to the licensee of the inactivation of the license.
A license that has been inactivated pursuant to this section shall be reactivated if, within 30 days of the date of inactivation, the licensee demonstrates, in the manner prescribed by the commissioner, satisfaction of the requirements of subparagraph (A) or (B) of paragraph (1) of subdivision (a), or the requirements of subdivision (b), and includes any fees, penalties, and any other required licensing documents necessary to reactivate the license, including new company appointment forms, bonds, and any new business entity endorsements as required. If a certification of coverage is provided to demonstrate compliance with these requirements, and the certification indicates that the insurance policy or policies have been in effect continuously from the date of the inactivation, the license shall be reactivated retroactive to and including the date of inactivation. If the certification of coverage shows an effective date for the insurance policy or policies later than the date of inactivation, the license shall be reactivated as of the effective date of the policy or policies.
Any licensee who, acting alone or in concert with others, willfully or knowingly causes or allows to be filed with the commissioner for the purpose of demonstrating compliance with this section a certification of coverage described in subdivision (d), or any other document required by this section, that is false, fraudulent, or misleading, shall be subject to administrative penalty, including suspension or revocation of the licensee’s license, after notice and hearing as provided for in the Administrative Procedure Act. However, nothing in this section shall entitle a licensee to notice or hearing on the summary denial of an application or the summary inactivation of a license pursuant to subdivision (e).
The commissioner may disclose on the department’s Internet Web site the names and license numbers of those licensees whose licenses have been inactivated or who have been penalized due to noncompliance with this section. The commissioner may also report that information to the National Association of Insurance Commissioners (NAIC).
The commissioner may adopt regulations as necessary to implement this section.
Notwithstanding Section 1642, an insurer may own or control, whether directly or indirectly, a separate entity licensed under this chapter as a property broker-agent, casualty broker-agent, or life agent as defined in Section 1621, 1622, or 1623, respectively. Insurance transacted by a property broker-agent or a casualty broker-agent with and on behalf of the owning or controlling insurer shall be in its capacity as an insurance agent.
Every license issued under this chapter shall state thereon all the following:
The name of the licensee.
The capacity of the license.
The conditions, if any, subject to which the license is issued.
The effective date and expiration date of the license.
If issued to an organization, by separate listing attached to it, the name of each natural person who is qualified to be named thereon pursuant to the provisions of Section 1628.
The commissioner shall at all times retain full property rights in any document evidencing any license issued pursuant to Chapters 5, 6, 7, and 8 of this part. The commissioner may require the surrender of said document for any proper reason.
ARTICLE 4. Applications [1652. - 1661.]
The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice pursuant to subdivision (u) of Section 11105 of the Penal Code, and the Department of Justice shall provide to the commissioner a state or federal response pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code, for all applicants of each of the following:
A property licensee or a casualty licensee, as defined in Section 1625.
A personal lines licensee, as defined in Sections 1625.5.
A limited lines automobile insurance agent, as defined in Section 1625.55.
A life and accident and health or sickness licensee, as defined in Section 1626.
A life licensee limited to the payment of funeral and burial expenses, as defined in Section 1676.
A limited license to act as an agent on behalf of a cargo owner, a cargo shipper, or both, as described in Section 1757.1.
A car rental agent, as defined in Section 1758.89.
An administrator, as defined in Section 1759.
A reinsurance intermediary-broker, as defined in Section 1781.2.
A bail agent license, as defined in Section 1802.
A bail permittee license, as defined in Section 1802.5.
A bail solicitor license, as defined in Section 1803.
A stock agent who sells securities, as defined in Section 825.
An insurance adjuster, as defined in Section 14021.
A crop insurance adjuster, as defined in Section 14085.
A public insurance adjuster, as defined in Section 15007.
A part-time fraternal licensee, as described in Section 11103.
A life settlement broker, as defined in Section 10113.1.
A motor club agent, as defined in Section 12143.
A title marketing representative, as defined in Section 12418.
A self-service storage agent, as defined in Section 1758.791.
A vehicle service contract license, as described in Section 12815.
A license shall be applied for, and renewed by the filing with the commissioner of a written application therefor. The application shall be on a form prescribed by the commissioner, which form shall prescribe the disclosure of information that will aid the commissioner in determining whether the prerequisites for the license sought have been met. The applicant shall declare, under penalty of perjury, that the contents of the application are true and correct.
The forms prescribed by the commissioner other than for renewal applications may require authenticated fingerprints of any of the following:
Individual applicants.
Specified partners or officers of organization applicants.
The individuals who are to transact insurance for an organization applicant.
The forms may require the fingerprints to be affixed to the application or to an attachment to be affixed to the application. The commissioner, in the commissioner’s discretion, may require the fingerprints on applications for any, some, or all of the licenses issued pursuant to this chapter or Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), or Chapter 8 (commencing with Section 1831), provided that as to any one such type of license the requirement is applied without discrimination to all applicants within specified classifications. The classifications may be made upon any or all of the following bases:
Other reasonable criteria.
The commissioner may decline to act on an incomplete or defective application until an amended application which completes the prescribed form is filed with the commissioner.
No application for a license shall be deemed filed unless the document has been submitted by a means of electronic service approved by the commissioner, and the proper filing fee, including any required application fee for any qualifying examination required by this chapter, Chapter 5A (commencing with Section 1759), Chapter 6 (commencing with Section 1760), and Chapter 7 (commencing with Section 1800) of Part 2 of Division 1, or Chapter 1 (commencing with Section 14000) and Chapter 2 (commencing with Section 15000) of Division 5 for the license applied for has been paid. However, an applicant may, for good cause shown, request an exemption to the electronic filing requirement.
Every applicant for an organizational license shall provide the names of all licensed natural persons who may exercise the power and perform the duties under the license. Applicants for a nonresident organizational license are required to name at least one natural person from a state other than California who may exercise the power and perform the duties under their license. Additional natural persons endorsed to that license may be residents of other states, including California.
Every application for a license filed by a corporation shall contain the names and addresses of all stockholders owning 10 percent or more of the corporation’s stock and of all officers and directors of the corporation.
Every such licensed corporation shall file a written notice with the commissioner of all changes, except address changes, of its stockholders who own 10 percent or more of the corporation’s stock and of all officers and directors of the corporation. Notification to the commissioner shall be sent within 30 days of the date that the licensed corporation learns of a change of its stockholders who own 10 percent or more of the corporation’s stock and of all officers and directors of the corporation.
The commissioner may require the application or notice or both to also disclose additional information necessary to determine whether the applicant or licensee is in compliance with Section 1668.5.
Every application for a license filed by a limited liability company shall contain the names and addresses of all members owning 10 percent or more of the membership interests of the limited liability company, and of all managers, officers, and directors, if any, of the limited liability company.
Every licensed limited liability company shall file a written notice with the commissioner of all changes, except address changes, of its members owning 10 percent or more of the membership interests of the limited liability company and of all managers, officers, and directors, if any, of the limited liability company. Notification to the commissioner shall be sent within 30 days of the date that the licensed limited liability company learns of a change of its members who own 10 percent or more of the membership interests of the limited liability company and of the managers, officers, and directors, if any, of the limited liability company.
The commissioner may require the application or notice or both to also disclose additional information to determine whether the applicant or licensee is in compliance with Section 1668.5.
Each application filed by a natural person for a license shall contain the residence address, the principal business address, and the mailing address of the applicant. The application shall also contain the e-mail address to which the applicant wants the commissioner to direct all license-related correspondence. Each application for an organization license shall contain the principal business address and the mailing address of the applicant. The application shall also contain the e-mail address to which the applicant wants the commissioner to direct all license-related correspondence.
Whenever an organization licensed as a life agent, property broker-agent, casualty broker-agent, personal lines broker-agent, or limited lines automobile insurance agent desires to change, remove, or add to the natural person or persons who are to transact insurance under authority of its license pursuant to Section 1656, it shall immediately file an application or notice on a form prescribed by the commissioner with the commissioner for an endorsement changing its license accordingly. The form shall be submitted by a means of electronic service approved by the commissioner. The commissioner shall require that the qualifying examination provided by this code be taken by any natural person named by the organization to exercise its agency or brokerage powers who would be required to take and pass the qualifying examination. That natural person or persons and the organization are in all other respects subject to the provisions of this chapter and the insurance laws.
ARTICLE 5. Bonds [1662. - 1665.]
A property broker-agent, a casualty broker-agent, and a personal lines broker-agent shall, prior to acting in the capacity of an insurance broker, file with the commissioner and continuously maintain in force the bond required by this article. Any authority to act as broker shall automatically terminate immediately upon there being no bond in force.
Such bond shall be duly executed by an admitted surety insurer, shall be continuous in form, and shall be in favor of the people of the State of California.
The bond of a property broker-agent and a casualty broker-agent shall be in the amount of ten thousand dollars ($10,000). Individuals and organizations licensed for both property and casualty are only required to obtain one ten-thousand-dollar ($10,000) bond to act as a broker. The bond shall be contingent on the accounting by the property broker-agent or the casualty broker-agent to any person requesting insurance, for moneys or premiums collected by the property broker-agent or the casualty broker-agent when acting as a broker for insurance other than life.
ARTICLE 6. License Qualifications [1666. - 1672.]
Upon the filing of an application for a license in accordance with Article 4 of this chapter, the commissioner may make an investigation and require the filing of supplementary documents, affidavits, and statements as may be necessary to obtain a full disclosure of information as will aid the commissioner in determining whether the prerequisites for the license have been met. If the applicant makes a showing satisfactory to the commissioner that the applicant meets all prerequisites, the commissioner, if the applicant is eligible, may issue a certificate of convenience, and upon the applicant meeting any applicable examination requirements may issue a permanent license.
Notwithstanding any other provision of law, the commissioner shall at the time of issuance or renewal of any license under this chapter or Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), or Chapter 8 (commencing with Section 1831) require that any license applicant or licensee provide its federal employer identification number if the license applicant or licensee is a partnership, or the social security number of the license applicant or licensee for all others, except as provided in paragraph (2).
The commissioner shall require either a social security number or an individual taxpayer identification number if the license applicant or licensee is an individual applying for or renewing a license under this chapter.
A license applicant or licensee failing to provide the federal identification number, social security number, or individual taxpayer identification number shall be reported by the commissioner to the Franchise Tax Board and, if failing to provide after notification pursuant to paragraph (1) of subdivision (b) of Section 19528 of the Revenue and Taxation Code, shall be subject to the penalty provided in paragraph (2) of subdivision (b) of Section 19528 of the Revenue and Taxation Code.
The commissioner shall, upon request of the Franchise Tax Board, furnish to the board all of the following information with respect to every license applicant or licensee:
License applicant’s or licensee’s name.
Address or addresses of record.
Federal employer identification number if the entity is a partnership or owner’s name and social security number for all others.
Type of license.
Effective date of license or renewal.
Expiration date of license.
Whether license is active or inactive, if known.
Whether license is new or a renewal.
Notwithstanding paragraph (1), the commissioner shall, upon request of the Franchise Tax Board, furnish to the board either a social security number or an individual taxpayer identification number for individuals licensed under this chapter.
For the purposes of this section:
“Licensee” means any individual or entity, other than a corporation, authorized by a license, certificate, registration, or other means to engage in the insurance business regulated by this code.
The reports required under this section shall be filed on magnetic media or in other machine-readable form, according to standards furnished by the Franchise Tax Board.
The commissioner shall begin providing to the Franchise Tax Board the information required by this section as soon as economically feasible, but no later than July 1, 1987. The information shall be furnished at a time that the Franchise Tax Board may require.
Notwithstanding Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code, the information furnished pursuant to subdivision (a) and subparagraph (C) of paragraph (1) of, and paragraph (2) of, subdivision (c) shall not be deemed to be a public record and shall not be open to the public for inspection.
A deputy, agent, clerk, officer, or employee of the commissioner, or any former officer or employee or other individual, hereinafter “employees,” who in the course of the employees’ employment or duty has or has had access to the information required to be furnished under this section, shall not disclose or make known in any manner that information, except as provided in this section.
This section shall not prevent an agency from disclosing or making known in any manner that information when the transfer is necessary for the transferee agency to perform its constitutional or statutory duties, and the use is compatible with a purpose for which the information was collected and the use or transfer is accounted for in accordance with Section 1798.25 of the Civil Code.
With respect to information transferred from a law enforcement or regulatory agency, or information transferred to another law enforcement or regulatory agency, a use is compatible if the use of the information requested is needed in an investigation of unlawful activity under the jurisdiction of the requesting agency or for licensing, certification, or regulatory purposes by that agency and on the condition that the law enforcement or regulatory agency requesting the information needed agrees to keep that information confidential in accordance with Section 1798.25 of the Civil Code.
A law enforcement or regulatory agency that requests information from the commissioner shall, upon request, identify for the commissioner the intended use for the information. The commissioner shall have the discretion to determine whether to transfer the information to the law enforcement or regulatory agency and shall not transfer the information if the commissioner determines that the information will be used for an improper purpose.
It is the intent of the Legislature in enacting this section to utilize the social security account number, individual taxpayer identification number, or federal employer identification number for the purpose of establishing the identification of persons affected by state tax laws and, to that end, the information furnished pursuant to this section shall be used exclusively for an agency to perform its constitutional or statutory duties.
This section shall become operative on July 1, 2018.
Except as provided in Section 1669, a license shall not be denied without an opportunity to the applicant to be heard in support of his application. When a hearing is held, the proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code.
The commissioner may deny an application for a license issued pursuant to this chapter if any of the following are true:
The applicant is not properly qualified to perform the duties of a person holding the license for which the applicant applied.
The granting of the license will be against public interest.
The applicant does not intend actively and in good faith to carry on as a business with the general public the transactions that would be permitted by the issuance of the license for which the applicant applied.
The applicant is not of good business reputation.
The applicant is lacking in integrity.
The applicant has been refused a professional, occupational, or vocational license or had a professional, occupational, or vocational license suspended or revoked by a licensing authority for reasons that should preclude the granting of the license for which the applicant applied.
The applicant seeks the license for the purpose of avoiding or preventing the operation or enforcement of the insurance laws of this state.
The applicant has knowingly or willfully made a misstatement in an application to the commissioner for a license, or in a document filed in support of that application, or has made a false statement in testimony given under oath before the commissioner or another person acting in the commissioner’s stead.
The applicant has previously engaged in a fraudulent practice or act or has conducted any business in a dishonest manner.
The applicant has shown incompetency or untrustworthiness in the conduct of any business, or has by commission of a wrongful act or practice in the course of any business exposed the public or those dealing with the applicant to the danger of loss.
The applicant has knowingly misrepresented the terms or effect of an insurance policy or contract.
The applicant has failed to perform a duty expressly enjoined upon them by this code or has committed an act expressly forbidden by this code.
The applicant has been convicted of any of the following:
A felony.
A misdemeanor specified by this code or other laws regulating insurance.
A public offense having as one of its necessary elements a fraudulent act or an act of dishonesty in acceptance, custody, or payment of money or property.
The applicant has aided or abetted a person in an act or omission that would constitute grounds for the suspension, revocation, or refusal of a license or certificate issued under this code to the person aided or abetted.
The applicant has permitted a person in the applicant’s employ to violate this code.
The applicant has violated a law relating to conduct of business that could lawfully be done only under authority conferred by that license.
The applicant has submitted to the commissioner a false or fraudulent certificate pursuant to subdivision (d) of Section 1749.5.
The applicant has been found liable by clear and convincing evidence in a civil action involving allegations of elder or dependent abuse, oppression, fraud, malice, misappropriation or conversion of funds, misrepresentation, or breach of fiduciary duty.
A judgment, plea, or verdict of guilty, or a plea of nolo contendere is deemed to be a conviction within the meaning of this section.
In addition to the grounds set forth in Section 1668, the following acts shall constitute cause to suspend or revoke any permanent license issued pursuant to this chapter:
The licensee has induced a client, whether directly or indirectly, to cosign or make a loan, make an investment, make a gift, including a testamentary gift, or provide any future benefit through a right of survivorship to the licensee, or to any of the persons listed in subdivision (e).
The licensee has induced a client, whether directly or indirectly, to make the licensee or any of the persons listed in subdivision (e) a beneficiary under the terms of any intervivos or testamentary trust or the owner or beneficiary of a life insurance policy or an annuity policy.
The licensee has induced a client, whether directly or indirectly, to make the licensee, or a person who is registered as a domestic partner of the licensee, or is related to the licensee by birth, marriage, or adoption, a trustee under the terms of any intervivos or testamentary trust. However, if the licensee is also licensed as an attorney in any state, the licensee may be made a trustee under the terms of any intervivos or testamentary trust, provided that the licensee is not a seller of insurance to the trustor of the trust.
The licensee, who has a power of attorney for a client has sold to the client or has used the power of attorney to purchase an insurance product on behalf of the client for which the licensee has received a commission.
Subdivisions (a) and (b) shall also apply if the licensee induces the client to provide the benefits in those subdivisions to the following people:
A person who is related to the licensee by birth, marriage, or adoption.
A person who is a friend or business acquaintance of the licensee.
A person who is registered as a domestic partner of the licensee.
This section shall not apply to situations in which the client is:
A person related to the licensee by birth, marriage, or adoption.
A person who is registered as a domestic partner of the licensee.
The commissioner may deny an application for a license issued pursuant to this chapter, and may suspend or revoke the permanent license of an organization licensed pursuant to this chapter as authorized by Section 1738, if the applicant or holder of the permanent license is an organization and a controlling person of the organization is any of the following:
The controlling person has previously engaged in a fraudulent practice or act or has conducted any business in a dishonest manner.
The controlling person has shown incompetency or untrustworthiness in the conduct of any business, or has by commission of a wrongful act or practice in the course of any business exposed the public or those dealing with the controlling person to the danger of loss.
The controlling person has knowingly misrepresented the terms or effect of an insurance policy or contract.
The controlling person has failed to perform a duty expressly enjoined upon them by a provision of this code or has committed an act expressly forbidden by a provision of this code.
The controlling person has been convicted of any of the following:
A felony.
A misdemeanor specified by this code or other laws regulating insurance.
A public offense having as one of its necessary elements a fraudulent act or an act of dishonesty in acceptance, custody, or payment of money or property.
A judgment, plea, or verdict of guilty, or a plea of nolo contendere is deemed to be a conviction within the meaning of this section.
The controlling person has aided or abetted a person in an act or omission that would constitute grounds for the suspension, revocation, or refusal of a license or certificate issued under this code to the person aided or abetted.
The controlling person has permitted a person in the controlling person’s employ to violate this code.
The controlling person has violated a law relating to conduct of business that could lawfully be done only under authority conferred by a license under this chapter.
The controlling person has been found liable by clear and convincing evidence in a civil action involving allegations of elder or dependent abuse, oppression, fraud, malice, misappropriation or conversion of funds, misrepresentation, or breach of fiduciary duty.
As used in this section, “controlling person” means a person who possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the organization, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, including, but not limited to, power that is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, more than 10 percent of the voting securities of the organization. This presumption may be rebutted by a showing that control does not exist in fact. The commissioner may, after furnishing all persons in interest notice and opportunity to be heard, determine that control exists in fact, notwithstanding the absence of a presumption to that effect.
The commissioner may, without hearing, deny an application if the applicant has done one or more of the following:
Been convicted of a felony.
Been convicted of a misdemeanor specified by this code or by other laws regulating insurance.
A judgment, plea, or verdict of guilty, or a plea of nolo contendere is deemed to be a conviction within the meaning of this subdivision.
Had a previous application for a professional, occupational, or vocational license denied for cause by a licensing authority, within five years of the date of the filing of the application to be acted upon, on grounds that should preclude the granting of a license by the commissioner under this chapter.
Had a previously issued professional, occupational, or vocational license suspended or revoked for cause by a licensing authority, within five years of the date of the filing of the application to be acted upon, on grounds that should preclude the granting of a license by the commissioner under this chapter.
If the commissioner issues an order based on a plea that does not at any time result in a judgment of conviction, the commissioner shall vacate the order upon petition by the applicant.
If an applicant for any license under this chapter, Chapter 7 (commencing with Section 1800) of this part, or Chapter 1 (commencing with Section 14000) or Chapter 2 (commencing with Section 15000) of Division 5, within one year from the date of the receipt by the commissioner of the application, whether or not the filing is complete, or within one year from the date of the issuance to the applicant of a certificate of convenience, if any, whichever is the later date, neither fully qualifies for and receives that license on a permanent basis, nor is denied its issue, the application is automatically denied without prejudice to the filing of a new application for the license unless in a proceeding under a statement of issues the commissioner for good cause determines the denial should be set aside or stayed.
The commissioner may deny an application filed by an organization, unless both the organization and all natural persons named thereon meet the qualifications for the license for which such application is filed, but the qualifying examination shall be administered only to natural persons. In case the application is for more than one natural person to be named thereon and at least one, but not all, of such persons satisfy the examination requirement, the commissioner may issue such license omitting therefrom the names of the person or persons who fail to satisfy the examination requirement.
ARTICLE 7. License Qualification Examinations [1675. - 1684.]
The following applicants who have theretofore been licensed under this code are exempt from the requirements of this article:
An applicant for a license to act as a property broker-agent or a casualty broker-agent who has been licensed as a property broker-agent, casualty broker-agent, or surplus line broker during any part of the license year in which the application is filed or the immediately preceding license year.
An applicant for a license to act as a life agent who has been licensed as a life agent during any part of the license year in which the application is filed or the immediately preceding license year.
An applicant for a license to act as an accident and health or sickness agent who has been licensed as an accident and health or sickness agent during any part of the license year in which the application is filed or the immediately preceding license year.
An applicant for a license to act as a travel insurance agent.
An applicant specifically exempted from the particular qualifying examination requirement by other provisions of this code.
A nonresident licensee who applies for a property broker-agent, casualty broker-agent, personal lines broker-agent, or life agent resident license in this state, and who is currently licensed for the same lines of authority in the state of the current resident license, shall not be required to complete an examination. The application shall be received within 90 days of the cancellation of the applicant’s resident license and the producer database records, maintained by the National Association of Insurance Commissioners, shall indicate that the producer is licensed in good standing for the line of authority requested.
Upon issuance of the California resident license, the examination waiver also applies to adding additional lines of authority to the California resident license provided that the individual was previously licensed in good standing for the requested additional lines of authority, and the application is received within 12 months of the cancellation of the applicant’s previous resident license in another state.
Except as set forth in Sections 1675 and 1679, the commissioner shall not issue a permanent license pursuant to this chapter to an applicant therefor unless the applicant has within the 12-month period next preceding the date of issue of the license taken and passed the qualifying examination for that license. This section shall not apply to a person licensed as a property broker-agent or as a casualty broker-agent who applies for a license as a personal lines broker-agent.
An application for both the life and accident and health or sickness license types shall meet the requirement in subdivision (a) by passing one examination covering subjects pertaining to both license types. These applicants shall pay the fee for a life agent, as specified in paragraph (4) of subdivision (a) of Section 1751.
An applicant for a life license pursuant to Section 1626 or a life license limited to the payment of funeral and burial expenses who is limited by the terms of a written agreement with an insurer that has filed on that life agent’s behalf a notice of appointment with the commissioner to transact only specific life insurance policies or annuities having an initial face amount of twenty thousand dollars ($20,000) or less that are designated by the purchaser for the payment of funeral and burial expenses, shall not be required to take the full life agent examination to obtain a license. The applicant shall be required to take an examination developed to test their knowledge of topics relevant to the type of policies that they are restricted to sell.
Each qualifying examination for a license pursuant to this chapter shall be in writing and shall be of sufficient scope to satisfy the commissioner that the applicant has sufficient knowledge of, and is reasonably familiar with, the insurance laws of this state and with the provisions, terms, and conditions of the insurance that may be transacted pursuant to the license sought, and that the applicant has a general and fair understanding of the obligations and duties of the holder of that license.
The examination for a license as a life agent, accident and health or sickness agent¸ property broker-agent, and casualty broker-agent shall be provided in English, Spanish, Simplified Chinese, Vietnamese, and Korean.
On or after July 1, 2024, the examination for a license as a life agent, accident and health or sickness agent¸ property broker-agent, and casualty broker-agent shall also be provided in Tagalog.
As part of the commissioner’s annual report to the Governor required under Section 12922, the commissioner shall also include the following information:
The number of people taking the Spanish, Simplified Chinese, Vietnamese, Korean, and Tagalog examinations.
The first-time pass rate of the Spanish, Simplified Chinese, Vietnamese, Korean, and Tagalog examinations, including a comparison between the comparable licensing examination taken in English.
This section shall become operative on January 1, 2024.
The commissioner shall administer qualifying license examinations under this chapter at test centers designated by the commissioner and through online proctored license examinations. The commissioner may give the examinations at more frequent intervals or in other places throughout the state.
A nonresident applicant for a license shall be subject to the same qualifying examination as is required of a resident applicant. The examination may be administered to an eligible nonresident applicant through the insurance authority of the state, territory of the United States, or province of Canada of the applicant’s residence; provided, however, that the commissioner may, in the commissioner’s discretion, enter into a reciprocal arrangement with the officer having supervision of the insurance business in any other state, territory of the United States, or province of Canada whose qualification standards for the applicant to be examined are substantially the same as or in excess of those of this state, to accept, in lieu of the examination of an applicant residing therein, a certificate of the officer to the effect that the applicant is licensed in that state, territory of the United States, or province of Canada in a capacity similar to that for which a license is sought in this state and has complied with its qualification standards in respect to all of the following:
Experience or training.
Reasonable familiarity with the broad principles of insurance licensing and regulatory laws and with the provisions, terms, and conditions of the insurance which the applicant proposes to transact.
A fair and general understanding of the obligations and duties of a holder of the license sought.
The provisions of this section shall not apply to a nonresident applicant who maintains a license in a jurisdiction that grants reciprocity to California residents in accordance with Section 1638.5.
A nonresident applicant for an organizational license shall name at least one person from a state other than California who may exercise the power and perform the duties under their license. Additional persons endorsed to that license may be residents of other states, including California.
If an applicant fails the qualifying examination, that applicant may, subject to the provisions of Section 1682, retake a qualifying examination.
No person shall cheat on, subvert, or attempt to subvert, any licensing examination given by the department, including, but not limited to, engaging in, soliciting, or procuring any of the following:
Any communication between one or more examinees and any other person, other than a proctor or examination official, while the examination is in progress.
The taking of all or a part of the examination by a person other than the applicant.
Possession or use at any time during the examination or while the examinee is on the examination premises of any device, material, or document that is not expressly authorized for use by examinees during the examination, including, but not limited to, notes, crib sheets, textbooks, and electronic devices.
Failure to follow any examination instruction or rule related to examination security.
The provision of false, fraudulent, or materially misleading information concerning education, experience, or other qualifications as part of, or in support of, any application for admission to any examination.
Any person who willfully violates this section is guilty of a misdemeanor punishable by a fine not exceeding ten thousand dollars ($10,000) or by imprisonment in a county jail not exceeding one year.
The commissioner shall bar any candidate caught willfully cheating under this section from taking any license examination and from holding an active license under any provision of this code for a period of five years.
A person shall not be admitted to more than 10 license qualification examinations of the same type in any 12-month period.
If a person is admitted to 10 license qualification examinations of the same type in any 12-month period, that person shall not be admitted to another examination of that type until a 12-month period has passed since that 10th examination.
For purposes of this subdivision, the 12-month period ends at the end of the day immediately preceding the one-year anniversary date of the examination administration in question.
For purposes of subdivision (a), the covered types of license qualification examinations are as follows:
The accident and health or sickness agent type examinations, which include both of the following:
The accident and health or sickness agent examination.
The life and accident and health or sickness agent combination examination.
The bail agent examination.
The casualty broker-agent type examinations, which include all of the following:
The casualty broker-agent examination.
The commercial insurance examination.
The property and casualty broker-agent combination examination.
The commercial insurance type examinations, which include all of the following:
The commercial insurance examination.
The casualty broker-agent examination.
The property and casualty broker-agent combination examination.
The property broker-agent examination.
The insurance adjuster examination.
The life and disability analyst examination.
The life limited to the payment of funeral and burial expense type examinations, which include all of the following:
The life limited to the payment of funeral and burial expense examination.
The life and accident and health or sickness agent combination examination.
The life agent examination.
The life and accident and health or sickness agent combination type examinations, which include all of the following:
The life and accident and health or sickness agent combination examination.
The accident and health or sickness agent examination.
The life limited to the payment of funeral and burial expense examination.
The life agent examination.
The life agent type examinations, which include all of the following:
The life agent examination.
The life and accident and health or sickness agent combination examination.
The life limited to the payment of funeral and burial expense examination.
The limited lines automobile type examinations, which include all of the following:
The limited lines automobile examination.
The personal lines broker-agent examination.
The property and casualty broker-agent combination examination.
The property broker-agent examination.
The personal lines broker-agent type examinations, which include all of the following:
The personal lines broker-agent examination.
The limited lines automobile examination.
The property and casualty broker-agent combination examination.
The property broker-agent examination.
The property broker-agent type examinations, which include all of the following:
The property broker-agent examination.
The commercial insurance examination.
The limited lines automobile examination.
The personal lines broker-agent examination.
The property and casualty broker-agent combination examination.
The property and casualty broker-agent combination type examinations, which include all of the following:
The property and casualty broker-agent combination examination.
The casualty broker-agent examination.
The commercial insurance examination.
The limited lines automobile examination.
The personal lines broker-agent examination.
The property broker-agent examination.
The public insurance adjuster examination.
Notwithstanding subdivision (a), a person who has passed any of the following license qualification examinations shall not be admitted to a subsequent administration of that examination, unless that person is required by the commissioner or applicable law to retake the examination.
Except as provided in this article, there is not a limitation on the frequency with which a person may take license qualification examinations.
An applicant shall schedule or reschedule the applicant’s qualifying examination using an electronic service approved by the commissioner. If an applicant fails to appear at the time and place set for the examination, the applicant shall be deemed to have failed the examination. If the applicant fails the qualifying examination, the commissioner shall give the applicant written notice thereof.
Except as otherwise provided in this article, whenever reference is made in this article to an applicant for a license, such reference includes each natural person who applies to be named on the license of an organization, and wherever reference is made to a person who has been licensed in a specified capacity, such reference shall also apply to a person named to act in such capacity under the license of an organization.
ARTICLE 8. Certificates of Convenience [1685. - 1698.]
The commissioner may issue to an eligible person a certificate of convenience to act as any of the following:
Any type of a licensee under this chapter or Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), or Part 5 (commencing with Section 121401) of Division 2 to administer the business of a licensed person who has died or who has been declared incompetent by the judgment of a court of competent jurisdiction. That certificate of convenience may be denominated an estate certificate of convenience.
Any type of a licensee under this chapter or Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), or Part 5 (commencing with Section 121401) of Division 2 to conserve the business of a licensed natural person who enters the military service of the United States or to conserve the business of an organization under the conditions specified in Section 1697. That certificate of convenience may be denominated a military service certificate.
To be eligible for an estate certificate of convenience, a person shall be one of the following:
The executor or administrator of the estate of a deceased property broker-agent, casualty broker-agent, or life agent.
If no executor or administrator has been appointed, the surviving spouse or heir otherwise entitled to conduct the business of the deceased property broker-agent, casualty broker-agent, or life agent.
The conservator of the estate of a property broker-agent, casualty broker-agent, or life agent.
Except as provided in Section 1637, to be eligible for a military service certificate of convenience, a person is required to be nominated therefor by the holder of a permanent license who, while the holder, entered the military service of the United States. “Military service” has the meanings ascribed to it by Section 101 of the Servicemembers Civil Relief Act of 2003 (Public Law 108-189).
An estate certificate of convenience expires upon the happening of any of the following events, whichever occurs first:
Upon the filing with the commissioner of a certified copy of an order appointing an executor or administrator, if the certificate of convenience has been issued to a person other than the person so appointed executor or administrator.
Upon the filing with the commissioner of a certified copy of an order appointing a new conservator of the estate of a property broker-agent, casualty broker-agent, or life agent.
Upon the disposal of the business of the property broker-agent, casualty broker-agent, or life agent who is deceased or for whom a conservator of the estate has been appointed.
Upon the expiration of one year after the death of the deceased property broker-agent, casualty broker-agent, or life agent; provided, however, that if during the said year the holder of the certificate of convenience files an application for a license to act as a property broker-agent, casualty broker-agent, or life agent in the individual capacity of the holder, then the certificate of convenience may remain in force until the holder thereof has been given an opportunity to take the qualifying examination for the license.
Upon the termination of the conservatorship of the estate of the property broker-agent, casualty broker-agent, or life agent.
A military service certificate of convenience shall terminate upon the relicensing of the nominating licensee, but in no event shall it remain in force beyond the period set forth in Section 1722.
A military service certificate of convenience may be issued to an organization only under the following circumstances:
Such organization is the holder of a permanent license, and
The person entering the military service of the United States is the only natural person named on the license of such organization.
The military service certificate of convenience referred to in Section 1697 expires at one of the following times, whichever occurs first:
Upon the qualification of a natural person to be named on the permanent license of the organization; or
Six months after the issuance of the certificate of convenience.
ARTICLE 9. Issuance of Licenses [1702. - 1707.7.]
All licenses issued pursuant to this chapter shall be issued to the holder thereof.
Every applicant for an original license under this chapter, Chapter 5A (commencing with Section 1759), Chapter 6 (commencing with Section 1760), or Chapter 7 (commencing with Section 1800) shall, as part of the application, endorse an authorization for disclosure to the commissioner of financial records of any fiduciary funds as defined in Section 1733, pursuant to Section 7473 of the Government Code. The authorization shall continue in force and effect for so long as the licensee continues to be licensed by the department.
Any person acting as a licensee under this chapter shall not act as an agent of an insurer unless the insurer has filed with the commissioner a notice of appointment, executed by the insurer, appointing the licensee as the insurer’s agent. Every property broker-agent, casualty broker-agent, personal lines broker-agent, or limited lines automobile insurance agent acting in the capacity of an insurance solicitor shall have filed on his or her behalf with the commissioner a notice executed by an insurance agent or insurance broker appointing and agreeing to employ the solicitor as an employee within this state. Additional notices of appointment may be filed by other insurers before the license is issued and thereafter as long as the license remains in force. The authority to transact insurance given to a licensee by an insurer, property broker-agent, casualty broker-agent, personal lines broker-agent, or limited lines automobile insurance agent, as the case may be, by appointment shall be effective as of the date the notice of appointment is signed. That authority to transact shall apply to transactions occurring after that date and for the purpose of determining the insurer’s, property broker-agent’s, casualty broker-agent’s, personal lines broker-agent’s, or limited lines automobile insurance agent’s liability for acts of the appointed licensee. No notice of appointment of a life agent, property broker-agent, casualty broker-agent, personal lines broker-agent, limited lines automobile insurance agent, or travel insurance agent shall be filed under this subdivision unless the licensee being appointed has consented to that filing. Each appointment made under this subdivision shall by its terms continue in force until:
The cancellation or expiration of the license applied for or held at the time the appointment was filed.
The filing of a notice of termination by the insurer or employing property broker-agent or casualty broker-agent, or by the appointed life agent, property broker-agent, casualty broker-agent, travel insurance agent, or insurance solicitor.
Upon the termination of all appointments, or all endorsements naming the licensee on the license of an organization licensee, and the cancellation of the bond required pursuant to Section 1662 if acting as a broker, the permanent license shall not be canceled, but shall become inactive. It may be renewed pursuant to Section 1718. It may be reactivated at any time prior to its expiration by the filing of a new appointment pursuant to this section, Section 1707, and Section 1751.3, or the filing of a new bond pursuant to Section 1662. An inactive license shall not permit its holder to transact any insurance for which a valid, active license is required.
Upon the termination of all appointments of a person licensed under a certificate of convenience, that certificate shall be canceled and shall be returned by its lawful custodian to the commissioner.
A property broker-agent or a casualty broker-agent appointing an insurance solicitor pursuant to this section, if a natural person, shall be the holder of a permanent license to act as such a broker-agent or the holder of a certificate of convenience so to act issued pursuant to either subdivision (a) or (b) of Section 1685. If the property broker-agent or the casualty broker-agent is an organization, it shall be the holder of a permanent license.
The filing of an incomplete or deficient action notice with the department shall require the filing of an amended, complete action notice, together with the payment of the fee therefor specified in subdivision (l) of Section 1751.
A notice of appointment appointing a solicitor may be filed by a second or subsequent property broker-agent or casualty broker-agent. The broker-agent seeking to appoint the solicitor shall enter into an agreement with all other property broker-agents and casualty broker-agents with whom the insurance solicitor has an existing appointment. The agreement shall govern how the broker-agents will determine on which property broker-agent’s or casualty broker-agent’s behalf the solicitor is working when dealing with individuals who are customers of none of the property broker-agents and casualty broker-agents with whom the solicitor has an appointment. If the agreement does not identify which broker-agent or broker-agents are liable for the act of the solicitor, all property broker-agents and casualty broker-agents with whom the solicitor is appointed at the time of the act shall be jointly and severally liable for that act.
Except as provided in subdivision (b), a licensed life agent may present a proposal for insurance to a prospective policyholder on behalf of a life insurer for which the life agent is not specifically appointed, and may also transmit an application for insurance to that insurer. If a policy of insurance is issued pursuant to that application, the insurer is considered to have authorized the agent to act on its behalf, and the insurer is responsible for all actions of the agent that relate to the application and policy as if the agent had been duly appointed for the insurer. Not more than 14 days after the life agent submits an application for insurance to the insurer for which the insurer issues a policy, the insurer shall forward to the commissioner a notice of appointment of the life agent as the insurer’s agent in accordance with the requirements of this article. Nothing in this section obliges an insurer to accept an application for underwriting from a life agent. Any payments made by the prospective policyholder prior to issuance of the policy shall be made only in the form of a draft, check, cashier’s check, traveler’s check, money order, or similar instrument made payable to the insurer to which the application is transmitted.
A licensed life agent who is not specifically appointed for a particular life insurer may not (1) present a proposal to a prospective policyholder for insurance with that insurer or (2) transmit an application for insurance to that insurer if the insurer requires all its life agents to represent only that insurer or a group of affiliated insurers of which that insurer is a member or to submit risks to that insurer or group of affiliated insurers prior to submitting them to other insurers.
An insurer, or employing property broker-agent or casualty broker-agent, by filing a notice of appointment on behalf of an applicant for an original license pursuant to Section 1704, and who is not then licensed pursuant to this chapter or Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), shall be deemed by that act to have declared that:
The applicant is of good reputation.
The applicant is worthy of the license sought.
An insurer, property broker-agent, or casualty broker-agent, by filing a notice of appointment on behalf of an applicant for an original license to act as a life agent, property broker-agent, casualty broker-agent, or insurance solicitor, where the applicant for any reason will not be issued a certificate of convenience pending examination under Article 8 (commencing with Section 1685), shall be deemed to have declared that the applicant has had experience or instruction in classes of insurance, the transaction of which is authorized by the license sought, or will be given the necessary instruction within 30 days after the issuance of the license.
Should the applicant for a life agent, property broker-agent, or casualty broker-agent license be a copartnership, corporation, or association, the insurer filing the appointment shall be deemed to have made the declarations set forth in subdivisions (a) and (b) of this section as regards both the business organization and each natural person whose name appears in the application as one to exercise the agency powers of the license sought. The insurer shall be deemed to have made the declaration in the preceding paragraph only as regards the natural person or persons to be named on the organization’s license initially.
Whenever a copartnership, corporation, or association licensed as a life agent, property broker-agent, or casualty broker-agent files to add to any such license the name of a natural person to exercise the agency powers thereunder, the business organization shall be deemed to have made the appropriate declarations regarding the natural person, as set forth in this section, as are required of an insurer filing a notice of appointment on behalf of an applicant for an original license.
Except as otherwise provided in Section 1704.5, each notice of appointment or notice of termination of appointment filed pursuant to this article shall be filed on forms prescribed by the commissioner within 15 days of appointment or termination.
The commissioner in lieu of retaining in his or her files a copy of the notices of appointment or notices of termination described in Section 1707, if he or she has made entry of the facts pertaining to the appointments or terminations or the statements, including the cancellation, if any thereof, in some portion of his or her official records, may at any time thereafter destroy the documents. The commissioner’s certification as to the content of such an entry shall be competent evidence of the facts therein stated for any purpose in any court or administrative action or proceeding and shall be accepted in lieu of the actual documents.
Notwithstanding any other provision of law, qualified applicants who applied in proper form and requested an examination date for a property, casualty, or life insurance license prior to December 1, 1991, shall be provided the opportunity to qualify for licensure under statutory licensure provisions in effect on December 31, 1991.
The department may require the applicant to execute a sworn statement subject to a penalty of perjury and denial of license declaring that they meet the qualifications set forth in subdivision (a). The department shall provide public notice as to the availability of these tests and as to the procedure and requirements necessary to qualify for the test. The tests shall be administered within 90 days of enactment of this section.
As part of the report required under Section 12922, the commissioner shall provide the following information for the previous calendar year ending December 31 for five years after the operative date of this section:
The total number of applications filed for a property and casualty broker-agent license, a property broker-agent license, a casualty broker-agent license, a personal lines broker-agent license, a limited lines auto-only agent license, a life agent license, and an accident and health or sickness agent license.
The total number of licensees issued a property and casualty license, a property broker-agent license, a casualty broker-agent license, a personal lines license, a limited lines automobile license, a life license, and an accident and health or sickness license.
The total number of licensees with both a life agent license and an accident and health or sickness agent license.
The total justified complaints against the licensees enumerated in subdivision (b) annually for five years.
At the end of five years following the issuance of auto-only agent, life agent, and accident and health or sickness agent licenses, a cumulative summary of the data required by this section compared to the licenses issued for property and casualty broker-agent, property broker-agent, casualty broker-agent, personal lines broker-agent, and life agent for the year immediately preceding the creation of this section.
ARTICLE 10. Termination of Licenses [1708. - 1712.5.]
A licensee may at any time surrender for cancellation any license under which that licensee is permitted to act in any of the capacities specified in this chapter. The licensee may make that surrender by written notice thereof delivered to the commissioner.
All licenses issued to natural persons terminate upon the death of such person.
For the purposes of this chapter and except as provided in this article, an organization ceases to exist as an entity eligible to hold a license:
Upon dissolution of a copartnership or upon any change in membership of a copartnership.
Upon the termination of an association.
Upon dissolution of a corporation.
Provided, however, should a change occur in the membership of a copartnership licensed under this chapter, the surviving or continuing copartnership may continue to transact insurance under the license issued to the predecessor copartnership until action is taken by the commissioner on the application herein prescribed if the following requirements are met:
The surviving or continuing copartnership within 30 days files an application on a form prescribed by the commissioner for registration of the change in membership, and pays the lawful fee therefor and, if acting as an insurance broker, furnishes the bond required under Article 5 (commencing with Section 1662).
At least one person who exercised the agency or brokership powers of the predecessor copartnership continues to exercise the agency or brokership powers of the surviving or continuing copartnership.
That application for registration be signed by a general partner.
The termination of the existence of the license entity as provided in Section 1711, automatically terminates the right of that entity to transact insurance thereunder; except that a natural person, copartnership, association, or corporation licensed under this article, may continue to transact insurance under an existing license in either a different capacity or as a different organization or entity if a natural person is named to exercise the agency or brokerage powers of the license entity, and that natural person remains eligible to be so named, and if no substantial change in ownership and no change in control of the licensed insurance business has taken place; provided, that within 30 days following the change the person or the successor copartnership, association or corporation files a properly completed and executed application in the form prescribed by the commissioner for an appropriate license and pays the lawful fees therefor.
Nothing herein shall be construed to nullify any provision of Section 1718 except that any fee paid as required by subdivisions (a) or (b) of Section 1718 for a license not issued may be applied towards the fee for filing an application under this section.
The license of an organization licensed as a property broker-agent, casualty broker-agent, or life agent shall become inoperative upon the removal or termination of the last natural person named thereon, pursuant to Section 1656.
Unless the license is reactivated by the correction of all deficiencies including, if necessary, the adding of a natural person to transact insurance under the authority of the organization’s license pursuant to Section 1661, the license shall not be renewed.
ARTICLE 11. License Terms [1716. - 1723.]
The provisions of this article shall not apply to any certificate of convenience other than a military service certificate of convenience issued to a natural person.
All licenses issued under this chapter shall be for the license term specified in Section 1630. Such licenses may be issued for all of such term, or, upon application made during any such term, for the balance thereof. Such license term shall commence as specified in Section 1630.
Notwithstanding any other provision of this article, the commissioner shall institute year-round licensing of production agency licensees commencing with those license renewals taking place in 1986.
Not less than 60 days before a permanent license will expire, the commissioner may use an electronic delivery method, including email or other similar electronic method of delivery, to deliver, or may mail, to the latest email or mailing address appearing on the commissioner’s records, an application to the licensee to renew the license for the appropriate succeeding license term. It is the licensee’s responsibility to renew whether or not a renewal notice is received. The commissioner may accept a late renewal, provided the licensee’s failure to comply is due to clerical error or inadvertence on the part of the department.
Application for renewal of a license may be filed on or before the expiration date. When filed under this subdivision, the fee for filing shall be as specified in Section 1750.
The application for renewal of an expired license may be filed after the expiration date and until that same month and day of the next succeeding year. The fee for a renewal application under this subdivision shall be the fee specified in subdivision (b) and a delinquent fee in the amount specified for a one-year period in Section 1750 for the filing. Each licensee shall be subject to payment of delinquent fees under this section.
The commissioner shall not issue any permanent license within 30 days prior to the expiration date on record for a previously licensed entity unless the person shall have also filed an application for renewal of the license for that license year or term directly following the expiration date to which the application for renewal relates and shall have paid the fee for filing specified in Section 1750. As to the filing of the renewal application, the provisions of Section 1718 shall not be applicable.
A licensee who has applied to renew a license under this chapter shall be entitled to continue operating under the existing license for 60 days after its specified expiration date, or until notified by the department that the renewal application is deficient, whichever comes first, if the applicant has satisfied all license renewal requirements, including, but not limited to, the following:
The submission of the applicable renewal application and fee on or before the expiration date of the license.
The satisfaction of all required continuing education or training requirements.
This section shall not apply to any license that is suspended or revoked.
If a natural person while licensed pursuant to the provisions of this chapter or Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), or Chapter 8 (commencing with Section 1831) of this part, Part 5 (commencing with Section 12140) of Division 2, or Chapter 1 (commencing with Section 14000) or Chapter 2 (commencing with Section 15000) of Division 5 enters the military service of the United States and is in that service at a time prescribed for the filing of a renewal application, the filing of that application is waived, and the license held by that licensee at the time of the licensee’s entry into military service shall remain in force during the period of that military service and until the end of the license year in which the licensee is released from that service, but not for less than six months after that release. During that period, the licensee may secure a license of the type held by the licensee upon entry into military service upon the filing of an application and paying the fee therefor without the necessity of taking an examination or paying a penalty.
At the time any original or renewal license application that is submitted to the commissioner shows a conviction of the applicant of a felony involving dishonesty or breach of trust, or of a violation of Section 1033 of Title 18 of the United States Code, the commissioner shall either commence a proceeding pursuant to Section 1668 or 1669, or Section 1738 in the case of a renewal application, or give written consent to the applicant or licensee pursuant to paragraph (2) of subsection (e) of Section 1033 of Title 18 of the United States Code.
This section shall apply to all licenses and registrations issued by the commissioner pursuant to this code, whether included in this chapter or in any other chapter of this code, and without regard to whether another chapter incorporates the requirements of this section by reference.
ARTICLE 12. Conduct of Licensee [1724. - 1736.5.]
An agent, broker, or solicitor who is not an active member of the State Bar of California may not share a commission or other compensation with an active member of the State Bar of California. For purposes of this section, “commission or other compensation” means pecuniary or nonpecuniary compensation of any kind relating to the sale or renewal of an insurance policy or certificate or an annuity, including, but not limited to, a bonus, gift, prize, award, or finder’s fee.
Every individual and organization licensee and every applicant for a license shall file with the commissioner in writing the true name of the individual or organization and also all fictitious names under which an individual or organization conducts or intends to conduct business and after licensing shall file with the commissioner any change in or discontinuance of those names. The commissioner may in writing disapprove the use of any true or fictitious name (other than the bona fide natural name of an individual) by any licensee on any of the following grounds:
The name is an interference with or is too similar to a name already filed and in use by another licensee;
The use of the name may mislead the public in any respect;
The name states, infers or implies that the licensee is an insurer, motor club, hospital service plan or entitled to engage in insurance activities not permitted under licenses held or applied for;
The name states or implies that the licensee is an underwriter. This subdivision shall not prevent natural persons who are life licensees from describing themselves as an “underwriter” or from using the designation “Chartered Life Underwriter” if entitled thereto nor shall it prevent a natural person who is a fire and casualty licensee from using the designation “Chartered Property and Casualty Underwriter” if entitled thereto nor a producers trade association each member of which is also separately licensed from having a name containing the word underwriter; or
The licensee has already filed and not discontinued the use of more than two names including the true name. This subdivision shall not prevent a licensee who has lawfully purchased or succeeded to the business or businesses of other licensees from using for each business not more than two additional names, true or fictitious, consisting of names used by the licensee’s predecessors in the conduct of those businesses.
A licensee may not use a true or fictitious name after being notified by the commissioner in writing that the use is contrary to this section. If the commissioner determines that there are facts in mitigation in connection with the continued use of the name the commissioner may permit its use for a specified reasonable period of time if in connection therewith the commissioner imposes conditions that will protect the public and achieve the purposes of this section. The permission and conditions shall be written.
The grounds specified in subdivisions (a), (c), and (d) shall not be applicable to the true name of any organization licensee that on October 1, 1961, holds under that name any type of license issued under this chapter (commencing with Section 1621) or Chapter 8 (commencing with Section 1831) of this part nor to any fictitious name in use on October 1, 1961, by any individual or organization holding any type of license issued under this chapter or Chapter 8 of this part on that date, provided the fictitious name is filed with the commissioner on or before January 2, 1962.
The ground specified in subdivisions (b) and (e) shall not be applicable to any licensee who, or which, on October 1, 1961, holds a license issued under this chapter or Chapter 8 of this part until on and after January 2, 1964.
A license to act as a resident property broker-agent, casualty broker-agent, personal lines broker-agent, and limited lines automobile insurance agent shall be prominently displayed by the holder thereof in the license holder’s office in a manner whereby anyone may readily inspect it and ascertain both its currency and the capacity in which its holder is licensed to act.
A person licensed under Section 1625, 1625.5, 1625.55, 1626, 1758.1, 1765, 1800, 14020, or 15006, or Chapter 8 (commencing with Section 1831), shall affix, type, or print on business cards, written price quotations for insurance products, and print advertisements distributed exclusively in this state for insurance products, its license number in a type size that is at least as large as any indicated telephone number, address, or fax number or in 12-point type, or in 8-point type for business cards, whichever is larger. If a licensee includes the names of multiple licensed organizations on a business card, written price quotation, or print advertisement distributed exclusively in this state, affixing, typing, or printing the license number of any one of the organizations complies with the requirements of this section.
A person licensed under Section 1625, 1625.5, 1625.55, 1626, 1758.1, 1765, 14020, or 15006, or Chapter 8 (commencing with Section 1831), shall affix, type, or print on business cards, written price quotations for insurance products, and print advertisements distributed in this state for insurance products, the word “Insurance” in a type size that is at least as large as the smallest telephone number or in 12-point type, or in 8-point type for business cards, whichever is larger.
A person licensed under Section 1625, 1625.5, 1625.55, 1626, 1758.1, 1765, 14020, or 15006, or Chapter 8 (commencing with Section 1831), shall include the person’s license number in the emails the person sends that involve an activity for which a license is required. A person’s license number shall be in a type size that is no smaller than the largest of any telephone number, street address, or email address of the person included in the email. The license number of an individual licensee shall appear adjacent to or on the line below the individual’s name or title. The license number of an organizational licensee shall appear adjacent to or on the line below the organization’s name if the email is sent from the organization and not an individual licensee, and the communication involves an activity for which a license is required.
A natural person who is a solicitor, as defined in Section 1624, working exclusively as an employee of a motor club agent, or working exclusively for a property broker-agent or casualty broker-agent on behalf of a motor club, shall use the organizational licensee number of that person’s employer.
A person in violation of this section shall be subject to a fine levied by the commissioner in the amount of two hundred dollars ($200) for the first offense, five hundred dollars ($500) for the second offense, and one thousand dollars ($1,000) for the third and subsequent offenses. The penalty shall not exceed one thousand dollars ($1,000) for any one offense. These fines shall be deposited into the Insurance Fund.
A separate penalty shall not be imposed upon each piece of printed material that fails to conform to the requirements of this section.
If the commissioner finds that the failure of a licensee to comply with the provisions of subdivision (a) or (b) is due to reasonable cause or circumstance beyond the licensee’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect, the licensee may be relieved of the penalty in subdivision (e).
A licensee seeking to be relieved of the penalty in subdivision (e) shall file with the department a statement with supporting documents setting forth the facts upon which the licensee bases its claims for relief.
This section does not apply to a person or entity that is not currently required to be licensed by the department or that is exempted from licensure.
This section does not apply to general advertisements of motor clubs that merely list insurance products as one of several services offered by the motor club, and do not provide any details of the insurance products.
A person who is licensed in this state as an insurance agent or broker, advertises insurance on the internet, and transacts insurance in this state, shall identify all of the following information in the same size type on the person’s internet website home page or in a prominently displayed link from the home page, regardless of whether the insurance agent or broker maintains the internet presence or if the presence is maintained on the person’s behalf:
The person’s name as filed with the commissioner that has not been disapproved pursuant to Section 1724.5.
The person’s state of domicile and principal place of business.
The person’s California insurance license number.
The word “insurance.”
A person shall be deemed to be transacting insurance in this state when the person advertises on the internet, regardless of whether the insurance agent or broker maintains the internet presence or if it is maintained on the person’s behalf, and does any of the following:
Solicits a California resident.
Provides an insurance premium quote to a California resident.
Accepts an application for coverage from a California resident.
Communicates with a California resident regarding one or more terms of an agreement to provide insurance or an insurance policy.
Enters into negotiations before executing an insurance contract with a California resident.
Executes an insurance contract with a California resident.
Transacts matters after executing an insurance contract with a California resident that arise out of that contract.
This section shall become operative on July 1, 2020.
The commissioner shall, after notice and hearing, promulgate reasonable rules and regulations specifying the manner and type of records to be maintained by those licensees acting as insurance agents and brokers and the location where the records shall be kept. Those records shall be open to inspection or examination by the commissioner at all times, and the commissioner may at any time require the licensee to furnish any information maintained or required to be maintained in those records.
Every licensee acting as an insurance agent and broker shall keep the records as required by the regulations promulgated pursuant to subdivision (a).
Every licensee acting as an insurance agent and broker employing a licensee in the capacity of an insurance solicitor shall keep the records required by the regulations promulgated pursuant to subdivision (a) for any insurance transacted by the insurance solicitor in the capacity of employee of the employing licensee.
Every resident insurance property broker-agent and every resident insurance casualty broker-agent shall maintain a principal office in this state for the transaction of business. The address of the office shall, pursuant to Section 1658, be specified on all applications for license and renewal applications.
Every licensee and every applicant for a license shall immediately notify the commissioner using an electronic service approved by the commissioner of any change in that licensee or applicant’s email, residence, principal business, or mailing address as given to the commissioner pursuant to Sections 1658 and 1728.
An applicant or licensee shall notify the commissioner when any of the background information set forth in this section changes after the application has been submitted or the license has been issued. If the licensee is listed as an endorsee on any business entity license, the licensee shall also provide this notice to any officer, director, or partner listed on that business entity license.
A business entity licensee, upon learning of a change in background information pertaining to any unlicensed person listed on its business entity license or application therefor, shall notify the commissioner of that change. The changes subject to this requirement include changes pertaining to any unlicensed officer, director, partner, member, or controlling person, or any other natural person named under the business entity license or in an application therefor.
The following definitions apply for the purposes of this section:
“License” includes all types of licenses issued by the commissioner pursuant to Chapter 5 (commencing with Section 1621), Chapter 5A (commencing with Section 1759), Chapter 6 (commencing with Section 1760), Chapter 6.5 (commencing with Section 1781.1), Chapter 7 (commencing with Section 1800), and Chapter 8 (commencing with Section 1831) of Part 2 of Division 1, Chapter 1 (commencing with Section 10110) of Part 2 of Division 2, Chapter 4 (commencing with Section 12280) of Part 5 of Division 2, Article 8 (commencing with Section 12418) of Chapter 1 of Part 6 of Division 2, and Chapter 1 (commencing with Section 14000) and Chapter 2 (commencing with Section 15000) of Division 5.
“Background information” means any of the following: a misdemeanor or felony conviction; a filing of felony criminal charges in state or federal court; an administrative action regarding a professional or occupational license or regarding conduct or activity for which a professional or occupational license was required but not possessed; an administrative or civil action filed by, or on behalf of, a government or regulatory agency alleging any unlawful conduct, activity, or omission; any licensee’s discharge or attempt to discharge, in a personal or organizational bankruptcy proceeding, an obligation regarding any insurance premiums or fiduciary funds owed to any person, including a premium finance company, or managing general agent; and any admission, or judicial finding or determination, of fraud, misappropriation or conversion of funds, misrepresentation, or breach of fiduciary duty.
“Applicant” and “licensee” include individual and organization applicants and licensees, and officers, directors, partners, members, and controlling persons (as defined in subdivision (b) of Section 1668.5) of an organization.
Notification to the commissioner shall be in writing and shall be sent within 30 days of the date the applicant or licensee learns of the change in background information.
The commissioner may adopt regulations necessary or desirable to implement this section.
A property broker-agent, casualty broker-agent, or life agent who has a service contract with a corporation licensed under this code or who is a stockholder or member of any incorporated association or corporation organized under the Corporations Code for the purpose of providing services to property broker-agents, casualty broker-agents, or life agents may use the name of that corporation or association on any stationery or advertisements and other written or printed matter used to identify the business of the property broker-agent, casualty broker-agent, or life agent provided that the name of the property broker-agent, casualty broker-agent, or life agent is clearly identified as bearing only that relationship to the corporation or association in one of the following ways:
“Representing ____;”
“A stockholder of ____;”
“Placing business through ____;”
“Using services of ____.”
The use of the corporation or association name in the manner provided in this section shall not constitute such use as would mislead the public within the meaning of Section 1724.5.
A licensee shall not misrepresent the type of license under which that licensee is transacting insurance, nor shall that licensee engage in transactions not authorized by the licenses held by that licensee.
A life agent, a property broker-agent, and a casualty broker-agent shall provide to all insureds or applicants at the time of application or receipt of premium moneys the effective date of coverage, if known, or the circumstances under which coverage will be effective if there exists conditions precedent to coverage. This section shall apply only to coverage for personal lines of insurance, such as private passenger automobile, homeowner and renter insurance, personal liability, and individual disability and health insurance.
Every property broker-agent and every casualty broker-agent shall, prior to arranging premium financing or transacting any agreement for the periodic payment of premium for any new or renewal policy of insurance specified in Section 660, disclose to any applicant or prospective insured any options for premium financing or the periodic payment of premium from the insurer or, if applicable, the California Automobile Assigned Risk Plan, that are available for the insurance being purchased. This disclosure may be in the form of a written document. In the event the applicant or prospective insured elects to enter into an agreement for premium financing, the property broker-agent and casualty broker-agent shall comply with the requirements of Section 778.4.
For purposes of this section and Section 778.4:
“Periodic payment of premium” means the payment plan provided by the California Automobile Assigned Risk Plan, or a payment plan provided by the insurer that allows the total premium to be paid in more than one installment.
“Arrange premium financing” means assisting an applicant or prospective insured to arrange for payment of the premium through a premium finance agreement as defined in Section 778.1.
A person licensed as a broker-agent shall be deemed to be acting as an insurance agent in the transaction of insurance placed with those insurers for whom a notice of appointment has been filed with the Insurance Commissioner in accordance with Section 1704 and is then in force.
A person acting as an insurance broker may, on behalf of an insurance company, collect and transmit premium or return premium and deliver policies and other documents evidencing insurance. Performance of those functions shall not be construed for any purpose to mean that the person is an insurance agent.
All funds received by any person acting as a licensee under this chapter, Chapter 5A (commencing with Section 1759), Chapter 6 (commencing with Section 1760), or Chapter 7 (commencing with Section 1800), as premium or return premium on or under any policy of insurance or undertaking of bail, are received and held by that person in that person’s fiduciary capacity. A person who diverts or appropriates those fiduciary funds to that person’s own use is guilty of theft and punishable for theft as provided by law. Any premium that a premium financer agrees to advance pursuant to the terms of a premium finance agreement shall constitute fiduciary funds as defined in this section only if actually received by a person licensed in one or more of the capacities herein specified.
This section applies to a person licensed, hereinafter “licensee,” whether under a permanent license, restricted license, temporary license, or certificate of convenience, to act in any of the capacities specified in Section 1733. If fiduciary funds, as defined in Section 1733, are received by the licensee, the licensee shall do one of the following:
Remit premiums, less commissions, and return premiums received or held by the licensee to the insurer or the person entitled thereto.
Maintain those fiduciary funds at all times in a trust account in a bank or savings and loan association, within any state of the United States, which account is insured by the Federal Deposit Insurance Corporation (FDIC), and is licensed by any state government within the United States or by the United States government, separate from any other account, in an amount at least equal to the premiums and return premiums, net of commissions, received by the licensee and unpaid to the persons entitled thereto or, at their direction or pursuant to written contract, for the account of those persons. However, that person may commingle with those fiduciary funds in the account those additional funds as the licensee may deem prudent for the purpose of advancing premiums, establishing reserves for the paying of return commissions, or for those contingencies as may arise in the licensee’s business of receiving and transmitting premium or return premium funds.
Maintain those fiduciary funds pursuant to Section 1734.5.
If fiduciary funds, as defined in Section 1733, are received by any person licensed, hereinafter the “licensee,” whether under a permanent license, restricted license, temporary license, or certificate of convenience, to act in any of the capacities specified in Section 1733, and the funds are not remitted, or maintained pursuant to subdivisions (a) and (b) of Section 1734, except as provided in subdivision (f), the funds shall be maintained in any of the following:
United States government bonds and treasury certificates or other obligations for which the full faith and credit of the United States are pledged for payment of principal and interest.
Certificates of deposit of banks or savings and loan associations, which are insured by the Federal Deposit Insurance Corporation (FDIC) and licensed by any state government within the United States or by the United States government.
Repurchase agreements collateralized by securities issued by the United States government.
Either of the following:
Bonds and other obligations of this state or of any local agency or district of the State of California having the power, without limit as to rate or amount, to levy taxes or assessments upon all property within its boundaries subject to taxation or assessment by the local agency or district to pay the principal and interest of the obligations.
Revenue bonds and other obligations payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by this state, or a local agency or district, or by a department, board, agency, or authority thereof.
The bonds and obligations described in subparagraph (D) of paragraph (1) shall either have maturities of not more than one year or afford the holder of the obligation the unilateral right to redeem the obligation from its issuer within one year from date of purchase at an amount equal to, or greater than, its par value, and the bonds and obligations shall be required to be rated at least Aa1, MIG-1/VMIG-1, or Prime-1 by Moody’s Investor Service, Inc., or AA, SP-1, or A-1 by Standard and Poor’s Corporation.
For the fiduciary funds maintained as provided in paragraph (1), the bonds, certificates, obligations, certificates of deposit, and repurchase agreements shall be valued on the basis of their acquisition cost.
As a condition to maintaining the fiduciary funds pursuant to this section, a written agreement shall be obtained from each and every insurer or person entitled thereto authorizing the maintenance and the retention of any earnings accruing on the funds.
Except as provided in subdivision (f), evidence of the funds shall be maintained at all times in a trust account in a bank or savings and loan association within any state of the United States, which account is insured by the FDIC and which institution is licensed by any state government within the United States or by the United States government, separate from any other funds, in an amount at least equal to the premiums and return premiums, net of commissions received by the licensee and unpaid to the persons entitled thereto, or, at their discretion or pursuant to a written contract, for the account of these persons. However, the person may commingle with the fiduciary funds any additional funds as the licensee may deem prudent for the purpose of advancing premiums, establishing reserves for the paying of return premiums, or for any contingencies that may arise in the business of receiving and transmitting premium or return premium funds by the licensee.
All administrative actions involving trust accounts shall be subject to the jurisdiction of the commissioner. All suits involving trust accounts shall be subject to the jurisdiction of the courts of the State of California and the federal courts located within the State of California.
Any licensee specified in Section 1733 utilizing a trust account located outside of the State of California shall be required to file and maintain in the commissioner’s office, as a condition of maintaining a license, a written designation identifying the agent for service of process in this state for the bank or savings and loan association located outside the State of California being utilized by the licensee. The designated agent shall be a person residing in this state. The writing shall state the name of the agent and the agent’s place of business in this state with sufficient particularity so that the agent can readily be found by peace officers or process servers. Appointment of an agent reasonably available for service of papers, notice, proof of loss, summons, or other process during business hours shall be continuously maintained by every licensee subject to this article while the licensee holds a valid and unrevoked license.
The commissioner shall not have jurisdiction over any disputes arising between parties concerning the maintenance of fiduciary funds pursuant to this section. However, this subdivision shall not otherwise affect the authority granted to the commissioner over fiduciary funds by other provisions of this code, or regulations adopted pursuant thereto. As used in this subdivision, “parties” shall not include the commissioner.
Investment losses to the principal of fiduciary funds maintained pursuant to this section are the responsibility of the person licensed, whether under a permanent license, restricted license, temporary license, or certificate of convenience, to act in any of the capacities specified in Section 1733, and any obligation to insurers or other persons entitled to the fiduciary funds shall in no way be diminished due to any loss in the value to the principal of the fiduciary funds held pursuant to this section.
Any fiduciary funds, as defined in Section 1733, received as cash, lawful money of the United States, or freely tradeable currency of any foreign government, by any person licensed, whether under a permanent license, restricted license, temporary license, or certificate of convenience, to act in any of the capacities specified in Section 1733, shall comply with Section 1734, but shall initially be maintained in a trust account in a bank or savings and loan association in California, licensed by the State of California or the United States government and insured by the FDIC.
As used in this section, a managing general agent is a licensed property broker-agent and casualty broker-agent, or a life agent to whom all of the following apply:
Has a written management contract and an appointment on file with the commissioner in accordance with Section 1704, which appointment is then in force, with one or more admitted insurers covering business transacted by the insurer in a substantial portion of the State of California.
Under the contract specified in paragraph (1), manages the transaction of either all or one or more of the classes of insurance written by those insurers in that territory or the transactions therein by those insurers under a specified fictitious underwriter’s name.
Has the power to appoint, supervise, and terminate the appointment of local agents in that territory.
Has the power to accept or decline risks.
Collects premium moneys from producing broker-agents and remits those moneys to those insurers pursuant to the account current system.
The managing general agent shall, with respect to any principals for whom fiduciary funds are held, comply with Section 1734.
A property broker-agent, casualty broker-agent, or surplus line broker, hereinafter the “licensee,” may offset funds due an insured for return premiums on any policy against amounts due the licensee from the same insured for unpaid premiums on the same or any other policy. Any insurer may pay return premiums to any property broker-agent or any casualty broker-agent for that purpose. This section shall not invalidate an assignment of return premium made concurrently with policy issuance as security for financing that premium, nor the right of the assignee, or the assignee’s assign, to enforce the assignment as a prior claim.
If any acts are forbidden or conduct prescribed by any provisions of this code, such acts shall not be performed and such conduct shall be followed by both the organization and by any person named to exercise the power and perform the duties under any license issued to such organization.
Every licensee and applicant shall promptly reply in writing to an inquiry from the commissioner relative to an application for, or the retention or renewal of, a license, or an investigation relating to a consumer complaint or a matter relating to a producer licensing background change reporting requirement under Section 1729.2. The commissioner may revoke, suspend, or refuse to issue or renew a license if the licensee or applicant does not promptly reply in writing to an inquiry from the commissioner.
For purposes of this section, “promptly reply” means to provide a written response to the inquiry that is received by the commissioner no later than 21 days after the date the inquiry was mailed or otherwise communicated to the applicant or licensee.
ARTICLE 13. Disciplinary Actions [1737. - 1748.5.]
The purpose of this chapter is to protect the public by requiring and maintaining professional standards of conduct on the part of all persons licensed hereunder.
The commissioner may suspend or revoke a permanent license issued pursuant to this chapter on any of the grounds set forth in Article 6 hereof on which the commissioner may deny an application. When the word “applicant” is used in those grounds, the word shall for the application of this section be the words “the holder of a permanent license.” A suspension or revocation based upon a ground set forth in Section 1669 may be without notice or hearing. Suspension or revocation of any permanent license, except a restricted license, on a ground other than that set forth in Section 1669 shall be after notice and hearing conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner has all of the powers granted therein.
Upon the request of the department, a proceeding held pursuant to Section 1668, 1668.5, 1738, 1739, or 12921.8 that involves allegations of misconduct perpetrated against a person age 65 or over shall be held within 90 days after receipt by the department of the notice of defense, unless a continuance of the hearing is granted by the department or the administrative law judge. If the Office of Administrative Hearings cannot accommodate a hearing within 90 days, the hearing shall be set on the earliest available date and the delay shall not prejudice either party. When the matter has been set for hearing, only the administrative law judge may grant a continuance of the hearing. The administrative law judge may, but need not, grant a continuance of the hearing, only upon finding the existence of one or more of the following:
The death or incapacitating illness of a party, a representative or attorney of a party, a witness to an essential fact, or of the parent, child, or member of the household of any of these persons, when it is not feasible to substitute another representative, attorney, or witness because of the proximity of the hearing date.
Lack of notice of hearing as provided in Section 11509 of the Government Code.
A material change in the status of the case where a change in the parties or pleadings requires postponement, or an executed settlement or stipulated findings of fact obviate the need for hearing. A partial amendment of the pleadings shall not be good cause for continuance to the extent that the unamended portion of the pleadings is ready to be heard.
A stipulation for continuance signed by all parties, or their authorized representatives, that is communicated with the request for continuance to the administrative law judge no later than 25 business days before the hearing.
The substitution of the representative or attorney of a party upon showing that the substitution is required.
The unavailability of a party, representative, or attorney of a party, or witness to an essential fact, due to a conflicting and required appearance in a judicial matter if, when the hearing date was set, the person did not know and could neither anticipate nor at any time avoid the conflict, and the conflict, with the request for continuance, is immediately communicated to the administrative law judge.
The unavailability of a party, a representative or attorney of a party, or a material witness due to an unavoidable emergency.
Failure by a party to comply with a timely discovery request if the continuance request is made by the party who requested the discovery.
Where a permanent license is held by an organization both the organization itself and any natural persons named thereon shall, for the purposes of this article, be deemed to be the holders thereof. If that natural person commits any act or fails to perform any duty which is a ground for suspension or revocation of the license held by the organization, that action may be taken against the organization. If any natural person named under an organization license commits any act or fails to perform any duty which is a ground for the suspension or revocation of any license held by the organization, the commissioner may suspend or revoke the license of the organization, or the license of the natural person, or may take all of those steps.
The certificate of the commissioner certifying any facts found after a hearing held under this chapter shall be prima facie evidence of the facts set forth therein.
If the commissioner finds, after a hearing, that there are grounds for the denial of an application for a license to act in any capacity set forth in Article 1 of this chapter or if the commissioner finds, after a hearing, that any licensee has violated the provisions of this code and that the violation would justify the suspension or revocation of any license held by the person, the commissioner may order the licensee to prove the licensee’s qualifications by taking and passing the qualifying examination for any license held or applied for. The commissioner shall set the time for the taking of the examination. Failure thereof by any licensee shall result in the termination of all licenses of the licensee to which the examination is applicable. An order to take the examination may be in lieu of any other action in respect to the application or the license, or, except in the case of revocation, may be in addition to any other action.
Where a person who is or has been licensed under this chapter has been found by the commissioner to have violated any provision of this code which would justify the suspension or revocation of a license held, or where a person is applying for a license under this chapter and there exists grounds for the denial by the commissioner of his application, the commissioner may, after hearing, revoke the license held or deny the application for an unrestricted license, and in lieu thereof issue to such a person a restricted license. The commissioner may impose any reasonable conditions upon the acquisition of such restricted license or the conduct of the holder thereof. The holder of the restricted license has no property right therein and the commissioner may, with or without either hearing or cause, suspend or revoke a restricted license. If a hearing is held under this section, it shall be conducted in accordance with Chapter 5, Part 1, Division 3, Title 2 of the Government Code. The holder of a restricted license is subject to all the provisions of this code and such license shall be kept in force and renewed in the same manner, at the same time, and subject to the same conditions and fees as are applicable to an unrestricted license to act in the same capacity.
The department shall promulgate regulations necessary to comply with the requirements of Section 1033 of Title 18 of the United States Code no later than January 1, 2001.
The commissioner may, without hearing, issue an order denying an application by a business entity for an unrestricted license and granting instead a restricted license. The commissioner may do so when a controlling person of the business entity, as defined in subdivision (b) of Section 1668.5, holds a restricted license. The commissioner may impose any reasonable restriction on the business entity’s authority to transact insurance that is similar or related to the restriction imposed upon the controlling person. A description of the nature and scope of the restriction imposed upon the business entity shall be included in the commissioner’s order. The business entity shall have no property right in the restricted license and the commissioner may, with or without hearing or cause, suspend or revoke the restricted license. The restricted license shall be issued in the normal course of business following the issuance of the order and shall remain in effect pending the outcome of any request for reconsideration and any decision following a hearing pursuant to that request.
The business entity may request reconsideration of the commissioner’s decision to deny an unrestricted license within 30 days from the date that the decision is mailed to the entity. If the business entity requests a hearing on the request for reconsideration, the hearing shall be conducted pursuant to Article 10 (commencing with Section 11445.10) of Chapter 4.5 of Part 1 of Division 3 of Title 2 of the Government Code, and the business entity shall bear the burden of proving by clear and convincing evidence that an unrestricted license should have been granted instead of a restricted license. If the commissioner determines, after a hearing, that the business entity should have been granted an unrestricted license, the entity shall be granted that unrestricted license retroactive to the date of the granting of the restricted license.
The lapse or suspension of any license by operation of law, by failure to renew or by its voluntary surrender shall not deprive the commissioner of jurisdiction or right to institute or proceed with any disciplinary proceeding against such license, to render a decision suspending or revoking such license or to establish and make a record of the facts of any violation of law for any lawful purpose. No such disciplinary proceeding shall be instituted against any license after the expiration of five years from the termination of such license.
The filing of a statement of issues pursuant to Chapter 5, Part 1, Division 3, Title 2 of the Government Code specifying grounds for denial of an application for a license to act in any capacity under this chapter shall automatically suspend any certificate of convenience issued with respect to any such application until the decision and order in the matter of such statement of issues becomes final, and if the order in such matter is for the denial of the application for any such license, the certificate of convenience with respect thereto shall automatically terminate on the effective date of such denial.
When the commissioner may determine or have good cause to believe that any property broker-agent or casualty broker-agent has failed to keep or maintain the records required by Section 1727, in connection with or in lieu of any other disciplinary action against the license of the licensee, the commissioner may issue the commissioner’s order requiring the licensee to establish and currently complete those records within 60 days from the date of the order. When the order is given in lieu of other disciplinary action, notice of the order may be given by certified mail addressed to the office of the licensee. Failure of the licensee to comply with the order within the time specified therein shall be grounds for the suspension or revocation of the license or licenses of the licensee, and the proceeding shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
The commissioner, in any proceeding under the provisions of this article, may, by an alternative order, permit a licensee to elect in writing to pay a specified money penalty, within a specified time in lieu of a license suspension or other permitted action. If the licensee so elects, the sum of money specified shall be paid to the commissioner for the use of the State of California. The sum specified shall not exceed:
Four thousand dollars ($4,000) for each offense.
Twenty thousand dollars ($20,000) in the aggregate for all offenses involved in any one proceeding.
Thirty percent of the gross commissions on insurance transacted by the licensee in the preceding calendar year.
Any amount proven, or admitted, in the proceeding to have been received and retained by the licensee in violation of this code.
The commissioner shall determine the monetary penalty to be paid in any given case and in so doing shall not be limited to the selection of the penalty specified in any one of the above subdivisions, as compared with the penalty in any of the other three subdivisions, that will result in the payment by the licensee of the least amount.
The amount of reimbursement the commissioner orders shall be the amount that fully reimburses the commissioner for the commissioner’s costs, or any lesser amount that the commissioner determines is the most the subject of the order can pay in the event the subject is financially unable to fully reimburse the commissioner.
If a licensee fails to pay a monetary penalty or reimbursement within the time specified in the order, the commissioner, unless the order is lawfully stayed, may deny a pending application for a license, or may revoke or suspend the license of the subject of the order for a period of time as determined by the commissioner. If, for any reason, an application is denied, or a license is revoked or suspended, before the subject of the order has paid the full amount of an ordered monetary penalty or reimbursement, the balance owed shall be paid before a license may be reinstated or an application for any new license may be granted.
For the purposes of this section, the following definitions are applicable:
“Subject person” means any person who has participated or may participate in any manner in the business of a production agency, or any person licensed as a producer.
“Insurer” means any domestic insurer, and any insurer that is admitted to transact insurance in this state, provided that if a subject person of an insurer is not a resident of California, or operating out of a place of business within California, then the subject person shall be engaged in direct management, direction, or conduct of the business of insurance in California in order to come within the provisions of this section.
If, after notice and a hearing, the commissioner finds all of the following, the commissioner may issue an order removing a subject person from the subject person’s office or employment with the production agency and prohibiting the subject person from participating in any manner in the conduct of the business of an insurer or production agency, except with the prior consent of the commissioner:
The subject person has engaged in misconduct with respect to the business of insurance that has caused financial or other injury to any person, or
The subject person has engaged in fraud, or willful acts or omissions involving dishonesty that exposed a person to financial or other injury; and
The subject person’s conduct or practice demonstrates unfitness to continue as a subject person.
If the commissioner gives written notice pursuant to subdivision (b) to a subject person, the commissioner shall immediately issue an order prohibiting the subject person from participating in any manner in the business of insurance, except with the prior consent of the commissioner, if the commissioner: (A) finds that failure to immediately issue the order threatens the financial solvency of an insurer or may reasonably be expected to cause irreparable injury to any person; (B) serves that subject person and the production agency with written notice of the suspension order; and (C) finds that all of the necessary factors are present which would permit the commissioner, after notice and a hearing, to issue an order pursuant to subdivision (b) removing a subject person from the subject person’s office or employment with the production agency and prohibiting the subject person from participating in any manner in the business of an insurer or production agency.
Within 10 days after a subject person has been served with an order of suspension pursuant to subdivision (c), the person may apply to the superior court of the county in which the principal office of the production agency is located for a stay of the order pending completion of the proceedings pursuant to subdivision (b), and the court shall have jurisdiction to issue an order staying the suspension. Nothing in this subdivision shall be deemed to authorize the court to issue a stay order on an ex parte basis.
If the commissioner finds both of the following, the commissioner shall immediately issue an order suspending a subject person from the subject person’s office or employment with a production agency and prohibiting the subject person from participating in any manner in the conduct of the business of an insurer or production agency, except with the prior consent of the commissioner: (A) the subject person has been charged in an indictment issued by a grand jury, or in an information, complaint, or similar pleading issued by a United States Attorney, district attorney, or other governmental official or agency authorized to prosecute crimes, with a crime punishable by imprisonment for a term exceeding one year and which involves as one of its necessary elements a fraudulent act or an act of dishonesty in the acceptance, custody, or payment of money or property; and (B) that a failure to immediately issue the order threatens the financial solvency of an insurer or may cause financial or other injury to any person.
In the event the criminal proceedings are terminated other than by judgment of conviction, an order issued pursuant to paragraph (1) of this subdivision shall be deemed rescinded as if it had not been issued.
If the commissioner finds both of the following, the commissioner may immediately issue an order removing a subject person from the subject person’s office or employment with a production agency and prohibiting the subject person from participating in any manner in the business of an insurer or production agency, except with the prior consent of the commissioner: (A) the person has during the preceding five years been convicted of a crime that is punishable by imprisonment for a term exceeding one year and has as one of its necessary elements a fraudulent act or an act of dishonesty in the accepting, custody, or payment of money or property; and (B) that a failure to immediately issue the order threatens the financial solvency of an insurer or may cause financial or other injury to any person.
The fact that any subject person charged with a crime involving as one of its necessary elements a fraudulent act or any act of dishonesty in the acceptance, custody, or payment of money or property is not convicted of that crime shall not preclude the commissioner from issuing an order regarding the subject person pursuant to other provisions of this code.
Within 30 days after an order is issued pursuant to subdivision (c) or (e), the subject person to whom the order is issued may choose to do either of the following: (A) file with the commissioner an application for a hearing on the order. The commissioner shall, upon the written request of the subject person, extend the 30-day period by an additional 30 days provided the request is filed with the commissioner within 30 days after the order is issued. If the commissioner fails to commence the hearing within 15 business days after the application is filed, or within a longer period of time to which the subject person consents, the order shall be deemed rescinded as if it had not been issued. Within 30 days after the hearing, the commissioner shall affirm, modify, or rescind the order; otherwise, the order shall be deemed rescinded as if it had not been issued, or (B) petition for judicial review of the order pursuant to Section 1085 of the Code of Civil Procedure, where the court shall exercise its independent judgment on the evidence.
The right of any subject person to whom an order is issued pursuant to subdivision (c) or (e) to petition for judicial review of the order shall not be affected by the failure of that subject person to apply to the commissioner for a hearing on the order as provided by this subdivision.
Any person to whom an order is issued pursuant to subdivision (b), (c), or (e) may apply to the commissioner to modify or rescind the order. The commissioner shall not grant the application unless the commissioner finds that it is reasonable to believe that the person will, if and when the person becomes a subject person, comply with all of the applicable provisions of this code and of any regulation or order issued thereunder.
The right of any subject person to whom an order is issued pursuant to subdivision (b), (c), or (e) to petition for judicial review of the order shall not be affected by the failure of that subject person to apply to the commissioner pursuant to paragraph (1).
It is unlawful for any subject person or former subject person to whom an order is issued pursuant to subdivision (b), (c), or (e) to do any of the following as long as the order is in effect, except with the prior consent of the commissioner: (A) to serve or act as a subject person for any insurer or production agency; or (B) to directly or indirectly vote any shares or other securities of an insurer or production agency.
If, after notice and a hearing, the commissioner finds that any subject person has violated paragraph (1) of this subdivision, the commissioner may order that subject person to pay to the commissioner a civil penalty, which may be recovered in a civil action, in an amount the commissioner may specify; provided however, that the amount of the civil penalty shall not exceed one thousand dollars ($1,000) for each day for which the violation continues.
In determining the amount of civil penalty to be paid to the commissioner under this paragraph, the commissioner shall consider the financial resources and good faith of the subject person charged, the gravity of the violation, the history of previous violations by the person, and other factors as in the opinion of the commissioner may be relevant.
If, after notice and a hearing, the commissioner finds that any production agency has knowingly aided and abetted a subject person in a violation of paragraph (1) of this subdivision, or subdivision (h) of Section 728, the commissioner may order that production agency to pay to the commissioner a civil penalty in an amount the commissioner may specify; provided however, that the amount of the civil penalty shall not exceed one thousand dollars ($1,000) for each violation or in the case of a continuing violation, one thousand dollars ($1,000) for each day for which the violation continues, up to a maximum of fifty thousand dollars ($50,000). Continuation of the subject person’s salary or other employee benefits pending final disposition shall not be considered aiding and abetting a subject person.
In determining the amount of civil penalty to be paid to the commissioner under this paragraph, the commissioner shall consider the financial resources and good faith of the subject person charged, the gravity of the violation, the history of previous violations by the person, and other factors as in the opinion of the commissioner may be relevant.
Except as otherwise provided by this section, any hearing required by this section shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, subject to the following:
If the Office of Administrative Hearings cannot schedule the commencement of a hearing within 15 business days as provided by paragraph (1) of subdivision (f), and the subject person does not waive the person’s right to a hearing commencing within 15 days, the hearings may be conducted by administrative law judges appointed by the commissioner; the hearing shall be completed within 45 days of commencement, unless additional time is requested by the subject person. If the hearing is not completed within the 45 days, the order shall be deemed rescinded as if it had not been issued. The scheduling of other hearings before the administrative law judge shall not be considered good cause for purposes of this paragraph.
Nothing in this section is intended to or shall be construed to create a private cause of action against an offending subject person or insurer or production agency that aids and abets a subject person, based on the standards established by this section or the commissioner’s findings or orders pursuant to this section.
ARTICLE 13.5. Prelicensing and Continuing Education [1749. - 1749.9.]
The department shall require all new applicants for license to meet prelicensing education standards as follows:
An applicant for license as a property broker-agent, casualty broker-agent, life agent, accident and health or sickness agent, personal lines broker-agent, or limited lines automobile insurance agent shall be required to complete 12 hours of study on ethics and this code. The 12-hour ethics course shall include one hour of study on insurance fraud. If an applicant seeks a license for more than one of the following license types: property broker-agent license, casualty broker-agent license, life license, accident and health or sickness license, or personal lines broker-agent license, the applicant shall only be required to complete one 12-hour course on ethics and this code, which shall include one hour of study on insurance fraud. The curriculum for satisfying this requirement shall be approved by the curriculum board and submitted to the commissioner for final approval.
An applicant for a property broker-agent license, casualty broker-agent license, life agent license, accident and health or sickness license, personal lines broker-agent license, or limited lines automobile insurance agent license, who is currently licensed as a nonresident in this state shall be required to complete the 12-hour course of study on ethics and this code, as required by this section. The 12-hour ethics course shall include one hour of study on insurance fraud.
Review and approval of prelicensing courses not conducted in a classroom shall include an evaluation of the safeguards in place to ensure that the student completing the course is the person enrolled in the course, methods used to monitor the student’s attendance are adequate, methods for the student to interact with the entity providing the training exist, and methods used to record the times spent completing the course are adequate.
Prelicensing certificates of completion expire three years from the completion date of the course, whether or not a license is issued.
Sections 1749 and 1749.3 shall not apply to a life agent who is limited by the terms of a written agreement with the insurer, which filed on that life agent’s behalf a notice of appointment with the commissioner, to transact only specific life insurance policies or annuities that have an initial face amount of twenty thousand dollars ($20,000) or less that are designated by the purchaser for the payment of funeral and burial expenses. The commissioner may require the insurer appointing those life agents to certify as to the limitations of the agents’ representation.
“Twenty-four hour coverage” is the joint issuance of a workers’ compensation policy with a disability insurance policy, health care service plan contract, or other medical insurance coverage for nonoccupational injuries and illnesses. This product shall not include a life insurance policy.
The commissioner shall appoint a curriculum board consisting of representatives of insurance agents, brokers, and life agents trade associations, representatives of insurance companies, consumer groups, bail agents, and independent and public insurance adjusters to develop the license examination and continuing education curriculum, including a list of preapproved courses of study, including courses of study for professional designations that would satisfy the requirements of this article, subdivision (a) of Section 1810.7, and Sections 14090.1 and 15059.1. The curriculum board shall develop or recommend courses of study covering all lines of insurance to be sold under each license, including, but not limited to, any special products such as long-term care insurance, Medi-gap policies, disability insurance products, and course study on ethics and pertinent sections of this code. The curriculum board shall also develop or recommend courses of study on commercial earthquake risk management, including courses relating to understanding risk zones, options for insurance coverage to cover potential loss, mitigation strategies, and postevent recovery. The curriculum developed and the courses of study approved by the board shall be submitted to the commissioner for final approval.
The curriculum board shall also develop standards for providers and instructors of the 12-hour ethics course and continuing education courses, programs, and seminars, which standards shall be approved by the board and submitted to the commissioner for final approval. The curriculum board may approve standards for courses in business management practices that may consist of up to 25 percent of the agent or broker requirements for license renewal. A 12-hour ethics course or continuing education course shall not include sales training, motivational training, self-improvement training, or training offered by insurers or agents regarding new products or programs.
For purposes of applying subdivision (b), courses in “business management practices” shall consist of the following subject matter:
Accounting and financial management, including trust account maintenance, reconciliation and auditing, financial statements, business budgeting, income and expense ratios, banking and investment practices, and business perpetuation and planning.
Information and database management, including recordkeeping, privacy law, and other legal requirements covering the use of information.
Human resource management, including employee compliance supervision, recruitment, training, and licensing.
Customer service management, consisting of methods to improve handling of consumer inquiries and complaints.
Communication skills, consisting of methods to improve writing and verbal skills for communication with clients, employees, insurance carriers, claims departments, and regulators.
Whenever the commissioner has reasonable cause to believe, and determines after public hearing, that any approved course, program of instruction, or seminar is being conducted so as to fail to meet the commissioner’s 12-hour ethics course or continuing education curriculum, or any provider or instructor for any course, program, or seminar has failed to comply with the commissioner’s standards, the commissioner may make and serve upon the provider or instructor of that course, program, or seminar an order or orders rescinding approval for that provider, course, program, or seminar, or imposing fines and penalties on that provider, or both. The amount of any fines and penalties shall not exceed the amounts set forth in Section 1748, and shall be based on the criteria for assessing penalties specified in that section. No credit towards meeting the requirements of this article shall be granted any applicant or licensee for completion of a course, program, or seminar after the effective date of any order rescinding approval for that course, program, or seminar. The commissioner shall serve notice of hearing required by this section upon the provider or instructor of the course, program, or seminar, stating the time and place therefor, and the grounds upon which the commissioner’s order is made. The hearing shall occur not less than 30 nor more than 60 days after notice is served.
The commissioner may impose monetary penalties for minor instances of noncompliance with the standards established pursuant to this article, such as late course roster submissions and late course presentation schedules. The monetary penalties shall not exceed the amounts of the fees established pursuant to Section 1751.1. The commissioner shall adopt regulations to establish the monetary penalties to be levied against providers for late filings and other minor instances of noncompliance with this article and Article 6.5 (commencing with Section 2186) of Subchapter 1 of Chapter 5 of Title 10 of the California Code of Regulations.
The purpose of Sections 1749.3 to 1749.6, inclusive, is to establish requirements and standards for continuing education programs for persons licensed as property broker-agents, casualty broker-agents, and life agents.
Sections 1749.3 to 1749.6, inclusive, shall not apply to either (a) those persons holding resident licenses for any kind or kinds of insurance for which an examination is not required by the law of this state, nor shall it apply to any such limited or restricted license as the commissioner may exempt or (b) licensed nonresident agents or brokers who comply with the continuing education requirements of their state of residence.
An individual licensed as a life agent or an accident and health or sickness agent and also licensed as a property or casualty broker-agent, or an individual only licensed as a property or casualty broker-agent, shall complete those courses, programs of instruction, or seminars approved by the commissioner for the type of license held. Completion of specified product training required in subdivision (d) of Section 1749.33, subdivision (b) of Section 1749.8, and paragraph (4) of subdivision (a) of Section 10234.93 may result in the completion of more than the minimum of required continuing education hours. The minimum number of hours required is as follows:
A licensee, as specified in this section, shall satisfactorily complete 24 hours of instruction, of which three hours shall be in ethics, prior to renewal of the license. On and after March 1, 2023, the three-hour ethics course shall include one hour of study on insurance fraud. These hours of instruction may be completed at any time prior to renewal of the license.
An individual licensed as a property broker-agent or casualty broker-agent and as a life agent or an accident and health or sickness agent shall satisfy the requirements of this section by demonstrating completion of the courses, programs of instruction, or seminars approved by the commissioner for any of the license types listed in this section.
A licensee is not required to comply with the requirements of this article if the licensee submits proof satisfactory to the commissioner that the licensee has been a licensee in good standing for 30 continuous years in this state and is 70 years of age or older. This exemption does not apply to those individuals licensed for the first time on or after January 1, 2010.
An individual licensed as a personal lines broker-agent shall complete required continuing education courses, programs of instruction, or seminars approved by the commissioner. The personal lines broker-agent shall complete 24 hours, of which three hours shall be in ethics, during each two-year license term as defined in subdivision (d) of Section 1625.5. On and after March 1, 2023, the three-hour ethics course shall include one hour of study on insurance fraud.
An individual licensed as a personal lines broker-agent and as a life agent or accident and health or sickness agent shall satisfy the requirements of this section by satisfactorily completing 24 hours of instruction prior to renewal of the license.
An individual licensed as a limited lines automobile insurance agent shall complete required continuing education courses, programs of instruction, or seminars approved by the commissioner. The minimum number of hours required is 20 hours, of which three hours shall be in ethics, per license term prior to the renewal of the license. On and after March 1, 2023, the three-hour ethics course shall include one hour of study on insurance fraud.
An individual licensed as a limited automobile insurance agent and as a life agent or accident and health or sickness agent shall satisfy the requirements of this section by satisfactorily completing 24 hours of instruction prior to renewal of the license.
A life agent licensee shall satisfactorily complete 24 hours of instruction, of which three hours shall be in ethics, prior to renewal of the license. On and after March 1, 2023, the three-hour ethics course shall include one hour of study on insurance fraud. These hours of instruction may be completed at any time prior to renewal of the license.
An accident and health or sickness agent licensee shall satisfactorily complete 24 hours of instruction, of which three hours shall be in ethics, prior to renewal of the license. On and after March 1, 2023, the three-hour ethics course shall include one hour of study on insurance fraud. These hours of instruction may be completed at any time prior to renewal of the license.
An agent licensed as both a life agent and as an accident and health or sickness agent shall satisfactorily complete a total of 24 hours of instruction, of which three hours shall be in ethics, prior to renewal of the license. On and after March 1, 2023, the three-hour ethics course shall include one hour of study on insurance fraud. These hours of instruction may be completed at any time prior to renewal of the license.
Any accident and health or sickness agent who wishes to sell 24-hour care coverage, as defined in Section 1749.02, shall complete a course, program of instruction, or seminar of an approved continuing education provider on workers’ compensation and general principles of employer liability, which shall be completed by examination approved by the commissioner as part of the continuing education course, program of instruction, or seminar prior to selling this coverage. The required number of instruction hours shall be equal to but no greater than that required by the curriculum board for the continuing education requirements of a property broker-agent or a casualty broker-agent on these subjects. For resident licensees, this requirement shall count toward the licensee’s continuing education requirement, but may still result in completing more than the minimum number of continuing education hours set forth in this section. This section does not authorize an accident and health or sickness agent to satisfy the obligations set forth in this section by other than a proctored examination administered or approved by the department.
The courses or programs of instruction successfully completed that shall be deemed to meet the standards for continuing educational requirements, and the number of classroom hours for which they are equivalent, are as follows:
Any part of the Life Underwriter Training Council Fellow (LUTCF) program totaling 30 hours for the life license and the accident and health or sickness license.
Any part of the Chartered Life Underwriter (CLU) curriculum totaling 30 hours for the life license and the accident and health or sickness license.
Any part of the Accredited Advisor in Insurance (AAI) program totaling 25 hours for the property broker-agent license or the casualty broker-agent license.
Any part of the Chartered Property Casualty Underwriter (CPCU) program totaling 30 hours for the property broker-agent license or the casualty broker-agent license.
Any part of the Certified Insurance Counselor (CIC) program totaling 25 hours for the life or accident and health or sickness agent license and the property broker-agent license or the casualty broker-agent license.
Any part of the Certified Employee Benefit Specialists (CEBS) program totaling 25 hours for the life license and the accident and health or sickness license.
Any part of the Chartered Financial Consultant (ChFC) program totaling 30 hours for the life license.
Any part of the Certified Financial Planner (CFP) program totaling 30 hours for the life license.
Any part of the Fellow, Life Management Institute (FLMI) program totaling 30 hours for the life license and the accident and health or sickness license.
Any part of the Health Insurance Associate (HIA) program totaling 25 hours for the accident and health or sickness license.
Any part of the Registered Employee Benefits Consultant (REBC) program totaling 30 hours for the accident and health or sickness license.
Any part of the Registered Health Underwriter (RHU) program totaling 30 hours for the accident and health or sickness license.
Any part of the Associate in Risk Management (ARM) program totaling 30 hours for the property broker-agent license or the casualty broker-agent license.
An insurance-related course approved by the curriculum board and the commissioner taught by an accredited college or university per credit hour granted totaling 15 hours.
A course or program of instruction or seminar developed or sponsored by an authorized insurer, recognized agents’ association, or insurance trade association, or any independent program of instruction shall, if approved by the curriculum board and the commissioner, qualify for the equivalency of the number of classroom hours assigned thereto by the curriculum board and the commissioner.
A correspondence course approved by the curriculum board and the commissioner shall qualify for the equivalency of the number of classroom hours assigned thereto by the commissioner.
A person teaching any approved course of instruction or lecturing at any approved seminar shall qualify for the same number of classroom hours as would be granted to a person taking and successfully completing that course, seminar, or program, except that such person shall qualify for those classroom hours only once each license term for each course, seminar, or program.
Excess classroom hours accumulated during any one-year period may be carried forward to the next year.
For good cause shown, the commissioner may grant an extension of time during which the requirements imposed by this article may be completed, but that extension of time shall not exceed the period of one year.
Every person subject to this article shall furnish, in a form satisfactory to the commissioner, written certification as to the courses, programs, or seminars of instruction taken and successfully completed by that person.
Any education provider whose self-study courses have been approved by the department shall not count its own self-study courses towards its continuing education requirement for a license issued under this chapter.
A person failing to meet the requirements imposed by Section 1749.3 or 1749.31, and who has not been granted an extension of time within which to comply by the commissioner shall have that individual’s license automatically terminated until the time that the person demonstrates to the satisfaction of the commissioner that that individual has complied with all of the requirements of this article and all other laws applicable thereto. Where a person cannot perform the requirements of this article due to a disability or inactivity due to special circumstances, the commissioner shall provide a procedure for the person to place that individual’s license on inactive status until the time that the person demonstrates to the satisfaction of the commissioner that that individual has complied with or made up all of the requirements of this article for the period of disability or inactivity.
The commissioner may, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, adopt reasonable rules and regulations necessary for the convenient administration of this article.
Every life agent who sells annuities shall satisfactorily complete eight hours of training prior to soliciting individual consumers in order to sell annuities.
Every life agent who sells annuities shall satisfactorily complete four hours of training prior to each license renewal. Completion of the eight-hour annuity training required by subdivision (a) does not satisfy the four-hour annuity training required by this subdivision. For resident licensees, this requirement shall count toward the licensee’s continuing education requirement, but may still result in completing more than the minimum number of continuing education hours set forth in this section.
The training required by this section shall be approved by the commissioner and shall consist of topics related to annuities, and California law, regulations, and requirements related to annuities, prohibited sales practices, the recognition of indicators that a prospective insured may lack the short-term memory or judgment to knowingly purchase an insurance product, and fraudulent and unfair trade practices. Subject matter determined by the commissioner to be primarily intended to promote the sale or marketing of annuities shall not qualify for credit toward the training requirement. Any course or seminar that is disapproved under the provisions of this section shall be presumed invalid for credit toward the training requirement of this section unless it is approved in writing by the commissioner.
The training requirements set forth in this section shall not apply to nonresident agents representing an insurer that is a direct response provider.
For the purposes of this section, “direct response provider” means an insurer that meets each of the following criteria:
The insurer does not initiate telephone contact with insureds or prospective insureds.
Agents of the insurer speak with insureds and prospective insureds only by telephone, and at the request of the insureds or prospective insureds.
Agents of the insurer are assigned to speak with insureds or prospective insureds on a random basis, when contacted.
Agents of the insurer are salaried and do not receive commissions for sales or referrals.
A life agent licensed on or after January 1, 2024, who sells individual life insurance policies other than term life with no cash value shall satisfactorily complete four hours of training before soliciting individual consumers to sell those life insurance policies.
A life agent who sells individual variable life insurance policies shall satisfactorily complete two hours of training before each license renewal. Completion of the four-hour annuity training required by Section 1749.8 does not satisfy the training required by this section. This training is in addition to, and is not a part of, the annuity training required by subdivision (b) of Section 1749.8. For resident licensees, this requirement shall count toward the licensee’s continuing education requirement, but may still result in completing more than the minimum number of continuing education hours set forth in this section.
The training required by this section shall be approved by the commissioner and shall consist of topics related to the types of life insurance policies described in subdivisions (a) and (b) and California law, regulations, and requirements related to those life insurance policies, prohibited sales practices, and unfair trade practices. Subject matter determined by the commissioner to be primarily intended to promote the sale or marketing of life insurance policies shall not qualify for credit toward the training requirement. Any course or seminar that is disapproved under the provisions of this section shall be presumed invalid for credit toward the training requirement of this section unless it is approved in writing by the commissioner.
This section shall become operative January 1, 2025, and applies to licenses that are issued or renewed on or after January 1, 2025.
The curriculum committee shall, in 2006, make recommendations to the commissioner to instruct property broker-agents, casualty broker-agents, and personal lines broker-agents and applicants for property broker-agent, casualty broker-agent, and personal lines broker-agent licenses in proper methods of estimating the replacement value of structures, and of explaining various levels of coverage under a homeowners’ insurance policy. Each provider of courses based upon this curriculum shall submit its course content to the commissioner for approval.
A person who is not an insurer underwriter or actuary or other person identified by the insurer, or a licensed property broker-agent, casualty broker-agent, personal lines broker-agent, contractor, or architect shall not estimate the replacement value of a structure, or explain various levels of coverage under a homeowners’ insurance policy.
This section shall not be construed to preclude licensed appraisers, contractors, and architects from estimating replacement value of a structure.
However, if the Department of Insurance, by adopting a regulation, establishes standards for the calculation of estimates of replacement value of a structure by appraisers, then on and after the effective date of the regulation a real estate appraiser’s estimate of replacement value shall be calculated in accordance with the regulation.
ARTICLE 14. Fees [1750. - 1751.7.]
The commissioner shall require, in advance, as a fee for filing application for the hereinafter designated licenses, renewals thereof, or changes in outstanding licenses, an amount calculated as set forth herein. The fee is determined by multiplying the number of license years in the period of the license applied for or the remaining period of an existing license counting any initial fractional license year of that period as one year for that purpose, as follows:
Casualty broker-agent, eighty-five dollars ($85).
Property broker-agent, eighty-five dollars ($85).
Property and casualty broker-agent, when applied for on a single application, eighty-five dollars ($85).
Personal lines broker-agent, resident, eighty-five dollars ($85).
Life agent, resident, eighty-five dollars ($85).
Life agent, nonresident, eighty-five dollars ($85).
Surplus line broker who is an individual transacting only on behalf of a surplus line broker organization, two hundred fifty dollars ($250).
Surplus line broker not described in subdivision (g), five hundred dollars ($500).
Variable life and variable annuity authority, nonresident, when not also applying for a nonresident life agent license, eighty-five dollars ($85).
The fee for filing an application for a nonresident license described in Section 1639, and renewal thereof or changes in outstanding licenses, shall be the same amount that is established in this code for a resident license of the same type. If the applicant’s state, territory of the United States, commonwealth, or Canadian province of residence has fees for any nonresident insurance license greater than for a like resident license, the commissioner may charge a fee equal to the amount a California resident would be required to pay to obtain a like license for a like term in the applicant’s state, territory of the United States, commonwealth, or Canadian province of residence.
The fee for filing an application for a nonresident limited lines license described in Section 1639, and renewal thereof or changes in outstanding licenses, shall be the same amount that is established in this code for a resident property broker-agent license or a resident casualty broker-agent license. This section shall not be construed to require a countersignature on a policy or contract, or the payment of a countersignature fee.
The commissioner shall require, in advance, a fee for filing the following documents:
Application for registration of change in membership of a copartnership licensed as any of the following:
Casualty broker-agent, eighty-five dollars ($85).
Property broker-agent, eighty-five dollars ($85).
Property and casualty broker-agent, when applied for on a single application, eighty-five dollars ($85).
Life agent, resident, eighty-five dollars ($85).
Life agent, nonresident, eighty-five dollars ($85).
Personal lines broker-agent, eighty-five dollars ($85).
Notice for adding or removing from any life agent’s, property broker-agent’s, casualty broker-agent’s, or personal lines broker-agent’s license issued to an organization the name of any natural person named thereon, twenty-nine dollars ($29).
First amendment to an application, fourteen dollars ($14); a second and each subsequent amendment to an application, twenty-nine dollars ($29).
Original application to be given the qualifying examination for a license of a property, casualty, or personal lines licensee, fifty dollars ($50) for each person to be examined.
Original application to be given the qualifying examination for a license of a life licensee, fifty dollars ($50) for each person to be examined.
Application for reexamination for any of the licenses mentioned in this section, fifty dollars ($50) for each person to be reexamined.
Application that includes a request for a certificate of convenience pursuant to Article 8 (commencing with Section 1685), thirty-five dollars ($35) in addition to, and not in lieu of, fees otherwise required.
Application or request for approval of a true or fictitious name pursuant to Section 1724.5, fifty-three dollars ($53), except that there shall be no fee when the name is contained in an original application.
“A ratification of appointments of agents” whereby the surviving insurer in a merger or consolidation assumes responsibility for all agents then lawfully appointed for one of the constituent insurers and makes each its agent, one hundred eighty-five dollars ($185).
An application or request for clearance and cancellation notice of a current licensee of record, twenty-nine dollars ($29).
An amended action notice pursuant to subdivision (e) of Section 1704, eleven dollars ($11).
The commissioner shall require seventy-five dollars ($75), in advance, as a fee for filing an application for certification as a 12-hour ethics course or continuing education provider pursuant to Section 1749.1. That certification shall be effective for a period of 24 months.
The commissioner shall require seventy-five dollars ($75), in advance, as a fee for filing an application to renew certification as a 12-hour ethics course or continuing education provider pursuant to Section 1749.1. That certification shall be effective for a period of 24 months.
The commissioner shall require seventy-five dollars ($75), in advance, as a fee for filing an application for certification of a 12-hour ethics course pursuant to Section 1749. That certification shall be effective for a period of 24 months.
The commissioner shall require thirty-seven dollars ($37), in advance, as a fee for filing an application to renew certification of a 12-hour ethics course pursuant to Section 1749. That certification shall be effective for a period of 24 months.
The commissioner shall require twenty-nine dollars ($29), in advance, as a fee for filing each notice of appointment or each notice of termination pursuant to Section 1707 of any of the following:
A casualty broker-agent to act as an insurance agent.
A property broker-agent to act as an insurance agent.
A life agent.
A travel insurance agent.
A casualty broker-agent to act as an insurance solicitor.
A property broker-agent to act as an insurance solicitor.
The fees required by this chapter and by Chapter 6 (commencing with Section 1760), Chapter 7 (commencing with Section 1800), and Chapter 8 (commencing with Section 1831) of this part, and by Chapter 2 (commencing with Section 15000) of Division 5 are filing fees, no portion of which shall be refunded whether or not the application is acted upon or the examination is taken.
The commissioner may prepare a list of all currently licensed producers. All those lists shall be at the expense of the insurer, organization, or person requesting this service, except that special lists that are a part of the regulatory responsibility of the department may be at the expense of the state in the discretion of the commissioner. The costs and expenses of all those lists shall be paid from the support appropriation for the department current at the time of the preparation of the list but shall be charged to, and collected from, the insurer, organization, or person requesting the list. All list preparation expense moneys collected by the department under this section are hereby appropriated to the department and shall be deposited in the Insurance Fund to the credit of the support appropriation for the department current at the time of the deposit. If any insurer, organization, or person refuses to pay those costs and expenses promptly when due, the commissioner may refuse to issue its certificate of authority, certificate of exemption, or license, as the case may be, and may revoke any existing certificate of authority, certificate of exemption, or license.
The fees for producers licensed in this state are as follows:
Resident insurance producer (individual), three thousand sixty dollars ($3,060).
Resident property and casualty broker-agent (individual), eight hundred thirty-three dollars ($833).
Resident life agent (individual), one thousand five hundred twenty-six dollars ($1,526).
Resident insurance producer (agency), one hundred forty-seven dollars ($147).
Nonresident insurance producer (individual), eight hundred ninety-five dollars ($895).
Nonresident property and casualty broker-agent (individual), two hundred twelve dollars ($212).
Nonresident life agent (individual), four hundred twenty-four dollars ($424).
Nonresident insurance producer (agency), eighty-eight dollars ($88).
Bail (individual), eighty-eight dollars ($88).
Bail (agency), eighty-eight dollars ($88).
Resident estate certificate of convenience, eighty-eight dollars ($88).
Interim public insurance adjuster, eighty-eight dollars ($88).
Resident adjuster (individual), eighty-eight dollars ($88).
Reinsurance intermediary broker, eighty-eight dollars ($88).
Reinsurance intermediary manager, eighty-eight dollars ($88).
Resident adjuster (agency), eighty-eight dollars ($88).
Nonresident adjuster (agency), eighty-eight dollars ($88).
Resident personal lines broker-agent (individual), eighty-eight dollars ($88).
Resident personal lines broker-agent (agency), eighty-eight dollars ($88).
Nonresident personal lines broker-agent (individual), eighty-eight dollars ($88).
Nonresident personal lines broker-agent (agency), eighty-eight dollars ($88).
Resident credit insurance agent (individual), eighty-eight dollars ($88).
Resident credit insurance agent (agency), eighty-eight dollars ($88).
Nonresident credit insurance agent (individual), eighty-eight dollars ($88).
Nonresident credit insurance agent (agency), eighty-eight dollars ($88).
All (no restrictions on license type), four thousand fifteen dollars ($4,015).
Partial listing, eight hundred thirty-nine dollars ($839), plus one cent ($0.01) per name.
The commissioner may periodically publish a newsletter containing summaries of rules, regulations, interpretative opinions, and other information as the commissioner deems important to the proper conduct of the insurance business in this state by persons and organizations licensed under this chapter. All costs of the publication shall be covered by and included in license fees paid by persons licensed under this chapter. The fees shall be reviewed annually for sufficiency for this purpose, and shall be increased or decreased as necessary. The amount of the fees to be utilized for this purpose shall be set forth as a separate line item in the department’s annual budget.
ARTICLE 15. Travel Insurance Agents [1752. - 1757.]
The commissioner may issue a limited lines travel insurance agent license to any organization engaged in transacting travel insurance through travel retailers not otherwise meeting the conditions set forth in Section 1754.
As used in this article, the following terms have the following meanings:
“Limited lines travel insurance agent” means an insurer designee that is licensed to transact travel insurance, as defined in subdivision (b).
“Transact” means, for the purposes of this article, the following activities when engaged in by a travel retailer:
Offering and disseminating information to a prospective or current policyholder on behalf of a limited lines travel insurance agent, including brochures, buyer guides, descriptions of coverage, and price.
Referring specific questions regarding coverage features and benefits from a prospective or current policyholder to a limited lines travel insurance agent.
Disseminating and processing applications for coverage, coverage selection forms, or other similar forms in response to a request from a prospective or current policyholder.
Collecting premiums from a prospective or current policyholder on behalf of a limited lines travel insurance agent.
Receiving and recording information from a policyholder to share with a limited lines travel insurance agent.
Interruption or cancellation of a trip or event.
Loss of baggage or personal effects.
Damages to accommodations or rental vehicles.
Sickness, accident, disability, or death occurring during travel.
“Travel retailer” means a business organization that makes, arranges, or offers travel services and may offer and disseminate travel insurance as a service to its customers on behalf of and under the direction of a limited lines travel insurance agent.
Transaction of travel insurance under the license of an organization holding a limited lines travel insurance agent license shall be subject to the following conditions:
A limited lines travel insurance agent may authorize a travel retailer to transact travel insurance on behalf of and under its authority under the following conditions:
The limited lines travel insurance agent is clearly identified on marketing materials and fulfillment packages distributed by the travel retailers to customers. The marketing materials and fulfillment packages shall include the agent’s name, business address, email address, telephone number, license number, and the availability of the department’s toll-free consumer hotline.
The limited lines travel insurance agent, at the time of licensure and thereafter, maintains a register noting each travel retailer that transacts travel insurance on the licensee’s behalf. The register shall be maintained and updated annually by the licensee in a form prescribed by, or format acceptable to, the commissioner and shall include the name and contact information of the travel retailer and an officer or person who directs or controls the travel retailer’s operations, and the travel retailer’s federal employer identification number (FEIN). The licensee shall also certify that the registered travel retailer complies with Section 1033 of Title 18 of the United States Code. The licensee shall submit the register for review and inspection upon request by the department.
The limited lines travel insurance agent has designated one of its employees to be responsible for its compliance with the insurance laws, rules, and regulations of the state. The limited lines travel insurance agent and its designated responsible employees shall hold property, casualty, life, and accident and health or sickness agent licenses, to the extent required by this chapter, based upon the types of insurance transacted by the licensee.
The employee designated by the limited lines travel insurance agent, pursuant to paragraph (3), and any of the organization’s partners, members, controlling persons, officers, directors, and managers comply with the background check requirements as required by the commissioner.
The limited lines travel insurance agent has paid all applicable licensing fees required under California law.
The limited lines travel insurance agent uses all reasonable means at its disposal to ensure compliance by the travel retailer and the travel retailer’s employees with their obligations under this article. This includes requiring each employee of the travel retailer whose duties include transacting travel insurance to receive training. The training shall be provided whenever there is a material change that requires a modification to the training materials, but in no event less frequently than every three years. Training materials used by or on behalf of the limited lines travel insurance agent to train the employees of a travel retailer shall be submitted to the department at the time the travel insurance agent applies for a license under this article, and whenever modified thereafter. The training materials, at a minimum, should contain instruction on the types of insurance offered, ethical sales practices, and disclosures to prospective insurance customers. Any changes to previously submitted training materials shall be submitted to the department with the changes highlighted 30 days prior to their use by the limited lines travel insurance agent. Training materials and changes to those materials submitted to the department pursuant to this subdivision shall be deemed approved for use by the limited lines travel insurance agent unless it is notified by the department to the contrary. Failure by a limited lines travel insurance agent to submit training materials or changes for departmental review or use of unapproved or disapproved training materials shall constitute grounds for denial of an application for a license, nonrenewal of a license, or suspension of a license, or other action as deemed appropriate by the commissioner.
The limited lines travel insurance agent or the travel retailer provides disclosure to the consumer, in either the marketing materials or fulfillment packages, that is substantively similar to the following:
This plan provides insurance coverage that only applies during the covered trip. You may have coverage from other sources that provides you with similar benefits but may be subject to different restrictions depending upon your other coverages. You may wish to compare the terms of this policy with your existing life, health, home, and automobile insurance policies. If you have any questions about your current coverage, call your insurer or insurance agent or broker.
The limited lines travel insurance agent or the travel retailer makes all of the following disclosures to the prospective insured, which shall be acknowledged in writing by the purchaser or displayed by clear and conspicuous signs that are posted at every location where contracts are executed, including, but not limited to, the counter where the purchaser signs the service agreement, or provided in writing to the purchaser:
That purchasing travel insurance is not required in order to purchase any other product or service offered by the travel retailer.
If not individually licensed, that the travel retailer’s employee is not qualified or authorized to:
Answer technical questions about the benefits, exclusions, and conditions of any of the insurance offered by the travel retailer.
Evaluate the adequacy of the prospective insured’s existing insurance coverage.
A travel retailer that meets the requirements set forth in this section and whose activities are limited to offering and selling travel insurance on behalf of a licensed limited lines travel insurance agent is authorized to receive compensation.
If the commissioner determines that a travel retailer, or a travel retailer’s employee, has violated any provision of this article or any other provision of this code, the commissioner may:
Direct the limited lines travel insurance agent to implement a corrective action plan with the travel retailer.
Direct the limited lines travel insurance agent to revoke the authorization of the travel retailer to transact travel insurance on its behalf and under its license and to remove the travel retailer’s name from its register.
If the commissioner determines that a travel retailer, or a travel retailer’s employee, has violated any provision in this article or any other provision of this code, the commissioner, after notice and hearing, may:
Suspend or revoke the license of the limited lines travel insurance agent as authorized under this code.
Impose a monetary fine on the limited lines travel insurance agent.
A limited lines travel insurance agent who aids and abets a travel retailer in the transaction of travel insurance, as defined in this code, or aids and abets a travel retailer in any activity concerning travel insurance after being directed to revoke the travel retailer’s authorization, in addition to any other action authorized under this code, shall be subject to a monetary penalty pursuant to paragraph (3) of subdivision (a) of Section 12921.8.
The conduct of employees of the travel retailer who have been designated to transact travel insurance on behalf of the licensed limited lines travel insurance agent shall be deemed the conduct of the licensed limited lines travel insurance agent for purposes of this article.
An applicant for a limited lines travel insurance agent license under this article shall submit the following documents to the commissioner:
A written application for licensure, signed by the applicant or an officer of the applicant, in the form prescribed by the commissioner.
A certificate by the insurer that is to be named in the limited lines travel insurance agent license, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its limited lines travel insurance agent and that the insurer will appoint the applicant to act as its agent if the travel insurance agent license applied for is issued by the commissioner. The certification shall be subscribed by an officer or managing agent of the insurer on a form prescribed by the commissioner.
An application fee, and, for each license period thereafter, a renewal fee of two thousand sixty-four dollars ($2,064).
Costs associated with any enforcement action shall be paid for by the person or organization licensed pursuant to this article.
The provisions of this chapter relating to the appointment and termination of an insurance agent by an insurer or its authorized representative are applicable to licenses issued pursuant to this article.
The commissioner may adopt rules and regulations for the implementation of this article.
ARTICLE 15.5. Cargo Shippers’ Agents [1757.1. - 1757.3.]
A limited license may be issued to a natural person or to an organization who or which acts as an agent on behalf of a cargo owner, a cargo shipper, or both. The limited license shall authorize the agent of the cargo owner, cargo shipper, or both to procure cargo insurance only on behalf of a cargo owner or shipper for whom the agent is also arranging for the carriage of goods. The limited license shall authorize the agent acting on behalf of the cargo owner, cargo shipper, or both, only to procure cargo insurance, perform related document preparation, and assist the cargo owners or shippers, or both, with the filing of claims or preparation of proofs of loss in connection with filing claims and performing similar claims activities.
A limited cargo shipper’s license shall be applied for and renewed in the same manner as is provided in this chapter for a licensee to act as a property broker-agent or a casualty broker-agent, except that an applicant for a limited license as a cargo shipper’s agent need not pass a qualifying examination and is exempt from the continuing education requirements. The fee for filing an application shall be twenty-nine dollars ($29) for each year or fraction thereof of the term of the license applied for.
The commissioner may make reasonable rules and regulations necessary for the convenient administration of the provisions of this article respecting the licensing and renewal of licenses of cargo shippers’ agents.
ARTICLE 16. Variable Contract Agents [1758.1. - 1758.5.]
For the purpose of making provision for the issuance of policies or contracts authorized by Article 5 (commencing with Section 10506) of Chapter 5 of Part 2 of Division 2, the commissioner may grant authority to transact variable life and variable annuity to a person or a natural person named on a license of an organization licensed as a life agent that is appointed by an admitted insurer that is required to register itself or to register a separate account or fund with the United States Securities and Exchange Commission under the Federal Investment Company Act of 1940, or to register its variable policies or contracts with the Securities and Exchange Commission under the Federal Securities Act of 1933, and has complied with that requirement. The commissioner may grant variable life and variable annuity authority to a person who is not a resident of California and is not a licensed life agent in California provided that the person is licensed for both life and variable annuity authority in the resident state.
A person shall not act as an agent of the insurer in the transaction of the policies or contracts unless the person holds a valid authority under this article.
Any authority granted pursuant to the provisions of this article shall be effective only while a permanent underlying life agent’s license and registration in accordance with the rules of the United States Securities and Exchange Commission or the Financial Industry Regulatory Authority remains in full force and effect. The provisions of subdivision (b) of Section 1704 relating to the inactivation and reactivation of the underlying life agent’s license, and the renewal thereof, shall apply to any authority issued pursuant to this article, except that references to agency appointments and terminations shall relate only to the underlying life agent’s license. The authority may be revoked, suspended, or otherwise affected for the same reasons and by the same procedures as a life agent’s license.
The commissioner shall not grant authority to transact variable life and variable annuity unless the life agent or applicant furnishes proof that the person is registered to sell securities in California in accordance with the rules of the United States Securities and Exchange Commission or the Financial Industry Regulatory Authority. Any authority granted to a life agent to transact variable life and variable annuity shall immediately terminate upon the life agent no longer being registered to sell securities in accordance with the rules of the United States Securities and Exchange Commission or the Financial Industry Regulatory Authority.
The commissioner may, pursuant to Chapter 4.5 (commencing with Section 11371), Part 1, Division 3, Title 2 of the Government Code, adopt reasonable rules and regulations necessary for the convenient administration of this article.
ARTICLE 16.1. Portable Electronics Insurance [1758.6. - 1758.693.]
No portable electronics vendor shall offer or sell any form of portable electronics insurance in this state unless that person is licensed as an insurance agent or broker pursuant to Article 3 (commencing with Section 1631) or has complied with the requirements of this article and has been issued a license by the commissioner as provided in this article.
The commissioner may issue to an applicant that has complied with the requirements of this article a portable electronics insurance agent license that authorizes the licensee and its endorsees to offer or sell insurance in connection with, and incidental to, the sale of portable electronics or the sale or provision of accessories or services related to the use of portable electronics.
An applicant for a portable electronics insurance agent license under this article shall submit all of the following to the commissioner:
A written application for licensure, signed by the applicant or an officer of the applicant, in the form prescribed by the commissioner.
A certificate by the insurer that is to be named in the portable electronics insurance agent license, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its insurance agent limited to this purpose and that the insurer will appoint the applicant to act as its agent to transact the kind or kinds of insurance that are permitted by this article, if the portable electronics insurance agent license applied for is issued by the commissioner. The certification shall be subscribed by an officer or managing agent of the insurer on a form prescribed by the commissioner.
An application fee, and, for each license period thereafter, a renewal fee, of two hundred ninety-two dollars ($292).
Costs associated with any enforcement action or investigation shall be paid for by the person or organization licensed pursuant to this article.
An endorsee of a portable electronics vendor that has been issued a portable electronics insurance agent license pursuant to this article may sell or offer insurance products under the authority of the vendor’s portable electronics insurance agent license if all of the following conditions have been met:
The endorsee is 18 years of age or older.
The portable electronics vendor, at the time it submits its portable electronics insurance agent’s license application pursuant to Section 1758.62, also establishes a list of all locations in this state at which it offers coverage under a policy of portable electronics insurance. The list shall be maintained by the portable electronics vendor in a form prescribed by, or format acceptable to, the commissioner and shall be updated annually. The list shall be maintained by the portable electronics vendor and made available to the commissioner for review and inspection upon request.
Each portable electronics vendor licensed pursuant to this article shall provide for the training of its endorsees under a program developed by a licensed property and casualty broker or agent prior to allowing its endorsees to offer or sell insurance products. The training shall meet the following minimum standards:
Each endorsee shall receive instruction about the types of insurance specified in subdivision (e) of Section 1758.69 that are offered for sale to prospective customers.
Each endorsee shall receive training about ethical sales practices.
Each endorsee shall receive training about the disclosures to be given to prospective customers pursuant to Section 1758.66.
The retraining of endorsees shall be conducted whenever there is a material change in the insurance products sold that requires modification of the training materials, but in no event less frequently than every three years for each endorsee.
An endorsee may act on behalf of and under the supervision of the portable electronics insurance agent in matters relating to transacting insurance under that agent’s license. The conduct of an endorsee of a portable electronics insurance agent acting within the scope of employment or agency shall be deemed the conduct of the portable electronics insurance agent for purposes of this article.
If a licensee or endorsee violates any provision of this article or any other provision of this code, the commissioner may do any of the following:
After notice and hearing, suspend or revoke the license of the portable electronics insurance agent.
After notice and hearing, impose fines on the portable electronics insurance agent for its conduct or that of its endorsees.
After notice and hearing, impose other penalties that the commissioner deems necessary and convenient to carry out the purpose of this code, including suspending the privilege of transacting portable electronics insurance pursuant to this article at specific business locations where violations have occurred, imposing fines on the portable electronics insurance agent, and suspending or revoking the ability of individual endorsees to act under the vendor’s license.
If any person or persons sell insurance in connection with, or incidental to, the sale of portable electronics or the sale or provision of accessories or services related thereto, or hold themselves or an organization out as a portable electronics insurance agent without obtaining the license required by this article, or as being licensed pursuant to Chapter 5 (commencing with Section 1621) without obtaining that license, the commissioner may issue a cease and desist order pursuant to Section 12921.8.
Notwithstanding any other provision of law to the contrary, the provisions of Section 1748.5 are applicable to both the organization issued a license pursuant to this article and any endorsee to that license.
A portable electronics insurance agent shall not sell insurance pursuant to this article by unsolicited telephone calls or otherwise unless, at the time of sale, or reasonably thereafter with respect to a sale or enrollment occurring by telephone, all of the following conditions are satisfied:
The portable electronics insurance agent provides brochures or other written materials to the prospective purchaser that do all of the following:
Summarize the material terms and conditions of coverage offered, including the identity of the insurer.
Describe the process for filing a claim, including a toll-free telephone number to report a claim.
Disclose any additional information on the price, benefits, exclusions, conditions, or other limitations of those policies that the commissioner may, by rule, prescribe.
Provide the name, address, telephone number, and license number of the licensee or the property and casualty broker-agent appointed by the insurer issuing portable electronics insurance coverage to the licensee, as well as the department’s toll-free consumer hotline.
The portable electronics insurance agent or its endorsees make all of the following disclosures, which shall be acknowledged in writing by the purchaser, or displayed by clear and conspicuous signs that are posted at every location where contracts are executed, such as the counter where the purchaser signs the service agreement, or provided in writing to the purchaser:
That the purchase by the customer of the kinds of insurance prescribed in this article is not required in order to purchase portable electronics, accessories, or related services.
That the insurance policies offered by the portable electronics insurance agent may provide a duplication of coverage already provided by other insurance policies covering the purchaser.
That the endorsee of the portable electronics insurance agent is not qualified or authorized to evaluate the adequacy of the purchaser’s existing insurance coverages, unless that person is licensed pursuant to Article 3 (commencing with Section 1631).
That the customer may cancel the insurance at any time. If the customer cancels any unearned premium will be refunded in accordance with applicable law.
The material terms and conditions of coverage are provided to every person who elects to purchase that coverage.
Costs for the insurance are separately itemized in any billing statement for the insurance. However, if the portable electronics coverage is included with the purchase or lease of portable electronics or related services, the vendor shall clearly and conspicuously disclose to the customer that the coverage is included with the purchase of the portable electronics or related services.
The insurance is provided under an individual policy issued to the purchaser, or under a group or master policy issued to an organization licensed as a portable electronics insurance agent by an insurer authorized to transact the applicable kinds or types of insurance in this state.
Charges for portable electronics insurance may be billed and collected by a portable electronics insurance agent licensee. A licensee shall not be required to maintain those funds in a segregated account if the insurer represented by the licensee has provided in writing that the funds need not be segregated from funds received by the portable electronics vendor on account of the sale or lease of portable electronics or related services or accessories. All funds received by a vendor from a customer for the sale of portable electronics insurance shall be considered funds held in trust by the vendor in a fiduciary capacity for the benefit of the insurer. Licensees may receive compensation for billing and collection services.
Under the authority of the portable electronics insurance agent license, a portable electronics insurance agent shall not do any of the following:
Offer to sell insurance except in conjunction with, and incidental to, the business of selling portable electronics, their accessories, or related services.
Advertise, represent, or otherwise portray itself or its endorsees as licensed insurers or property and casualty broker-agents.
Pay any endorsee compensation based primarily on the number of customers electing coverage under the portable electronics insurance agent’s license. However, nothing in this code shall prohibit the payment of compensation to an endorsee of a portable electronics insurance agent for activities under the agent’s license that is incidental to their overall compensation. The incidental compensation shall not exceed fifteen dollars ($15) per customer who purchases portable electronics insurance coverage.
Unless lawfully transacting the business of insurance pursuant to a certificate of authority issued pursuant to Section 700 for the appropriate class, a person obligated to perform under a contract offered in or from this state that meets the definition of portable electronics insurance as set forth in Section 1758.69 shall be deemed to be unlawfully transacting the business of insurance and shall be subject to subdivision (b) of Section 700 and Section 12921.8.
Any insurer that provides insurance to be sold by an organization licensed as a portable electronics insurance agent shall file a copy of any individual policy issued to a purchaser, or any policy or certificate issued under a group or master policy to an organization licensed as a portable electronics insurance agent, with the commissioner, who shall make that policy available to the public.
Notwithstanding any other law:
As used in this section, “portable electronics vendor policyholder” means a portable electronics insurance agent licensee pursuant to subdivision (f) of Section 1758.69.
An insurer may terminate a portable electronics insurance policy or otherwise change the terms and conditions of a portable electronics insurance policy only upon providing the portable electronics vendor policyholder and enrolled customers with at least 30 calendar days’ written notice.
If the insurer changes the terms and conditions of a policy of portable electronics insurance, the insurer shall provide the portable electronics vendor policyholder with a revised policy or endorsement and each enrolled customer with a revised certificate, endorsement, updated brochure, or other evidence indicating that a change in the terms and conditions has occurred and a summary of those changes.
Notwithstanding subdivision (b), an insurer may terminate an enrolled customer’s enrollment under a portable electronics insurance policy upon 15 calendar days’ notice for discovery of fraud or material misrepresentation in obtaining coverage or in the presentation of a claim under the policy.
Notwithstanding subdivision (b), an insurer may immediately terminate an enrolled customer’s enrollment under a portable electronics insurance policy without prior notice for any of the following:
For nonpayment of premium.
If the enrolled customer ceases to have an active service with the vendor of portable electronics.
If the enrolled customer exhausts the aggregate limit of liability, if any, under the terms of the portable electronics insurance policy and the insurer sends notice of termination to the enrolled customer within 30 calendar days after exhaustion of the limit. However, if notice is not sent within 30 calendar days, enrollment shall continue notwithstanding the aggregate limit of liability until 30 calendar days from the date the insurer sends notice of termination to the enrolled customer.
If a portable electronics insurance policy is terminated by a portable electronics vendor policyholder, the portable electronics vendor policyholder shall mail or deliver a written notice to each enrolled customer advising the enrolled customer of the termination of the policy and the effective date of termination. The written notice shall be mailed or delivered by the portable electronics vendor policyholder to the enrolled customer at least 30 days prior to the termination. However, if the notice is not sent within 30 calendar days, enrollment shall continue until 30 calendar days from the date the portable electronics vendor policyholder sends notice of termination to the enrolled customer or until a new portable electronics insurance policy is in effect.
Whenever notice or correspondence with respect to a policy of portable electronics insurance is required pursuant to this section, it shall be in writing and sent within the notice period required pursuant to this section. Notices and correspondence shall be sent to the portable electronics vendor policyholder at the portable electronics vendor policyholder’s mailing address specified for that purpose and to its affected enrolled customers’ last known mailing addresses on file with the insurer or the portable electronics vendor policyholder. The insurer or portable electronics vendor policyholder shall maintain proof that the notice or correspondence was sent for not less than three years after that notice or correspondence was sent.
As used in this article, the following definitions have the following meanings:
“Endorsee” means an unlicensed employee or authorized representative of a portable electronics vendor.
“Enrollment” means the process of soliciting or accepting enrollments or applications from a consumer under a portable electronics insurance policy, which includes informing the consumer of the availability of coverage, preparing and delivery of the certificate of insurance or notice of proposed insurance, or otherwise assisting the consumer in making an informed decision whether or not to elect to purchase portable electronics insurance.
“License period” means all of that two-year period beginning as described in subparagraph (A) or (B) of paragraph (2), as applicable, and ending the second succeeding year on the last calendar day of the month in which the initial license was issued.
A license period shall be determined for each person as follows:
Upon initial licensing, the license period shall start on the date the license is issued.
For a subsequent license, the license period shall start on the first day following the month in which the initial license was issued.
A license shall be renewed on or before the expiration date of the license period.
Personal, self-contained, easily carried by an individual, battery-operated electronic communication, viewing, listening, recording, gaming, computing, or global positioning devices, including cell or satellite phones, pagers, personal global positioning satellite units, portable computers, portable audio listening, video viewing or recording devices, digital cameras, video camcorders, portable gaming systems, docking stations, automatic answering devices, their accessories, and service related to the use of those devices.
Any other electronic device that is portable in nature that the commissioner approves.
“Portable electronics insurance” means a contract providing coverage for the repair or replacement of portable electronics against any one or more of the following causes of loss: loss, theft, mechanical failure, malfunction, damage, or other applicable perils.
“Portable electronics insurance” does not include any of the following:
A service contract governed by Article 4.5 (commencing with Section 9855) of Chapter 20 of Division 3 of the Business and Professions Code.
A policy of insurance covering a seller’s or a manufacturer’s obligations under a warranty.
A homeowner’s, renter’s, private passenger automobile, commercial multiperil, or similar policy.
“Portable electronics insurance agent license” means an agent license issued to an individual or organization for the enrollment and sale of portable electronics insurance.
“Portable electronics vendor” means any person in the business, directly or indirectly, of selling, reselling, soliciting, or leasing portable electronics, their accessories, and related services to customers.
Nothing in this article regulating the sale of portable electronics insurance shall be construed to impair or impede the application of any other law regulating the sale of portable electronics insurance.
Not less than 60 days before a permanent license will expire, the commissioner may use an electronic delivery method, including email or other similar electronic method of delivery, to deliver, or may mail, to the latest email or mailing address appearing on the commissioner’s records, an application to the licensee to renew the license of a portable electronics insurance agent for the appropriate succeeding license term. It is the licensee’s responsibility to renew, whether or not a renewal notice is received.
The commissioner may accept a late renewal without penalty, provided that the licensee’s failure to comply is due to a clerical error or inadvertence.
An application for renewal of a license may be filed on or before the expiration date. An application for renewal of an expired license may be filed after the expiration date and until that same month and date of the next succeeding year.
The commissioner shall impose a penalty fee equal to one-half of the renewal fee for the portable electronics insurance agent license for any renewal that is filed after the expiration date of the license.
This article shall become operative only upon a determination by the commissioner that the personnel positions needed to carry out the provisions of this article are in existence or have been authorized in the Budget Act of 2002 or a subsequent budget act.
On and after January 1, 2003, the commissioner may accept applications from communications equipment vendors seeking licensure pursuant to this article. However, the commissioner shall not act upon the applications. If, prior to April 30, 2003, the commissioner receives 50 applications or less, the commissioner shall be deemed to have sufficient personnel to carry out the provisions of this article and this article shall immediately become operative.
ARTICLE 16.3. Self-Service Storage Agents [1758.7. - 1758.792.]
A self-service storage facility, or franchisee of a self-service storage facility, shall not offer or sell insurance unless it has complied with the requirements of this article and has been issued a license by the commissioner as provided in this article.
The commissioner may issue to a self-service storage facility, or its franchisee, that has complied with the requirements of this article, a license that authorizes the self-service storage facility or its franchisee to offer or sell the types of insurance specified in Section 1758.75 in connection with and incidental to rental agreements on behalf of any insurer authorized to write those types of insurance policies in this state.
The license period shall be a two-year period beginning as described in subparagraph (A) or (B) of paragraph (2), as applicable, and ending on the second succeeding year on the last calendar day of the month in which the initial license was issued.
The commencement of a license period shall be determined for each self-service storage facility or franchisee of a self-service storage facility, as follows:
Upon initial licensing, the license period begins on the date the license is issued.
Upon license renewal, the license period begins on the first day of the month following the month in which the initial license was issued.
Not less than 60 days before a permanent license will expire, the commissioner may use an electronic delivery method, including email or other similar electronic method of delivery, to deliver, or may mail, to the latest email or mailing address appearing on the commissioner’s records, an application to the licensee to renew the license for the appropriate succeeding license period. It is the licensee’s responsibility to renew whether or not a renewal application is received. The commissioner may accept a late renewal without penalty, provided that the licensee’s failure to comply is due to clerical error or inadvertence on the part of the department.
The application for renewal of a license shall be filed on or before the expiration date.
The application for renewal of an expired license may be filed after the expiration date and until the same month and day of the next succeeding year. A licensee who files the renewal application after the license has expired shall be charged, in addition to the renewal fee, a penalty of 50 percent of the renewal fee.
The applicant for a license pursuant to this section shall submit an application fee upon initial application and upon renewal application of two hundred ninety-four dollars ($294).
Costs associated with any enforcement action or investigation shall be paid for by the person or organization licensed pursuant to this article.
An applicant for a self-service storage agent license shall file the following documents with the commissioner:
A written application for licensure signed by the applicant or an officer of the applicant in the form prescribed by the commissioner.
A certificate by the insurer that is to be named in the self-service storage agent license stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its agent for the limited purpose of offering or selling the types of insurance specified in Section 1758.75 in connection with, and incidental to, self-service storage rental agreements and that the insurer will appoint the applicant to act as its agent in reference to offering or selling those types of insurance if the applicant is licensed by the commissioner. The certification shall be subscribed by an officer or managing agent of the insurer on a form prescribed by the commissioner.
Each self-service storage agent shall provide an insurance training program for its employees that shall meet the following minimum standards:
Each employee shall receive instruction about the types of insurance specified in Section 1758.75 that are offered for sale to prospective renters.
Each employee shall receive training about ethical sales practices.
Each employee shall receive training about the disclosures to be given to prospective renters pursuant to subdivision (b) of Section 1758.76.
Training materials used by or on behalf of the self-service storage facility to train its endorsee shall be submitted to the department at the time the applicant applies for a license under this article and whenever modified thereafter. Any changes to previously submitted training materials shall be submitted to the department with the changes highlighted 30 days prior to their use by the licensee. Training materials and changes in those materials submitted to the department pursuant to this subdivision shall be deemed approved for use by the company unless the company is notified by the department to the contrary. Failure by a self-service storage facility to submit training materials or changes for department review, or use of unapproved or disapproved training materials shall constitute grounds for the denial of an application for license, nonrenewal of a license, or a suspension of a license, as appropriate.
An employee may not be endorsed to a self-service storage agent license unless that employee is 18 years of age or older.
The self-service storage facility, at the time it submits its self-service storage agent license application pursuant to Section 1758.71, shall establish a list of the names of all endorsees to its self-service storage agent license. The list shall be maintained by the self-service storage facility in a form prescribed by, or format acceptable to, the commissioner, and shall be updated annually. The list shall be retained by the self-service storage facility for three years and made available to the commissioner for review and inspection.
Any employee of a licensee who has been trained pursuant to Section 1758.72 may act on behalf and under the supervision of the self-service storage facility agent in matters relating to the conduct of business under that agent’s license. The conduct of an employee or agent of a licensee acting within the scope of employment or agency shall be deemed the conduct of the self-service storage facility agent for the purposes of this article.
If a licensee violates any provision of this article, the commissioner may do any of the following:
After notice and hearing, revoke or suspend the self-service storage facility’s license.
After notice and hearing, impose other penalties, including suspending the transaction of insurance at specific self-service storage facilities where violations of this article have occurred.
Impose fines and penalties on the self-service storage agent for its conduct or that of its employees.
If any person or persons sell insurance in connection with, or incidental to, self-service storage rental agreements, or hold themselves or an organization out as a self-service storage agent without obtaining the license required by this article, the commissioner may issue a cease and desist order pursuant to Section 12921.8.
Notwithstanding any other provision of law, the provisions of Section 1748.5 are applicable to a self-service storage facility or its franchisee issued a license pursuant to this article.
A self-service storage facility or its franchisee licensed under this article may act as a self-service storage agent for an authorized insurer only with respect to the following types of insurance and only in connection with, and incidental to, self-service storage rental agreements:
Insurance that provides hazard insurance coverage to renters for the loss of, or damage to, tangible personal property in storage or in transit during the rental period.
Any other coverage the commissioner may approve as meaningful and appropriate in connection with the rental of storage space.
A licensee shall not sell insurance pursuant to this article unless all of the following conditions are satisfied:
The self-service storage agent provides brochures or other written material to the prospective renter that does all of the following:
Summarizes the material terms and conditions of coverage offered to renters, including the identity of the insurer.
Describes the process for filing a claim, including a toll-free telephone number to report a claim.
Discloses any additional information on the price, benefits, exclusions, conditions, or other limitations of the types of insurance specified in Section 1758.75 that the commissioner may by rule prescribe.
Provide the licensee’s name, address, telephone number, and license number and the availability of the department’s toll-free consumer hotline.
The self-service storage agent makes all of the following disclosures to the renter, which shall be acknowledged in writing by the renter, or displayed by clear and conspicuous signs that are posted at every location where rental agreements are executed, such as the counter where a renter would sign a rental agreement:
That the purchase by the renter of the insurance is not required in order to rent storage space. However, the licensee’s employees may advise the renter that the self-service storage facility’s rental agreement may contain provisions requiring the renter to provide insurance on that renter’s property in the storage unit.
That the insurance policies offered by the self-service storage agent may provide a duplication of coverage already provided by a renter’s homeowners insurance policy or by another source of coverage.
That the self-service storage facility and its employees are not qualified or authorized to evaluate the adequacy of the purchaser’s existing insurance coverage.
If a renter elects to purchase the coverage, evidence of coverage is stated on the face of the rental agreement or is provided to the renter.
The insurance is provided under an individual, a group, or a master policy issued to the self-service storage agent by an insurer authorized to write the types of insurance specified in Section 1758.75 in this state.
A licensee shall not be required to treat moneys collected from renters purchasing insurance pursuant to this article as funds received in a fiduciary capacity if the insurer represented by the licensee has provided in writing that the funds need not be segregated from funds received by the self-service storage agent if the charges for insurance coverage are itemized and incorporated as part of the rental agreement.
A self-service storage agent shall not do any of the following:
Offer to sell insurance except in conjunction with, and incidental to, authorized rental agreements.
Advertise, represent, or otherwise portray itself or its employees as licensed insurers, insurance agents, or insurance brokers.
Any insurer that provides insurance to be sold by a self-service storage facility or its franchisee under this article shall file a copy of the policy with the commissioner, who shall make that policy available to the public.
As used in this article:
“Self-service storage facility” means a person or organization engaged in the business of providing leased or rented storage space to the public.
“Storage space” means a room, unit, locker, or open space offered for rental to the public for temporary storage of personal belongings or light commercial goods.
“Renter” means any person who obtains the use of storage space from a self-service storage company under the terms of a rental agreement.
“Rental agreement” means any written agreement for the terms and conditions governing the use of a storage space provided by a self-service storage company.
“Self-service storage agent” means a person or organization licensed pursuant to this article to offer insurance in connection with, and incidental to, rental agreements on behalf of an insurer authorized to write the types of insurance specified in Section 1758.75 in this state.
The commissioner shall adopt rules to implement the provisions of this article which may include fee differentials for smaller, self-service storage facilities. The rules shall be adopted as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code, and for the purposes of that chapter, including Section 11349.6 of the Government Code, the adoption of rules shall be considered by the Office of Administrative Law to be necessary for the immediate preservation of the public peace, health and safety, and general welfare.
ARTICLE 16.6. Car Rental Agents [1758.8. - 1758.891.]
A rental car company shall not offer or sell insurance unless it is licensed as an insurance agent or broker pursuant to Article 3 (commencing with Section 1631) or has complied with the requirements of this article and has been issued a license by the commissioner as provided in this article.
The commissioner may issue to a rental car company, or to a franchisee of a rental car company, that has complied with the requirements of this article, a license that authorizes the rental car company or the franchisee of a rental car company to act as a car rental agent to offer or sell those types of insurance specified in Section 1758.85, in connection with and incidental to rental agreements, on behalf of any insurer authorized to write those types of insurance in this state.
An applicant for a car rental agent license under this article shall file the following documents with the commissioner:
A written application for licensure, signed by the applicant or an officer of the applicant, in the form prescribed by the commissioner.
A certificate by the insurer that is to be named in the car rental agent license, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its insurance agent limited to this purpose and that the insurer will appoint the applicant to act as its agent to transact the kind or kinds of insurance that are permitted by this article, if the car rental agent license applied for is issued by the commissioner. The certification shall be subscribed by an officer or managing agent of the insurer on a form prescribed by the commissioner.
An application fee, and, each license period thereafter, a renewal fee, of four hundred sixty-three dollars ($463).
Not less than 60 days before a permanent license will expire, the commissioner may use an electronic delivery method, including email or other similar electronic method of delivery, to deliver, or may mail, to the latest email or mailing address appearing on the licensee’s records, an application to the licensee to renew the license for the appropriate succeeding license period. It is the licensee’s responsibility to renew whether or not a renewal application is received. The commissioner may accept a late renewal without a penalty, provided the licensee’s failure to comply is due to clerical error or inadvertence on the part of the department.
The application for renewal of a license shall be filed on or before the expiration date.
The application for renewal of an expired license may be filed after the expiration date and until that same month and day of the next succeeding year. A licensee who files the renewal application after the license has expired shall be charged, in addition to the renewal fee, a penalty of 50 percent of the renewal fee.
Costs associated with any enforcement action or investigation shall be paid for by the person or organization licensed pursuant to this article.
An employee of a rental car company or franchisee of a rental car company that has been issued a car rental agent license pursuant to this article may be an endorsee authorized to offer insurance products under the authority of the car rental agent license if all of the following conditions have been met:
The employee is 18 years of age or older.
The rental car company, at the time it submits its car rental agent license application pursuant to Section 1758.81, also establishes a list of the names of all endorsees to its car rental agent license. The list shall be maintained by the rental car company in a form prescribed by the commissioner and updated annually. The list shall be retained by the rental car company for three years and made available to the commissioner for review and inspection.
The rental car company submits to the commissioner with its initial car rental agent license application and annually thereafter a certification, subscribed by an officer of the company on a form prescribed by the commissioner, stating all of the following:
The number of endorsees offering insurance products under the authority of the car rental agent license for the applicable period.
A statement that no person other than an endorsee sells or offers insurance on its behalf.
That all endorsees have completed training as required by this article.
Each rental car company licensed pursuant to this article shall provide for the training of its endorsees prior to allowing its endorsees to offer or sell insurance products. The training shall meet the following minimum standards:
Each car rental endorsee shall receive instruction about the types of insurance specified in Section 1758.85 that are offered for sale to prospective renters.
Each car rental endorsee shall receive training about ethical sales practices.
Each car rental endorsee shall receive training about the disclosures to be given to prospective renters pursuant to subdivision (c) of Section 1758.86.
Training materials used by or on behalf of the rental car company to train its endorsees shall be submitted to the department at the time the rental car company applies for a license under this article, and whenever modified thereafter. Any changes to previously submitted training materials shall be submitted to the department with the changes highlighted 30 days prior to their use by the licensee. Training materials and changes to those materials submitted to the department pursuant to this subdivision shall be deemed approved for use by the company unless it is notified by the department to the contrary. Failure by a rental car company to submit training materials or changes for departmental review or use of unapproved or disapproved training materials shall constitute grounds for denial of an application for a license, nonrenewal of a license, or suspension of a license, as appropriate.
The rental car company shall periodically retrain its endorsees on the subject matter described in subdivision (b), as prescribed by the commissioner.
The manager at each location of a rental car company or a franchisee of a rental car company licensed pursuant to this article, or the direct supervisor of the company’s endorsees at each location or region shall be an endorsee and shall be responsible for the supervision of each additional endorsee at that location or region. Each licensee shall identify the endorsee who is the manager or supervisor at each location for the purposes of this article.
An endorsee may act on behalf and under the supervision of the car rental agent in matters relating to transacting insurance under that agent’s license. The conduct of an endorsee of a car rental agent acting within the scope of employment or agency shall be deemed the conduct of the car rental agent for purposes of this article.
If a licensee or endorsee violates any provision of this article or any other provision of this code, the commissioner may do any of the following:
After notice and hearing, suspend or revoke the license of the car rental agent.
After notice and hearing impose fines on the car rental agent for its conduct or that of its endorsees.
After notice and hearing, impose other penalties, that the commissioner deems necessary and convenient to carry out the purpose of this code, including suspending the privilege of transacting insurance at specific rental locations where violations have occurred, and suspending or revoking the endorsement of individual endorsees or manager endorsees.
If any person sells insurance in connection with, or incidental to, rental car agreements or claims to be or holds an organization out as a car rental agent without obtaining the license required by this article, or as being an endorsee when that person is not an endorsee, or as being licensed pursuant to Chapter 5 (commencing with Section 1631) without obtaining that license, the commissioner may issue a cease and desist order pursuant to Section 12921.8.
Notwithstanding any other provision of law to the contrary, the provisions of Section 1748.5 are applicable to both the car rental agent and any endorsee to the license of the car rental agent.
A rental car company or franchisee licensed under this article may act as a car rental agent for an authorized insurer only in connection with the rental of vehicles and only with respect to the following kinds of insurance:
Personal accident insurance for renters and other rental vehicle occupants, for accidental death or dismemberment, and for medical expenses resulting from an accident that occurs with the rental vehicle during the rental period.
Liability insurance, which may include uninsured motorist coverage, whether offered separately or in combination with other liability insurance, that provides coverage to the renters and to other authorized drivers of a rental vehicle and is nonduplicative of any standard liability coverage or self-insurance limits provided by the rental company in its rental agreement, for liability arising from the negligent operation of the rental vehicle during the rental period.
Personal effects insurance that provides coverage to renters and other vehicle occupants for loss of, or damage to, personal effects in the rental vehicle during the rental period.
Roadside assistance insurance.
Emergency sickness insurance.
The insurance products listed in Section 1758.85 that are sold in conjunction with a vehicle rental are not transferable and do not apply to any vehicle not listed in the rental contract issued.
A car rental agent shall not sell insurance pursuant to this article unless all of the following conditions are satisfied:
The rental period of the rental agreement does not exceed 30 consecutive days, except for any renewals or extension of the original rental period.
The car rental agent provides brochures or other written materials to the prospective renter that do all of the following:
Summarize the material terms and conditions of coverage offered to renters, including the identity of the insurer.
Describe the process for filing a claim, including a toll-free telephone number to report a claim.
Disclose any additional information on the price, benefits, exclusions, conditions, or other limitations of those policies that the commissioner may by rule prescribe.
Provide the licensee’s name, address, telephone number, and license number, as well as the availability of the department’s toll-free consumer hotline.
The car rental agent or its endorsee makes all of the following disclosures to the renter, which shall be acknowledged in writing by the renter, or displayed by clear and conspicuous signs that are posted at every location where rental agreements are executed, such as the counter where the renter signs the rental agreement:
Evidence of coverage is stated on the face of the rental agreement or evidence of coverages provided to every renter who elects to purchase that coverage is indicated to the renter.
The insurance is provided under an individual policy issued to the purchaser, or under a group, or master policy issued to an organization licensed as a car rental agent by an insurer authorized to transact the applicable kinds or types of insurance in this state.
A licensee shall not be required to treat moneys collected from renters purchasing insurance, pursuant to this article, as funds received in a fiduciary capacity if the insurer represented by the licensee has provided in writing that the funds need not be segregated from funds received by the rental car company on account of vehicle rental and the charges for insurance coverage are itemized and incorporated as part of the rental agreement.
A car rental agent shall not do any of the following:
Offer to sell insurance except in conjunction with, and incidental to, authorized rental agreements.
Advertise, represent, or otherwise portray itself or its employees or endorsees as licensed insurers, life agents, property broker-agents, or casualty broker-agents.
Pay an endorsee any compensation, fee, or commission dependent on the placement of insurance under the agent’s license. Nothing in this code shall prohibit the payment of a “performance-related incentive.” For the purposes of this subdivision, a “performance-related incentive” is not a commission as otherwise defined. A “performance-related incentive” is money or other tangible or intangible items of value paid or given to any endorsee of the licensee which is not based solely on the offering or selling of the insurance products listed in Section 1758.85.
Any insurer that provides insurance to be sold by a rental car company or franchisee of a rental car company under this article shall file a copy of any individual policy issued to a purchaser, or any policy or certificate issued under a group or master policy to an organization licensed as a car rental agent, with the commissioner, who shall make that policy available to the public.
As used in this article, the following definitions have the following meanings:
“License period” means all of that two-year period beginning as described in subparagraph (A) or (B) of paragraph (2), as applicable, and ending the second succeeding year on the last calendar day of the month in which the initial license was issued.
A license period shall be determined for each person as follows:
Upon initial licensing, the license period starts on the date the license is issued.
Subsequently, the license period starts the first day of the month following the month in which the initial license was issued.
A license is required to be renewed on or before the expiration date of the license period.
“Rental vehicle” or “vehicle” means a motor vehicle operated by a driver who is not required to possess a commercial driver’s license to operate the motor vehicle and the motor vehicle is either of the following:
A private passenger motor vehicle, including a passenger van, minivan, or sports utility vehicle.
A cargo vehicle, including a cargo van, pickup truck, or truck with a gross vehicle weight of less than 26,000 pounds.
“Renter” means any person who obtains the use of a vehicle from a rental car company under the terms of a rental agreement.
“Rental car company” means any person in the business of renting vehicles to the public.
“Rental agreement” means any written agreement setting forth the terms and conditions governing the use of a vehicle provided by the rental car company.
“Car rental agent” means a person or organization licensed pursuant to this article to offer insurance in connection with and incidental to rental car agreements on behalf of an insurer authorized to write those types of insurance in this state.
“Endorsee” means an unlicensed employee of a car rental agent who meets the requirements of this article.
Until January 1, 2001, a rental car company or a franchisee of a rental car company shall not be required to obtain a license to offer the insurance products described in Section 1758.85.
ARTICLE 16.7. Credit Insurance Agents [1758.9. - 1758.993.]
No person shall sell or solicit any form of credit insurance in this state unless that person is licensed as an insurance agent or broker pursuant to Article 3 (commencing with Section 1631) or is licensed as a credit insurance agent or endorsee under this article.
The commissioner may issue to an applicant that has complied with the requirements of this article, a credit insurance agent license to offer or sell those types of insurance specified in Section 1758.96 in connection with, and incidental to, a loan or extension of credit, on behalf of any insurer authorized to write those types of insurance in this state.
An applicant for a credit insurance agent license under this article shall submit each of the following to the commissioner:
A written application for licensure signed by the applicant or an officer of the applicant, in the form prescribed by the commissioner.
A certificate by the insurer that is to be named in the credit insurance agent license, stating that the insurer has satisfied itself that the named applicant is trustworthy and competent to act as its insurance agent limited to this purpose and that the insurer will appoint the applicant to act as its agent in reference to selling or soliciting the kind or kinds of insurance that are permitted by this article, if the credit insurance agent license applied for is issued by the commissioner. The certification shall be subscribed by an officer or managing agent of the insurer on a form prescribed by the commissioner.
An application fee, and, for each license period thereafter, a renewal fee, of four hundred eight dollars ($408).
Not less than 60 days before a permanent license will expire, the commissioner may use an electronic delivery method, including email or other similar electronic method of delivery, to deliver, or may mail, to the latest email or mailing address appearing on the commissioner’s records, an application to the licensee to renew the license for the appropriate succeeding license period. It is the licensee’s responsibility to renew whether or not a renewal application is received. The commissioner may accept a late renewal without penalty, provided the licensee’s failure to comply is due to a clerical error or inadvertence on the part of the department.
An application for renewal shall be filed on or before the expiration date.
The application for renewal of an expired license may be filed after the expiration date and until that same month and date of the next succeeding year. A licensee who files a renewal application after the license has expired shall be charged, in addition to the renewal fee, a penalty of 50 percent of the renewal fee for the credit insurance agent license and all endorsees.
Costs associated with any enforcement action or investigation shall be paid for by the person or organization licensed pursuant to this article.
An employee of an organization that has been issued a credit insurance agent license pursuant to this article may be an endorsee on the license if all of the following conditions have been met:
The employee is 18 years of age or older.
The employee submits an application to the department that includes a signed affidavit, in a form prescribed by the commissioner, stating the applicant has read the credit insurance training material submitted to the commissioner and that the applicant has received from the organization training in, and is knowledgeable about, the credit insurance products to be sold, ethics, and market practices.
The employee submits an application fee, and each year thereafter, a renewal fee, in an amount or amounts determined by the department as sufficient to defray the department’s actual costs of processing the application or renewal and implementing this article.
Prior to allowing any endorsee to offer or sell credit-related insurance, the licensed organization shall provide training to each endorsee about the credit insurance products to be sold, and shall submit annually to the department the names of endorsees and a statement of compliance with this article. Training materials used by the organization to train endorsees shall be submitted to the department at the time the organization applies for its credit insurance agent license, and each year thereafter when that license is renewed. Any changes to previously submitted training materials shall be submitted to the department with the changes highlighted 30 days prior to their use by the licensee. Training materials and changes to those materials submitted to the department pursuant to this subdivision shall be deemed approved for use by the company unless it is notified by the department to the contrary. Failure by a credit insurance licensee to submit training materials or changes for departmental review or use of unapproved or disapproved training materials shall constitute grounds for denial of an application for a license, nonrenewal of a license, or suspension of a license, as appropriate.
The credit insurance agent shall periodically retrain its endorsees.
The manager at each business location of an organization licensed as a credit insurance agent, shall be listed as an endorsee on the organization’s license and shall be responsible for the training and supervision of each additional endorsee at that location. Each licensee shall identify the endorsee who is the manager at each location for the purposes of this article.
An employee of a credit insurance agent who complies with the requirements of Section 1758.93, and is endorsed on the license of the credit insurance agent, may act on behalf of, and under the supervision of, the credit insurance agent in matters relating to transacting insurance under that agent’s license. The conduct of an endorsee of a credit insurance agent acting within the scope of employment or agency shall be deemed the conduct of the credit insurance agent for purposes of this article.
If a licensee or endorsee violates any provision of this article or any other provision of this code, the commissioner may do either of the following:
After notice and hearing, suspend or revoke the license of the credit insurance agent.
After notice and hearing, impose other penalties that the commissioner deems necessary and convenient to carry out the purposes of this code, including suspending the privilege of transacting credit insurance pursuant to this article at specific business locations where violations have occurred, imposing fines on the credit insurance agent, individual endorsees or endorsee managers, and suspending or revoking the endorsement of a named endorsee or endorsee manager.
If any person or persons sell insurance in connection with or incidental to a loan or other extension of credit or hold themselves or an organization out as a credit insurance agent without obtaining the license required by this article, as being an endorsee when that person is not an endorsee, or as being licensed pursuant to Chapter 5 (commencing with Section 1631) without obtaining that license, the commissioner may issue a cease and desist order pursuant to Section 12921.8.
Notwithstanding any other provision of law to the contrary, the provisions of Section 1748.5 are applicable to both the organization issued a license pursuant to this article and any endorsee to that license.
A person licensed pursuant to this article may act as a credit insurance agent for an authorized insurer only with respect to the kinds of insurance specified in this section sold in connection with and incidental to a loan or other extension of credit other than a loan in excess of sixty thousand dollars ($60,000) relating to or secured by real property where the repayment period does not exceed 10 years. The sale of credit insurance products as specified in this section in excess of sixty thousand dollars ($60,000) relating to or secured by real property where any compensation, fee, or commission is paid dependent on the placement of credit insurance, requires a license to act as an insurance agent or life agent pursuant to Section 1621 or 1622.
Credit life insurance.
Credit disability insurance.
Credit involuntary unemployment insurance or credit loss-of-income insurance.
Credit property insurance.
Guaranteed asset protection (GAP) insurance.
Any other form of insurance declared by the commissioner to be subject to this section pursuant to subdivision (d) of Section 1758.992.
A credit insurance agent shall not sell or offer to sell insurance pursuant to this article unless all of the following conditions are satisfied:
The credit insurance agent provides brochures or other written materials to the prospective purchaser that do all of the following:
Summarize the material terms and conditions of coverage offered, including the identity of the insurer.
Describe the process for filing a claim, including a toll-free telephone number to report a claim.
Disclose any additional information on the price, benefits, exclusions, conditions, or other limitations of those policies that the commissioner may by rule prescribe.
The credit insurance agent makes all of the following disclosures, either with or as part of each individual policy or group certificate, or with a notice of proposed insurance, or, if the insurance is sold at the same time and place as the related credit transaction, in a statement acknowledged by the purchaser in writing on a separate form, electronically, digitally, or by audio recording:
That the purchase of the kinds of insurance prescribed in this article is not required in order to secure the loan or an extension of credit.
That the insurance coverage offered by the credit insurance agent may provide a duplication of coverage already provided by a purchaser’s other personal insurance policies or by another source of coverage.
That the endorsee is not qualified or authorized to evaluate the adequacy of the purchaser’s existing coverages, unless the individual is licensed pursuant to Article 3 (commencing with Section 1631).
That the customer may cancel the insurance at any time. If the customer cancels within 30 days from the delivery of the insurance policy, certificate, or notice of proposed insurance, the premium will be refunded in full. If the customer cancels at any time thereafter, any unearned premium will be refunded in accordance with applicable law.
Evidence of coverage is provided to every person who elects to purchase that coverage.
Costs for the insurance are separately itemized in any loan, credit, or retail agreement.
The insurance is provided under an individual policy issued to the purchaser or under a group or master policy issued to the organization licensed as a credit insurance agent by an insurer authorized to transact the applicable kinds or types of insurance in this state. Any of the conditions and disclosures specified in this section shall be deemed satisfied if the consumer is otherwise provided with the information required in this section by any other disclosures required by existing federal or state law or regulations.
No statement, disclosure, or notice made for the purpose of compliance with this section shall be construed to cause the policy form, certificate of insurance, or notice of proposed insurance, by themselves, to be considered nonstandard forms, as described in Article 6.9 (commencing with Section 2249) of Subchapter 2 of Chapter 5 of Title 10 of the California Code of Regulations.
Under the authority of the credit insurance agent license, a credit insurance agent shall not do any of the following:
Offer to sell insurance except in conjunction with, and incidental to, a loan or extension of credit.
Advertise, represent, or otherwise portray itself or its employees, agents, or endorsees as licensed insurers, life agents, property broker-agents, or casualty broker-agents.
Pay any unlicensed person any compensation, fee, or commission dependent on the placement of insurance under the agent’s license. Nothing in this subdivision shall prohibit production payments or incentive payments to an endorsee.
An organization licensed as a credit insurance agent shall prominently display its license number and the department’s toll free consumer hot line telephone number on brochures and information sheets required by this article and on any evidence of insurance.
Any insurer that provides insurance to be sold by an organization licensed as a credit insurance agent shall file a copy of any individual policy issued to a purchaser, or any policy or certificate issued under a group or master policy to an organization licensed as a credit agent, with the commissioner, who shall make that policy available to the public.
As used in this article, the following definitions have the following meanings:
“Enrollment” means the process of soliciting or accepting enrollments or applications from a debtor under a credit insurance policy, which includes informing the debtor of the availability of coverage, calculating the insurance charge, preparing and delivering the certificate of insurance or notice of proposed insurance, answering questions regarding the coverage, or otherwise assisting the debtor in making an informed decision whether or not to elect to purchase credit insurance.
“Creditor” means a lender of money or a vendor or lessor of goods, services, property, rights, or privileges, for which payment is arranged through a credit transaction, or any successor to the right, title, or interest of that lender, vendor, or lessor, and any affiliate, associate, subsidiary, subcontractor, director, officer, or employee of any of them or any other person in any way associated with any of them.
“Credit insurance agent license” means an agent license issued to an individual or organization for the enrollment and sale of credit insurance.
“Credit insurance” includes credit life insurance, credit disability insurance, credit involuntary unemployment insurance, credit loss-of-income insurance, credit property insurance, or guaranteed asset protection (GAP) insurance.
Credit insurance also includes any other form of insurance offered in connection with an extension of credit that is limited to partially or wholly extinguishing that credit obligation that the commissioner determines should be designated a form of credit insurance.
The commissioner may adopt, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, reasonable rules and regulations necessary to carry out this subdivision.
“Credit life insurance” means insurance on the life of a debtor pursuant to or in connection with a specific loan or other credit transaction, exclusive of any insurance procured at no expense to the debtor. Insurance shall be deemed procured at no expense to the debtor unless the cost of the credit transaction to the debtor varies depending on whether or not the insurance is procured.
“Credit disability insurance” means insurance on a debtor to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is disabled, as defined in the policy, exclusive of any insurance procured at no expense to the debtor. Insurance shall be deemed to have been procured at no expense to the debtor unless the cost of the credit transaction to the debtor varies depending on whether or not the insurance is procured.
“Credit involuntary unemployment insurance” or “credit loss-of-income insurance” means insurance issued to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is involuntarily unemployed, as defined in the policy.
“Credit property insurance” means insurance that provides coverage (1) on personal property pledged or offered as collateral for securing a personal or consumer loan, or (2) on personal property purchased under an installment sales agreement or through a consumer credit transaction, but does not include any insurance that provides theft, collision, liability, property damage, or comprehensive insurance coverage in any automobile or any other self-propelled vehicle that is designed primarily for operation in the air or on the highways, waterways, or sea, and its operating equipment, or that is necessitated by reason of the liability imposed by law for damages arising out of the ownership, operation, maintenance, or use of those vehicles. However, that excluded insurance does include single interest coverage on any of those vehicles that insures the interest of the creditor in the same manner as collateral secures a loan.
“Guaranteed asset protection” (GAP) insurance means insurance in which a person agrees to indemnify a vehicle purchaser or lessee for some or all of the amount owed on the vehicle at the time of an unrecovered theft or total loss, after credit for money received from the purchaser’s or lessee’s physical damage insurer, pursuant to the terms of a loan, lease agreement, or conditional sales contract used to purchase or lease the vehicle. GAP insurance, whether sold by a credit insurance agent or another type of licensee authorized to sell GAP insurance, may also include a promise to pay up to five thousand dollars ($5,000) to an insured, in addition to the sum needed to indemnify the insured for the amount owed, to purchase or lease another vehicle.
GAP insurance does not include, and no insurance license of any type under this code is required to offer, any of the following:
A debt cancellation agreement contained in a conditional sales contract for the sale of a vehicle by a licensed motor vehicle dealer, or a debt cancellation agreement contained in a lease agreement for the lease of a vehicle by a licensed motor vehicle dealer or leasing company, to waive some or all of either of the following:
The difference between the actual cash value of the purchaser’s or lessee’s vehicle at the time of an unrecovered theft or total loss and the amount owed on the vehicle pursuant to the terms of a lease agreement or conditional sales contract used to purchase or lease the vehicle.
The amount owed on the vehicle at the time of an unrecovered theft or total loss, after credit for money received from the purchaser’s or lessee’s physical damage insurer or from a third-party liability insurer. Such a promise may also include a promise to waive some or all of the amount of the purchaser’s or lessee’s deductible.
A promise by a lender as part of a debt obligation to purchase or lease a vehicle in which the lender agrees to waive some or all of either of the following:
The difference between the actual cash value of the purchaser’s or lessee’s vehicle at the time of an unrecovered theft or total loss and the amount owed on the vehicle pursuant to the terms of the debt obligation used to purchase or lease the vehicle.
The amount owed on the vehicle at the time of an unrecovered theft or total loss, after credit for money received from the purchaser’s or lessee’s physical damage insurer or from a third-party liability insurer. Such a promise may also include a promise to waive some or all of the amount of the purchaser’s or lessee’s deductible.
Coverage under subparagraphs (A) and (B) may not result in a credit balance in favor of the vehicle purchaser or lessee or include a promise to pay money to a vehicle purchaser or lessee in addition to waiving some or all of the amount owed, including some or all of the amount of the purchaser’s or lessee’s deductible. For purposes of this paragraph, a promise to pay money does not include, and a dealer, creditor, or lender shall be allowed to offer, a discount or credit to a purchaser or lessee as an incentive for purchasing, leasing, or financing a replacement vehicle. However, the dealer, creditor, or lender shall require the purchaser or lessee to use the discount or credit on a purchase or lease from the dealer or lessor that sold or leased the original vehicle to the purchaser or lessee, or with the creditor or lender that financed the purchase or lease of the original vehicle.
Nothing in this article regulating the sale of credit insurance shall be construed to impair or impede the application of any other law regulating the sale of credit insurance, including, but not limited to, the California Financing Law (Division 9 (commencing with Section 22000) of the Financial Code).
CHAPTER 5A. Administrators [1759. - 1759.10.]
For purposes of this chapter, “administrator” means any person who collects any charge or premium from, or who adjusts or settles claims on, residents of this state in connection with life or health insurance coverage or annuities or coverage described in Section 740 other than any of the following:
An employer on behalf of its employees or the employees of one or more subsidiary or affiliated corporations of that employer.
A union on behalf of its members.
An insurance company which is either licensed in this state or acting as an insurer with respect to a policy lawfully issued and delivered by it in and pursuant to the laws of a state in which the insurer was authorized to do an insurance business or prepaid hospital or health care service plan (including their sales representatives licensed in this state when engaged in the performance of their duties).
A life or health agent or broker licensed in this state, whose activities are limited exclusively to the sale of insurance.
A creditor on behalf of its debtors with respect to insurance covering a debt between the creditor and its debtors.
A trust, its trustees, agents, and employees acting thereunder, established in conformity with 29 U.S.C. Sec. 186.
A trust exempt from taxation under Section 501(a) of the Internal Revenue Code, its trustees, and employees acting thereunder, or a custodian, its agents and employees acting pursuant to a custodian account which meets the requirements of Section 401(f) of the Internal Revenue Code.
A bank, credit union or other financial institution which is subject to supervision or examination by federal or state regulatory authorities.
A company which advances for and collects any premium or charge from its credit card holders who have authorized it to do so, provided the company does not adjust or settle claims.
A person who adjusts or settles claims in the normal course of his or her practice or employment as an attorney at law, and who does not collect any charge or premium in connection with life or health insurance coverage or annuities.
An adjuster licensed by the Insurance Commissioner when engaged in the performance of his or her duties.
A nonprofit agricultural association.
Any person or entity subject to regulation under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code.
No administrator shall act as such without a written agreement between the administrator and the insurer, and such written agreement shall be retained as part of the official records of both the insurer and the administrator for the duration of the agreement and five years thereafter. Such written agreement shall contain provisions which include the requirements of Sections 1759.2 to 1759.8, inclusive, except insofar as those requirements do not apply to the functions performed by the administrator.
Where a policy is issued to a trustee or trustees, a copy of the trust agreement and any amendments thereto shall be furnished to the insurer by the administrator and shall be retained as part of the official records of both the insurer and the administrator for the duration of the policy and five years thereafter.
Whenever an insurer utilizes the services of an administrator under the terms of a written contract as required in Section 1759.1, the payment to the administrator of any premiums or charges for insurance by or on behalf of the insured shall be deemed to have been received by the insurer, and the payment of return premiums or claims by the insurer to the administrator shall not be deemed payment to the insured or claimant until such payments are received by the insured or claimant. Nothing herein shall limit any right of the insurer against the administrator resulting from its failure to make payments to the insurer, insureds or claimants.
Every administrator shall maintain at its principal administrative office for the duration of the written agreement referred to in Section 1759.1 and five years thereafter adequate books and records of all transactions between it, and insurers and insured persons. The books and records shall be maintained in accordance with prudent standards of insurance recordkeeping. The insurer shall retain the right to continuing access to the books and records of the administrator sufficient to permit the insurer to fulfill all of its contractual obligations to insured persons, subject to any restrictions in the written agreement between the insurer and administrator on the proprietary rights of the parties in the books and records.
The commissioner shall have access to the books and records for the purpose of examination, audit, and inspection. Any information contained in the books and records, including, but not limited to, the identity and addresses of policyholders and certificateholders, shall be confidential, except the commissioner may use the information in any proceedings instituted against the administrator.
The commissioner may, after notice and hearing, promulgate reasonable rules and regulations specifying the manner and type of records to be maintained by administrators.
Every administrator shall keep and maintain the books and records required by this section and the regulations promulgated pursuant to this section. Failure to keep or maintain the books and records as required shall be grounds for the suspension or revocation of the certificate of registration of the administrator. The proceeding shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
An administrator may use only such advertising pertaining to the business underwritten by an insurer as has been approved by such insurer in advance of its use.
The agreement shall make provision with respect to the underwriting or other standards pertaining to the business underwritten by such insurer.
All insurance charges or premiums collected by an administrator on behalf of or for an insurer or insurers, and return premiums received from such insurer or insurers, shall be held by the administrator in a fiduciary capacity. Such funds shall be immediately remitted to the person or persons entitled thereto, or shall be deposited promptly in a fiduciary bank account established and maintained by the administrator. If charges or premiums so deposited have been collected on behalf of or for more than one insurer, the administrator shall keep records clearly recording the deposits in and withdrawals from such account on behalf of or for each insurer. The administrator shall keep copies of all such records and, upon request of an insurer, shall furnish such insurer with copies of such records pertaining to deposits and withdrawals on behalf of or for such insurer. The administrator shall not pay any claim on behalf of or for such insurer by withdrawals from such fiduciary account. Withdrawals from such account shall be made, as provided in the written agreement between the administrator and the insurer, for (1) remittance to an insurer entitled thereto; (2) deposit in an account maintained in the name of such insurer; (3) transfer to and deposit in a claims paying account, with claims on behalf of or for such insurer to be paid as provided in Section 1759. 7; (4) payment to a group policyholder for remittance to the insurer entitled thereto; (5) payment to the administrator of its commission, fees or charges; or (6) remittance of return premiums to the person or persons entitled thereto.
All claims paid by the administrator from funds collected on behalf of the insurer shall be paid only on checks or drafts of, or, with the consent of the insured, by an electronic funds transfer from, and as authorized by the insurer.
With respect to any policies where an administrator adjusts or settles claims, the compensation to the administrator with regard to such policies shall in no way be contingent on claim experience.
Where the services of an administrator are utilized, the administrator shall provide a written notice approved by the insurer, to insured individuals, advising them of the identity of and relationship among the administrator, the policyholder and the insurer. Where an administrator collects funds, it must identify and state separately in writing to the person paying to the administrator any charge or premium for insurance coverage the amount of any such charge or premium specified by the insurer for such insurance coverage.
A person shall not act as, or hold himself or herself out to be, an administrator in this state, other than an adjuster licensed in this state for the kinds of business for which he or she is acting as an administrator, unless he or she holds a certificate of registration as an administrator issued by the commissioner. The certificate shall be issued, renewed, and held in accordance with, and subject to, all the provisions applicable to a life agent contained in Article 6 (commencing with Section 1666), excluding Section 1672, Article 10 (commencing with Section 1708), Article 11 (commencing with Section 1716), and Article 13 (commencing with Section 1737), excluding Section 1741, of, and subject to the fees applicable to resident life agents as set forth in Article 14 (commencing with Section 1750) of, Chapter 5. Every administrator shall also comply with Section 1724.5.
CHAPTER 6. Surplus Line Brokers [1760. - 1780.]
A home state insured, as defined in subdivision (f) of Section 1760.1, may negotiate and effect insurance to protect himself, herself, or itself against loss, damage, or liability with any nonadmitted insurer.
Every home state insured that effects insurance governed by this chapter shall pay the tax imposed by Part 7.5 (commencing with Section 13201) of Division 2 of the Revenue and Taxation Code.
This section shall become operative on January 1, 2018.
For the purposes of this chapter, the following terms have the following definitions:
“Certified” means an originally signed or sealed statement, dated not more than 60 days before submission, made by a public official or other person, attached to a copy of a document, that attests that the copy is a true copy of the original, and that the original is in the custody of the person making the statement.
“Commercial insured” means any person purchasing commercial insurance that, at the time of placement, meets all of the following requirements:
The person employs or retains a qualified risk manager to negotiate insurance coverage.
The person has paid aggregate nationwide commercial property and casualty insurance premiums in excess of one hundred thousand dollars ($100,000) in the immediately preceding 12 months.
The person meets at least one of the following criteria:
The person possesses a net worth in excess of twenty million dollars ($20,000,000), as that amount is adjusted pursuant to subparagraph (B).
The person generates annual revenues in excess of fifty million dollars ($50,000,000), as that amount is adjusted pursuant to subparagraph (B).
The person employs more than 500 full-time or full-time equivalent employees per individual insured or is a member of an affiliated group employing more than 1,000 employees in the aggregate.
The person is a not-for-profit organization or public entity generating annual budgeted expenditures of at least thirty million dollars ($30,000,000), as that amount is adjusted pursuant to subparagraph (B).
The person is a municipality with a population in excess of 50,000 persons.
Effective on January 1, 2015, and each fifth January 1 occurring thereafter, the dollar amounts in subparagraph (A) shall be adjusted to reflect the percentage change for that five-year period in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the United States Department of Labor. The commissioner shall issue a bulletin to all surplus line brokers advising of any adjustments and may adopt the calculations of the NAIC or other entity in doing so.
“Domiciliary jurisdiction” means the state, nation, or subdivision thereof under the laws of which an insurer is incorporated or otherwise organized.
“Domiciliary state of the syndicate’s trust” means the state in which the syndicate’s trust fund is principally maintained and administered for the benefit of the syndicate’s policyholders in the United States.
“Home state” means, except as provided in paragraphs (2) to (4), inclusive, any of the following, with respect to an insured or applicant:
The state in which the insured maintains its principal place of business or, in the case of an individual, the individual’s principal residence.
If 100 percent of the insured risk is located outside the state referred to in subparagraph (A), the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
“Principal place of business” means, with respect to subparagraph (A) of paragraph (1) determining the home state of the insured, (A) the state where the insured maintains its headquarters and where the insured’s high-level officers direct, control, and coordinate the business activities; or (B) if the insured’s high-level officers direct, control, and coordinate the business activities in more than one state, the state in which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated; or (C) if the insured maintains its headquarters or the insured’s high-level officers direct, control, and coordinate the business activities outside any state, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
“Principal residence” means, with respect to determining the home state of the insured, (A) the state where the insured resides for the greatest number of days during a calendar year; or (B) if the insured’s principal residence is located outside any state, the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
Affiliated groups. If more than one insured from an affiliated group are named insureds on a single nonadmitted insurance contract, the term “home state” means the home state, as determined pursuant to subparagraph (A) of paragraph (1), of the member of the affiliated group that has the largest percentage of premium attributed to it under such insurance contract.
“Home state insured” or “home state insured applicant” means a person whose home state is California and who has received a certificate or evidence of coverage as set forth in Section 1764 or a policy as issued by an eligible surplus line insurer, or a person who is an applicant therefor.
“IID” means the International Insurers Department of the National Association of Insurance Commissioners.
“Insurer” means, unless the context indicates otherwise, “nonadmitted” insurers that are either “foreign” or “alien” insurers, as those terms are defined in Sections 25, 27, and 1580, and syndicates whose members consist of individual incorporated insurers who are not engaged in any business other than underwriting as a member of the group and individual unincorporated insurers, provided all the members are subject to the same level of solvency regulation and control by the group’s domiciliary regulator. The term “insurer” includes all nonadmitted insurers selling insurance to or through purchasing groups as defined in the federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901 et seq.) and the California Risk Retention Act of 1991 (Chapter 1.5 (commencing with Section 125) of Part 1), except insurers that are risk retention groups as defined by those acts.
“ISI” means Insurance Solvency International.
“Licensee” means a surplus line broker as defined in Section 47.
“Multistate risk” means a risk covered by a nonadmitted insurer with insured exposures in more than one state.
“NAIC” means the National Association of Insurance Commissioners or its successor organization.
“Nonadmitted insurance” means any property and casualty insurance permitted to be placed directly or through a surplus line broker with a nonadmitted insurer eligible to accept such insurance.
“Nonadmitted insurer” means an insurer not licensed or admitted to engage in the business of insurance in this state in conformity with Section 700; but does not include a risk retention group, as that term is defined in Sections 130(k) and 2(a)(4) of the federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901(a)(4)).
“Qualified risk manager” means, with respect to a policyholder of commercial insurance, a person who meets all of the following requirements:
The person is an employee of, or third-party consultant retained by, the commercial policyholder.
The person provides skilled services in loss prevention, loss reduction, or risk and insurance coverage analysis, and purchase of insurance.
The person has any of the following:
A bachelor’s degree or higher degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the commissioner to demonstrate minimum competence in risk management and satisfies either of the following:
Has three years of experience in risk financing, claims administration, loss prevention, risk and insurance analysis, or purchasing commercial lines of insurance.
Has one of the following:
A designation as a Chartered Property and Casualty Underwriter (CPCU) issued by the American Institute for CPCU and Insurance Institute of America.
(II) A designation as an Associate in Risk Management (ARM) issued by the American Institute for CPCU and Insurance Institute of America.
(III) A designation as Certified Risk Manager (CRM) issued by the National Alliance for Insurance Education and Research.
(IV) A designation as a RIMS Fellow (RF) issued by the Global Risk Management Institute.
Any other designation, certification, or license determined by the commissioner to demonstrate minimum competency in risk management.
At least seven years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance, and has any one of the designations specified in subclauses (I) to (V), inclusive, of clause (ii) of subparagraph (A).
At least 10 years of experience in risk financing, claims administration, loss prevention, risk and insurance coverage analysis, or purchasing commercial lines of insurance.
A graduate degree from an accredited college or university in risk management, business administration, finance, economics, or any other field determined by the commissioner to demonstrate minimum competence in risk management.
“State” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, the Virgin Islands, and American Samoa.
“Verified” means a document or copy accompanied by an originally signed statement, dated not more than 60 days before submission, from a responsible executive or official who has authority to provide the statement and knowledge whereof he or she speaks, attesting either under oath before a notary public, or under the penalty of perjury under California law, that the assertions made in the document are true.
The surplus line broker shall be responsible for determining whether an applicant for nonadmitted insurance is a California home state insured. A surplus line broker who reasonably relies on information provided in good faith by the applicant, whether directly or through the producer, shall be deemed to be in compliance with this requirement.
The provisions of this chapter limiting the insurance that may be placed with nonadmitted insurers and requiring any report thereof shall not apply to:
Reinsurance of the liability of an admitted insurer.
Insurance against perils of navigation, transit, or transportation upon hulls, freights or disbursements, or other shipowner interests; upon goods, wares, merchandise, and all other personal property and interests therein, in the course of exportation from or importation into any country, or transportation coastwise, including transportation by land or water from point of origin to final destination and including war risks; and marine builder’s risks, drydocks, and marine railways, including insurance of ship repairer’s liability, and protection and indemnity insurance, but excluding insurance covering bridges or tunnels.
Aircraft or spacecraft insurance.
Insurance on property or operations of railroads engaged in interstate commerce.
The insurance specified in paragraphs (2), (3), and (4) of subdivision (a) may be placed with a nonadmitted insurer for a home state insured only by and through a special lines’ surplus line broker. The license of a special lines’ surplus line broker shall be applied for and procured and shall be subject to the same fees for filing on issuance in the same manner as the license of a surplus line broker, except that in lieu of the bond required by Section 1765, there shall be delivered to the commissioner a bond in the form, amounts, and conditions specified in Sections 1663 and 1665 for an insurance broker and only one fee shall be collected from one person for both licenses. The licensee in respect to the business shall be subject to all the provisions of this chapter except Sections 1761, 1763, 1765.1, 1765.2, and 1775.5.
The commissioner may address to any licensed special lines’ surplus line broker a written request for full and complete information respecting the financial stability, reputation, and integrity of any nonadmitted insurer with whom the licensee has dealt or proposes to deal in the transaction of insurance specified in paragraph (2), (3), or (4) of subdivision (a). The licensee so addressed shall promptly furnish in written or printed form so much of the information requested as he or she can produce together with a signed statement identifying the same and giving reasons for omissions, if any. After due examination of the information and accompanying statement, the commissioner may, if he or she believes it to be in the public interest, order in writing the licensee to place no further insurance business for home state insureds with that nonadmitted insurer on behalf of any person. Any placement with that nonadmitted insurer made by a licensee after receipt of the order is a violation of this chapter. The commissioner may issue an order if he or she finds that a nonadmitted insurer with whom the licensee has dealt or proposes to deal in the transaction of insurance is in an unsound financial condition, is disreputable, or is lacking in integrity. The order shall also include notice of a hearing to be held at a time and place fixed therein, which shall be not less than 20 nor more than 30 days from service of the order upon the licensee.
The commissioner may, in respect to business written or placed under the provisions of this section, require information and reports thereof that the commissioner considers necessary, convenient, or advisable.
Each placing of insurance in violation of this chapter is a misdemeanor.
The commissioner may revoke, suspend, or deny any license granted pursuant to this code in accordance with the procedure provided in Article 13 (commencing with Section 1737) of Chapter 5, or any certificate of authority granted pursuant to this code in accordance with the procedure provided in Section 704 whenever the commissioner finds that the licensee or holder of the certificate has committed a violation of this section.
The premium for insurance placed by or through a special lines’ surplus line broker pursuant to this section shall not be subject to the tax imposed upon the broker based upon gross premiums paid for insurance placed under authority conferred by the license.
For purposes of Section 1760.5, “spacecraft” means missiles, satellites, staffed and unstaffed space vehicles, any objects intended for launch, or objects launched or assembled in outer space, including, but not limited to, the space shuttle and any transportation, communication, information, or other system intended to be employed in outer space, together with related equipment, devices, components, and parts.
Except as provided in Sections 1760 and 1760.5, and paragraphs (1) and (2) of subdivision (b), a person within this state shall not transact any insurance for a home state insured with nonadmitted insurers, except by and through a surplus line broker licensed under this chapter and upon the terms and conditions prescribed in this chapter.
An insurer domiciled in California may have common directors with an affiliated nonadmitted insurer provided these common directors do not constitute the majority of the voting authority of the nonadmitted insurer and do not perform any management functions for the nonadmitted insurer in California.
An insurer domiciled in California may perform the following administrative services on behalf of an affiliated nonadmitted insurer that has qualified as an eligible surplus line insurer pursuant to Section 1765.1:
Computer operations that are unrelated to the underwriting process, which may include such activities as development and maintenance of application software, databases, and servers, procurement of information technology and services, network operations, and Internet Web site development and support.
Clerical and administrative staffing support, provided that this staff shall not have any contact or interaction with policyholders of the nonadmitted insurer.
Human resources, provided that any decisions relating to the hiring, firing, disciplinary actions, or compensation of any employee, officer, or both, of the nonadmitted insurer shall be made directly by the nonadmitted insurer.
Claims adjusting, as described in Section 14021, except that all claims notices, claims-related decisions, including those relating to setting reserves and claims acceptance, claim payments, and settlements shall be made directly by the affiliated nonadmitted insurer.
Managing investments such as buying, maintaining, and selling financial investment instruments, except that decisions relating to investment goals, risk assumptions such as capital preservation and protection of investment principal, determining liquidity needs, and diversification ratios shall be made by the affiliated nonadmitted insurer.
A surplus line broker may solicit and place insurance for a home state insured, other than as excepted in Section 1761, with nonadmitted insurers only if that insurance cannot be procured from insurers admitted for the particular class or classes of insurance and that actually write the particular type of insurance in this state. Each surplus line broker shall be responsible to ensure that a diligent search is made among insurers that are admitted to transact and are actually writing the particular type of insurance in this state before procuring the insurance for a home state insured from a nonadmitted insurer. Each surplus line broker shall file with the commissioner or his or her designee, within 60 days of placing any insurance for a home state insured with a nonadmitted insurer, a written report that shall be kept confidential, regarding the insurance. This report shall include the name and address of the insured, verification that the insured is a home state insured, the identity of the insurer or insurers, a description of the subject and location of the risk, the amount of premium charged for the insurance, a copy of the declarations page of the policy or a copy of the surplus line broker’s certificate or binder evidencing the placement of insurance, and other pertinent information that the commissioner may reasonably require. In addition, each surplus line broker shall file a standardized form to be prescribed by the commissioner setting forth the diligent efforts to place the coverage with admitted insurers and the results of these efforts. The form shall be signed by a person licensed under this code who has made the diligent search required by this section or who supervised an unlicensed person or persons who actually conducted the search. The insurance shall not be placed with a nonadmitted insurer for the purpose of procuring a rate lower than the lowest rate that will be accepted by any admitted insurer except as provided by subdivision (c). The commissioner may make and publish reasonable rules and regulations, consistent with this chapter, in respect to transactions governed thereby and the basis or bases for his or her determinations hereunder.
It shall be prima facie evidence that a diligent search among admitted insurers has been made if the standardized form filed as required by subdivision (a) establishes that three admitted insurers that actually write the particular type of insurance in this state have declined the risk, or that fewer than three admitted insurers actually write the particular type of insurance. The commissioner, or his or her designee, may review the form for the accuracy of the information provided on it, including, but not limited to, whether the listed insurers actually write that type of insurance, and whether the three insurers declined the risk. The commissioner may take disciplinary action against the person signing the form for any misrepresentation made in the form due to the negligence of or the result of an intentional act by that person or the person or persons who actually conducted the search. Those actions may include any action authorized to be taken against a licensed person by this code. Nothing in this subdivision shall preclude the commissioner or his or her designee from directing the surplus line broker to conduct a further or additional search among admitted insurers for similar placements in the future.
It shall be conclusively presumed that insurance is placed in violation of this section if the insurance is actually placed with a nonadmitted insurer at a lower rate of premium or lower premium than the lowest rate of premium or the lowest premium that could be obtained from an admitted insurer unless, at the time the insurance attaches, there is filed with the commissioner a statement describing the insurance, specifying the rate and the nearest procurable rates from admitted insurers. The statement shall include an explanation of the reasons that the insurance must be placed with a nonadmitted insurer even though it is available from an admitted insurer. Unless the commissioner, or his or her designee, within five days after that filing notifies the filing broker that in his or her opinion the placing of the insurance constitutes a violation of this section, the broker may thereafter maintain in effect that insurance. If within that five-day period the commissioner notifies the surplus line broker that the insurance is in violation of this section and orders the broker to effect termination of that insurance within 10 days from the notice, and the broker fails or refuses to effect that termination, that failure or refusal is a violation of this section.
Statements filed under this section are not subject to public inspection unless the commissioner determines that the public interest or the welfare of the filing broker requires that any statement be made public.
For purposes of this section, “type of insurance” means the hazard or combination of hazards covered by a contract of insurance.
Notwithstanding subdivision (a), this section shall not apply to insurance issued or delivered in this state to a home state insured by a nonadmitted Mexican insurer by and through a surplus line broker affording coverage exclusively in the Republic of Mexico on property located temporarily or permanently in, or operations conducted temporarily or permanently within, the Republic of Mexico.
This section does not apply to the extension of coverage by a nonadmitted insurer, of or for the same risks, and to the same insured under an existing surplus lines policy. Such an extension may not exceed 90 days in the aggregate during any 12-month period. The extension may not include a change in coverage, terms, and conditions, or limits. Any additional premium charged for the extension shall be determined pro rata, based on the same rate of premium as the existing surplus lines policy.
The diligent search requirement set forth in subdivision (a) shall not apply to a commercial insured as defined in subdivision (b) of Section 1760.1 when both of the following occur:
The surplus line broker procuring or placing the surplus line insurance has disclosed in writing to the commercial insured that surplus insurance may or may not be available from the admitted market that may provide greater protection with more regulatory oversight.
The commercial insured has subsequently requested in writing that the surplus line broker procure or place surplus insurance from a nonadmitted insurer.
The surplus line broker shall be responsible to ensure that the applicant is a commercial insured. A surplus line broker who reasonably relies on information provided in good faith by the applicant, whether directly or through a producer, shall be deemed to be in compliance with this requirement.
The commissioner may by order declare permissible for placement for a home state insured with a nonadmitted insurer and exempt from all requirements of Section 1763 except the filing of a confidential written report, any type of insurance coverage or risk for which he or she finds, after a public hearing, that there is not a reasonable or adequate market among admitted insurers or that the type of coverage is for new, innovative products for which a reasonable or adequate market among admitted insurers has not had time to develop. The commissioner or his or her designee shall maintain an export list showing all those exempt coverages and risks. Additions to the export list may be made after a hearing, which may take place one or more times each year as deemed necessary by the commissioner. A public hearing shall be held annually or more often at the commissioner’s discretion and reasonable notice of a hearing shall be given to all interested parties including surplus line brokers, admitted insurers, trade associations representing admitted insurers, agents and brokers, and consumer groups. The hearing and findings shall not be required to be conducted in accordance with Chapter 3.5 (commencing with Section 11340) and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. An order by the commissioner shall continue in effect until terminated by the commissioner. Where the commissioner receives written comments or testimony or otherwise determines, prior to a hearing, that a type of insurance on the export list is more available, in the admitted market, the commissioner may remove the type of insurance from the list. The permissibility of any type of insurance to remain on the list is subject to an annual affirmative finding by the commissioner, however, when written comment or testimony is received prior to a hearing, the permissibility of that type of insurance to remain on the export list shall be reviewed at the next hearing and that type of insurance may not remain on the export list without an affirmative decision by the commissioner or his or her designee that there is not a reasonable or adequate market among admitted insurers. The commissioner or his or her designee shall notify all surplus line brokers of any removal. For purposes of this section, the commissioner shall not be authorized to include on the export list as permissible for placement with a nonadmitted insurer, automobile or motor vehicle liability insurance, insurance on residential property, as defined under Section 10087, or any insurance written by the California FAIR plan.
The surplus line advisory organization authorized by Chapter 6.1 (commencing with Section 1780.50) shall pay the costs for a maximum of two public hearings per year held by the commissioner or his or her designee pursuant to this section.
Except for the removal of a type of insurance from the export list pursuant to subdivision (a), nothing in this section shall authorize the commissioner to declare any type of insurance impermissible for exportation.
A licensed surplus line broker may originate surplus lines business, or may accept that business from any other originating licensee duly licensed for the type or types of insurance involved, and may compensate those licensees therefor.
For any information involved in any insurance transaction described in subdivision (a), or involved in the eligibility of the risk for placement with a surplus line broker, the originating licensee shall use due care and diligence in the collection, preparation, and transmission of the information to the surplus line broker.
In addition to the requirements of Section 1763, no surplus line broker shall solicit from, or place with, any nonadmitted insurer, any insurance covering private passenger automobiles if that insurance contains in whole or in part the limits of coverage provided under the California Automobile Assigned Risk Plan unless the surplus line broker, producing agent, broker, or insured has first submitted to the California Automobile Assigned Risk Plan a properly completed and executed application in accordance with the requirements of the plan for the coverage provided by the plan and the plan itself has determined that the application is ineligible for the limits of coverage applied for and so notifies the surplus line broker or insured in writing.
For purposes of this section, a private passenger automobile includes motorcycles, but does not include a fleet of five or more automobiles rated for business use and used in a business.
A licensed surplus line broker may issue evidence of insurance for a home state insured, including binders, covernotes, and certificates evidencing the placement of insurance with an eligible nonadmitted insurer, and with prior written authority, may issue policies of the insurer.
Certificates may be issued pursuant to subdivision (a) or (b) of Section 1764.2. The certificates shall be in the name of the surplus line broker and not in the name of the nonadmitted insurer, shall be signed by the surplus line broker, and shall contain all of the matters specified in Insurance Code Section 381.
Every nonadmitted insurer, in the case of insurance to be purchased by a home state insured pursuant to Section 1760, and surplus line broker, in the case of any insurance with a nonadmitted carrier for a home state insured to be transacted by the surplus line broker, shall be responsible to ensure that, at the time of accepting an application for an insurance policy, other than a renewal of that policy, issued by a nonadmitted insurer, the signature of the applicant on the disclosure statement set forth in subdivision (b) is obtained. In fulfillment of this responsibility, the nonadmitted insurer and the surplus line broker may rely, if it is reasonable under all the circumstances to do so, on the disclosure statement received from a licensee involved in the transaction as prima facie evidence that the disclosure statement and appropriate signature from the applicant have been obtained. The surplus line broker shall maintain a copy of the signed disclosure statement in the broker’s records for a period of at least five years. These records shall be made available to the commissioner and the insured upon request. This disclosure shall be signed by the applicant, and is not subject to a limited power of attorney agreement between the applicant and an agent or broker or a surplus line broker. The disclosure statement shall be in boldface 16-point type on a freestanding document. In addition, every policy issued by a nonadmitted insurer and every certificate evidencing the placement of insurance shall contain, or have affixed to it by the insurer or surplus line broker, the disclosure statement set forth in subdivision (b) in boldface 16-point type on the front page of the policy.
In a case in which the applicant has not received and completed the signed disclosure form required by this section, the applicant may cancel the insurance so placed. The cancellation shall be on a pro rata basis as to premium, and the applicant shall be entitled to the return of any broker’s fees charged for the placement.
The following notice shall be provided to home state insureds and home state insured applicants for insurance as provided by subdivision (a), and shall be printed in English and in the language principally used by the surplus line broker and nonadmitted insurer to advertise, solicit, or negotiate the sale and purchase of surplus line insurance. The surplus line broker and nonadmitted insurer shall use the appropriate bracketed language for application and issued policy disclosures:
“IMPORTANT NOTICE:
1. The insurance policy that you [have purchased] [are applying to purchase] is being issued by an insurer that is not licensed by the State of California. These companies are called “nonadmitted” or “surplus line” insurers.
2. The insurer is not subject to the financial solvency regulation and enforcement that apply to California licensed insurers.
3. The insurer does not participate in any of the insurance guarantee funds created by California law. Therefore, these funds will not pay your claims or protect your assets if the insurer becomes insolvent and is unable to make payments as promised.
4. The insurer should be licensed either as a foreign insurer in another state in the United States or as a non-United States (alien) insurer. You should ask questions of your insurance agent, broker, or “surplus line” broker or contact the California Department of Insurance at the toll-free number 1-800-927-4357 or internet website www.insurance.ca.gov. Ask whether or not the insurer is licensed as a foreign or non-United States (alien) insurer and for additional information about the insurer. You may also visit the NAIC’s internet website at www.naic.org. The NAIC—the National Association of Insurance Commissioners—is the regulatory support organization created and governed by the chief insurance regulators in the United States.
5. Foreign insurers should be licensed by a state in the United States and you may contact that state’s department of insurance to obtain more information about that insurer. You can find a link to each state from this NAIC internet website: https://naic.org/state_web_map.htm.
6. For non-United States (alien) insurers, the insurer should be licensed by a country outside of the United States and should be on the NAIC’s International Insurers Department (IID) listing of approved nonadmitted non-United States insurers. Ask your agent, broker, or “surplus line” broker to obtain more information about that insurer.
7. California maintains a “List of Approved Surplus Line Insurers (LASLI).” Ask your agent or broker if the insurer is on that list, or view that list at the internet website of the California Department of Insurance: www.insurance.ca.gov/01-consumers/120-company/07-lasli/lasli.cfm.
8. If you, as the applicant, required that the insurance policy you have purchased be effective immediately, either because existing coverage was going to lapse within two business days or because you were required to have coverage within two business days, and you did not receive this disclosure form and a request for your signature until after coverage became effective, you have the right to cancel this policy within five days of receiving this disclosure. If you cancel coverage, the premium will be prorated and any broker’s fee charged for this insurance will be returned to you.”
When a contract is issued to an industrial insured, neither the nonadmitted insurer nor the surplus line broker is required to provide the notice required in this section except on the confirmation of insurance, the certificate of placement, or the policy, whichever is first provided to the insured, nor is the insurer or surplus line broker required to obtain the insured’s signature. The producer shall ensure that the notice affixed to the confirmation of insurance, certificate of placement, or the policy is provided to the insured. The producer shall insert the current toll-free telephone number of the Department of Insurance as provided in paragraph 4 of the notice.
An industrial insured is an insured that does both of the following:
Employs at least 25 employees on average during the prior 12 months.
Has aggregate annual premiums for insurance for all risks other than workers’ compensation and health coverage totaling no less than twenty-five thousand dollars ($25,000) or obtains insurance through the services of a full-time employee acting as an insurance manager or a continuously retained insurance consultant. A “continuously retained insurance consultant” does not include: (i) an agent or broker through whom the insurance is being placed, (ii) a subagent or subproducer involved in the transaction, or (iii) an agent or broker that is a business organization employing or contracting with a person mentioned in clauses (i) and (ii).
The surplus line broker shall be responsible for ensuring that the applicant is an industrial insured. A surplus line broker who reasonably relies on information provided in good faith by the applicant, whether directly or through the producer, shall be deemed to be in compliance with this requirement.
For purposes of compliance with the requirement of subdivision (a) that the signature of the applicant be obtained, the following shall apply:
Notwithstanding subdivision (a), this section shall not apply to insurance issued or delivered in this state by a nonadmitted Mexican insurer by and through a surplus line broker affording coverage exclusively in the Republic of Mexico on property located temporarily or permanently in, or operations conducted temporarily or permanently within, the Republic of Mexico.
No surplus line broker shall issue any evidence of insurance or cause or purport to cause any risk to be insured by a nonadmitted insurer or advise any home state insured or home state insured applicant for insurance that coverage has been or will be obtained from a nonadmitted insurer unless:
The broker has prior written authority from the nonadmitted insurer to cause the risk to be insured;
The broker has received advice in the ordinary course of business that the coverage has been obtained; or
A policy of insurance covering the insured for the risk has actually been issued by the nonadmitted insurer and delivered to the insured or his or her representative.
If the surplus line broker acts in reliance on advice received in accordance with subdivision (b) of Section 1764.2, the broker shall deliver the policy to the home state insured or his or her representative, and, if the delivery is not made within 30 days after the date of the issuance of the certificate or upon which the risk has been bound or the home state insured or the home state insured applicant has been advised that coverage has been or will be obtained, he or she shall deliver to the insured either of the following:
A photostatic copy of evidence that the insurance has been bound.
If the nonadmitted insurer is located outside the United States, a cover note, placing slip, or similar document evidencing coverage issued or certified to by any broker located outside the United States who actually placed that insurance with the nonadmitted insurer.
The prior written authority, policy of insurance or copy of evidence that insurance has been bound referred to in Section 1764.2, shall contain authentication by all persons assuming any risk of loss, and, if there is more than one such person, both it and any document issued or certified by the placing broker pursuant to subdivision (b) of Section 1764.3 , shall contain a specification of whether their obligation is joint or several, and if the latter, the proportion of the obligation assumed by each person.
Any person who willfully violates Section 1760.5, 1761, 1763, 1764, 1764.1, 1764.2, 1764.3, 1764.4, 1765.1, 1765.2, 1767, or 1780 is guilty of a public offense and punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not exceeding one year or by fine not exceeding ten thousand dollars ($10,000), or by both.
A license under this chapter shall be applied for and renewed by the filing with the commissioner of a written application therefor, in accordance with Section 1652.
Subject to subdivision (f), the commissioner shall issue a license authorizing any applicant who is trustworthy and competent to transact an insurance brokerage business in a manner as to safeguard the interest of the insured, to act as a surplus line broker from the date of the license until the expiration date specified in Section 1630.
An applicant for a surplus line broker’s license shall, as part of the application and a condition of the issuance of the license, file a bond to the people of the State of California in the sum of fifty thousand dollars ($50,000), conditioned that the licensee will fully and faithfully comply with the requirements of this chapter, and all applicable provisions of this code. The bond shall be subject to Sections 1662 and 1663. A surplus line broker bond is not required for an individual licensed as a surplus line broker who transacts only on behalf of a licensed surplus line broker organization.
Every applicant for a business entity license, as provided in subdivision (a) of Section 1765.2, shall provide the names of all persons who may exercise the power and perform the duties under the license. Whenever an organization licensed as a surplus line broker desires to change, remove, or add to the natural person or persons who are to transact insurance under authority of its license, it shall immediately file an application or notice with the commissioner for an endorsement changing its license accordingly, on a form prescribed by the commissioner. The fee for adding or removing from any surplus line broker’s license issued to an organization the name of any natural person, named thereon, shall be twenty-nine dollars ($29). The commissioner shall require that the qualifying examination provided by subdivision (a) of Section 1676 be taken by any natural person named by the organization to exercise its agency or brokerage powers who would be required to take and pass the qualifying examination. That natural person or persons and the organization are in all other respects subject to the provisions of this chapter and the insurance laws.
The department is authorized to collect additional license fees resulting from the increases in license fees provided by Chapter 29 of the Statutes of 2008 and shall credit any overpayment resulting from reductions in license fees provided by that act.
A business entity licensed under this chapter shall provide two hours of appropriate training to its employees who solicit, negotiate, or effect insurance coverage placed by a nonadmitted insurer. The training shall be given to each eligible employee every five years. The surplus line advisory organization authorized pursuant to Chapter 6.1 (commencing with Section 1780.50) shall develop the curriculum for the training.
The commissioner may deny, suspend, or revoke any license applied for or granted pursuant to this chapter on all or any one of the grounds and in accordance with the procedures provided in Article 6 (commencing with Section 1666) and Article 13 (commencing with Section 1737) of Chapter 5, whenever the commissioner finds that the applicant or licensee has committed a violation of any provision of this code.
No surplus line broker shall place any coverage with a nonadmitted insurer for a home state insured unless the insurer is domiciled in the Republic of Mexico and the placement covers only liability arising out of the ownership, maintenance, or use of a motor vehicle, aircraft, or boat in the Republic of Mexico, or, at the time of placement, the nonadmitted insurer meets the requirements of either subdivision (a) or (b):
If the insurer is domiciled in one of the states of the United States or its territories as defined in subdivision (o) of Section 1760.1:
Is licensed to write the type of insurance in its domiciliary jurisdiction; and
Has capital and surplus that together total forty-five million dollars ($45,000,000).
The requirements of subparagraph (A) may be satisfied by an insurer possessing less than forty-five million dollars ($45,000,000) upon an affirmative finding of acceptability by the commissioner. The finding shall be based upon factors such as quality of management, capital and surplus of any parent company, company underwriting profit and investment income trends, market availability, and company record and reputation within the industry. The commissioner is prohibited from making an affirmative finding of acceptability when the foreign insurer’s capital and surplus is less than four million five hundred thousand dollars ($4,500,000); or
If a foreign insurer that was listed as an eligible surplus line insurer as of January 1, 2011, and did not have the forty-five million dollars ($45,000,000) of capital and surplus as of January 1, 2011, that insurer shall have at least thirty million dollars ($30,000,000) of capital and surplus as of December 31, 2011, and at least forty-five million dollars ($45,000,000) of capital and surplus as of December 31, 2013.
If the insurer is not domiciled in one of the states of the United States or its territories as defined in subdivision (o) of Section 1760.1, the insurer is listed on the Quarterly Listing of Alien Insurers maintained by the NAIC International Insurers Department (IID) and is licensed as an insurer in its domiciliary jurisdiction.
If at any time the commissioner determines that an insurer is no longer eligible pursuant to subdivision (a) or (b), the commissioner may issue an order without prior notice and hearing. At the time an order is issued pursuant to this subdivision to an insurer, the commissioner shall notify all surplus line brokers of the order.
The commissioner may require, at least annually, the submission of records and statements as are reasonably necessary to ensure that the requirements of this section are maintained.
The commissioner shall establish by regulation a schedule of fees to cover costs of administering and enforcing this chapter.
Insurance may be placed on a limited basis with insurers not eligible pursuant to this section if all of the following conditions are met:
The use of multiple insurers is necessary to obtain coverage for 100 percent of the risk.
At least 80 percent of the risk is placed with admitted insurers or insurers that are eligible nonadmitted insurers.
The placing surplus line broker submits to the commissioner, or his or her designee, copies of all documentation relied upon by the surplus line broker to make the broker’s determination that the financial stability, reputation, and integrity of the ineligible insurer or insurers, are adequate to safeguard the interest of the insured under the policy. This documentation, and any other documentation regarding the ineligible insurer requested by the commissioner, shall be submitted no more than 30 days after the insurance is placed with the unlisted insurer for the initial placement by that broker with the particular ineligible insurer, and annually thereafter for as long as the broker continues to make placements with the ineligible insurer pursuant to this paragraph.
The insured has aggregate annual premiums for all risks other than workers’ compensation or health coverage totaling no less than one hundred thousand dollars ($100,000).
Insurance may not be placed pursuant to paragraph (1) if any of the following applies:
The ineligible insurer has for any reason been objected to by the commissioner pursuant to this section or has become ineligible.
The insurance includes coverage for employer-sponsored medical, surgical, hospital, or other health or medical expense benefits payable to the employee by the insurer.
The insurance is mandatory under the laws of the federal government, this state, or any political subdivision thereof, and includes any portion of limits of coverage mandated by those laws.
The insured is a multiple employer welfare arrangement, as defined in Section 1002(40)(A) of Title 29 of the United States Code, or any other arrangement among two or more employers that are not under common ownership or control, which is established or maintained for the primary purpose of providing insurance benefits to the employees of two or more employers.
Ineligible insurers represent a disproportionate portion of the lower layers of the coverage.
Nothing in this section is intended to alter any duties of a surplus line broker pursuant to subdivision (b) of Section 1765 or other laws of this state to safeguard the interests of the insured under the policy in recommending or placing insurance with a nonadmitted insurer.
Placements authorized by this subdivision are intended to provide sophisticated insurance purchasers with a means to obtain necessary commercial insurance coverage from nonadmitted insurers that are not eligible in situations where it is not commercially possible to fully obtain that coverage from either admitted or eligible insurers. This subdivision shall not be deemed to permit surplus line brokers to place with nonadmitted insurers common commercial or personal line coverages for insureds that can be placed with insurers that are admitted or eligible pursuant to this section, whether the insured is an individual insured, or a group created primarily for the purpose of purchasing insurance.
With respect to a nonadmitted insurer that is listed as an eligible surplus line insurer as of July 21, 2011, pursuant to the former Section 1765.1 as it read prior to July 21, 2011, this section shall not be effective until the subsequent expiration of the policies of that insurer in effect on July 21, 2011. Nothing in the bill that amended this section during the 2011 portion of the 2011–12 Regular Session is intended to repeal or imply there is not authority to adopt, or to have adopted, or to continue in force, any regulation, or part thereof, with respect to surplus line insurance, which is not clearly inconsistent with it.
A surplus line broker may place any coverage with a California-approved nonadmitted insurer if the insurer is domiciled in the Republic of Mexico and the placement covers only liability arising out of the ownership, maintenance, or use of a motor vehicle, aircraft, or boat in the Republic of Mexico, or if, at the time of placement, the nonadmitted insurer meets the following requirements:
Has established its financial stability, reputation, and integrity, for the class of insurance the broker proposes to place, by satisfactory evidence submitted to the commissioner through a surplus line broker.
Meets one of the following requirements with respect to its financial stability:
Has capital and surplus that together total at least forty-five million dollars ($45,000,000). “Capital” shall be as defined in Section 36. “Surplus” shall be defined as assets exceeding the sum of liabilities for losses reported, expenses, taxes, and all other indebtedness and reinsurance of outstanding risks as provided by law and paid-in capital in the case of an insurer issuing or having outstanding shares of capital stock. The type of assets to be used in calculating capital and surplus shall be as follows: at least twenty-five million dollars ($25,000,000) shall be in the form of cash, or securities of the same character and quality as specified in Sections 1170 to 1182, inclusive, or in readily marketable securities listed on regulated United States’ national or principal regional securities exchanges. The remaining assets shall be in the form just described or in the form of investments of substantially the same character and quality as described in Sections 1190 to 1202, inclusive. In calculating capital and surplus under this section, the term “same character and quality” shall permit, but not require, the commissioner to approve assets maintained in accordance with the laws of another state or country. The commissioner shall be guided by the limitations, restrictions, or other requirements of this code or the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual in determining whether assets substantially similar to those described in Sections 1190 to 1202, inclusive, qualify. The commissioner shall retain the discretion to disapprove or disallow an asset that is not of a sound quality, or that he or she deems to create an unacceptable risk of loss to the insurer or to policyholders. Letters of credit shall not qualify as assets in the calculation of surplus. If capital and surplus together total less than forty-five million dollars ($45,000,000), the commissioner has affirmatively found that the capital and surplus are adequate to protect California policyholders. The commissioner shall consider, on determining whether to make this finding, factors such as quality of management, the capital and surplus of a parent company, the underwriting profit and investment income trends, and the record of claims payment and claims handling practices of the nonadmitted insurer.
In the case of an “Insurance Exchange” created and authorized under the laws of individual states, maintains capital and surplus of not less than fifty million dollars ($50,000,000) in the aggregate. “Capital” shall be as defined in Section 36. “Surplus” shall be defined as assets exceeding the sum of liabilities for losses reported, expenses, taxes, and all other indebtedness and reinsurance of outstanding risks as provided by law and paid-in capital in the case of an insurer issuing or having outstanding shares of capital stock. The type of assets to be used in calculating capital and surplus shall be as follows: at least twenty-five million dollars ($25,000,000) shall be in the form of cash, or securities of the same character and quality as specified in Sections 1170 to 1182, inclusive, or in readily marketable securities listed on regulated United States’ national or principal regional securities exchanges. The remaining assets shall be in the form just described or in the form of investments of substantially the same character and quality as described in Sections 1190 to 1202, inclusive. In calculating capital and surplus under this section, the term “same character and quality” shall permit, but not require, the commissioner to approve assets maintained in accordance with the laws of another state or country. The commissioner shall be guided by the limitations, restrictions, or other requirements of this code or the National Association of Insurance Commissioners’ Accounting Practices and Procedures Manual in determining whether assets substantially similar to those described in Sections 1190 to 1202, inclusive, qualify. The commissioner shall retain the discretion to disapprove or disallow an asset that is not of a sound quality, or that he or she deems to create an unacceptable risk of loss to the insurer or to policyholders. Letters of credit shall not qualify as assets in the calculation of surplus. Each individual syndicate seeking to accept surplus line placements of risks resident, located, or to be performed in this state shall maintain minimum capital and surplus of not less than six million four hundred thousand dollars ($6,400,000). Each individual syndicate shall increase the capital and surplus required by this paragraph by one million dollars ($1,000,000) each year until it attains a capital and surplus of forty-five million dollars ($45,000,000).
In the case of a syndicate that is part of a group consisting of incorporated individual insurers, or a combination of both incorporated and unincorporated insurers, that at all times maintains a trust fund of not less than one hundred million dollars ($100,000,000) in a qualified United States financial institution as security to the full amount thereof for the United States surplus line policyholders and beneficiaries of direct policies of the group, including all policyholders and beneficiaries of direct policies of the syndicate, and the full balance in the trust fund is available to satisfy the liabilities of each member of the group of those syndicates, incorporated individual insurers or other unincorporated insurers, without regard to their individual contributions to that trust fund, and the trust complies with the terms of and conditions specified in paragraph (1) of subdivision (b), the syndicate is excepted from the capital and surplus requirements of subparagraph (A). The incorporated members of the group shall not be engaged in any business other than underwriting as a member of the group and shall be subject to the same level of solvency regulation and control by the group’s domiciliary regulator as are the unincorporated members.
In addition, to be approved as a surplus line insurer, an insurer not domiciled in one of the United States or its territories shall have in force in the United States an irrevocable trust account in a qualified United States financial institution, for the protection of United States policyholders, of not less than five million four hundred thousand dollars ($5,400,000) and consisting of cash, securities acceptable to the commissioner that are authorized pursuant to Sections 1170 to 1182, inclusive, readily marketable securities acceptable to the commissioner that are listed on a regulated United States national or principal regional security exchange, or clean and irrevocable letters of credit acceptable to the commissioner and issued by a qualified United States financial institution. The trust agreement shall be in a form acceptable to the commissioner. The funds in the trust account may be included in any calculation of capital and surplus, except letters of credit, which shall not be included in the calculation.
In the case of a syndicate seeking approval under subparagraph (C) of paragraph (2) of subdivision (a), the syndicate shall, in addition to the requirements of that subparagraph, at a minimum, maintain in the United States a trust account in an amount satisfactory to the commissioner that is not less than the amount required by the domiciliary state of the syndicate’s trust. The trust account shall comply with the terms and conditions specified in paragraph (1).
In the case of a group of incorporated insurers under common administration that maintains a trust fund of not less than one hundred million dollars ($100,000,000) in a qualified United States financial institution for the payment of claims of its United States policyholders, their assigns, or successors in interest and that complies with the terms and conditions of paragraph (1) that has continuously transacted an insurance business outside the United States for at least three years, that is in good standing with its domiciliary regulator, whose individual insurer members maintain standards and a financial condition reasonably comparable to admitted insurers, that submits to this state’s authority to examine its books and bears the expense of examination, and that has an aggregate policyholder surplus of ten billion dollars ($10,000,000,000), the group is excepted from the capital and surplus requirements of subdivision (a).
Unless available from the NAIC or other public source, has caused to be provided to the commissioner the following documents:
A copy of an annual statement, prepared in the form prescribed by the NAIC. For an alien insurer, in lieu of an annual statement, a licensee may submit a form as set forth by regulation and as prepared by the insurer, and, if listed by the IID, a copy of the complete information as required in the application for listing by the IID.
A copy of an audited financial report on the insurer’s condition that meets the standards of subparagraph (D) for foreign insurers or subparagraph (E) for alien insurers.
If the insurer is an alien:
A certified copy of the trust agreement referenced in subdivision (b).
A verified copy of the most recent quarterly statement or list of the assets in the trust.
Financial reports filed pursuant to this section by foreign insurers shall conform to the following standards:
Financial documents shall be certified.
An audited financial report shall constitute a supplement to the insurer’s annual statement, as required by the annual statement instructions issued by the NAIC.
An audited financial report shall be prepared by an independent certified public accountant or accounting firm in good standing with the American Institute of Certified Public Accountants and in all states where licensed to practice; and be prepared in conformity with statutory accounting practices prescribed, or otherwise permitted, by the insurance regulator of the insurer’s domiciliary jurisdiction.
An audited financial report shall include information on the insurer’s financial position as of the end of the most recent calendar year, and the results of its operations, cashflows, and changes in capital and surplus for the year then ended.
An audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the insurer’s annual statement filed with its domiciliary jurisdiction, and presenting comparatively the amounts as of December 31 of the most recent calendar year and the amounts as of December 31 of the preceding year.
Financial reports filed pursuant to this section by alien insurers shall conform to the following standards:
Except as provided in clause (ii) of subparagraph (C), financial documents should be certified. If certification of a financial document is not available, the document shall be verified.
Financial documents should be expressed in United States dollars, but may be expressed in another currency, if the exchange rate for the other currency as of the date of the document is also provided.
The responses provided pursuant to subparagraph (A) on the form submitted in lieu of an annual statement should follow the most recent Insurance Solvency International Guide to Alien Reporting Format, “Standard Definitions of Accounting Items.” Responses that do not agree with a standard definition shall be fully explained in the form.
An audited financial report shall be prepared by an independent licensed auditor in the insurer’s domiciliary jurisdiction or in any state.
An audited financial report shall be prepared in accord with either (I) Generally Accepted Auditing Standards that prescribe Generally Accepted Accounting Principles, or (II) International Accounting Standards as published and revised from time to time by the International Auditing Guidelines published by the International Auditing Practice Committee of the International Federation of Accountants, and shall include financial statement notes and a summary of significant accounting practices.
The commissioner may accept, in lieu of a document described above, a certified or verified financial or regulatory document, statement, or report if the commissioner finds that it possesses reliability and financial detail substantially equal to or greater than the document for which it is proposed to be a substitute.
If one of the financial documents required to be submitted under subparagraphs (A) and (B) is dated within 12 months of submission, but the other document is not so dated, the licensee may use the outdated document if it is accompanied by a supplement. The supplement must meet the same requirements that apply to the supplemented document and must update the outdated document to a date within the prescribed time period, preferably to the same date as the nonsupplemented document.
The complete street address, mailing address, and telephone number of the insurer’s principal place of business.
A certified or verified explanation, report, or other statement from the insurance regulatory office or official of the insurer’s domiciliary jurisdiction concerning the insurer’s record regarding market conduct and consumer complaints, or, if that information cannot be obtained from that jurisdiction, then any other information that the licensee can procure to demonstrate a good reputation for payment of claims and treatment of policyholders.
A verified statement, from the insurer or licensee, on whether the insurer or an affiliated entity is currently known to be the subject of an order or proceeding regarding conservation, liquidation, or other receivership; or regarding revocation or suspension of a license to transact insurance in any jurisdiction; or otherwise seeking to stop the insurer from transacting insurance in any jurisdiction. The statement shall identify the proceeding by date, jurisdiction, and relief or sanction sought, and shall attach a copy of the relevant order.
A certified copy of the most recent report of examination or an explanation if the report is not available.
A list of all California surplus line brokers authorized by the insurer to issue policies on its behalf, and any additions to or deletions from that list.
Has established that:
All documents required by subdivisions (c) and (d) have been filed. Each of the documents appear after review to be complete, clear, comprehensible, unambiguous, accurate, and consistent.
The documents affirm that the insurer is not subject in any jurisdiction to an order or proceeding that:
Seeks to stop it from transacting insurance.
Relates to conservation, liquidation, or other receivership.
Relates to revocation or suspension of its license.
The documents affirm that the insurer has actively transacted insurance for the three years immediately preceding the filing made under this section, unless an exemption is granted. As used in this paragraph, “insurer” does not include a syndicate of underwriting entities. The commissioner may grant an exemption if the licensee has applied for exemption and demonstrates either of the following:
The insurer meets the condition for any exception set forth in subdivision (a), (b), or (c) of Section 716.
If the insurer has been actively transacting insurance for at least 12 months, and the licensee demonstrates that the exemption is warranted because the insurer’s current financial strength, operating history, business plan, ownership and control, management experience, and ability, together with any other pertinent factors, make three years of active insurance transaction unnecessary to establish sufficient reputation.
The documents confirm that the insurer holds a license to issue insurance policies, other than reinsurance, to residents of the jurisdiction that granted the license unless an exemption is granted. The commissioner may grant an exemption if the licensee has applied for an exemption and demonstrates that the exemption is warranted because the insurer proposes to issue in California only commercial coverage, and is wholly owned and actually controlled by substantial and knowledgeable business enterprises that are its policyholders and that effectively govern the insurer’s destiny in furtherance of their own business objectives.
The information filed pursuant to paragraph (5) of subdivision (c) or otherwise filed with or available to the commissioner, including reports received from California policyholders, shall indicate that the insurer makes reasonably prompt payment of claims in this state or elsewhere.
The information available to the commissioner shall not indicate that the insurer offers in California a licensee products or rates that violate any provision of this code.
Has been placed on the list of approved surplus line insurers by the commissioner. The commissioner shall establish a list of all surplus line insurers that have met the requirements of subdivisions (a) to (e), inclusive, and shall publish a master list at least semiannually. An insurer receiving approval as an approved surplus line insurer shall be added by addendum to the list at the time of approval, and shall be incorporated into the master list at the next date of publication. If an insurer appears on the most recent list, it shall be presumed that the insurer is an approved surplus line insurer, unless the commissioner or his or her designee has mailed or causes to be mailed notice to all surplus line brokers that the commissioner has withdrawn the insurer’s approval. Upon receipt of notice, the surplus line broker shall no longer advertise that the insurer is approved. Nothing in this subdivision shall limit the commissioner’s discretion to withdraw an insurer’s approval.
Except as provided by paragraph (2), whenever the commissioner has reasonable cause to believe, and determines after a public hearing, that an insurer on the list established pursuant to subdivision (f), (A) is in an unsound financial condition, (B) does not meet the approval requirements under subdivisions (a) to (e), inclusive, (C) has violated the laws of this state, or (D) without justification, or with a frequency so as to indicate a general business practice, delays the payment of just claims, the commissioner may issue an order removing the insurer from the list. Notice of hearing shall be served upon the insurer or its agent for service of process stating the time and place of the hearing and the conduct, condition, or ground upon which the commissioner would make his or her order. The hearing shall occur not less than 20 days, nor more than 30 days, after notice is served upon the insurer or its agent for service of process.
If the commissioner determines that an insurer’s immediate removal from the list is necessary to protect the public or a home state insured or home state insured applicant of the insurer, or, in the case of an application by an insurer to be placed on the list that is being denied by the commissioner, the commissioner may issue an order pursuant to paragraph (1) without prior notice and hearing. At the time an order is served pursuant to this paragraph to an insurer on the list, the commissioner shall also issue and serve upon the insurer a statement of the reasons that immediate removal is necessary. An order issued pursuant to this paragraph shall include a notice stating the time and place of a hearing on the order, which shall be not less than 20 days, nor more than 30 days, after the notice is served.
Notwithstanding paragraphs (1) and (2), in a case where the commissioner is basing a decision to remove an insurer from the list, or deny an application to be placed on the list, on the failure of the insurer or applicant to comply with, meet, or maintain any of the objective criteria established by this section, or by regulation adopted pursuant to this section, the commissioner may specify this fact in the order, and a hearing shall not be required to be held on the order.
Notwithstanding paragraphs (1) and (2), the commissioner may, without prior notice or hearing, remove from the list established pursuant to subdivision (f) an insurer that has failed or refused to timely provide documents required by this section, or regulations adopted to implement this section. In the case of removal pursuant to this paragraph, the commissioner shall notify all surplus line brokers of the action.
In addition to other statements or reports required by this chapter, the commissioner may also address to a licensee a written request for full and complete information respecting the financial stability, reputation, and integrity of a nonadmitted insurer with whom the licensee has dealt or proposes to deal in the transaction of insurance business with a home state insured. The licensee so addressed shall promptly furnish in written or printed form so much of the information requested as he or she can produce, together with a signed statement identifying the same and giving reasons for omissions, if any. After due examination of the information and accompanying statement, the commissioner may, if he or she believes it to be in the public interest, advise the licensee in writing that the insurer does not qualify as an approved insurer. Any placement in the nonadmitted insurer made by a licensee after receipt of that advisement shall be accompanied by a copy of the advisement. The commissioner may issue an advisement when documents submitted pursuant to subdivisions (c) and (d) do not meet the criteria of subdivisions (a) to (e), inclusive, or when the commissioner obtains documents on an insurer and the insurer does not meet the criteria of subdivisions (a) to (e), inclusive, and shall be authorized to not include or remove that insurer from the List of Approved Surplus Line Insurers.
The commissioner shall require, at least annually, the submission of records and statements reasonably necessary to ensure that the requirements of this section are maintained.
The schedule of fees to cover the costs of administering and enforcing this chapter are as follows:
Initial application, six thousand one hundred thirteen dollars ($6,113).
Renewal application, three thousand fifty-seven dollars ($3,057).
Financial update, three hundred forty-one dollars ($341).
Nonfinancial update, fifty dollars ($50).
A license under this chapter may be issued to an individual or any legal business entity. If issued to a business entity or individual that maintains more than one surplus line office from which it transacts that business with California residents, it shall name the natural person or persons located at each such surplus line office maintained by the licensee who is or are responsible for the proper discharge at each office of all duties placed upon the licensee acting as a surplus line broker and each of these natural persons are required to be licensed as a surplus line broker. Each natural person shall meet all of the requirements for the license.
Every application for a license filed by a corporation shall contain the names and addresses of all stockholders owning 10 percent or more of the corporation’s stock, and of all officers and directors of the corporation. Every licensed corporation shall file a written notice with the commissioner of all changes, except address changes, of its stockholders who own 10 percent or more of the corporation’s stock and of all officers and directors of the corporation.
Any natural person applying for a license to act as a surplus line broker shall prove his or her competency by showing he or she holds an existing license to act as a property broker-agent and casualty broker-agent, which requires passing the qualifying examination for that insurance broker’s license. Any natural person who is not a resident of California may prove his or her competency by showing that he or she holds an existing license for property and casualty in his or her resident state.
If an applicant for any license under this chapter, within one year from the date of the receipt by the commissioner of the application, whether or not the filing is complete, neither fully qualifies for and receives that license on a permanent basis, nor is denied its issue, such application is automatically denied without prejudice to the filing of a new application for the license.
A payment of premium to a surplus line broker acting for a person other than himself or herself in negotiating, continuing, or renewing any policy of insurance under this chapter shall be deemed to be payment to the insurer, notwithstanding any conditions or stipulations in the policy or contract. Nothing in this section shall be deemed to relieve a surplus line broker or special lines’ surplus line broker of any obligation owed to a home state insured or home state insured applicant.
A resident surplus line broker at all times shall maintain in good faith an office in this state and if he or she maintains more than one surplus line office in this state, he or she shall designate one of them as his or her principal surplus line office in this state and shall notify the commissioner of that designation. He or she shall report to the commissioner the addresses of all surplus line offices maintained by him or her in this state and any change in location of any of those offices. A nonresident surplus line broker at all times shall maintain in good faith an office in the state or territory of the United States in which he or she is licensed as a resident surplus line broker, and if he or she maintains more than one surplus line office in that state, he or she shall designate one of them as his or her principal surplus line office in that state and shall notify the commissioner of the designation. A resident licensee shall report to the commissioner the addresses of all surplus line offices maintained in this state and any change in location of any of those offices. Nonresident licensees shall report to the commissioner the addresses of all surplus line offices maintained in the state or territory of the United States in which the resident surplus line license is maintained and any change in location of any of those offices.
A resident surplus line broker shall keep in this state complete records of the business transacted by him or her for California home state insureds with nonadmitted insurers under his or her license as a surplus line broker including all of the following documentation for each policy:
Verification that the insured is a California home state insured.
Verification that the commercial insured or industrial insured qualifies for the provisions of this code.
Whether or not it is a single state policy or multistate policy.
Where allocation of premium to the states is required, data necessary to make that allocation. A nonresident surplus line broker shall keep in the state where he or she is licensed as a resident surplus line broker complete records of the business transacted by him or her for California home state insureds with nonadmitted insurers under his or her California nonresident surplus line broker license, including subdivisions (a) to (d), inclusive. The commissioner may waive or modify any of the foregoing requirements by issuance of a notice published on the department’s Internet Web site.
Whenever required so to do by the commissioner, such surplus line broker shall furnish to the commissioner a list of the admitted insurers from which the entire amount of insurance desired was not obtainable.
The commissioner, whenever he deems necessary, may examine the books and accounts of any surplus line broker for the purpose of determining whether or not the broker is conducting his business in accordance with the provisions of this chapter. For the purpose of making such examination such broker shall allow the commissioner free access at all times to all the broker’s books and papers, and the commissioner shall thoroughly inspect and examine all of the broker’s affairs.
The costs and expenses of all examinations by the commissioner shall be paid as prescribed in Section 736.
A surplus line insurer may be sued upon any cause of action arising in this state under any surplus line insurance contract made by it, or any evidence of insurance issued or delivered by the surplus line broker, pursuant to the procedure set forth in Sections 1610 to 1620, inclusive. Any policy or evidence of insurance issued by the surplus line insurer or the surplus line broker shall contain a provision stating the substance of this section, and designating the person to whom the commissioner shall mail process.
Every surplus line insurer assuming a surplus line insurance shall be deemed thereby to have subjected itself to this chapter.
The remedies provided by this section shall be in addition to any other methods provided by law for service of process.
Surplus line brokers may advertise and solicit using print, electronic media, direct mail, and all other advertising or marketing media. These advertisements and solicitations may include a description of nonadmitted insurance products available through the surplus line broker, and may include the name of any nonadmitted insurer, provided that all of the following apply: (a) the insurer is authorized to accept placements from the surplus line broker pursuant to Section 1765.1, (b) a nonadmitted insurer’s name is not used in connection with any nonadmitted insurance product of that insurer, (c) the unlicensed status of the insurer or of the insurance products is disclosed in type of a size no smaller than any telephone number, address, or fax number appearing in the advertisement or solicitation, and (d) the advertisement or solicitation does not contain any assertion, representation, or statement with respect to the business of insurance, or with respect to any person in the conduct of his or her insurance business, that is untrue, deceptive, or misleading, and that is known, or that by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading. If the insurance is available from an eligible nonadmitted insurer that is a member of a group of insurers, advertisements and solicitations in accordance with this section may include the name of the group. A surplus line broker’s advertisements and solicitations shall not include any information about a nonadmitted insurer’s premiums or rates.
On or before the first day of March of each year the surplus line broker, placing business for a home state insured, shall file with the commissioner a sworn statement of all business transacted under his or her surplus line license during the last preceding calendar year. The statement shall contain an account of the business done by the surplus line broker placing business for a home state insured for the prior year, and shall include (A) the total amount of gross premium, (B) the total gross premium for single state risks where 100 percent of the premium is attributable to risks in California, and (C) for multistate risks, the percentage of gross premium allocated to California and each other state. The commissioner may waive or modify any of the foregoing requirements by issuance of a notice published on the department’s Internet Web site.
On or before the first day of March of each year, the home state insured that directly procures insurance pursuant to Section 1760 shall file with the commissioner a sworn statement of all business done during the last preceding calendar year. That statement shall contain an account of the insurance directly procured by the home state insured pursuant to Section 1760 for the prior year, and shall include (A) the total amount of premium, (B) the total premium for single state risks where 100 percent of the premium is attributable to risks in California, and (C) for multistate risks, the percentage of premium allocated to California and each other state. The commissioner may waive or modify any of the foregoing requirements by issuance of a notice published on the department’s Internet Web site.
For purposes of this chapter, “business done” or “business transacted” means all insurance business conducted by the surplus line broker for a home state insured or directly procured by the home state insured. If two or more persons licensed as surplus line brokers are involved in placing a policy, only the one who is responsible for filing the confidential written report pursuant to subdivision (a) of Section 1763, shall be considered transacting business for tax purposes and then only one licensed surplus line broker shall include the policy in his or her sworn statement. The surplus line broker who is required to include the policy in his or her own statement is either (1) the one who is responsible for negotiating, effecting the placement, remitting the premium to the nonadmitted insurer or its representatives, and filing the confidential written report pursuant to subdivision (a) of Section 1763, or (2) the one surplus line broker who is delegated the responsibility for the filing of the confidential written report pursuant to subdivision (a) of Section 1763 pursuant to a written agreement that is (A) by and among the surplus line brokers referenced in paragraph (1) and this paragraph involved in the transaction, (B) signed by the surplus line brokers referenced in paragraph (1) and this paragraph involved in the transaction, and (C) provides by its terms that the agreement shall be made available to the commissioner or his or her designee, upon request.
The date on which the surplus line broker transacting a policy prepares a bill or invoice for payment of all or part of the premiums due, shall be considered the date on which that business was done or transacted, subject to subdivision (d). This date shall be shown on the face of the bill or invoice and shall be referred to as the “invoice date.”
The invoice date shall be no more than 60 days after the policy effective date and no more than 60 days after the insurance was placed with a nonadmitted insurer, except as provided in paragraph (2).
For purposes of this chapter, the amount of gross premium to be reported, if premiums are billed and payable in installments, shall be the amount of the installment premium, provided the amount and due date of each installment, or the basis for determining each installment, is identifiable in the policy or an endorsement, and either of the following conditions is satisfied:
Installments under the policy are not billed more frequently than once per month.
If more than one installment is billed in any month, the commissioner determines, in his or her discretion, that the installment billing method used does not unduly burden the commissioner’s ability to accurately determine the amount of premium paid by the insured.
If a new or renewal policy has an effective date between January 1, 2011, to July 20, 2011, inclusive, and is placed on or before July 20, 2011, then the policy shall be considered to be business done by the surplus line broker as of the effective date. If a new or renewal policy has an effective date between January 1, 2011, to July 20, 2011, inclusive, then the policy shall be considered to be business done by the home state insured who directly procures policies as of the effective date. Cancellations or endorsements shall be business done on the same date as the policy that is being canceled or endorsed, if that policy effective date is on or before July 20, 2011. Installment premiums, as referenced in paragraph (2), shall be business done on the date of the most recent invoice issued on or before July 20, 2011, that included premium tax charges. This paragraph is enacted to address the July 21, 2011, effective date of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), and shall remain in effect only until October 18, 2012.
All such reports and statements shall be made on blanks furnished to the surplus line broker by the commissioner on application therefor.
Each calendar year, every surplus line broker whose annual tax for the preceding calendar year was twenty thousand dollars ($20,000) or more shall make monthly installment payments on account of the annual tax on business done during the current calendar year imposed by Section 1775.5.
Notwithstanding any other law, the commissioner may relieve a surplus line broker of his or her obligation to make monthly payments if the broker establishes to the satisfaction of the commissioner that either the broker has ceased to transact business in this state, or his or her annual tax for the current year will be less than twenty thousand dollars ($20,000).
On or before February 1 of each year, the commissioner shall post on the department’s Internet Web site the installment payment forms prescribed by the commissioner to accompany surplus line tax remittances if monthly installment payments are required by Section 1775.1. Failure to secure those forms shall not relieve any broker from making or paying monthly installment payments.
Each surplus line broker required to make monthly installment payments shall remit them on or before the first day of the third calendar month following the end of the accounting month in which the business was done. The annual payment under Section 1775.5 shall be in lieu of an installment payment under this section for the accounting month of December. Remittances for those payments shall be made payable to the commissioner and shall be made by electronic fund transfer in accordance with Section 1775.8 or delivered to the office of the commissioner, accompanied by an installment payment form prescribed by the commissioner if remittance by electronic fund transfer is not mandatory under Section 1775.8.
The amount of the payment shall be 3 percent of the gross premiums charged less return premiums upon business done by the surplus line broker during the calendar month ending two calendar months immediately preceding the due date of the payment, as specified in Section 1775.3, excluding gross premiums and return premiums paid by him or her upon business governed by the provisions of Section 1760.5. If during any calendar month those return premiums upon business done by a surplus line broker exceed the gross premiums upon the business done by him or her in that calendar month, then no payment shall be payable by him or her in respect to that calendar month, and he or she may carry forward that excess to the next succeeding calendar month or months and apply it in reduction of the taxable premiums on business done by him or her in that succeeding calendar month or months. Even though no payment shall be payable by the broker, he or she shall file a return showing that his or her return premiums exceeded his or her gross premiums.
In determining the applicability of subdivision (a) of Section 1775.1 to a surplus line broker who has acquired the business of another surplus line broker, the amount of tax liability of the acquired broker for the immediately preceding calendar year shall be added to the amount of the tax liability of the acquiring broker for the immediately preceding calendar year.
All amounts paid, other than penalties and interest, shall be allowed as a credit on the annual tax imposed by Section 1775.5.
If the total amount of monthly installment payments for any calendar year exceeds the amount of annual tax for that year, the excess shall be treated as an overpayment of annual tax and be allowed as a credit or refund.
A penalty of 10 percent of the amount of the monthly payment due shall be levied upon and paid by any surplus line broker who fails to make the necessary payment within the time required, plus interest at the rate of 1 percent per calendar month or fraction thereof from the due date of the payment until the date payment is received by the commissioner, but not for any period after the due date of the annual tax. The penalty and interest shall be applied as prescribed in Section 12636.5 of the Revenue and Taxation Code. The commissioner may remit the penalty in a case where he or she finds, as a result of examination or otherwise, that the failure of, or delay in, payment arose out of excusable mistake or excusable inadvertence.
For any part of a payment required that was not made within the time required by law, when the nonpayment or late payment was due to fraud on the part of the taxpayer, a penalty of 25 percent of the amount unpaid shall be added thereto, in addition to all other penalties otherwise imposed.
The commissioner, upon a showing of good cause, may extend for not to exceed 10 days the time for making a monthly payment. The extension may be granted at any time, provided that a request therefor is filed with the commissioner within or prior to the period for which the extension may be granted. Any surplus line broker to whom an extension is granted shall, in addition to the monthly payment, pay interest at the rate of 1 percent per month, or fraction thereof, from the due date until the annual tax due date.
Every surplus line broker shall annually, on or before the first day of March of each year, pay to the Insurance Commissioner for the use of the State of California a tax of 3 percent of the gross premiums charged less return premiums upon business done by him or her under the authority of his or her license during the preceding calendar year, excluding any portions of premiums upon business done involving the risk finance portion of any blended finite risk product used in the financing element of state or federal Superfund environmental settlements involving remediation of soil or groundwater contamination or by the provisions of Section 1760.5. If during any calendar year 3 percent of the return premiums upon business done by a surplus line broker exceed 3 percent of the gross premiums upon that business done by him or her in that year, then he or she may either carry forward that excess to the next succeeding year and apply it as a credit against 3 percent of gross premiums on the business done by him or her in the succeeding year, or he or she may elect to receive, and thereupon be paid a refund equal to the amount of taxes theretofore paid by him or her on that excess of return premiums paid over gross premiums received.
For the purpose of determining that tax, the total premium charged for all that nonadmitted insurance placed in a single transaction with one underwriter or group of underwriters, whether in one or more policies, shall be the entire premium charged on all nonadmitted insurance for the California home state insured. This provision shall not apply to interstate motor transit operations conducted between this and other states. With respect to those operations surplus line tax shall be payable on the entire premium charged on all nonadmitted insurance, less the following:
The portion of the premium as is determined, as herein provided, to have been charged for operations in other states taxing the premium on operations in those states of an insured maintaining its headquarters office in this state.
The premium for any operations outside of this state of an insured who maintains a headquarters operating office outside of this state and a branch office in this state.
For any part of a payment required by this section or by Section 1775.4 which was not made within the time required by law, when the nonpayment or late payment was due to fraud on the part of the broker, a penalty of 25 percent of the amount unpaid shall be added thereto, in addition to all other penalties otherwise imposed.
For the purposes of this section, these terms shall have the following meanings:
“Blended finite risk product” means a contractual arrangement combining risk finance with traditional risk transfer, where a distinct portion of the program cost represents the funding of a known, existing, nonfortuitous future cost, obligation, responsibility, or liability at its discounted net present value, and another portion of the program cost represents risk transfer for losses that have yet to occur related to the cost, obligation, responsibility, or liability that is the subject of the program.
“Risk financing” means that portion of any blended finite risk product that represents the funding of a known, existing, nonfortuitous future cost, obligation, responsibility, or liability.
“Risk finance” or “financing element” means a method of funding for a known future cost over a long time horizon in current-value dollars using the principle of net present value discounting.
All tax moneys received by the commissioner pursuant to this chapter shall be transmitted to the State Treasurer to be deposited in the State Treasury to the credit of the Insurance Tax Fund. Upon transmitting moneys to the State Treasurer, the commissioner shall furnish the Controller with a record of the amount transmitted and the surplus line brokers from whom the moneys have been received.
The money in the Insurance Tax Fund received from the commissioner pursuant to Section 1775.6 is hereby appropriated as follows:
To pay the refunds authorized by this chapter.
The balance of the money in the fund shall, on order of the Controller, be transferred to the State General Fund.
On and after January 1, 1994, and before January 1, 1995, every surplus line broker whose annual taxes for business done in calendar year 1992 or whose quarterly taxes for business done in calendar year 1993 exceed fifty thousand dollars ($50,000) shall make payment by electronic funds transfer. On and after January 1, 1995, every surplus line broker whose annual taxes for business done in calendar year 1993 or in any calendar year thereafter exceed twenty thousand dollars ($20,000) shall make payment by electronic funds transfer. The surplus line broker shall choose one of the acceptable methods described in Section 45 for completing the electronic funds transfer.
Payment is deemed complete on the date the electronic funds transfer is initiated, if settlement to the state’s demand account occurs on or before the banking day following the date the transfer is initiated. If settlement to the state’s demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs.
Any surplus line broker required to remit taxes by electronic funds transfer pursuant to this section who remits those taxes by means other than an appropriate electronic funds transfer, shall be assessed a penalty in an amount equal to 10 percent of the taxes due at the time of the payment.
If the department finds that a surplus line broker’s failure to make payment by an appropriate electronic funds transfer in accordance with subdivision (a) is due to reasonable cause or circumstances beyond the surplus line broker’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect, that surplus line broker shall be relieved of the penalty provided in paragraph (1).
Any surplus line broker seeking to be relieved of the penalty provided in paragraph (1) shall file with the department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.
If the commissioner determines that the amount of tax reported by the surplus line broker is less than the tax disclosed by the commissioner’s examination, the commissioner shall permit the surplus line broker to provide additional information demonstrating that the surplus line broker owes a lesser amount. If within 60 days, or such additional time as the commissioner deems appropriate, the commissioner and the surplus line broker cannot agree on the amount owed, the commissioner shall propose in writing to the State Board of Equalization a deficiency assessment for the difference pursuant to subdivision (b) of Section 12422 of the Revenue and Taxation Code.
Section 12636.5, Article 3 (commencing with Section 12421) and Article 4 (commencing with Section 12491) of Chapter 4 of, and Article 1 (commencing with Section 12951) and Article 2 (commencing with Section 12977) of Chapter 7 of, Part 7 of Division 2 of the Revenue and Taxation Code shall apply to surplus line brokers, except where inconsistent with the provisions of this chapter, in which case this chapter shall govern.
Any surplus line broker who willfully fails or refuses to report to the commissioner any insurance on subject matter located within this state placed under his or her name with nonadmitted insurers, or who, by willful omission from the records required to be maintained by him or her for that purpose, attempts to evade the payment of taxes on any such insurance, is, in addition to being required to pay the tax, together with a penalty equal in amount to the tax, guilty of a misdemeanor.
It is a misdemeanor for any surplus line broker or special lines’ surplus line broker to accept or pay directly or indirectly any consideration or remuneration for or in connection with the placing of insurance that, if done by a person within this state, is governed by the provisions of this chapter, when the placing was not done by a person licensed therefor pursuant to this chapter.
It is a misdemeanor for any agent or broker to solicit, negotiate, or effect any insurance governed by the provisions of this chapter in nonadmitted insurers, except by and through a surplus line broker or special lines’ surplus line broker licensed pursuant to this chapter. Except in the case of insurance specified in subdivision (b) of Section 1760.5, it is a misdemeanor for any surplus line broker or special lines’ surplus line broker to accept, place, pay, or permit the payment of commission or other remuneration on insurance placed by him or her under authority of his or her license to any person other than one holding a license to act as an insurance agent, insurance broker, surplus line broker, or special lines’ surplus line broker, except that the business may be accepted by such surplus line broker or special lines’ surplus line broker directly from an insured or other person who would likewise be entitled to place the business directly with an admitted insurer without the solicitation, negotiation, or effecting thereof by an insurance agent or broker.
The commissioner may deny, suspend, or revoke any license issued pursuant to this code if he or she finds after notice and hearing in accordance with the procedure provided in Article 13 (commencing with Section 1737) of Chapter 5 that the licensee has violated any provisions of this section.
The permission granted in this chapter to place any insurance in a nonadmitted insurer shall not be deemed or construed to authorize any insurer to do business in this state.
Placement activities of a licensed surplus line broker in accordance with this chapter, including, but not limited to, policy issuance, shall not be deemed or construed to be business done by the insurer in this state.
When a surplus line broker’s license is revoked for any reason other than the insufficiency of his sureties, a new license shall not be issued to him within one year after such revocation and until all indebtedness of the broker on former business has been paid to the commissioner.
Every California home state insured for whom insurance has been effected with nonadmitted insurers shall, upon request in writing by the commissioner, produce for the commissioner’s examination all policies, contracts, and other documents evidencing that insurance, and shall disclose to the commissioner the amount of the gross premiums paid or agreed to be paid for that insurance. For refusal to obey that request, the insured shall forfeit to the State of California the sum of one thousand dollars ($1,000) for each refusal.
A licensee or applicant for a license under this chapter shall notify the commissioner, in writing, of any change in the address from which he intends to conduct his business.
CHAPTER 6.1. Surplus Line Advisory Organization [1780.50. - 1780.67.]
The Legislature finds and declares that consumers in the State of California have insurance needs which cannot always be met through the admitted insurance market. For this reason, many insurance consumers need access to insurance underwritten by nonadmitted insurers, as permitted by law. To help ensure that insurance consumers have access to financially sound and reputable nonadmitted insurers, it is in the public interest to authorize a surplus line advisory organization within the State of California to perform certain duties delegated by the Insurance Commissioner, as provided in this chapter.
The Legislature further finds and declares that it is in the public interest for the surplus line advisory organization authorized under this chapter to be composed of surplus line brokers or persons involved in the business of surplus line insurance. The advisory organization’s activities shall constitute an integral part of the business of insurance. The advisory organization will facilitate the state’s ability to monitor and regulate the transfer of risk on a sound basis through surplus line brokers to nonadmitted insurers in accordance with Chapter 6 (commencing with Section 1760) and may perform certain functions in this state’s system of monitoring and regulating the persons and entities involved in this state in the surplus line segment of the insurance industry.
The Legislature further finds and declares that the authorization of a surplus line advisory organization to perform the duties delegated by the Insurance Commissioner, as provided in this chapter, will further the policies of the State of California expressed in the findings set forth in this section. The oversight, supervision, and examination by the Insurance Commissioner provided for in this chapter are intended to subject the activities of the advisory organization to active state supervision.
The Legislature further finds and declares that, as it is the obligation and duty of the elected Insurance Commissioner to regulate the business of insurance in the State of California, it is in the public interest to grant the Insurance Commissioner the authority and discretion to utilize the expertise and knowledge of a surplus line advisory organization to assist in carrying out that responsibility, as provided in this chapter.
As used in this chapter, “surplus line advisory organization” shall mean the organization authorized to perform the duties delegated by the commissioner under this chapter and to exercise the authority incidental thereto.
All references in this chapter to “advisory organization” shall mean “surplus line advisory organization.”
As used in this chapter, the term “surplus line law” shall refer to Chapter 6 (commencing with Section 1760).
All references in this chapter to the “commissioner” shall mean the Insurance Commissioner of the State of California.
The surplus line advisory organization shall be deemed a joint arrangement established by statute to assure the availability of insurance on a sound basis under paragraph (2) of subdivision (b) of Section 1861.03.
All surplus line brokers licensed under the surplus line law shall be deemed to be members of the advisory organization.
Any member of the National Association of Registered Agents and Brokers, licensed as a surplus line broker in his, her, or its home state of residence or business and paying the applicable California license fee, shall be deemed to be members of the advisory organization. This subdivision shall not be effective unless and until the advisory organization recognizes in writing the National Association of Registered Agents and Brokers is incorporated and operating under its board-adopted bylaws.
The commissioner shall remain fully responsible for supervising the implementation and administration of the surplus line law and for all regulatory decisions and initiatives in connection therewith, and nothing in this chapter shall be deemed or construed to diminish or impair the commissioner’s authority and responsibility.
To be authorized to perform the duties delegated by the commissioner under this chapter and to exercise the authority incidental thereto, an organization must satisfy the requirements of this section.
The organization must be a private, nonprofit organization that has all the following qualifications:
Experience in professional surplus line brokerage, advisory, and regulatory activity in California or whose members possess that experience.
The administrative capability and recordkeeping facilities to process all surplus line filings in California.
The data processing capability and the necessary personnel to perform appropriate security review of all nonadmitted insurers.
The capability to perform the duties that may be delegated by the commissioner under this chapter and to exercise the authority incidental thereto.
An organization that has the qualifications described in subdivision (a) must file with the commissioner all of the following:
A copy of its constitution, its articles of agreement or association, or its certificate of incorporation.
A copy of its bylaws, if any.
A current list of its members.
The name and address of a resident of this state as agent for service of process.
A plan of operation identifying the duties set forth in Section 1780.56 that the organization proposes to perform and describing how the organization will perform those duties.
Any other documents, evidence, or information necessary to show that the organization complies with the provisions of this chapter.
The advisory organization shall file with the commissioner every material change in the documents required by subdivision (b), including every amendment to its plan of operation required by subdivision (d).
The advisory organization’s plan of operation shall be amended whenever necessary to conform to and effectuate the purposes of any amendments to this chapter or to the surplus line law or the regulations pertaining thereto. Further, the plan of operation shall be amended in response to any written request reasonably made by the commissioner to improve the advisory organization’s effectiveness in performing the duties delegated by the commissioner under this chapter. The commissioner’s requests under this subdivision shall be consistent with technical and economic feasibility and established techniques or practices for performing the types of activities encompassed by the duties delegated by the commissioner.
Within 120 days after the filing of the documents required by subdivision (b) of Section 1780.54, the commissioner shall notify the organization in writing of the commissioner’s determination to approve or disapprove the organization’s qualifications and its plan of operation and which, if any, of the duties identified in the plan of operation the commissioner has determined to delegate to the organization. The commissioner and the organization shall confer to resolve any and all issues that the commissioner may raise concerning the organization’s qualifications, its plan of operation, or which duties should be delegated to the organization. Any determination by the commissioner to disapprove the organization’s qualifications or plan of operation or not to delegate one or more of the duties identified in the plan of operation shall be accompanied by a statement of the commissioner’s reasons therefor.
The commissioner may provisionally approve the organization’s qualifications and plan of operation and may provisionally delegate one or more of the duties identified in the plan of operation pending the commissioner’s determinations under subdivision (a).
Upon approval of the organization’s qualifications and plan of operation and upon delegation to the organization of one or more of the duties identified in the plan of operation, the organization shall commence operations as the advisory organization under this chapter, consistent with the duties delegated by the commissioner. In the event of provisional approval and delegation pursuant to subdivision (b), the organization shall operate as the advisory organization under this chapter during the period of, and consistent with, the provisional approval and delegation by the commissioner.
Any amendment to the advisory organization’s plan of operation that is required by subdivision (d) of Section 1780.54 shall be approved or disapproved pursuant to the procedures set forth in this section.
The time periods set forth in this section may be extended by consent of the organization and the commissioner.
The decision whether to delegate or withdraw one or more of the duties identified in the plan of operation is committed to the commissioner’s sound discretion. The commissioner may, upon not less than one year’s notice to the advisory organization, withdraw one or more functions that have been delegated to the advisory organization in order that any one or more functions so withdrawn may be performed by the Department of Insurance.
The commissioner may delegate one or more of the following duties to a qualified surplus line advisory organization under this chapter:
To receive, review, and record all documents required by law, regulation, or order to be filed with the commissioner or his or her designee with respect to foreign and alien nonadmitted insurers and any insurance placed with nonadmitted insurers, except that the advisory organization shall not receive documents submitted pursuant to subdivision (c) of Section 1763. The review under this subdivision shall be for completeness, accuracy, and any other matters the commissioner reasonably may direct the advisory organization to review. The advisory organization shall notify the filing surplus line broker in writing of any filing that the advisory organization determines to be incomplete or inaccurate, and shall request the filing broker to correct the problem. The advisory organization may, or as directed by the commissioner shall, notify the commissioner of incomplete or inaccurate filings.
To conduct a security review and analysis as directed by the commissioner, and to provide to the commissioner, and if directed by the commissioner, to the NAIC, a report on any nonadmitted insurer based on that review and analysis. The review and analysis under this subdivision shall take account of any matters the commissioner reasonably may direct the advisory organization to review and any other matters the advisory organization considers necessary or appropriate.
To make confidential recommendations to the commissioner and, if directed by the commissioner, to the NAIC, as to the suitability of any foreign or alien nonadmitted insurer to insure property or risks located or persons residing in this state or whether any foreign or alien nonadmitted insurer should be eligible or ineligible or approved pursuant to Section 1765.2. The advisory organization’s recommendations shall be based on any review and analysis that it performs under this chapter and on any additional information that may come to the advisory organization’s attention or that the commissioner reasonably may request the advisory organization to consider.
To report to the commissioner and other appropriate authorities instances of actual fraudulent or illegal insurance activity in the surplus line market that come to the advisory organization’s attention and any facts that come to the advisory organization’s attention that, in the reasonable judgment of the advisory organization, may indicate the presence of fraudulent or illegal insurance activity in the surplus line market or potential risk of harm to consumers of surplus line insurance.
To maintain and report information necessary or that reasonably may be requested by the commissioner for the calculation and collection of premium taxes on surplus line insurance premiums.
To respond to any request by the commissioner for comments on any proposed legislation or regulation affecting the placement of insurance pursuant to the surplus line law.
To receive and disseminate to its members information relating to surplus line insurance, to educate its members about the surplus line law and the regulations pertaining thereto, and to perform any specific educational activities that the commissioner reasonably may request.
To communicate with organizations of admitted insurers with respect to the proper use of the surplus line market.
To enter into written arrangements with the commissioner whereby the advisory organization will perform any other functions that, in the judgment of the commissioner and the advisory organization, will help the commissioner provide effective and cost-efficient supervision of the surplus line market.
If the commissioner delegates to the advisory organization one or more of the duties set forth in subdivision (a), the advisory organization also shall be authorized to assess a stamping fee for each policy, declarations page, cover note, or other premium bearing document submitted to the advisory organization. The stamping fee shall be established from time to time by the governing body of the advisory organization, shall reflect all reasonable costs associated with the services provided by the advisory organization, and may be reviewed by the commissioner for reasonableness as part of the commissioner’s examination of the advisory organization. Except as otherwise provided in this subdivision, the stamping fee may not exceed three-fourths of 1 percent of the premium for the insurance. Any proposed increase in the stamping fee above three-fourths of 1 percent shall be filed with the commissioner along with a written explanation of the reason for the increase, and the increase shall take effect upon the expiration of 60 days after the date of filing unless the commissioner disapproves it within that time. Within 60 days after the date of filing, the commissioner may provisionally approve the proposed increase, in which event the increase shall take effect immediately. The proposed increase shall be deemed fully approved upon the expiration of 120 days after the date of filing unless the commissioner disapproves the proposed increase within that time. The stamping fee shall be paid by the surplus line broker, provided, however, that the surplus line broker shall be allowed to receive and collect the stamping fee from the insured.
Nothing in this chapter shall affect any delegation by the commissioner pursuant to the surplus line law, provided, however, that once the commissioner delegates one or more of the duties set forth in this section and the advisory organization commences operations under this chapter, no other organization may simultaneously perform the same duties under this chapter or exercise the authority incidental thereto.
The advisory organization may cease performing the duties delegated by the commissioner under this chapter and exercising the authority incidental thereto at any time upon 180 days’ written notice to the commissioner. The commissioner may require the advisory organization to continue performing the duties under this chapter for up to an additional 180 days, and the commissioner shall be entitled, following receipt of notice from the advisory organization under this subdivision, to obtain copies of all unprivileged files, documents, and records maintained by the advisory organization on behalf of the commissioner under this chapter.
The commissioner’s findings, determinations, rules, rulings, and orders under this chapter shall apply only to the advisory organization’s right to perform the duties delegated by the commissioner under this chapter and to exercise the authority incidental thereto. Nothing in this chapter shall be deemed or construed to affect the advisory organization’s right to exist and function as a private, nonprofit organization, with all powers attendant thereto, and to engage in lawful activities other than under the authority of this chapter.
If the commissioner delegates to the surplus line advisory organization one or more of the duties set forth in Section 1780.56, the advisory organization also shall be authorized to exercise the authority, in connection with those duties and incidental thereto:
To facilitate and encourage compliance by its members with the laws of California and the rules and regulations of the commissioner relating to surplus line insurance.
To maintain files for all documents received under this chapter and any other files the commissioner reasonably may direct the advisory organization to maintain.
To provide comments on any proposed legislation or regulation.
To make contracts necessary or appropriate to effect the purposes of this chapter and to perform the duties delegated by the commissioner under this chapter and to exercise the authority incidental thereto.
To employ and retain whatever persons are necessary to perform the duties delegated by the commissioner under this chapter and to exercise the authority incidental thereto.
To perform any other acts necessary or appropriate to monitor the surplus line business and to effect the purposes of this chapter as well as the surplus line law and the regulations pertaining thereto, consistent with the duties delegated by the commissioner under this chapter.
The surplus line advisory organization shall be subject to the supervision of the commissioner, including, but not limited to, the powers of the commissioner pursuant to Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1, and Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.
The advisory organization shall prepare and submit an annual report on the performance of its duties under this chapter in the form and manner required by the commissioner and may advise the commissioner from time to time concerning any other matters relevant to its duties or the regulation of the surplus line market.
The commissioner shall, at least once every three years, make or cause to be made an examination of the advisory organization, including the reasonableness of its costs. The examination may be made by independent auditors retained for that purpose by the commissioner. The reasonable cost of the examination shall be paid to the commissioner or, if the commissioner retains independent auditors for that purpose, directly to the independent auditors, by the advisory organization upon presentation by the commissioner, or by the independent auditors, of a detailed account of the cost. The commissioner shall furnish two copies of the examination report to the advisory organization.
Within 20 days of receiving the commissioner’s examination report, the advisory organization may request a hearing on the report or on any facts or recommendations contained therein by mailing written notice to the commissioner specifying the matters to be considered at the hearing. The commissioner shall hold a hearing within 60 days on those aspects of the examination report and on any other aspects of the report that the commissioner designates for consideration.
If, as a result of the commissioner’s examination of the surplus line advisory organization or otherwise, there is good cause to believe that the advisory organization does not comply with any provision of this chapter or with any written request reasonably made by the commissioner pursuant to the provisions of this chapter, the commissioner shall give notice in writing to the advisory organization, stating in what manner and to what extent noncompliance is alleged to exist and specifying a reasonable time, not less than 10 days thereafter, in which the noncompliance may be corrected. Notices under this section shall be confidential as between the commissioner and the advisory organization unless a hearing is held under Section 1780.60.
For purposes of this chapter, noncompliance includes any material failure by the advisory organization to perform adequately the duties delegated by the commissioner under this chapter or exercise properly the authority incidental thereto.
If there is good cause to believe that the surplus line advisory organization’s noncompliance with any provision of this chapter is willful, or if within the period prescribed by the commissioner in the notice required by subdivision (a) of Section 1780.59 the advisory organization does not make the changes necessary to correct the noncompliance specified by the commissioner or establish to the satisfaction of the commissioner that noncompliance does not exist, then the commissioner may hold a hearing in connection therewith, provided that within a reasonable period of time, which shall not be less than 30 days before the date of the hearing, the commissioner shall mail written notice specifying the matters to be considered at the hearing to the advisory organization. The notice shall conform to the requirements for an accusation as prescribed by Section 11503 of the Government Code. If no notice has been given as provided in subdivision (a) of Section 1780.59, notice shall be given as to the manner and extent of noncompliance that is alleged to exist. The hearing shall not include any subjects not specified in the notices required by subdivision (a) of Section 1780.59 or this section, except that if the hearing relates to or is based upon any aspect of the commissioner’s examination report on the advisory organization, the hearing shall also include any other aspect of the report that the advisory organization designates for consideration.
In the event the commissioner reasonably determines that the advisory organization is engaged in fraudulent activity or malfeasance in the performance of the duties delegated by the commissioner under this chapter or in the exercise of the authority incidental thereto or otherwise is in violation of or noncompliance with any provision of this chapter, and that conduct has resulted, or is likely to result, in a significant, adverse, and immediate effect on the public or the commissioner’s ability to regulate the surplus line business that, because of the emergency nature of the effect on the public or the commissioner’s ability to regulate the surplus line business, cannot reasonably be remedied under the other provisions of this chapter, the commissioner may issue an order, without prior hearing, directing the advisory organization to cease and desist from the conduct or suspending or revoking all or part of the advisory organization’s authorization to perform the duties delegated by the commissioner under this chapter, in addition to imposing any other penalty provided for in this code. An order under this subdivision may, if necessary, also direct the advisory organization to preserve documents and records and to grant immediate access by the commissioner’s authorized representatives to the advisory organization’s premises to examine and make copies of any and all unprivileged documents and records of the advisory organization maintained on behalf of the commissioner pursuant to this chapter. Within five days after issuing an order under this subdivision, the commissioner shall issue the notice and shall thereafter hold the hearing under subdivision (a) of this section, provided, however, that:
The notice shall include a statement of the factual bases for issuance of the order under this subdivision.
The notice shall be delivered to the advisory organization’s offices within one day of issuance.
The advisory organization shall be granted a hearing upon 10 days’ written request to the commissioner or upon the hearing date set by the commissioner, whichever is earlier.
Within 10 days following the hearing under this subdivision, the commissioner shall confirm, modify, or withdraw the summary order issued prior to hearing under this subdivision.
That the advisory organization has violated or failed to comply with any provision of this chapter, the commissioner may issue an order to the advisory organization, specifying in what respect the violation or noncompliance exists and stating when, within a reasonable period of time, the violation or noncompliance shall cease.
That the advisory organization has failed to comply with a final order of the commissioner under subdivision (a) within the time prescribed by the commissioner’s order or by any extension thereof which the commissioner may grant, the commissioner may issue an order suspending or revoking all or part of the advisory organization’s authorization to perform the duties delegated by the commissioner under this chapter, in addition to imposing any other penalty provided for in this chapter.
That the advisory organization has willfully engaged in any fraudulent or dishonest act or practice, the commissioner may issue an order suspending or revoking all or part of the advisory organization’s authorization to perform the duties delegated by the commissioner under this chapter, in addition to imposing any other penalty provided for in this code.
Except as otherwise provided in this chapter, the proceedings required or authorized by subdivision (d) of Section 1780.58 and by Sections 1780.60 and 1780.61 shall be conducted in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein. Hearings shall be conducted by administrative law judges chosen under Section 11502 of the Government Code or appointed by the commissioner.
Any finding, determination, rule, ruling, or order made by the commissioner under this chapter shall be subject to review by the courts of this state, and proceedings on review shall be conducted in accordance with the provisions of the Code of Civil Procedure. In proceedings on review, the court shall apply the substantial evidence standard set forth in subdivision (c) of Section 1094.5 of the Code of Civil Procedure.
Notwithstanding any other provision of law to the contrary, a petition for judicial review of any finding, determination, rule, ruling, or order of the commissioner may be filed within 30 days after the effective date thereof. Upon application by the advisory organization, a court may for good cause stay or enjoin the effect of any finding, determination, rule, ruling, or order of the commissioner issued pursuant to this chapter.
The advisory organization shall have legal standing to bring and defend actions, in the name of the advisory organization, in administrative and judicial proceedings, with all powers attendant thereto.
If the surplus line advisory organization, or any of its officers, committee members, agents, or employees, fails to comply with a final order of the commissioner under this chapter, the advisory organization or the person shall be liable to the state in an amount not exceeding one hundred dollars ($100), but if the failure is willful, the advisory organization or the person shall be liable to the state in an amount not exceeding five thousand dollars ($5,000) for the failure. The commissioner shall collect the amount so payable and may bring an action in the name of the people of the State of California to enforce collection. These penalties may be in addition to any other penalties provided by law.
A willful violation of any provision of this chapter by any person is a misdemeanor.
Any action by the surplus line advisory organization may be reviewed by the commissioner upon petition by any person adversely affected thereby, but only after all applicable remedies available under the advisory organization’s constitution, articles, and bylaws, if any, have been exhausted.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, the surplus line advisory organization, or its members, officers, committee members, agents, or employees, or the Department of Insurance, the commissioner, or employees or representatives of the Department of Insurance, for any action taken or omitted by any of them in the performance of their duties or the exercise of their authority under this chapter, unless it can be shown that any of the parties specified in this subdivision acted in bad faith. The performance of any duty to the advisory organization delegated by the commissioner under this chapter or the exercise of any authority incidental thereto is an official duty of the advisory organization. Nothing in this subdivision shall be deemed or construed to grant any immunity, or any defense to liability, to a surplus line broker for that broker’s failure to comply with the surplus line law or the regulations pertaining thereto.
The advisory organization’s communications with the commissioner and other appropriate authorities pursuant to its performance of the duties delegated by the commissioner under this chapter or its exercise of the authority incidental thereto shall be considered communications by an interested person to another interested person under the provisions of subdivision (c) of Section 47 of the Civil Code and shall be deemed confidential communications as defined in Section 12919.
The immunities and privileges afforded by this section shall not affect the availability of any other immunities or privileges afforded by law and shall not affect any of the rights of hearing and review under, or any other provisions of, this chapter.
No person shall serve on the governing body of the surplus line advisory organization if in the past 10 years that person has been disciplined for violating the insurance laws or regulations of this state. The commissioner may waive this provision if the prior violation is not material to the person’s fitness to serve.
At least 30 days prior to the election of its governing body, the advisory organization shall advise the commissioner of the names of the persons nominated for election to the governing body. If, prior to the election, the commissioner objects on reasonable grounds to the fitness to serve of any nominee or nominees, the nominee or nominees shall not qualify for that election.
The advisory organization shall select and determine the terms of employment of its employees. The name and qualifications of any candidate for the permanent full-time position of executive director, manager, or chief operating officer of the advisory organization shall be submitted for the commissioner’s review. If, within 30 days after the submission of the candidate’s name and qualifications to the commissioner, the commissioner disapproves on reasonable grounds that candidate’s fitness to serve, the candidate shall not serve as the executive director, manager, or chief operating officer of the advisory organization.
CHAPTER 6.5. Reinsurance Intermediaries [1781.1. - 1781.14.]
This chapter shall be known and may be cited as the Reinsurance Intermediary Act.
As used in this chapter:
“Actuary” means a person who is a member in good standing of the American Academy of Actuaries, the Casualty Actuarial Society, or the Society of Actuaries, and is qualified to sign statements of actuarial opinion on loss reserves.
“Controlling person” means any person, firm, association, or corporation who directly or indirectly has the power to direct or cause to be directed, the management, control, or activities of a reinsurance intermediary.
“Insurer” means any person, firm, association, or corporation admitted by the commissioner as an insurer in this state.
“Licensed producer” means a licensed insurance agent, broker, or reinsurance intermediary.
“Qualified United States financial institution” means an institution that meets all of the following criteria:
Is organized or (in the case of a domestic office of a foreign banking organization) licensed, under the laws of the United States or any state thereof.
Is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.
Has been determined by either the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners, to meet standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner.
“Reinsurance intermediary” means a reinsurance intermediary-broker or a reinsurance intermediary-manager.
“Reinsurance intermediary-broker” means any person, other than an officer or employee of the ceding insurer, firm, association, or corporation that solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a ceding insurer without the authority or power to bind reinsurance on behalf of that insurer.
“Reinsurance intermediary-manager” means any person, firm, association, or corporation that has authority to bind, or manages all or part of the assumed reinsurance business of, a reinsurer (including the management of a separate division, department, or underwriting office) and acts as an agent for the reinsurer whether known as a reinsurance intermediary-manager, manager, or other similar term. However, “reinsurance intermediary-manager” does not include any of the following:
An employee of the reinsurer.
A domestic manager of a United States branch of an alien reinsurer.
An underwriting manager that, pursuant to contract, manages all or any portion of the reinsurance operations of the reinsurer, that is under common control with the reinsurer, that is subject to Article 4.7 (commencing with Section 1215) of Chapter 2, and the compensation of which is not based on the volume of premiums written.
The manager of a group, association, pool, or organization of insurers which engage in joint underwriting or joint reinsurance and that are subject to examination by the insurance regulatory agency or official of the state in which the manager’s principal business office is located.
“Reinsurer” means any person, firm, association, or corporation admitted in this state as an insurer with the authority to assume reinsurance.
“Violation” means the failure of a reinsurance intermediary, or an insurer or reinsurer for whom the reinsurance intermediary was acting, to comply with any provision of this chapter.
No person, firm, association, or corporation shall act as a reinsurance intermediary-broker in this state unless licensed as follows:
If the reinsurance intermediary-broker maintains an office, (either directly or as a member or employee of a firm or association, or an officer, director, or employee of a corporation) in this state, the reinsurance intermediary-broker shall be a licensed producer in this state.
If the reinsurance intermediary-broker does not maintain an office in this state, the reinsurance intermediary-broker shall be a licensed producer in this state or another state having a law substantially similar to this chapter or shall be licensed in this state as a nonresident reinsurance intermediary.
Unless denied licensure pursuant to subdivision (e), a nonresident person shall receive a reinsurance intermediary-broker license if all of the following requirements are met:
The person is currently licensed and in good standing in the state, territory of the United States, or province of Canada where he or she is licensed as a resident reinsurance intermediary-broker.
The person has submitted the proper request for licensure and has paid the fees required by paragraph (3) of subdivision (d).
The person has submitted or transmitted to the commissioner the application for licensure that the person submitted to the state, territory of the United States, or province of Canada where he or she is licensed as a resident, or submitted or transmitted to the commissioner a completed National Association of Insurance Commissioners Uniform Nonresident Application.
The state, territory of the United States, or province of Canada where the person holds a resident reinsurance intermediary-broker license awards nonresident reinsurance intermediary-broker licenses to residents of this state on the same basis.
A person, firm, association, or corporation shall not act as a reinsurance intermediary-manager:
For a reinsurer domiciled in this state, unless the reinsurance intermediary-manager is a licensed producer in this state.
In this state, if the reinsurance intermediary-manager maintains an office either directly or as a member or employee of a firm or association, or as an officer, director, or employee of a corporation in this state, unless the reinsurance intermediary-manager is a licensed producer in this state.
In another state for a nondomestic admitted insurer, unless the reinsurance intermediary-manager is a licensed producer in this state or in another state having a law substantially similar to this chapter or the person is licensed in this state as a nonresident reinsurance intermediary.
Unless denied licensure pursuant to subdivision (e), a nonresident person shall receive a reinsurance intermediary-manager license if all of the following requirements are met:
The person is currently licensed and in good standing in the state, territory of the United States, or province of Canada where he or she is licensed as a resident reinsurance intermediary-manager.
The person has submitted the proper request for licensure and has paid the fees required by paragraph (3) of subdivision (d).
The person has submitted or transmitted to the commissioner the application for licensure that the person submitted to the state, territory of the United States, or province of Canada where he or she is licensed as a resident, or submitted or transmitted to the commissioner a completed National Association of Insurance Commissioners Uniform Nonresident Application.
The state, territory of the United States, or province of Canada where the person holds a resident reinsurance intermediary-manager license awards nonresident reinsurance intermediary-manager licenses to residents of this state on the same basis.
The commissioner may require a reinsurance intermediary-manager subject to subdivision (b) to do both of the following:
The commissioner may refuse to issue a reinsurance intermediary license if, in his or her judgment, the applicant, any person named on the application, or any member, principal, officer, or director of the applicant, is determined by the commissioner not to be trustworthy, or that any controlling person of the applicant is not trustworthy to act as a reinsurance intermediary, or that any of the foregoing has given cause for revocation or suspension of a reinsurance intermediary license, or has failed to comply with any prerequisite for the issuance of a license. Upon written request therefor, the commissioner shall furnish the applicant with a summary of the basis for refusal to issue a reinsurance intermediary license, which document shall not be subject to inspection as a public record.
Licensed attorneys at law when acting in their professional capacity as such shall be exempt from this section.
A reinsurance intermediary-manager, when acting in that capacity and in compliance with this chapter, shall not be required to separately comply with Article 5.4 (commencing with Section 769.80) of Chapter 1 (if added by Senate Bill 1039 of the 1991–92 Regular Session) in order to engage in conduct authorized by both this chapter and that article.
Transactions between a reinsurance intermediary-broker and the insurer it represents in that capacity shall only be entered into pursuant to a written authorization specifying the responsibilities of each party. The authorization shall, at a minimum, contain provisions specifying all of the following rights and obligations:
The insurer may terminate the reinsurance intermediary-broker’s authority at any time.
The reinsurance intermediary-broker shall render accounts to the insurer accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the reinsurance intermediary-broker, and remit all funds due to the insurer within 30 days of receipt.
All funds collected for the insurer’s account will be held by the reinsurance intermediary-broker in a fiduciary capacity in a bank which is a qualified United States financial institution.
The reinsurance intermediary-broker will comply with Section 1781.5.
The reinsurance intermediary-broker will comply with written standards established by the insurer for the cession or retrocession of all insured risks.
The reinsurance intermediary-broker will disclose to the insurer any relationship with any reinsurer to which insured risk will be ceded or retroceded.
For at least 10 years after expiration of each contract of reinsurance transacted by a reinsurance intermediary-broker, the reinsurance intermediary-broker shall keep a complete record for each transaction, including all of the following:
The type of contract, limits, underwriting restriction, classes or risks, and territory.
The period of coverage, including effective and expiration dates, cancellation provisions, and the notice required for cancellation.
Reporting and settlement requirements for balances.
The rate used to compute the reinsurance premium.
The names and addresses of assuming reinsurers.
The rates of all reinsurance commissions, including the commissions on any retrocession, handled by the reinsurance intermediary-broker.
Related correspondence and memoranda.
Proof of placement.
Details regarding retrocession handled by the reinsurance intermediary-brokers, including the identity of retrocessionaires and the percentage of each contract assumed or ceded.
Financial records, including, but not limited to, premium and loss accounts.
If the reinsurance intermediary-broker procures a reinsurance contract on behalf of an admitted ceding insurer directly from the assuming reinsurer, the record of the transaction shall include written evidence that the assuming reinsurer has agreed to assume the risk. If the reinsurance intermediary-broker procures a reinsurance contract on behalf of an admitted ceding insurer that is placed through a representative of the assuming reinsurer, other than an employee thereof, the record of the transaction shall include written evidence that the reinsurer has delegated binding authority to the representative.
The insurer shall have access and the right to copy and audit all accounts and records maintained by the reinsurance intermediary-broker related to its business in a form usable by the insurer.
An insurer shall not engage the services of any person, firm, association, or corporation to act as a reinsurance intermediary-broker on its behalf unless the person is licensed as required by subdivision (a) of Section 1781.3.
An insurer may not employ an individual who is employed by a reinsurance intermediary-broker with which it transacts business unless the reinsurance intermediary-broker is under common control with the insurer and subject to Article 4.7 (commencing with Section 1215) of Chapter 2.
The insurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary-broker with which it transacts business.
Transactions between a reinsurance intermediary-manager and the reinsurer it represents in that capacity shall only be entered into pursuant to a written contract specifying the responsibilities of each party, which shall be approved by the reinsurers’s board of directors. Before a reinsurer assumes or cedes business through such a producer, a true copy of the approved contract shall be filed with the commissioner. The contract shall, at a minimum, contain provisions setting forth the following terms and conditions:
The reinsurer may terminate the contract for cause upon written notice to the reinsurance intermediary-manager. The reinsurer may suspend the authority of the reinsurance intermediary-manager to assume or cede business during the pendency of any dispute regarding the cause for termination.
The reinsurance intermediary-manager shall, not less than quarterly, render calendar-year-basis and underwriting-year-basis accounts to the reinsurer accurately detailing all material transactions, including information necessary to support all commissions, charges, and other fees received by, or owing to, the reinsurance intermediary-manager, and shall remit all funds due under the contract to the reinsurer on not less than a quarterly basis.
All funds collected for the reinsurer’s account shall be held by the reinsurance intermediary-manager in a fiduciary capacity in a bank the accounts of which are insured by an agency or instrumentality of the United States. The reinsurance intermediary-manager may retain no more than three months’ estimated claims payment and allocated loss adjustment expenses. Unless the funds held for each reinsurer by the reinsurance intermediary-manager in the fiduciary account are reasonably and readily ascertainable from its books of account and records, and the bank’s books of account and records, the reinsurance intermediary-manager shall maintain a separate bank account for each reinsurer that it represents. Notwithstanding the foregoing, the reinsurance intermediary-manager shall maintain a separate bank account for each reinsurer that it represents that is in receivership or liquidation or that the commissioner determines to be in an impaired financial condition.
For at least 10 years after expiration of each contract of reinsurance transacted by the reinsurance intermediary-manager, the reinsurance intermediary-manager shall keep a complete record for each transaction showing all of the following:
The type of contract, limits, underwriting restrictions, classes or risks, and territory.
The period of coverage, including effective and expiration dates, cancellation provisions and notice required for cancellation, and disposition of outstanding reserves on covered risks.
The reporting and settlement requirements with respect to balances.
The rate used to compute the reinsurance premium.
The names and addresses of reinsurers.
The rates of all reinsurance commissions, including the commissions on any retrocessions handled by the reinsurance intermediary-manager.
Related correspondence and memoranda.
Proof of placement.
Details regarding retrocessions handled by the reinsurance intermediary-manager, as permitted by subdivision (d) of Section 1781.9, including the identity of retrocessionaires and the percentage of each contract assumed or ceded.
Financial records, including, but not limited to, premium and loss accounts.
If the reinsurance intermediary-manager places a reinsurance contract on behalf of a ceding insurer directly from the assuming reinsurer, written evidence that the assuming reinsurer has agreed to assume the risk. If the reinsurance intermediary-manager procures a reinsurance contract on behalf of an admitted ceding insurer that is placed through a representative of the assuming insurer, other than an employee thereof, written evidence that the reinsurer has delegated binding authority to the representative.
The reinsurer shall have access and the right to copy all accounts and records maintained by the reinsurance intermediary-manager related to its business in a form usable by the reinsurer.
The contract cannot be assigned in whole or in part by the reinsurance intermediary-manager.
The reinsurance intermediary-manager shall comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection, or cession of all risks.
The contract shall set forth the rates, terms, and purposes of commissions, charges, and other fees that the reinsurance intermediary-manager may levy against the reinsurer.
If the contract permits the reinsurance intermediary-manager to settle claims on behalf of the reinsurer, it shall contain all of the following provisions:
All claims shall be reported to the reinsurer in a timely manner.
A copy of the claim file shall be sent to the reinsurer at its request or as soon as it becomes known that any of the following applies to the claim:
The claim has the potential to exceed the lesser of an amount determined by the commissioner or the limit set by the reinsurer.
The claim involves a coverage dispute.
The claim may exceed the reinsurance intermediary-manager’s claims settlement authority.
The claim is open for more than six months, unless the reinsurer agrees in writing to waive this requirement, in which event the reinsurance intermediary-manager shall annually provide the reinsurer with an exhibit identifying and describing each open claim.
All claim files shall be joint property of the reinsurer and the reinsurer intermediary-manager. However, upon an order of liquidation of the reinsurer, these files shall become the sole property of the reinsurer or its estate, except when the reinsurance intermediary-manager is also managing the claim files for other reinsurers. In that event, the reinsurance intermediary-manager shall simultaneously and immediately provide the liquidator with copies of all the claim files. With respect to claim files pertaining solely to a reinsurer in liquidation, the reinsurance intermediary-manager shall have reasonable access to and the right to copy the files on a timely basis.
Any settlement authority granted to the reinsurance intermediary-manager may be terminated for cause upon the reinsurer’s written notice to the reinsurance intermediary-manager or upon the termination of the contract. The reinsurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.
If the contract provides for a sharing of interim profits by the reinsurance intermediary-manager, interim profits shall not be paid until one year after the end of each underwriting period for property business and five years after the end of each underwriting period for casualty business, or a later period set by the commissioner for specified lines of insurance, and not until the adequacy of reserves on remaining claims has been verified pursuant to subdivision (c) of Section 1781.9.
The reinsurance intermediary-manager shall annually provide the reinsurer with a statement of its financial condition prepared by an independent certified accountant and annually shall provide the reinsurer with a certification from an independent certified public accountant that the reinsurance intermediary-manager’s allocations of premiums and losses to the reinsurer have been made on a timely and proper basis.
The reinsurer shall periodically and at least semiannually conduct an onsite review of the underwriting and claims processing operations of the reinsurance intermediary-manager.
The reinsurance intermediary-manager shall disclose to the reinsurer any relationship it has with any insurer prior to ceding or assuming any business with the insurer pursuant to the contract.
Within the scope of its actual or apparent authority, the acts of the reinsurance intermediary-manager shall be deemed to be the acts of the reinsurer on whose behalf it is acting.
The reinsurance intermediary-manager shall not do any of the following:
Directly or indirectly receive any compensation for the placement of retrocessions on behalf of the reinsurer.
Bind any retrocession which would increase the contractual limit made available to the reinsurance intermediary-manager by the reinsurer. However, the reinsurance intermediary-manager may bind retrocessions which reduce or limit the commitments made on behalf of the reinsurer by the reinsurance intermediary-manager. The reinsurance intermediary-manager shall promptly inform the reinsurer of the terms, conditions, and retrocessionaires of such a retrocession arranged for its account.
Commit the reinsurer to participate in reinsurance syndicates.
Appoint any producer without assuring that the producer is lawfully licensed to transact the type of reinsurance for which he or she is appointed.
Without prior approval of the reinsurer, pay or commit the reinsurer to pay a claim, net of retrocessions, that exceeds the lesser of an amount specified by the reinsurer or 1 percent of the reinsurer’s policyholders’ surplus as of December 31 of the last complete calendar year.
Collect any payment from a retrocessionaire or commit the reinsurer to any claim settlement with a retrocessionaire, without prior approval of the reinsurer. If prior approval is given, a report must be promptly forwarded to the reinsurer.
Jointly employ an individual who is employed by the reinsurer, unless the reinsurance intermediary-manager is under common control with the reinsurer that is subject to Article 4.7 (commencing with Section 1215) of Chapter 2.
Appoint a subreinsurance intermediary-manager.
A reinsurer shall not engage the services of any person, firm, association, or corporation to act as a reinsurance intermediary-manager on its behalf, unless the person is licensed as required by subdivision (b) of Section 1781.3.
A reinsurer shall annually obtain a copy of statements of the financial condition of each reinsurance intermediary-manager which the reinsurer has engaged prepared by an independent certified accountant in a form acceptable to the commissioner.
If a reinsurance intermediary-manager establishes loss reserves, the reinsurer shall annually obtain the opinion of an actuary attesting to the adequacy of loss reserves or losses incurred on the business produced by the reinsurance intermediary manager. This opinion shall be in addition to any other required loss reserve certification. For purposes of this section, a reinsurance intermediary-manager shall not be considered as establishing loss reserves when the reinsurance intermediary-manager only utilizes loss reserves which are the reinsurer’s share of loss reserves established by the ceding insurer, provided that the ceding insurer has obtained the opinion of an actuary attesting to the adequacy of loss reserves established for losses incurred and outstanding on business produced by the reinsurance intermediary-manager.
Binding authority for participation in reinsurance syndicates shall rest with an officer of the reinsurer who shall not be affiliated with the reinsurance intermediary-manager.
Within 30 days of termination of a contract with a reinsurance intermediary-manager, the reinsurer shall provide written notification of the termination to the commissioner.
A reinsurer shall not appoint to its board of directors, any officer, director, employee, controlling shareholder, or subproducer of its reinsurance intermediary-manager. This subdivision shall not apply to relationships governed by Article 4.7 (commencing with Section 1215) of Chapter 2.
A reinsurance intermediary shall be subject to examination by the commissioner. The commissioner shall have access to all books, bank accounts, and records of each reinsurance intermediary in a form usable to the commissioner.
A reinsurance intermediary-manager may be examined as if it were the reinsurer.
All documents and information disclosed in connection with the examination of a reinsurance intermediary may be used by the commissioner and shall be given confidential treatment by the commissioner to the same extent as provided in Section 735.5 for documents and information disclosed in connection with the examination of an insurer.
An examination shall be at the expense of the reinsurance intermediary. The commissioner may revoke the license of the reinsurance intermediary for a refusal to promptly pay the examination expense when due.
A reinsurance intermediary, insurer, or reinsurer found by the commissioner to be in violation of this chapter, after a hearing conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code by an administrative law judge either chosen under Section 11502 of the Government Code or appointed by the commissioner, shall be subject to all of the following:
For each separate violation, a penalty in an amount not exceeding five thousand dollars ($5,000).
Be subject to revocation or suspension of its license or certificate of authority.
Nothing contained in this section shall affect the right of the commissioner to impose or issue any other penalties or orders authorized by law.
Nothing contained in this chapter shall in any manner limit or restrict the rights of policyholders, claimants, creditors, or other third parties or confer any rights upon those persons or otherwise limit any other authority required or authorized to be exercised under this code by the commissioner.
The commissioner may adopt reasonable rules and regulations for the implementation and administration of this chapter.
No insurer or reinsurer may continue to utilize the services of a reinsurance intermediary on and after January 1, 1992, unless utilization is in compliance with this chapter.
A reinsurance intermediary shall comply with any order of a court of competent jurisdiction or a duly constituted arbitration panel requiring the production of nonprivileged documents by the reinsurance intermediary, or the testimony of an employee or other individual otherwise under control of the reinsurance intermediary with respect to any reinsurance transaction for which it acted as a reinsurance intermediary.
Compliance with subdivision (a) shall be subject to the right of the reinsurance intermediary and the parties to the transaction to object to the court or arbitration panel concerning the nature or scope of the documents or testimony or the time within which it must comply with the order. Failure to comply with the order shall be deemed to be a material noncompliance with this chapter.
CHAPTER 7. Bail Licenses [1800. - 1823.]
ARTICLE 1. Qualification and Licensing [1800. - 1823.]
An insurer shall not execute an undertaking of bail except by and through a person holding a bail license issued as provided in this chapter. A person shall not in this state solicit or negotiate in respect to execution or delivery of an undertaking of bail or bail bond by an insurer, or execute or deliver such an undertaking of bail or bail bond unless licensed as provided in this chapter, but if so licensed, such person may so solicit, negotiate, and effect such undertakings or bail bonds without holding or being named in any license specified in Chapter 5 of this part.
A person shall not perform in this state the activities of a bail fugitive recovery agent, as defined in paragraph (4) of subdivision (a) of Section 1299.01 of the Penal Code, or solicit or negotiate to perform the activities of a bail fugitive recovery agent, as defined in paragraph 4 of subdivision (a) of Section 1299.01 of the Penal Code, unless licensed pursuant to this chapter.
Any person, persons, or entity, including licensed bail agents and surety insurers, that hire, contract, solicit, or appoint another person or persons to act as a bail fugitive recovery agent shall ensure that the hired person or persons are duly licensed by the department as a bail fugitive recovery agent under paragraph (4) of subdivision (a) of Section 1801.
For purposes of this section, “solicit” shall include any written or printed presentation or advertising made by mail or other publication, or any oral presentation or advertising by means of telephone, radio, or television which implies that an individual is licensed under this chapter, and any activity in arranging for bail which results in remuneration to the individual conducting that activity.
As used in this chapter, the term “bail bond” includes any contract not executed by a surety insurer for or method of release of person arrested or confined on account of any actual or alleged violation of the provisions of any law of this or any other State or of any municipality in the State of California, including any release by means of cash or other property deposited in lieu of bail under the provisions of sections 1295 and 1298 of the Penal Code whereby the attendance in court when required by law and obedience to orders and judgment of any court by the person released is guaranteed.
This chapter shall not affect the negotiation through a licensed broker or agent for, nor the execution or delivery of an undertaking of bail, executed by an insurer for its insured under a policy of automobile insurance or of liability insurance upon the automobile of the insured, nor shall this chapter affect the negotiation for, or the execution or delivery of an undertaking of bail or bail bond which is authorized by Part 5, Division 2 of this code.
This chapter shall not limit the power of any city or county to enact other and further regulations concerning, and not in conflict with, the provisions of this chapter.
Any individual person may execute or furnish a bail bond if no consideration is paid or allowed, directly or indirectly, by any person for the execution or furnishing thereof, provided such person does not in connection with such execution or furnishing violate Section 1800.75.
No person shall advertise or hold himself out as engaging in the business of executing, delivering, or furnishing bail bonds or undertakings of bail whether or not for consideration without holding at the time thereof all proper licenses required by this chapter.
The permits required by this chapter are in addition to any and all other permits or licenses required by law.
Bail licenses are:
Bail agents’ licenses.
Bail permittees’ licenses.
Bail solicitors’ licenses.
Bail fugitive recovery agent licenses.
This section shall become operative on July 1, 2023.
A bail agent’s license by its terms permits the licensee to solicit, negotiate, and effect undertakings of bail on behalf of any surety insurer while there is in effect an unrevoked notice of appointment of such insurer filed pursuant to Section 1802.1. Such license shall not be issued unless and until there is filed with the commissioner a bond having an admitted surety insurer as surety thereon in the penal sum of one thousand dollars ($1,000), conditioned upon the proper application and disposal of all moneys collected or received by the bail agent, the bail agent’s solicitors licensed pursuant to the bail agent’s appointment, and the bail agent’s employees, in favor of the people of the State of California.
A bail fugitive recovery agent shall file all of the following with the commissioner:
A bond having an admitted surety insurer as surety thereon in the penal sum of one thousand dollars ($1,000). The surety bond required by this section shall allow persons to recover for actionable injuries, loss, or damage resulting from the willful or wrongful acts or omissions of the licensee and protects this state, its agents, officers, and employees from judgments against the licensee, and is further conditioned upon the faithful and honest conduct of the licensee.
A policy of liability insurance that provides minimum limits of insurance of one million dollars ($1,000,000) for any one loss or occurrence due to either bodily injury or death, or property damage, or both.
The commissioner shall delay the implementation of subparagraph (A) if there is either a reasonable lack of availability or affordability, or both, of liability insurance for bail fugitive recovery agents.
Bail agents, bail permittees, and bail solicitors who apply for a bail fugitive recovery agent license are exempt from subdivision (b) if they have a current surety bond and liability insurance policy on file with the commissioner.
This section shall become operative on July 1, 2023.
Every applicant for a license to act as a bail agent shall file with the commissioner a notice of appointment executed by a surety insurer or its authorized representative authorizing that applicant to execute undertakings of bail and to solicit and negotiate those undertakings on its behalf. Additional notices of appointment may be filed by other surety insurers, upon the payment for each additional notice of the fee specified in subdivision (a) of Section 1811, before the license is issued and thereafter, as long as the license remains in force. Each appointment shall, by its terms, continue in force until any of the following occur:
Termination of the bail agent’s license.
The end of the license term, if the fee provided in subdivision (f) of Section 1811 for filing a renewal application is not paid.
The filing of a notice of termination by the insurer, its representative, or by the bail agent.
Every applicant for a license to act as a bail fugitive recovery agent shall file with the commissioner a notice of appointment executed by a bail agent or surety insurer authorizing that applicant to act on behalf of, and pursuant to, the instructions of the appointing licenseholder. Additional notices of appointment may be filed by other bail agents or surety insurers upon the payment for each additional notice of the fee specified in subdivision (a) of Section 1811, before the license is issued and thereafter, as long as the license remains in force. Each appointment shall, by its terms, continue in force until any of the following occur:
Termination of the bail fugitive recovery agent’s license.
The end of the license term, if the fee provided in subdivision (f) of Section 1811 for filing a renewal application is not paid.
The filing of a notice of termination by the bail agent, the surety insurer, or the bail fugitive recovery agent.
Bail agents and bail permittees who apply for a bail fugitive recovery agent license are exempt from subdivision (b) if the bail agent or bail permittee has one or more surety appointments on file with the commissioner and the surety or sureties providing the appointments have authorized the bail agent or bail permittee to work under their authority as a bail fugitive recovery agent.
This section shall become operative on July 1, 2023.
Any bail licensee who has purchased or succeeded to the bona fide business of another bail licensee shall be entitled to use a true or fictitious name used by his predecessor if the predecessor has conducted the business for a period of two consecutive years or more.
A bail fugitive recovery agent’s license, by its terms, permits the licensee to engage in the activities of a bail fugitive recovery agent as set forth in paragraph (4) of subdivision (a) of Section 1299.01 of the Penal Code.
A bail fugitive recovery agent licensee shall comply with the Bail Fugitive Recovery Persons Act (commencing with Section 1299) of the Penal Code.
Notwithstanding subdivision (b) of Section 1810, only natural persons may be licensed as bail fugitive recovery agents.
A bail fugitive recovery agent shall disclose on their license application and renewal to the department whether they are also a bail agent, permittee, or solicitor, and shall carry identification cards issued by the commissioner pursuant to Section 2077.1 of Chapter 5 of Title 10 of the California Code of Regulations.
All bail licensees shall not have been convicted of a felony unless the person is licensed pursuant to Section 1800.
A bail permittee’s license, by its terms, permits the licensee to solicit, negotiate, issue, and deliver bail bonds. The license shall not be issued unless and until there is filed with the commissioner
a bond having an admitted surety insurer as surety thereon in the penal sum of five thousand dollars ($5,000), conditioned upon the proper application and disposal of all moneys collected or received by the bail permittee, his or her solicitors licensed pursuant to his or her appointment, and his or her employees, in favor of the people of the State of California.
Any applicant may deposit with the commissioner, in lieu of a bond required by this chapter, securities of the kind and character set forth in sections 1170 to 1175, and 1179 to 1240, in a sum not less than the required amount of the penal sum of said bond. Such securities shall be held in trust by the commissioner for the fulfillment of the same terms and conditions as in the case of a bond required by section 1802.5.
The holder, or former holder of a bail license, who has deposited with the commissioner securities in lieu of a bond as provided by Section 1802.7, may at any time substitute therefor a bond complying with the requirements of Section 1802, 1802.5, or 1803, as the case may be. Such a bond must embrace all liability theretofore existing or which may thereafter be incurred for the fulfillment of which the securities have been held, whether reported or unreported.
The substitution of such a bond for securities shall be conditioned upon the approval of the commissioner. Upon receiving such approval and the filing of the bond, the applicant shall be permitted to withdraw the securities theretofore deposited on his behalf.
The former holder of any bail license, who has surrendered any and all licenses to the commissioner, and who has on deposit with the commissioner securities in lieu of bond as provided by Section 1802.7, may, not sooner than three years after the surrender of his last bail license apply to the commissioner for the return of the securities.
The application shall be in writing, verified, and shall state:
The nature of all bail licenses held by the applicant and the period during which the applicant was authorized to transact bail business under each;
All of the counties in which the applicant transacted bail under the authority of each license;
That all bail transacted by applicant, and his solicitors and employees, if any, has been exonerated by order of court, and that his liability as surety on all bail transactions has been discharged;
The date upon which the last liability of the applicant on a bail transaction was fully exonerated and discharged;
That all moneys collected or received by the applicant, and his solicitors and employees, if any, have been paid to the person or persons entitled thereto and have in all respects been fully and properly accounted for.
The commissioner shall publish daily for one week in a newspaper of general circulation in each county in which the applicant transacted bail under any license, a notice of the application to withdraw the securities deposited with the commissioner in lieu of bond. The expense of the publication shall be borne by the applicant and the commissioner may require the applicant to pay it in advance.
The commissioner shall make an examination of the books and records of the applicant. The costs and expenses of the examination shall be paid by the commissioner out of funds appropriated for support of the Department of Insurance.
Upon failure of the applicant to pay the expense of publication of notice within 30 days after the presentation of the bill therefor, the commissioner shall collect the costs out of the deposited securities.
If the commissioner is satisfied from the application and the examination of the books and records of the applicant that the applicant has, in fact, complied with the representations made in his application, the commissioner shall deliver to the applicant the securities deposited; provided, however, the commissioner shall not deliver the securities to the applicant prior to the expiration of three years after the latest date on which a bond was issued or written by the applicant.
A bail solicitor’s license, by its terms, permits the licensee to transact bail on behalf of and as the employee of the holder of the bail licenses therein designated while there is in effect and on file with the commissioner an unrevoked appointment of the solicitor by such license holder. In all matters respecting the transaction of bail, it shall be conclusively presumed that such solicitor acted on behalf of and pursuant to the instructions of the appointing license holder. A bail solicitor’s license shall not be issued until there is filed with the commissioner an appointment of such solicitor, effective upon issue of the license executed by the holder of a bail agent’s license or bail permittee’s license, or both such licenses. Such appointment shall state that the license holder appoints the solicitor and will employ him in the transaction of bail, until notice is filed with the commissioner revoking the appointment. Such appointment and license shall permit the bail solicitor to transact only the undertakings of bail or bail bonds which the license or licenses of the appointing license holder permits such license holder to transact.
Before the issuance of a bail solicitor’s license, the applicant shall file a bond in the penal sum of one thousand dollars ($1,000) conditioned upon the proper application and disposal of all moneys collected or received by the solicitor, in favor of the people of the State of California.
An applicant for bail license shall file with the commissioner an application in such form and having such supporting documents as the commissioner prescribes, except that the application shall be verified in the manner provided for verification of complaints in civil cases. The commissioner shall investigate the licensees in such manner and in respect to such matters as he deems advisable.
The commissioner may decline to issue a bail license until he is satisfied that:
The applicant is of good business reputation and of good general reputation.
That the applicant has never been refused a license or had a license revoked by any public authority for reasons which indicated lack of honesty or integrity, or which show improper business practice on the part of the applicant.
That the applicant has an understanding of the obligations and duties of bail.
That the applicant has not participated in or been connected with any business transaction which, in the opinion of the commissioner tends to show unfitness to act in a fiduciary capacity or to maintain the standards of fairness and honesty required of a trustee or other fiduciary.
That the applicant has not willfully misstated any material fact in his application or procured a misstatement in the supporting documents thereof.
That there is no outstanding judgment against the applicant of conviction of a misdemeanor or felony denounced by this code, or one of the elements of which involves a misappropriation of money or property.
That the applicant has not committed an act forbidden by this code.
That the applicant is a fit and proper person to hold the license applied for.
The applicant has been a continuous resident of the State of California for at least two years.
The commissioner may suspend, revoke or refuse to issue any license under this chapter whenever it is made to appear to him that the holder of such permit is not a fit or proper person to be permitted to continue to hold or receive such license.
The commissioner may suspend or revoke any bail license for any cause for which he could deny such license.
Except as provided in Sections 1669 and 1738, the commissioner shall not deny, suspend, or revoke any license, issued under this article, without first granting a hearing, upon reasonable notice to the applicant or licensee, except that he may temporarily suspend a license for a period not exceeding 15 days pending the hearing. Where a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted pursuant to that chapter.
Commencing on January 1, 2011, all licenses issued pursuant to this article shall be for a license term of two years.
“License term” as used in this chapter means all of that two-year period beginning as described in subdivision (a) or (b) of Section 1807.9, as applicable, and ending on the day two years after the last calendar day of the month in which the initial license was issued. Licenses issued prior to January 1, 2011, shall expire on June 30 of each odd-numbered year.
“License year” as used in this chapter shall be determined for each individual and entity as follows:
Upon initial licensing, the license year starts on the date the license is issued.
Subsequently, each license year starts the first day of the month following the month in which the initial license was issued.
A license year ends the following calendar year on the last calendar day of the month in which the initial license was issued.
A license year for licenses issued prior to January 1, 2011, starts on July 1 and ends on June 30.
Applications for renewal of licenses may be filed on or before the expiration date upon payment of the fees for filing specified in Section 1811.
Upon failure to file the application as provided in subdivision (a), the license shall expire on the first day of the next month, but the holder may file an application for a new license. Until that same month and day of the next succeeding year the fee shall be twice that specified in Section 1811 for the filing.
No application shall be deemed filed within the meaning of this section unless the document itself has been actually delivered to, and the proper fee for its filing has been paid at, the office of the commissioner during office hours, or unless both the document and the fee have been filed and remitted pursuant to Sections 11002 and 11003 of the Government Code.
The provisions of law relating to unlawful rebates shall not apply to commissions or other consideration paid or exchanged between licensees under this chapter, except that in such case the licensee who executes the undertaking or executes or delivers the bail bond shall, in all matters in respect thereto, be deemed the principal and all licensees otherwise connected with the transaction shall be deemed his agents in respect thereto.
Natural persons can be licensed under this chapter.
A license may be held by a corporation, in which case all of the following requirements shall be met:
The application shall set forth the names of all officers and employees of the licensee who will be authorized to exercise the powers of the licensee under this chapter. Each of those persons shall be required to meet the requirements for licensure under this chapter, and disciplinary action may be taken against any of those persons, and the licensee, if any of those persons does any act that would be grounds for disciplinary action against a licensee.
The corporation may solicit or negotiate the execution or delivery of bail on behalf of surety insurers only through natural persons who hold individual licenses as bail agents.
One hundred percent of the shares of the corporation shall be held by licensed bail agents.
All shareholders, officers, and directors of the corporation shall be licensed bail agents, and shall be disclosed to the department.
Any sale or transfer of stock or other interest in the corporation shall require the prior approval of the department. The department shall approve or disapprove a request for approval within 60 days of receiving the completed request.
The commissioner shall not issue a bail license to any person unless and until the applicant takes and passes an examination given by the commissioner as provided in this chapter. This prohibition shall not apply with respect to persons who were licensed under this chapter during any part of the annual period terminating on the July 1st preceding the time to be covered by the license applied for.
The commissioner shall conduct or arrange for written examination to be given at least twice a year upon questions proposed by the commissioner as to the qualifications of applicants to hold a bail license. The examination shall be of sufficient scope to satisfy the commissioner that the applicants have knowledge of, and are reasonably familiar with, the laws of this State relating to the giving of bail and the execution and delivery of undertakings of bail, and have a general and fair understanding of the obligations and duties of the holder of a bail license in respect to the conduct of business under each type of bail license.
In order to be eligible to take the examination required to be licensed under this chapter, the applicant shall have completed the following:
A minimum of 20 hours of classroom education in subjects pertinent to the duties and responsibilities of a bail licensee, including, but not limited to, all related laws and regulations, rights of the accused, ethics, and apprehension of bail fugitives.
A 40-hour power of arrest course certified by the Commission on Peace Officer Standards and Training pursuant to Section 832 of the Penal Code. Completion of the course shall be for educational purposes only and not intended to confer the power of arrest of a peace officer or public officer, or agent of any federal, state, or local government, unless the person is so employed by a governmental agency.
This paragraph shall apply to both of the following:
A bail fugitive recovery agent, as described in paragraph (4) of subdivision (a) of Section 1299.01 of the Penal Code.
A bail, as described in paragraph (2) of subdivision (a) of Section 1299.01 of the Penal Code, who hires, trains, or designates assignments for bail fugitive recovery agents.
The commissioner shall approve or disapprove an applicant to provide education for licensure as required by this section within 90 days of receipt of the applicant’s full and complete application. However, this 90-day period shall be tolled during the pendency of any investigation of the applicant by the commissioner for an alleged violation that would, if proven, result in the suspension, revocation, or denial of the provider’s approval to provide continuing education to bail agents as prescribed in Section 1813. Failure to disapprove an applicant within this period shall result in the automatic approval of the application. Approval shall be valid for two years. The commissioner may, at any time, disapprove any provider who is not qualified or whose course outlines are not approved, who is not of good business reputation, or who is lacking in integrity, honesty, or competency. A provider shall not provide education for licensure following the expiration of the two-year approval period unless the commissioner has renewed the provider’s approval. The commissioner shall, at the time of renewal, approve or disapprove the course outlines and schedule of classes to be provided.
Providers responsible for providing education for licensure under this chapter shall consult with the California State Sheriffs’ Association, the California District Attorneys Association, and the County Counsels’ Association of California prior to submission of the course outlines for approval by the commissioner, and these entities may respond within 30 days of receipt of a request for consultation from a provider. Providers shall maintain records of their requests for consultation and any responses from these entities, and make these records available to the department for review as requested. The bail license fee shall be increased, the amount of which shall be determined by the commissioner, which shall be deposited in the Insurance Fund for the purposes of recovering the administrative costs for meeting the conditions and purposes of this section. Providers of education or continuing education shall offer courses to all applicants at the same course fees.
Any person who falsely represents to the commissioner that compliance with this section has been met shall be subject, after notice and hearing, to the penalties and fines set out in Section 1814.
A licensee shall additionally complete in each two-year license term not less than 12 hours of continuing education in the subjects stated in subdivision (a) prior to renewal of the licensee’s license.
A licensee shall not be required to comply with the continuing education requirements of this section if the licensee submits proof satisfactory to the commissioner that the licensee has been a licensee in good standing for 30 continuous years in this state and is 70 years of age or older.
The commissioner may make reasonable rules and regulations necessary, advisable, and convenient for the administration and enforcement of this chapter. The rules and regulations may include a schedule establishing fees to be paid by an applicant seeking approval to act as a provider and to deliver courses under this section. Those fees shall be in an amount no greater than fees paid by applicants providing similar courses to other insurance agents licensed by the department, as specified in Section 1751.1.
Nothing in this chapter shall preclude completion of the bail agent or bail fugitive recovery agent continuing education requirements of this section through a course of instruction offered via the internet or correspondence. However, this subdivision shall not be construed to allow completion of the prelicensing education requirements of this section through a course of instruction.
Successful completion of the continuing education requirements by means of an internet or correspondence course shall require obtaining a passing grade of at least 70 percent on a written final examination. The final examination shall be open book and shall be graded by the approved provider. The provider shall issue certificates of completion only to those students who have passed the final examination.
This section shall become operative on July 1, 2023.
The commissioner may issue a temporary license to the executor or administrator of the estate of a deceased holder of a bail agent’s license, bail permittee’s license, or bail fugitive recovery agent’s license, permitting such party to act as such representative to exercise the rights and privileges of such a licenseholder for the purpose of conducting the business of the estate for a period of one year from and after the date of the death, pending, but not after, the disposal of the business.
This section shall become operative on July 1, 2023.
A renewal license shall be issued by the commissioner to a licensee upon proof of current licensure, payment of a renewal fee, and completion of the continuing education requirements as required by subdivision (a) of Section 1810.7.
For the commissioner’s services in connection with the filing of any application or request for any license under this chapter, the commissioner shall charge and collect the following fees:
For filing an application or request for bail agent’s license, three hundred eleven dollars ($311) per year.
For filing an application or request for bail solicitor’s license, three hundred eleven dollars ($311) per year.
For filing an application or request for bail permittee’s license, six hundred twenty-four dollars ($624).
For filing an application or request for bail fugitive recovery agent’s license, three hundred eleven dollars ($311) per year.
For filing an application for examination, or reexamination, sixty-two dollars ($62).
For a renewal application, a fee of ninety-four dollars ($94) per year. In the case of a bail agent with more than one valid notice of appointment on file, the fee to be charged pursuant to this subdivision shall be the fee provided herein multiplied by the number of insurers whose valid appointments are on file on the date the document is filed unless the bail agent in that document advises the commissioner of the agent’s intent to terminate the appointment of one or more of those insurers, in which event the fee shall be based upon the number of insurers remaining.
For a bail solicitor’s renewal application, a fee of ninety-four dollars ($94) per year.
For a bail permittee’s renewal application, a fee of three hundred ninety-four dollars ($394) per year.
For a bail fugitive recovery agent’s renewal application, a fee of ninety-four dollars ($94) per year.
At the time of filing an application for a license, if a qualifying examination is required for issue or in connection with the license, the fee for filing the first application to take the qualifying examination shall be paid at the time of filing application for the license.
For filing application or request for approval of a true or fictitious name pursuant to Section 1724.5, thirty-two dollars ($32), except that there shall be no fee when the name is contained in an original application.
For filing a bond required by this chapter, except when the bond constitutes part of an original application, twenty-eight dollars ($28).
For filing a first amendment to an application, fifteen dollars ($15).
For filing a second and each subsequent amendment to an application, thirty-two dollars ($32).
This section shall become operative on July 1, 2023.
The commissioner may make reasonable rules necessary, advisable, or convenient for the administration and enforcement of the provisions of this chapter.
The commissioner, after notice and hearing, in accordance with the procedure provided in Article 13 (commencing with Section 1737) of Chapter 5 may suspend, revoke, or deny any license or certificate of authority issued pursuant to any provision of this code whenever he or she finds that the holder thereof has violated any provisions of this chapter.
The violation of any foregoing provision of this chapter, or of any rule of the commissioner made pursuant thereto, is a public offense, punishable by fine not exceeding ten thousand dollars ($10,000), or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in the county jail not exceeding one year, or by both that fine and imprisonment.
The commissioner shall publish and maintain a list of the names of holders of bail agents’ and bail permittees’ licenses and their solicitors and bail fugitive recovery agents’ licenses on the department’s public internet website, together with their license numbers and any other information with respect to the persons as the commissioner considers advisable. The commissioner shall promptly upon termination, for any cause, of any license, update the department’s public internet website.
This section shall become operative on July 1, 2023.
The certificate of the commissioner certifying any facts found after hearing held under this chapter shall be prima facie evidence of the facts set forth therein.
Every bail license shall be prominently displayed in the office of the licensee.
A license shall not be refused by the commissioner without proceedings in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, being initiated within 60 days from the date of filing the completed application.
Subdivisions (a), (c), (e), (f), (g), and (h) of Section 1725.5 apply to persons licensed under this chapter, and “person” or “licensee,” as used in those provisions, include persons licensed under this chapter.
A licensee or applicant for a license under this chapter shall notify the commissioner, in writing, of any change in the address from which he intends to conduct his business.
All surety companies which execute undertakings of bail shall keep any moneys collected from agents licensed pursuant to this code as buildup or reserve funds in segregated trust accounts within the state. These accounts shall be maintained as any of the following:
A Federal Deposit Insurance Corporation (FDIC) insured account.
United States government bonds and treasury certificates or other obligations for which the faith of the United States is pledged for the payment of principal and interest.
Repurchase agreements collateralized by securities issued by the United States government.
A money market fund that limits its portfolio to those securities listed in subdivisions (a) and (b).
The accounts described in this section shall not be hypothecated or offered as collateral.
The accounts described in this section shall be used to satisfy the unfulfilled obligations of the undertakings of bail written by the agents from whom the moneys have been collected and to otherwise satisfy the unfulfilled obligations which may be owing to the surety by those agents.
CHAPTER 8. Life and Disability Insurance Analysts [1831. - 1849.]
The following persons are exempt from this chapter:
Active members of the State Bar of California.
Any person who has passed all of the qualifying examinations necessary to become an associate of the Society of Actuaries.
An officer or employee of any bank or trust company who receives no compensation from sources other than the bank or trust company for activities connected with his employment which would otherwise subject him to this chapter.
Any person employed by an employer who on behalf of his or her employer or any employee of his or her employer transacts life or disability insurance with, but not on behalf of, an insurer; or,
Advises his or her employer or any employee of his or her employer in any manner concerning life or disability insurance; if:
The employer receives no compensation by reason of such transactions or advice; and
Such person receives no compensation from any source other than his or her employer for such transactions and advice.
An investment advisor, as defined in Section 25009 of the Corporations Code, when acting in that capacity.
An employee or officer of any insurer is not eligible for license as a life and disability insurance analyst. A life insurer shall not pay a life and disability insurance analyst any commission directly or indirectly, on any life or disability insurance transacted by and in the capacity as a life and disability insurance analyst.
A license to act as life insurance analyst shall not be issued to any person not residing in this state, nor to any person who is under 18 years of age at the time of application.
Such license shall be obtained only on a written application on a form prescribed by the commissioner. The commissioner may decline to act upon an incomplete or defective application until amendments or an amended application are filed with him which complete the prescribed form and are properly executed. He may prescribe the form of such amendments or amended application.
The applicant shall answer under oath such interrogatories as the commissioner himself or through his deputies propounds on forms prepared by the commissioner.
A license shall not be issued until the commissioner has satisfied himself upon evidence presented and recorded as to the integrity of the applicant and that the applicant:
Is of good business reputation and of good general reputation.
Has a thorough knowledge of life or disability insurance.
Has not participated in or been connected with any business transaction which, in the opinion of the commissioner, tends to show unfitness to act in a fiduciary capacity or to maintain the standards of fairness and honesty required of a trustee or other fiduciary.
Has not willfully misstated any material fact in an application to the commissioner for a license or in a document filed in support of such an application, and has not obtained his or her license by concealment or knowing misrepresentation.
Is a fit and proper person to hold the license applied for.
Does not seek the license for the purpose of avoiding or preventing the operation or enforcement of the insurance laws of this state.
Has within 12 months preceding issuance of the license taken and passed the qualification examination provided in this article.
The commissioner may decline to issue a license if an applicant:
Has been refused a license or had a license revoked by any public authority for reasons which indicated lack of honesty or integrity or which showed improper business practice on the part of the applicant.
Has been convicted of a misdemeanor or felony denounced by this code or one of the elements of which involved the misappropriation of money or property.
Has committed an act forbidden by this code.
A license shall not be refused by the commissioner on the basis of Section 1836, excepting subdivision (g), without hearing on notice to the applicant. The proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The commissioner shall conduct or arrange for a written examination, to be given at least twice a year upon questions prepared by the commissioner, as to the qualifications of the applicant to act as a life and disability insurance analyst.
The examination shall be of sufficient scope to satisfy the commissioner that the applicant has sufficient knowledge of and is thoroughly familiar with the life and disability insurance laws of this state, and the provisions, terms, and conditions of life and disability insurance contracts written on residents of this state, and has a thorough and complete knowledge of life and disability insurance.
Every individual and organization licensee, and every applicant for such a license, under this chapter shall file with the commissioner in writing the true name of the individual or organization, and also all fictitious names under which he or she conducts or intends to conduct his or her business, and after licensing shall file with the commissioner any change in or discontinuance of those names. The commissioner may, in writing, disapprove the use of any true or fictitious name (other than the bona fide natural name of an individual) by any licensee on any ground set forth in Section 1724.5. A licensee may not use a true or fictitious name after being notified by the commissioner in writing that the use is contrary to this section. If the commissioner determines that there are facts in mitigation in connection with the continued use of the name, the commissioner may permit its use for a specified reasonable period of time if, in connection therewith, he or she imposes such conditions as will protect the public and achieve the purposes of this section. Any such permission, and any such conditions, shall be in writing.
The provisions of Chapter 5 (commencing with Section 1621) concerning the license period and the procedure and time for filing applications for renewal of licenses and for filing notices of intention to keep licenses in force applicable to life agents are applicable to licenses authorized by this chapter except that participation in the applications or notices by an admitted insurer is not required.
The fee for filing an application for the issuance or renewal of a license to act as a life and disability insurance analyst or a notice of intention to keep the license in force is two hundred eighty-three dollars ($283). As respects life and disability insurance analysts all references in Section 1718 to fees shall be deemed to be this fee. The fee for filing application to take the qualifying examination for life and disability insurance analyst is one hundred forty-one dollars ($141) and the fee for filing the first application to take the qualifying examination must be paid at the same time the application for issuance of the license is paid. The fees specified in this section shall be paid in advance, and shall be determined by multiplying the number of natural persons to be licensed, or to be named on or added to a license, by the amounts specified in this section as to each license, multiplied by the number of license years in the period of the license applied for, or the remaining period of the existing license counting any initial fractional license year of the period as one year for that purpose.
An organization may hold a license to act as a life and disability insurance analyst. An organization is not eligible for license under this chapter if its articles of incorporation or association or agreement of copartnership forbid it to act in the capacity for which a license is sought.
Only the following natural persons are eligible to be named under an organizational license under this chapter:
Any general partner or employee of a copartnership.
Any member, officer, or employee of an association.
Any officer or employee of the corporation.
Except as otherwise provided in this chapter, whenever reference is made in this chapter to an applicant for a license, the reference includes each natural person who applies to be named on the license of an organization, and wherever reference is made to a person that has been licensed, that reference shall also apply to a person named to act in such capacity under the license of an organization.
Any person who acts, offers to act, or assumes to act, as a life and disability insurance analyst when not licensed by the commissioner as provided by this article, or after the license granted to him or her has been suspended or revoked, unless proceedings are pending in the courts to review the act of the commissioner, is guilty of a misdemeanor, punishable by a fine of not more than one thousand dollars ($1,000) or by imprisonment for not more than one year or by both such fine and imprisonment.
A licensee or applicant for a license under this article shall notify the commissioner, in writing, of any changes in the address from which he intends to conduct his business.
A person licensed pursuant to this chapter shall not charge a fee for any service which is customarily associated with the solicitation of insurance sales or the servicing of insurance contracts written by the licensee or contracts for which the licensee is receiving compensation from the insurer. A licensee shall not receive any fee unless that fee is based upon a written agreement signed by the party to be charged.
The agreement shall include a statement that information and services concerning insurance policies may be obtained directly from the insurer without cost, a statement outlining the services to be performed for which a fee is to be charged, and the fee to be charged. Additionally, if the licensee is also licensed pursuant to Chapter 5 (commencing with Section 1621), there shall be a statement in the agreement indicating that the licensee is so licensed and, as such, receives commissions for the sale of products. A copy of every such agreement shall be retained by the licensee for not less than three years after the services have been fully performed.
The department may, from time to time, publish rules and regulations regarding the initial and continuing qualifications to obtain the life and disability insurance analyst license. No person shall be eligible for a life and disability insurance analyst license unless for five years preceding the date of the examination, he or she has been licensed as both a life-only and accident and health licensee pursuant to paragraphs (1) and (2) of subdivision (a) of Section 1626.
CHAPTER 9. Rates and Rating and Other Organizations [1850.4. - 1861.16.]
ARTICLE 1. Purpose and Scope of Chapter [1850.4. - 1851.1.]
In this chapter “casualty insurance” means all classes of insurance to which the provisions of this chapter are applicable and which are included within Sections 105, 107, 108, 110, 112, 113, 115, and, when written by insurers not admitted to transact fire or marine insurance, Sections 111, 114, 116, 118 and 120.
In this chapter “wilful” or “wilfully” in relation to an act or omission which constitutes a violation of this chapter means with actual knowledge or belief that such act or omission constitutes such violation and with specific intent to commit such violation.
The provisions of this chapter shall apply to all insurance on risks or on operations in this state, except:
Reinsurance, other than joint reinsurance to the extent stated in Article 5 (commencing with Section 1856).
Life insurance.
Insurance of vessels or craft, their cargoes, marine builders’ risks, marine protection and indemnity, or other risks commonly insured under marine, as distinguished from inland marine, insurance policies. Inland marine insurance shall be deemed to include insurance now or hereafter defined by statute, or by interpretation thereof, or if not so defined or interpreted, by ruling of the commissioner or as established by general custom of the business, as inland marine insurance.
Title insurance.
Disability insurance.
Workers’ compensation insurance and insurance of any liability of employers for injuries to, or death of, employees arising out of, and in the course of, employment when this insurance is incidental to, and written in connection with, the workers’ compensation insurance issued to the same employer and covering the same employer interests.
Insurance transacted by county mutual fire insurers or county mutual fire reinsurers.
Notwithstanding subdivision (f) of Section 1851 or any other provision of law and except as and to the extent otherwise provided in Section 1854.5 and 11753.3, any classification of risks and premium rates or system of rating for insurance covering employers against their liability for compensation or damages under the United States Longshoremen’s and Harbor Workers’ Compensation Act (33 U.S.C. 901, et seq.) shall be subject to the provisions of this chapter.
ARTICLE 2. Making and Use of Rates [1853.5. - 1853.9.]
With respect to any matters pertaining to the making of rates or rating systems, the preparation or making of insurance policy or bond forms, underwriting rules, surveys, inspections and investigations, the furnishing of loss or expense statistics or other information and data, or carrying on of research, two or more admitted insurers having a common ownership or operating in this State under common management or control, are hereby authorized to act in concert between or among themselves the same as if they constituted a single insurer, and to the extent that such matters relate to co-surety bonds, two or more admitted insurers executing such bonds are hereby authorized to act in concert between or among themselves the same as if they constituted a single insurer.
Agreements may be made among admitted insurers with respect to the equitable apportionment among them of casualty insurance which may be afforded applicants who are in good faith entitled to but who are unable to procure such insurance through ordinary methods, and with respect to the use of reasonable rate modifications for such insurance, such agreements to be subject to the approval of the commissioner.
All such agreements shall be submitted in writing to the commissioner for his consideration and approval, together with such information as he may reasonably require. The commissioner shall approve only such agreements as are found by him to contemplate (a) the use of rates which meet the standards prescribed by this chapter and (b) activities and practices that are not unfair, unreasonable or otherwise inconsistent with the provisions of this chapter.
At any time after such agreements are in effect the commissioner may review the practices and activities of the adherents to such agreements and if after a hearing upon not less than 10 days notice to such adherents he finds that any such practice or activity is unfair or unreasonable, or is otherwise inconsistent with the provisions of this chapter, he may issue a written order to the parties to any such agreement specifying in what respects such act or practice is unfair or unreasonable or otherwise inconsistent with the provisions of this chapter and requiring the discontinuance of such activity or practice. For good cause, and after hearing upon not less than 10 days notice to the adherents thereto, the commissioner may revoke approval of any such agreement.
Upon compliance with the provisions of this chapter applicable thereto any rating organization, advisory organization, and any group, association or other organization of admitted insurers which engages in joint underwriting or joint reinsurance through such organization or by standing agreement among the members thereof, may conduct operations in this State. As respects insurance risks or operations in this State, no insurer shall be a member or subscriber of any such organization, group or association that has not complied with the provisions of this chapter applicable to it.
ARTICLE 2.5. Making and Use of Rates—Insurance of Properties Being Purchased From Department of Veterans Affairs [1853.95. - 1853.97.]
Admitted insurers are hereby expressly authorized to enter into agreements with the Department of Veterans Affairs with respect to the furnishing of insurance covering property being purchased from such department pursuant to Chapter 3, Division 4 of the Military and Veterans Code or the Veterans’ Farm and Home Purchase Act of 1943, at special rates and forms for such insurance as are determined by the Director of Veterans Affairs to be reasonable.
The use of such rates and forms by insurers pursuant to such agreements is hereby expressly permitted, and the provisions of Section 1852 are not applicable thereto.
Automobile liability insurance and automobile physical damage insurance may, at the option of the insurer, be considered a single line for rate filing purposes.
ARTICLE 4. Advisory Organizations [1855. - 1855.5.]
No advisory organization shall conduct its operations in this State unless and until it has filed with the commissioner (a) a copy of its constitution, articles of incorporation, agreement or association, and of its by-laws, or rules and regulations governing its activities, all duly certified by the custodian of the originals thereof, (b) a list of its members and subscribers, and (c) the name and address of a resident of this State upon whom notices or orders of the commissioner or process may be served.
Every such advisory organization shall notify the commissioner promptly of every change in its constitution, its articles of incorporation, agreement or association, and of its by-laws, rules and regulations governing the conduct of its business; its list of members and subscribers; and the name and address of the resident of this State designated by it upon whom notices or orders of the commissioner or process affecting such organization may be served.
No such advisory organization shall engage in any unfair or unreasonable practice with respect to such activities.
It is the intent of the Legislature in enacting this article to promote competition in the insurance business and provide a means whereby insurance consumers can more easily comparison shop for insurance coverage by allowing insurance advisory organizations to develop and draft for use by all insurers in California common forms, coverages, endorsements, and manuals for insurance policies and bonds.
As used in this article, “advisory organization” means every group, association, or other organization of insurers, whether located within or outside of this state, that develops and prepares policy or bond forms, or manuals, for use by admitted insurers, carries on research relative to the development and preparation of policy and bond forms, and acts in an advisory, as distinguished from a ratemaking, capacity.
Every advisory organization shall, prior to operation, file with the commissioner (a) a copy or its constitution, its articles of agreement or association, or its certificate of incorporation, and its bylaws, rules, and regulations governing its activities, (b) a list of its members, and (c) the name and address of a resident of this state upon whom notices or orders of the commissioner or process issued at his or her direction may be served. Every advisory organization shall thereafter promptly notify the commissioner of every material change in the documents required to be filed with the commissioner.
Two or more insurers may cooperate with and act in concert with others as members of an advisory organization with respect to any matters pertaining to the preparation or making of insurance policy or bond forms, or manuals, or carrying on of research relative to the preparation and development of policy or bond forms, or manuals.
Members and subscribers of advisory organizations may use the policy or bond forms, or manuals, of advisory organizations, either consistently or intermittently, but, except for insurers having common ownership or management, shall not agree with each other or others to adhere thereto or violate the antitrust or unfair business practice laws. The fact that two or more admitted insurers are members or subscribers of an advisory organization, or the fact that they use, either consistently or intermittently, the policy or bond forms, or manuals, prepared by an advisory organization, shall not be sufficient evidence, alone or in conjunction with each other, to support a finding either that an agreement to adhere to those forms or manuals exists or that an insurer or advisory organization is violating the antitrust or unfair business practice laws. These facts may be used only for the purpose of supplementing or explaining other evidence of the existence of an agreement to adhere to those forms or manuals or the existence of the violation of the antitrust or unfair business practice laws. No act, agreement, or practice involving the activities of an advisory organization, an insurer’s participation in those activities, or the use of an advisory organization’s products or services shall be found to be unfair or unreasonable under this code because it is uncompetitive unless proven by a preponderance of the evidence that the act, agreement, or practice violates the antitrust or unfair business practice laws. Findings of this nature that are made in support of an order or regulation of the commissioner shall be determined and enforced under Article 7 (commencing with Section 1858) of this chapter. As used in this section, “antitrust laws” means Part 2 (commencing with Section 16600) of the Business and Professions Code, and “unfair business practice laws” means Part 3 (commencing with Section 17500) of the Business and Professions Code.
An advisory organization may prepare and distribute insurance policy or bond forms, and manuals, including policy writing rules, rating plans, classification codes and descriptions, territory codes and descriptions, prospective loss costs, and rules that include factors and relativities such as increased limits factors, classification relativities, or similar factors, if, prior to being used by insurers, they are submitted in writing to the commissioner for his or her consideration and approval, together with any information the commissioner may reasonably require. All of these documents shall be available for public inspection at the office of the commissioner. The commissioner shall approve advisory organization policy forms or bond forms, or manuals, that are not found by him or her to be unfair, unreasonable, or violate the provisions of this code, including Sections 1861.02 and 1861.05.
Upon submission of any advisory organization policy forms or bond forms, or manuals, the commissioner may review them, and if after a hearing, at which representatives of consumers and other interested parties may participate, upon not less than 10 days’ notice to an advisory organization he or she finds that the contents of policy forms or bond forms, or manuals, are unfair or unreasonable, or violate the provisions of this code, he or she may issue a written order to the advisory organization specifying in what respect the contents of the policy forms, bond forms, or manuals, are unfair or unreasonable or violate the provisions of this code and disapprove the use of the forms or manuals.
Notwithstanding the provisions of this section, if the commissioner fails to act within 90 days of the submission of a proposed policy or bond form, or manual by an advisory organization, the policy or bond form, or manual, shall be deemed approved.
For good cause, and after a hearing, at which representatives of consumers and other interested parties may participate, upon not less than 10 days’ notice to the advisory organization, the commissioner may revoke approval of any policy form or bond form or manual only upon his or her finding grounds that would permit disapproval of the policy or bond form, or manual, if submitted for approval at the time of the revocation hearing.
Nothing in this chapter shall be interpreted to allow an advisory organization to set or establish rates or to issue any manual that contains final rates for any insurance coverage, policy endorsement, or bond.
ARTICLE 5. Joint Underwriting and Joint Reinsurance [1856. - 1856.]
Every group, association or other organization of insurers which engages in joint underwriting or joint reinsurance through such group, association or organization or by standing agreement among the members thereof shall file with the commissioner (a) a copy of its constitution, its articles of incorporation, agreement or association, and of its by-laws, rules and regulations governing its activities, all duly certified by the custodian of the originals thereof, (b) a list of its members, and (c) the name and address of a resident of this State upon whom notices or orders of the commissioner or process may be served.
Every such group, association or other organization shall notify the commissioner promptly of every change in its constitution, its articles of incorporation, agreement or association, and of its by-laws, rules and regulations governing the conduct of its business; its list of members; and the name and address of the resident of this State designated by it upon whom notices or orders of the commissioner or process affecting such group, association or organization may be served.
No such group, association or organization shall engage in any unfair or unreasonable practice with respect to such activities.
ARTICLE 6. Records and Examinations [1857. - 1857.4.]
Every insurer or advisory organization and every group, association, or other organization of insurers that engages in joint underwriting or joint reinsurance shall maintain reasonable records, of the type and kind reasonably adapted to its method of operation, of its experience or the experience of its members and of the data, statistics, or information collected or used by it in connection with the rates, rating plans, rating systems, underwriting rules, policy or bond forms, surveys, or inspections made or used by it so that those records will be available at all reasonable times to enable the commissioner to determine whether that organization, insurer, group, or association, and, in the case of an insurer, every rate, rating plan, and rating system made or used by it, complies with the provisions of this chapter applicable to it. The maintenance of those records in the office of an organization of which an insurer is a member or subscriber shall be sufficient compliance with this section for any insurer maintaining membership or subscribership in that organization, to the extent that the insurer uses the rating plans, rating systems, or underwriting rules of that organization. The records shall be maintained in an office within this state or shall be made available for examination or inspection within this state by the commissioner at any time upon reasonable notice.
There are established data advisory committees to assist the commissioner in making special calls for one or more lines or types of insurance to which this chapter applies that are commercial insurance as defined in Section 675.5 and to make available the types of reasonable records that subdivision (a) requires insurers, and advisory organizations to maintain and make available. No data advisory committee shall have any authority to veto, amend, or alter any request for the reporting of records or information by the commissioner, but shall only provide advice to the commissioner relative to methods and efficiency in the collection of records and information as set forth in subdivision (c).
Each data advisory committee shall review all proposed industrywide requests for records and information by the commissioner at least one time but shall not review substantially the same request made on a recurring or ad hoc basis in the future. No later than 10 business days after receipt of each proposal, the data advisory committee may advise the commissioner as to both of the following:
Whether the desired records and information are already available in other forms or are being maintained by one or more insurance advisory organizations that may be able to provide the records and information to the commissioner on a more efficient and cost-effective basis.
Whether the format and contents of the proposal are likely to elicit useful information and make recommendations as to changes in the format or contents of the proposal.
If the data advisory committee cannot reach unanimous agreement on its advice to the commissioner, any member may provide his or her own advice. Any written advice to the commissioner by the advisory committee and by individual members shall be submitted simultaneously.
Each data advisory committee shall consist of the following members:
No more than three representatives from advisory organizations operating under this article that maintain insurer records for the lines or types of insurance that are the subject of the call.
Three representatives from various sizes of insurers chosen by the commissioner that underwrite diverse risks for the lines or types of insurance that are subject to the call.
At least one but not more than two qualified consumer representatives chosen by the commissioner. As used in this section, “qualified consumer representative” means a person who has experience with the collection, use, and analysis of insurance data and who can show that he or she represents the interests of consumers as demonstrated by, but not limited to, a history of that type of representation in administrative, legislative, or judicial proceedings.
Any group, association, or insurer that represents persons described in paragraphs (1) to (5), inclusive, may submit to the commissioner the names of those persons for consideration of appointment to the advisory committee.
Each data advisory committee shall meet telephonically. Members of an advisory committee shall receive no compensation.
An insurer may fulfill any obligation to maintain, record, or report information under Article 6.5 (commencing with Section 1857.7) by reporting records required by subdivision (a) to an advisory organization that maintains the insurer’s records with those records of other insurers and reports the aggregate records of insurers to the department according to reasonable schedules approved by the commissioner. The aggregate reports shall be made available by the commissioner for public inspection at the department, but shall not disclose the information of an individual insured, insurer, or insurer group.
Upon a request made by any person to the commissioner in conjunction with an insurer’s pending rate application, the advisory organization shall, within five business days, send to the commissioner the information in its possession regarding the individual insurer that Article 6.5 (commencing with Section 1857.7) specifically requires to be submitted with those filings. The information sent to the commissioner under this subdivision shall be available for public inspection at the department.
Except as otherwise permitted or required by this section, no advisory organization shall provide an individual insurer’s information to any other insurer, person, or organization, other than rates, rating systems, and rating plans that have been filed with the commissioner and are available for public inspection at the department.
The commissioner may adopt rules necessary to implement this section.
Nothing in subdivisions (b) to (i), inclusive, shall be construed to affect any of the following:
Any authority granted to the commissioner under this code to obtain aggregate or individual insurer data or policy records from advisory organizations or insurers.
Any industrywide data reporting requirements and standards that might exist in this chapter.
The right of any person under any provision of this code, including Section 1861.07, to obtain and inspect at the department the aggregate or individual records of insurers maintained by advisory organizations.
The commissioner shall, at least once every five years, and may as often as may be reasonable and necessary, make or cause to be made an examination of each licensed rating organization, and he may, as often as may be reasonable and necessary, make or cause to be made an examination of any advisory organization or group, association or other organization of insurers which engages in joint underwriting or joint reinsurance.
In lieu of any such examination the commissioner may accept the report of an examination made by the insurance supervisory official of another state.
In examining any organization, group or association pursuant to this section the commissioner shall ascertain whether such organization, group or association, and, in the case of a rating organization, any rate or rating system made or used by it, complies with the requirements and standards of this chapter applicable to it.
The commissioner may, at any reasonable time, make or cause to be made an examination of every admitted insurer transacting any class of insurance to which the provisions of this chapter are applicable to ascertain whether such insurer and every rate and rating system used by it for every such class of insurance complies with the requirements and standards of this chapter applicable thereto. Such examination shall not be a part of a periodic general examination participated in by representatives of more than one state.
The officers, managers, agents and employees of any such organization, group, association or insurer may be examined at any time under oath and shall exhibit all books, records, accounts, documents or agreements governing its method of operation, together with all data, statistics and information of every kind and character collected or considered by such organization, group, association or insurer in the conduct of the operations to which such examination relates.
The reasonable cost of any examination authorized by this article shall be paid by the organization, group, association or insurer to be examined.
ARTICLE 6.5. Recording and Reporting of Loss and Expense Experience [1857.7. - 1857.9.]
The application referred to in subdivision (b) of Section 1861.05 shall include, but shall not be limited to, all of the following information:
Premiums written.
Premiums earned.
Unearned premiums.
The dollar amount of claims paid.
The number of outstanding claims.
Net loss reserves for outstanding claims excluding claims incurred but not reported.
Net loss reserves for claims incurred but not reported.
Losses incurred as a percentage of premiums earned.
Net investment gain or loss and other income or gain or loss allocated to products liability lines.
Net income before federal and foreign income taxes.
Expenses incurred including loss adjustment expense, commission and brokerage expense, other acquisition expense and general expense.
An insurer doing business in this state, except as provided by subdivision (f), shall report the information specified by the commissioner that is collected by a licensed advisory organization on an annual basis for each class of insurance designated in the prior calendar year by the commissioner pursuant to subdivision (b) for policies issued or issued for delivery in California. The commissioner shall waive the requirements of this subdivision for any information that has been provided to the Insurance Services Office by the insurer, if the Insurance Services Office provides the information to the commissioner on or before the date on which the insurer is required to file the statement.
No later than October 1 of each year the commissioner shall designate those classes of insurance, as defined by the Insurance Services Office, that are generally unavailable or unaffordable in California, or for which there have been unusually great premium increases, or in the case of any class of liability insurance, for which reinsurance is generally unavailable or unaffordable in the state or for which there have been unusually great reinsurance premium increases. The factors the commissioner shall consider in making this determination shall include, but are not limited to, the following:
Consumer complaints.
Rate complaints.
Surveillance by the department.
Market conduct.
The department shall retain the information reported pursuant to this section for a period of no less than three years.
Insurers that are members of the same insurance group may aggregate the information required by this section in a single report.
The reports required by this section shall not be applicable to any insurer that has been established for less than three years or can demonstrate upon application to the commissioner that its market share is less than 1 percent of the coverage for which the commissioner seeks information. However, the commissioner may deny the exemption application if he or she reasonably determines (1) that the aggregate data, when reported, is less than 60 percent of the written premium volume for the class, or (2) that unless the insurer reported its data, the aggregate data reported would not be statistically credible or reasonably complete and informative. An insurer that has been exempted by the commissioner from reporting shall, upon request of the commissioner, report the information required by subdivision (a) to cover the three most recent calendar years, in accordance with subdivision (g). In no event shall any insurer that has reported data for a calendar year pursuant to this section be required to report that same data in a subsequent year.
The reports required by this section shall be filed on a form provided by the commissioner no later than May 1 of the calendar year following the year for which the information is reported.
The department shall adopt regulations implementing this section as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code, except that for the purposes of Chapter 3.5 (commencing with Section 11340) of Division 3 of Title 2 of the Government Code, any regulations adopted under this section shall be deemed to be necessary for the immediate preservation of the public peace, health and safety, or general welfare. These regulations shall remain in effect for 180 days. The regulations may require insurers to report the information required by subdivision (d) by categories other than those used by the Insurance Services Office.
The information provided pursuant to subdivision (a) shall be confidential and not revealed by the department, except that the commissioner may publish an analysis of the data in aggregate form or in a manner which does not disclose confidential information about identified insurers or insureds.
An insurer may fulfill its obligation to file or submit the experience, data, statistics, or other information listed in or designated under the terms of this section by reporting its records in the manner provided by Section 1857 to a licensed advisory organization that maintains the insurer’s records and those of other insurers, makes the insurer’s records available for examination and inspection by the commissioner or reports the records of an insurer to the department upon a specific request of the commissioner, and reports the aggregate records of insurers to the department according to reasonable schedules approved by the commissioner. The reports of aggregate records shall not disclose the information of any individual insured, insurer, or insurer group.
ARTICLE 7. Hearings, Procedure and Judicial Review [1858. - 1858.7.]
Any person aggrieved by any rate charged, rating plan, rating system, or underwriting rule followed or adopted by an insurer or rating organization, may file a written complaint with the commissioner requesting that the commissioner review the manner in which the rate, plan, system, or rule has been applied with respect to the insurance afforded to that person. In addition, the aggrieved person may file a written request for a public hearing before the commissioner, specifying the grounds relied upon.
The commissioner shall advise the insurer or rating organization that a complaint has been filed against it and the nature of the complaint and provide the insurer or rating organization with an opportunity to respond to the complaint.
If the commissioner has information concerning a similar complaint, he or she may deny the request for a public hearing until a determination is made or a public hearing is held on the similar complaint or may consolidate similar complaints for determination or public hearing. If he or she believes, after review and investigation of the facts alleged in the complaint and the facts alleged in any response to the complaint, that probable cause for the complaint does not exist or that the complaint is not made in good faith, he or she shall so advise the complainant and shall deny any request made for a public hearing. If he or she believes, after review and investigation of the facts alleged in the complaint and the facts alleged in any response to the complaint, that probable cause for the complaint does exist, that the complaint charges a violation of this chapter, and that the complainant would be aggrieved if the violation is proven, he or she shall proceed as provided in Section 1858.1 unless the complaint was accompanied by a request for public hearing, in which case he or she shall proceed as provided in Section 1858.2.
Nothing in this section prohibits or limits the right of any aggrieved person, either prior to or in conjunction with the filing of a written complaint with the commissioner under this section, from requesting an insurer or rating organization to review the manner in which the rate, plan, system, or rule has been applied with respect to the insurance afforded to that person.
Whenever a written complaint has been filed with the commissioner, the commissioner shall review and investigate the matter complained of as provided by Section 1858 and shall make a determination whether there is probable cause to believe that a violation of this chapter has occurred. This determination shall be made within a reasonable time, but in no event more than 60 days after the complaint regarding a policy in a personal line of insurance or 90 days in the case of a policy in a class of commercial insurance is filed unless the complainant consents to a greater time or unless the complainant enters into informal conciliation of the complaint. The time and location of the conciliation shall be mutually agreeable to the complainant and to the insurer.
Whenever a written complaint is accompanied by written request for a public hearing, the commissioner shall review and investigate the matter complained of as provided in Section 1858 and shall grant or deny the request for a public hearing within a reasonable time, but in no event more than 90 days when the complaint is regarding a policy in a personal line of insurance or 120 days in the case of a policy in a class of commercial insurance, unless the complainant consents to a greater time or unless the complainant enters into informal conciliation of the complaint. The time and location of the conciliation shall be mutually agreeable to the complainant and to the insurer.
In the event the complainant enters into informal conciliation of the complaint, the time set forth in subdivisions (a) and (b) for making a determination or for granting or denying a request for a public hearing shall be tolled for up to 10 working days until informal conciliation results in resolution of the complaint or informal conciliation is ended without resolution of the complaint. Should informal conciliation fail to result in resolution of the complaint, the commissioner shall review the facts presented by the complainant and the insurer or rating organization, together with the facts alleged in the complaint and any response to the complaint, to determine whether probable cause exists to believe that a violation of this chapter has occurred.
For purposes of this subdivision, “commercial insurance” means any class, as defined by the Insurance Services Office of commercial insurance and any class of insurance designated under subdivisions (b) and (c) of Section 1857.9.
The commissioner may seek resolution of a complaint by informal conciliation at any time and may require the complainant and insurer or rating organization to meet and confer for the purposes of resolving the matter complained of by informal conciliation. The commissioner may decline to find probable cause for a complaint and may deny a request for a public hearing if the complainant refuses to enter into informal conciliation at the commissioner’s request. Likewise, the commissioner may find probable cause for a complaint and may act to hold a public hearing, whether or not a request for a public hearing accompanied the complaint, if the insurer or rating organization refuses to enter into informal conciliation at the commissioner’s request.
Communications to the commissioner in respect to resolution of a complaint by informal conciliation shall be made to him or her in official confidence within the meaning of Sections 1040 and 1041 of the Evidence Code and shall not be disclosed by the commissioner. However, the commissioner may report on the results of informal conciliation.
Whenever a written complaint and request for hearing with the commissioner has been filed pursuant to Section 1858, and the complaint concerns medical malpractice insurance, the commissioner shall within 30 days either by order deny the hearing or proceed as provided in Sections 1858.1 or 1858.2. The complainant may petition the court for an order to compel compliance with this section.
Any person who uses any rate, rating plan, or rating system in violation of this chapter is liable to the state for a civil penalty not to exceed five thousand dollars ($5,000) for each act, or, if the act or practice was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each act. The commissioner shall have the discretion to establish what constitutes an act. However, when the issuance, amendment, or servicing of a policy or endorsement is inadvertent, all of those acts shall be a single act for the purpose of this section.
The penalty imposed by this section shall be imposed by and determined by the commissioner as provided by Section 1858.3, except that no penalty shall be imposed by the commissioner if a person has used any rate, rating plan, or rating system that has been approved for use by the commissioner in accordance with the provisions of this chapter.
The penalty imposed by this section is appealable by means of any remedy provided by Section 12940 or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
If after examination of an insurer, rating organization, advisory organization, or group, association, or other organization of insurers which engages in joint underwriting or joint reinsurance, or upon the basis of other information, or upon sufficient complaint as provided in Section 1858, the commissioner has good cause to believe that the insurer, organization, group, or association, or any rate, rating plan or rating system made or used by any such insurer or rating organization, does not comply with the requirements and standards of this chapter applicable to it, he or she shall give notice in writing to that insurer, organization, group, or association stating therein in what manner and to what extent that noncompliance is alleged to exist and specifying therein a reasonable time, not less than 10 days thereafter, in which that noncompliance may be corrected, and specifying therein the amount of any penalty that may be due under Section 1858.07.
An insurer, organization, group, or association served with that notice of noncompliance may, within the time specified therein, (a) establish to the satisfaction of the commissioner that the noncompliance does not exist, or (b) request a public hearing, notice of which shall be given at least 30 days prior to the date set for hearing, or (c) enter into an informal conciliation with the commissioner and any complainant making a complaint pursuant to Section 1858 to resolve the matter complained of, or (d) enter into a consent order with the commissioner to correct the specified noncompliance within a period of time specified in the consent order, and to pay any penalty due under Section 1858.07. A consent order shall provide that in the event the noncompliance is not corrected within the time specified therein that, in addition to any penalty due under Section 1858.07, a money penalty of not to exceed ten thousand dollars ($10,000) shall attach and be collected by the commissioner for each day the violation of the consent order continues. This money penalty shall not exceed in the aggregate the sum of one hundred thousand dollars ($100,000) plus the penalty due under Section 1858.07. In addition to or in lieu of the procedure provided herein the commissioner may proceed with a public hearing as provided in Section 1858.2.
For the purposes of this section, the failure to pay any penalty imposed pursuant to Section 1858.07 which has become final shall constitute a violation of a notice of noncompliance or of a consent order issued under this section.
Once commenced, an examination pursuant to Section 1858.1 shall be promptly conducted and concluded within a reasonable time. If the examination is being conducted as the result of a written complaint and request for hearing filed pursuant to Section 1858, and the complaint concerns medical malpractice insurance, the complainant may petition the court for an order to compel compliance with this section.
If the insurer, organization, group, or association does not make those changes as may be necessary to correct the noncompliance specified in the notice issued under Section 1858.1, or if the insurer, organization, group, or association has failed to establish to the satisfaction of the commissioner that the noncompliance does not exist, the commissioner shall hold a public hearing by mailing a notice to that insurer, organization, group, or association not less than 30 days prior to the date set for hearing specifying the matters to be considered at the hearing.
In the event that the insurer and complainant resolve the matter and the insurer has consented to a rating modification, then that modification shall apply to other policyholders underwritten by the insurer for that class of insurance.
If the insurer, organization, group, or association has refused to enter into informal conciliation at the request of the commissioner, the commissioner may hold a public hearing, whether or not the complaint was accompanied by a request for a public hearing, by mailing a notice to the insurer, organization, group, or association not less than 30 days prior to the date set for hearing specifying the matters to be considered at the hearing.
If a hearing noticed under subdivisions (a) and (c) is based upon a complaint made pursuant to Section 1858, the commissioner shall also mail notice to the complainant not less than 30 days prior to the date set for hearing specifying the matters to be considered at the hearing.
If upon sufficient complaint as provided in Section 1858 and upon review and investigation of the complaint, the commissioner has good cause to believe that the insurer, organization, group, or association, or any rate, rating plan, or rating system made or used by that insurer or rating organization, does not comply with the requirements and standards of this chapter applicable to it, the commissioner shall hold a public hearing by mailing a notice to the complainant and to the insurer, organization, group, or association not less than 30 days prior to the date set for hearing specifying the matters to be considered at the hearing.
Within 60 days of submission of a matter for decision following a public hearing thereon pursuant to this section, the commissioner shall issue his or her decision or order.
With respect to public hearings under this section, the commissioner may at his or her discretion, grant preference to a hearing in which the complainant has reached the age of 70 years.
If after a hearing pursuant to Section 1858.2 the commissioner finds:
That any rate, rating plan, or rating system violates the provisions of this chapter applicable to it, he or she shall issue an order to the insurer or rating organization which has been the subject of the hearing specifying in what respects that violation exists and stating when, within a reasonable period of time, the further use of that rate or rating system by that insurer or rating organization in contracts of insurance made thereafter shall be prohibited. The commissioner may, in addition to that order, direct the insurer or rating organization to take such other corrective action as he or she may deem necessary and proper.
That an insurer, rating organization, advisory organization, or a group, association or other organization of insurers which engages in joint underwriting or joint reinsurance, is in violation of the provisions of this chapter applicable to it other than the provisions dealing with rates, rating plans, or rating systems, he or she may issue an order to that insurer, organization, group, or association which has been the subject of the hearing specifying in what respects that violation exists and requiring compliance within a reasonable time thereafter.
Any order of the commissioner issued pursuant to subdivision (a) shall specify the amount of the penalty due under Section 1858.07, and any order issued pursuant to subdivision (a) or (b) shall provide that, in addition, a money penalty of not to exceed ten thousand dollars ($10,000) shall attach and be collected by the commissioner for each day such person fails to comply within the time specified therein with the provisions of that order in the same manner as that provided in Section 1858.1. This penalty shall not exceed in the aggregate the sum of one hundred thousand dollars ($100,000) plus any penalty due under Section 1858.07.
On or before May 1 of each year, the commissioner shall submit a report to the Legislature and the Governor stating the number and type of complaints received under this article and the status and disposition of these complaints. The commissioner may make any recommendations for improving the efficiency and effectiveness of complaint handling under this article.
No information shall be provided under this section pertaining to a specified complaint against a specific insurer or rating organization. However, the commissioner may report that information in the aggregate.
In addition to other penalties provided in this code, the commissioner shall suspend or revoke, in whole or in part, the license of any rating organization or the certificate of authority of any insurer with respect to the class or classes of insurance specified in that order, which fails to comply within the time limited by that order or any extension thereof which the commissioner may grant, with an order of the commissioner lawfully made by him or her pursuant to Section 1858.3 and effective pursuant to Section 1858.6.
Except as otherwise provided in this chapter, all proceedings in connection with the denial, suspension or revocation of a license or certificate of authority under this chapter shall be conducted in accordance with the provisions of Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted to him therein.
Any finding, determination, rule, ruling or order made by the commissioner under this chapter shall be subject to review by the courts of the State and proceedings on review shall be in accordance with the provisions of the Code of Civil Procedure. In such proceedings on review, the court is authorized and directed to exercise its independent judgment on the evidence and unless the weight of the evidence supports the findings, determination, rule, ruling or order of the commissioner, the same shall be annulled.
Notwithstanding any other provision of law to the contrary, a petition for review of any such finding, determination, rule or order, may be filed at any time before the effective date thereof. No such finding, determination, rule, or order shall become effective before the expiration of 20 days after notice and a copy thereof are mailed or delivered to the person affected, and any finding, determination, rule, or order of the commissioner so submitted for review shall not become effective for a further period of 15 days after the petition for review is filed with the court. The court may stay the effectiveness thereof for a longer period.
Whenever the commissioner determines that a rate is excessive or not excessive, he shall, upon the written request of any complainant, disclose the basis upon which such rate was determined to be excessive or not excessive in writing to the complainant.
ARTICLE 8. Penalties [1859. - 1859.1.]
No person, insurer or organization shall wilfully withhold information from, or knowingly give false or misleading information to, the commissioner or to any rating organization, advisory organization, insurer or group, association or other organization of insurers, which will affect the rates, rating systems or premiums for the classes of insurance to which the provisions of this chapter are applicable.
Any person, insurer, organization, group, or association who fails to comply with a final order of the commissioner under this chapter shall be liable to the state in an amount not exceeding fifty thousand dollars ($50,000) but if the failure is willful he or she or it shall be liable to the state in an amount not exceeding two hundred fifty thousand dollars ($250,000) for the failure. That penalty shall be in addition to any penalty arising under Section 1858.07. The commissioner shall collect the amount so payable and may bring an action in the name of the people of the State of California to enforce collection. These penalties may be in addition to any other penalties provided by law.
A willful violation of this chapter by any person is a misdemeanor.
ARTICLE 9. Miscellaneous [1860. - 1860.3.]
Nothing in this chapter shall be construed to prohibit or regulate the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers. A plan for the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers shall not be deemed a rating plan or system.
No act done, action taken or agreement made pursuant to the authority conferred by this chapter shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance.
The administration and enforcement of this chapter shall be governed solely by the provisions of this chapter. Except as provided in this chapter, no other law relating to insurance and no other provisions in this code heretofore or hereafter enacted shall apply to or be construed as supplementing or modifying the provisions of this chapter unless such other law or other provision expressly so provides and specifically refers to the sections of this chapter which it intends to supplement or modify.
The provisions of the following sections of this code shall be applicable to the administration, enforcement and interpretation of this chapter:
Sections 1 to 41, both inclusive, 100 to 121, both inclusive, 620, 621, 700, 701, 704, 730 to 737, both inclusive, 12903, 12904, 12919, 12921, 12921.5, 12924 to 12926, both inclusive, 12928, 12930, and 12974 to 12977, both inclusive.
ARTICLE 10. [Reduction and Control of Insurance Rates] [1861.01. - 1861.16.]
Insurance Rate Rollback. (a) For any coverage for a policy for automobile and any other form of insurance subject to this chapter issued or renewed on or after November 8, 1988, every insurer shall reduce its charges to levels which are at least 20% less than the charges for the same coverage which were in effect on November 8, 1987.
Between November 8, 1988, and November 8, 1989, rates and premiums reduced pursuant to subdivision (a) may be only increased if the commissioner finds, after a hearing, that an insurer is substantially threatened with insolvency.
Commencing November 8, 1989, insurance rates subject to this chapter must be approved by the commissioner prior to their use.
For those who apply for an automobile insurance policy for the first time on or after November 8, 1988, the rate shall be 20% less than the rate which was in effect on November 8, 1987, for similarly situated risks.
Any separate affiliate of an insurer, established on or after November 8, 1987, shall be subject to the provisions of this section and shall reduce its charges to levels which are at least 20% less than the insurer’s charges in effect on that date.
Rates and premiums for an automobile insurance policy, as described in subdivision (a) of Section 660, shall be determined by application of the following factors in decreasing order of importance:
The insured’s driving safety record.
The number of miles he or she drives annually.
The number of years of driving experience the insured has had.
Those other factors that the commissioner may adopt by regulation and that have a substantial relationship to the risk of loss. The regulations shall set forth the respective weight to be given each factor in determining automobile rates and premiums. Notwithstanding any other provision of law, the use of any criterion without approval shall constitute unfair discrimination.
Every person who meets the criteria of Section 1861.025 shall be qualified to purchase a Good Driver Discount policy from the insurer of his or her choice. An insurer shall not refuse to offer and sell a Good Driver Discount policy to any person who meets the standards of this subdivision.
The rate charged for a Good Driver Discount policy shall comply with subdivision (a) and shall be at least 20 percent below the rate the insured would otherwise have been charged for the same coverage. Rates for Good Driver Discount policies shall be approved pursuant to this article.
This subdivision shall not prevent a reciprocal insurer, organized prior to November 8, 1988, by a motor club holding a certificate of authority under Chapter 2 (commencing with Section 12160) of Part 5 of Division 2, and that requires membership in the motor club as a condition precedent to applying for insurance from requiring membership in the motor club as a condition precedent to obtaining insurance described in this subdivision.
This subdivision shall not prevent an insurer that requires membership in a specified voluntary, nonprofit organization, which was in existence prior to November 8, 1988, as a condition precedent to applying for insurance issued to or through those membership groups, including franchise groups, from requiring that membership as a condition to applying for the coverage offered to members of the group, provided that it or an affiliate also offers and sells coverage to those who are not members of those membership groups.
However, all of the following conditions shall be applicable to the insurance authorized by subparagraphs (A) and (B):
Membership, if conditioned, is conditioned only on timely payment of membership dues and other bona fide criteria not based upon driving record or insurance, provided that membership in a motor club may not be based on residence in any area within the state.
Membership dues are paid solely for and in consideration of the membership and membership benefits and bear a reasonable relationship to the benefits provided. The amount of the dues shall not depend on whether the member purchases insurance offered by the membership organization. None of those membership dues or any portion thereof shall be transferred by the membership organization to the insurer, or any affiliate of the insurer, attorney-in-fact, subsidiary, or holding company thereof, provided that this provision shall not prevent any bona fide transaction between the membership organization and those entities.
Membership provides bona fide services or benefits in addition to the right to apply for insurance. Those services shall be reasonably available to all members within each class of membership.
Any insurer that violates clause (i), (ii), or (iii) shall be subject to the penalties set forth in Section 1861.14.
The absence of prior automobile insurance coverage, in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums, or insurability.
An insurer may refuse to sell a Good Driver Discount policy insuring a motorcycle unless all named insureds have been licensed to drive a motorcycle for the previous three years.
This section shall become operative on November 8, 1989. The commissioner shall adopt regulations implementing this section and insurers may submit applications pursuant to this article which comply with those regulations prior to that date, provided that no such application shall be approved prior to that date.
A person is qualified to purchase a Good Driver Discount policy if he or she meets all of the following criteria:
He or she has been licensed to drive a motor vehicle for the previous three years.
During the previous three years, he or she has not done any of the following:
Had more than one violation point count determined as provided by subdivision (a), (b), (c), (d), (f), or (j) of, or paragraph (1) of subdivision (i) of, Section 12810 of the Vehicle Code, but subject to the following modifications:
For the purposes of this section, the driver of a motor vehicle involved in an accident for which he or she was principally at fault that resulted only in damage to property shall receive one violation point count, in addition to any other violation points that may be imposed for this accident.
If a violation is required to be reported under Section 1816 of the Vehicle Code, or under Section 784 of the Welfare and Institutions Code, or any other provision requiring the reporting of a violation by a minor, the violation shall be included for the purposes of this section in determining the point count in the same manner as is applicable to adult violations.
Had more than one dismissal pursuant to Section 1803.5 of the Vehicle Code that was not made confidential pursuant to Section 1808.7 of the Vehicle Code, in the 36-month period for violations that would have resulted in the imposition of more than one violation point count under paragraph (1) if the complaint had not been dismissed.
Was the driver of a motor vehicle involved in an accident that resulted in bodily injury or in the death of any person and was principally at fault. The commissioner shall adopt regulations setting guidelines to be used by insurers for the determination of fault for the purposes of this paragraph and paragraph (1).
During the period commencing on January 1, 1999, or the date 10 years prior to the date of application for the issuance or renewal of the Good Driver Discount policy, whichever is later, and ending on the date of the application for the issuance or renewal of the Good Driver Discount policy, he or she has not been convicted of a violation of Section 23140, 23152, or 23153 of the Vehicle Code, a felony violation of Section 23550 or 23566, or former Section 23175 or, as those sections read on January 1, 1999, of the Vehicle Code, or a violation of Section 191.5 or subdivision (a) of Section 192.5 of the Penal Code.
Any person who claims that he or she meets the criteria of subdivisions (a), (b), and (c) based entirely or partially on a driver’s license and driving experience acquired anywhere other than in the United States or Canada is rebuttably presumed to be qualified to purchase a Good Driver Discount policy if he or she has been licensed to drive in the United States or Canada for at least the previous 18 months and meets the criteria of subdivisions (a), (b), and (c) for that period.
The business of insurance shall be subject to the laws of California applicable to any other business, including, but not limited to, civil rights laws (Sections 51 to 53, inclusive, of the Civil Code), and the antitrust and unfair business practices laws (Parts 2 (commencing with Section 16600) and 3 (commencing with Section 17500) of Division 7 of the Business and Professions Code).
Nothing in this section shall be construed to prohibit (1) any agreement to collect, compile and disseminate historical data on paid claims or reserves for reported claims, provided such data is contemporaneously transmitted to the commissioner, (2) participation in any joint arrangement established by statute or the commissioner to assure availability of insurance, (3) any agent or broker, representing one or more insurers, from obtaining from any insurer it represents information relative to the premium for any policy or risk to be underwritten by that insurer, (4) any agent or broker from disclosing to an insurer it represents any quoted rate or charge offered by another insurer represented by that agent or broker for the purpose of negotiating a lower rate, charge, or term from the insurer to whom the disclosure is made, or (5) any agents, brokers, or insurers from utilizing or participating with multiple insurers or reinsurers for underwriting a single risk or group of risks.
Notwithstanding any other provision of law, a notice of cancellation or nonrenewal of a policy for automobile insurance shall be effective only if it is based on one or more of the following reasons: (A) nonpayment of premium; (B) fraud or material misrepresentation affecting the policy or insured; (C) a substantial increase in the hazard insured against.
This subdivision shall not prevent a reciprocal insurer, organized prior to November 8, 1988, by a motor club holding a certificate of authority under Chapter 2 (commencing with Section 12160) of Part 5 of Division 2, and which requires membership in the motor club as a condition precedent to applying for insurance, from issuing an effective notice of nonrenewal based solely on the failure of the insured to maintain membership in the motor club. This subdivision shall also not prevent an insurer which issues private passenger automobile coverage to members of groups that were in existence prior to November 8, 1988, whether membership, franchise, or otherwise, and to those who are not members of groups from issuing an effective notice of nonrenewal for coverage provided to the insured as a member of the group based solely on the failure of the insured to maintain that membership if (i) the insurer offers to renew the coverage to the insured on a nongroup basis, or (ii) to transfer the coverage to an affiliated insurer. The rates charged by the insurer or affiliated insurer shall have been adopted pursuant to this article. However, all of the following conditions shall be applicable to that insurance:
Membership, if conditioned, is conditioned only on timely payment of membership dues and other bona fide criteria not based upon driving record or insurance, provided that membership in a motor club may not be based on residence in any area within the state.
Membership dues are paid solely for and in consideration of the membership and membership benefits and bear a reasonable relationship to the benefits provided. The amount of the dues shall not depend on whether the member purchases insurance offered by the membership organization. None of those membership dues or any portion thereof shall be transferred by the membership organization to the insurer, or any affiliate of the insurer, attorney-in-fact, subsidiary, or holding company thereof, provided that this provision shall not prevent any bona fide transaction between the membership organization and those entities.
Membership provides bona fide services or benefits in addition to the right to apply for insurance. Those services shall be reasonably available to all members within each class of membership.
Any insurer that violates subparagraphs (A), (B), or (C) shall be subject to the penalties set forth in Section 1861.14.
Full Disclosure of Insurance Information. (a) Upon request, and for a reasonable fee to cover costs, the commissioner shall provide consumers with a comparison of the rate in effect for each personal line of insurance for every insurer.
Approval of Insurance Rates. (a) No rate shall be approved or remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter. In considering whether a rate is excessive, inadequate or unfairly discriminatory, no consideration shall be given to the degree of competition and the commissioner shall consider whether the rate mathematically reflects the insurance company’s investment income.
Every insurer which desires to change any rate shall file a complete rate application with the commissioner. A complete rate application shall include all data referred to in Sections 1857.7, 1857.9, 1857.15, and 1864 and such other information as the commissioner may require. The applicant shall have the burden of proving that the requested rate change is justified and meets the requirements of this article.
The commissioner shall notify the public of any application by an insurer for a rate change. The application shall be deemed approved sixty days after public notice unless (1) a consumer or his or her representative requests a hearing within forty-five days of public notice and the commissioner grants the hearing, or determines not to grant the hearing and issues written findings in support of that decision, or (2) the commissioner on his or her own motion determines to hold a hearing, or (3) the proposed rate adjustment exceeds 7% of the then applicable rate for personal lines or 15% for commercial lines, in which case the commissioner must hold a hearing upon a timely request. In any event, a rate change application shall be deemed approved 180 days after the rate application is received by the commissioner (A) unless that application has been disapproved by a final order of the commissioner subsequent to a hearing, or (B) extraordinary circumstances exist. For purposes of this section, “received” means the date delivered to the department.
For purposes of this section, extraordinary circumstances include the following:
Rate change application hearings commenced during the 180-day period provided by subdivision (c). If a hearing is commenced during the 180-day period, the rate change application shall be deemed approved upon expiration of the 180-day period or 60 days after the close of the record of the hearing, whichever is later, unless disapproved prior to that date.
Rate change applications that are not approved or disapproved within the 180-day period provided by subdivision (c) as a result of a judicial proceeding directly involving the application and initiated by the applicant or an intervenor. During the pendency of the judicial proceedings, the 180-day period is tolled, except that in no event shall the commissioner have less than 30 days after conclusion of the judicial proceedings to approve or disapprove the application. Notwithstanding any other provision of law, nothing shall preclude the commissioner from disapproving an application without a hearing if a stay is in effect barring the commissioner from holding a hearing within the 180-day period.
The hearing has been continued pursuant to Section 11524 of the Government Code. The 180-day period provided by subdivision (c) shall be tolled during any period in which a hearing is continued pursuant to Section 11524 of the Government Code. A continuance pursuant to Section 11524 of the Government Code shall be decided on a case by case basis. If the hearing is commenced or continued during the 180-day period, the rate change application shall be deemed approved upon the expiration of the 180-day period or 100 days after the case is submitted, whichever is later, unless disapproved prior to that date.
The commissioner shall adopt regulations governing hearings required by subdivision (c) of Section 1861.05 on or before 120 days after the enactment of this section. Those regulations shall, at the minimum, include timelines for scheduling and commencing hearings, and procedures to prevent delays in commencing or continuing hearings without good cause.
The sole remedy for failure by the commissioner to adopt the regulations required by subdivision (a) within the prescribed period or to abide by those regulations once adopted shall be a writ of mandate by any aggrieved party in a court of competent jurisdiction to compel the commissioner to adopt those regulations, or commence or resume hearings.
Nothing in this section shall preclude the commissioner from commencing hearings required by subdivision (c) of Section 1861.05 prior to adopting the regulations required by this section.
The administrative law judge shall render a decision within 30 days of the closing of the record in the proceeding.
Public notice required by this article shall be made through distribution to the news media and to any member of the public who requests placement on a mailing list for that purpose.
Hearings shall be conducted pursuant to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that:
Hearings shall be conducted by administrative law judges for purposes of Sections 11512 and 11517, chosen under Section 11502 or appointed by the commissioner.
Hearings are commenced by a filing of a notice in lieu of Sections 11503 and 11504.
The commissioner shall adopt, amend, or reject a decision only under Section 11518.5 and subdivisions (b), (c), and (e) of Section 11517 and solely on the basis of the record as provided in Section 11425.50 of the Government Code.
Notwithstanding Section 11501, Section 11430.30 and subdivision (b) of Section 11430.70 shall not apply in these hearings.
Discovery shall be liberally construed and disputes determined by the administrative law judge as provided in Section 11507.7 of the Government Code.
Judicial review shall be in accordance with Section 1858.6. For purposes of judicial review, a decision to hold a hearing is not a final order or decision; however, a decision not to hold a hearing is final.
Consumer Participation. (a) Any person may initiate or intervene in any proceeding permitted or established pursuant to this chapter, challenge any action of the commissioner under this article, and enforce any provision of this article.
The commissioner or a court shall award reasonable advocacy and witness fees and expenses to any person who demonstrates that (1) the person represents the interests of consumers, and, (2) that he or she has made a substantial contribution to the adoption of any order, regulation, or decision by the commissioner or a court. Where such advocacy occurs in response to a rate application, the award shall be paid by the applicant.
All requests for a finding of eligibility to seek compensation and all findings of eligibility, as described in Section 2662.2 of Title 10 of the California Code of Regulations, shall be published on the Department of Insurance Internet Web site during the eligibility period.
Emergency Authority. In the event that the commissioner finds that (a) insurers have substantially withdrawn from any insurance market covered by this article, including insurance described by Section 660, and (b) a market assistance plan would not be sufficient to make insurance available, the commissioner shall establish a joint underwriting authority in the manner set forth by Section 11891, without the prior creation of a market assistance plan.
Group Insurance Plans. Any insurer may issue any insurance coverage on a group plan, without restriction as to the purpose of the group, occupation or type of group. Group insurance rates shall not be considered to be unfairly discriminatory, if they are averaged broadly among persons insured under the group plan.
Application. This article shall apply to all insurance on risks or on operations in this state, except those listed in Section 1851.
Enforcement & Penalties. Violations of this article shall be subject to the penalties set forth in Section 1859.1. In addition to the other penalties provided in this chapter, the commissioner may suspend or revoke, in whole or in part, the certificate of authority of any insurer which fails to comply with the provisions of this article.
An insurer issuing policies as described in subdivision (a) of Section 660, shall, as a condition of obtaining and maintaining a certificate of authority to transact the business of insurance in this state, offer to persons who qualify for a good driver discount pursuant to Sections 1861.02 and 1861.025, automobile liability coverage in the minimum financial responsibility coverage amounts specified in subdivision (a) of Section 16056 of the Vehicle Code, and sell that coverage to those who request it.
In soliciting the issuance or renewal of a policy of automobile liability insurance, an insurer, broker, agent, or any other employee of the insurer shall disclose to persons eligible for a good driver discount the minimum financial responsibility coverage amounts required pursuant to Section 16056 of the Vehicle Code, and that the insurer is legally required to furnish coverage in those minimum amounts, if requested.
Nothing in this section shall be construed to affect any obligation imposed on any insurer by law to offer and sell any other kind or amount of insurance.
This section does not apply to any insurer that, on November 7, 1988, did not offer to sell a minimum financial responsibility policy as described in subdivision (a) and that did not write more than 1 percent of the private passenger automobile liability policies in effect on November 7, 1988.
An insurer issuing a policy described in subdivision (a) of Section 660 by or through an insurance agent where a commission is paid, directly or indirectly, to that agent shall, when issuing a policy in the minimum financial responsibility coverage amount as required by Section 1861.15, pay a commission on the same terms and on the same percentage basis to that agent as for any higher amount of policy coverage sold by that agent. In no case shall the percentage amount of commission paid to that agent for a policy of minimum financial responsibility coverage be less than the percentage commission paid to that agent on any higher level of policy coverage issued by that insurer.
An agent or representative representing one or more insurers having common ownership or operating in California under common management or control shall offer, and the insurer shall sell, a good driver discount policy to a good driver from an insurer within that common ownership, management, or control group, which offers the lowest rates for that coverage. This requirement applies notwithstanding the underwriting guidelines of any of those insurers or the underwriting guidelines of the common ownership, management, or control group. Nothing in this subdivision shall require an insurer to offer and sell a good driver discount policy that the insurer would otherwise not be required to offer and sell in accordance with paragraph (3) of subdivision (b) of Section 1861.02. As used in this subdivision, “representative” means any person who offers or prepares premium quotations on behalf of either an insurer or any entity acting directly or indirectly on behalf of an insurer. This subdivision shall not be construed to either permit a representative to transact insurance, or to exempt a representative who does transact insurance from the licensing provisions of this code.
Notwithstanding subdivision (b), insurers having common ownership and operating in California under common control are not required to sell good driver discount policies issued by other insurers within the common ownership group if the commissioner determines that the insurers satisfy each of the following conditions:
The business operations of the insurers are independently managed and directed.
The insurers do not jointly develop loss or expense statistics or other data used in ratemaking, or in the preparation of rating systems or rate filings.
The insurers do not jointly maintain or share loss or expense statistics, or other data used in ratemaking or in the preparation of rating systems or rate filings. This condition shall not apply if the data is generally available to the industry through a nonaffiliated third party and is obtained from that third party.
The insurers do not utilize each others’ marketing, sales, or underwriting data.
The insurers act independently of each other in determining, filing, and applying base rates, factors, class plans, and underwriting rules, and in the making of insurance policy forms.
The insurers’ sales operations are separate.
The insurers’ marketing operations are separate.
The insurers’ policy service operations are separate.
Notwithstanding Senate Bill 1 of the 2003–04 Regular Session (Chapter 241 of the Statutes of 2003), the federal Gramm-Leach-Bliley Act (Public Law 106-102), and the federal Fair Credit Reporting Act (15 U.S.C. Sec. 1681 and following), the sharing of information between insurers as described in subparagraphs (A) to (H), inclusive, of paragraph (1) shall be more restrictive than may otherwise be permissible pursuant to those acts.
Except to the extent restricted by subdivision (c) or any regulation adopted to implement subdivision (c), this section shall not be interpreted to restrict the right of an insurer or holding company to use aggregate data of its affiliated insurers having common ownership or operating in California under common control.
Nothing in subdivision (c) is intended to amend, alter, or supersede other sections of this code, or other laws of this state, regarding any right of an insurer or holding company to use aggregate data of its affiliated insurers having common ownership or operating in California under common control.
The commissioner may adopt regulations to implement this section.
An insurer that is required by this section or Section 1861.02 to offer and sell good driver discount policies to good drivers to whom it did not sell those policies prior to November 8, 1988, due to driving safety record or vehicle type may file and, upon the approval of the commissioner, implement an interim rating plan for those applicants until the rating plan required by subdivision (a) of Section 1861.02 is adopted, provided that the insurer has timely filed an automobile insurance rating plan in compliance with subdivision (a) of Section 1861.02, and that plan has not been approved. An insurer may file an interim plan prior to the operative date of subdivision (b).
The commissioner shall notify the public of any application by an insurer for an interim rating plan. The public notice shall meet the requirements of Section 1861.06. The application shall be deemed approved 60 days after public notice unless (1) a consumer or his or her representative requests a hearing within 45 days of public notice and the commissioner grants the hearing, or determines not to grant the hearing and issues written findings in support of that decision, or (2) the commissioner on his or her own motion determines to hold a hearing. If the commissioner grants a request for a hearing or determines on his or her own motion to hold a hearing on the application for an interim rating plan, but does not approve or disapprove the proposed interim rating plan within the later of 30 days from the date the commissioner grants a request or determines to hold the hearing or January 1, 1991, the interim rating plan may be used until the time that the commissioner issues a decision.
If an interim rate or proposed interim rate is greater than the rate ultimately approved, the insurer shall refund to its applicable policyholders, in proportion to the amount of premium paid by each, the difference between the total amount earned and the amount to which the insurer is entitled under the rate ultimately approved, together with interest at the rate of 10 percent per year. In lieu of a refund, the insurer may provide a credit to the policyholder if the amount due is less than three dollars ($3).
Nothing contained in subdivision (b) or (c) shall be construed to expand, limit, or modify the requirements of subdivision (b) of Section 1861.02.
A violation of this section by any insurer shall subject it to the penalties provided by Section 1861.14.
CHAPTER 10. Child Care Insurance Act [1862. - 1864.]
It is the intent of the Legislature in enacting this chapter to assure the availability, stability, and affordability of liability insurance for operators of day care in this state, and to provide the residents of this state an adequate, safe, affordable, and plentiful market of day care services.
Unless the provision or context otherwise requires, the following definitions govern the construction of this chapter:
“Commissioner” means the Insurance Commissioner of this state.
“Net direct premiums” means gross direct premiums written on liability insurance in this state, including the liability portion of the multiperil policies and of automobile insurance policies, less return premiums and any surplus premium deposits. “Net direct premiums” shall not mean any reinsurance premiums or premiums for ocean marine insurance.
“Insurer” means any person who undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event, and shall include reciprocals and interinsurance exchanges.
Each insurer engaged in writing child care liability insurance coverage in this state shall submit to the commissioner a report of its operations regarding child care liability claims experience for the last preceding calendar year at the request of the commissioner, but not more than annually, on a form prescribed by the commissioner. Each report shall separately state the following information for family day care homes, as defined in Section 1596.78 of the Health and Safety Code, and licensed child care centers, as defined in Section 1596.76 of the Health and Safety Code:
Premiums earned.
Premiums written.
Number of claims.
Number of new claims during the reporting period.
Number of claims closed during the reporting period.
Number of claims outstanding at the end of the reporting period.
Total losses incurred.
Total losses incurred as a percentage of premiums earned.
Total number of policies in force on the last day of the reporting period.
Total number of policies canceled.
Total number of policies nonrenewed.
Net underwriting gain or loss.
Separate allocations of expenses for commissions, other acquisition costs, general office expenses, taxes, licenses and fees, and other expenses. The allocations required by this section shall be made by dividing the company’s total premiums earned for child care liability insurance by its total premiums earned and applying the ratio determined to the expenses reported in the company’s annual statement filed with the commissioner pursuant to Section 900.
The commissioner shall develop and issue reporting forms to insurers at least 90 days prior to the due date of the reports required pursuant to this section.
The Legislature finds that it is in the public interest of the policyholders of this state that insurers writing child care liability insurance permit remittance of premiums to occur on an installment basis.
The information provided under this section pertaining to a specified claim, insurance policy, or insurer shall be confidential and shall only be revealed by the department on a nonspecific basis as part of an aggregate report of claims or policies.
CHAPTER 10.5. Risk Retention [1870. - 1870.]
The Legislature finds and declares that for the purpose of creating a risk retention group, directors and officers of corporations, whether for profit or nonprofit, are engaged in the same line of business with respect to the liability risks faced by those officers and directors within the meaning of the federal Liability Risk Retention Act of 1986.
CHAPTER 12. The Insurance Frauds Prevention Act [1871. - 1879.8.]
ARTICLE 1. False and Fraudulent Claims [1871. - 1871.10.]
The Legislature finds and declares as follows:
The business of insurance involves many transactions that have the potential for abuse and illegal activities. There are numerous law enforcement agencies on the state and local levels charged with the responsibility for investigating and prosecuting fraudulent activity. This chapter is intended to permit the full utilization of the expertise of the commissioner and the department so that they may more effectively investigate and discover insurance frauds, halt fraudulent activities, and assist and receive assistance from federal, state, local, and administrative law enforcement agencies in the prosecution of persons who are parties in insurance frauds.
Insurance fraud is a particular problem for automobile policyholders; fraudulent activities account for 15 to 20 percent of all auto insurance payments. Automobile insurance fraud is the biggest and fastest growing segment of insurance fraud and contributes substantially to the high cost of automobile insurance with particular significance in urban areas.
Prevention of automobile insurance fraud will significantly reduce the incidence of severity and automobile insurance claim payments and will therefore produce a commensurate reduction in automobile insurance premiums.
Workers’ compensation fraud harms employers by contributing to the increasingly high cost of workers’ compensation insurance and self-insurance and harms employees by undermining the perceived legitimacy of all workers’ compensation claims.
Prevention of workers’ compensation insurance fraud may reduce the number of workers’ compensation claims and claim payments thereby producing a commensurate reduction in workers’ compensation costs. Prevention of workers’ compensation insurance fraud will assist in restoring confidence and faith in the workers’ compensation system, and will facilitate expedient and full compensation for employees injured at the workplace.
The actions of employers who fraudulently underreport payroll or fail to report payroll for all employees to their insurance company in order to pay a lower workers’ compensation premium result in significant additional premium costs and an unfair burden to honest employers and their employees.
The actions of employers who fraudulently fail to secure the payment of workers’ compensation as required by Section 3700 of the Labor Code harm employees, cause unfair competition for honest employers, and increase costs to taxpayers.
Health insurance fraud is a particular problem for health insurance policyholders. Although there are no precise figures, it is believed that fraudulent activities account for billions of dollars annually in added health care costs nationally. Health care fraud causes losses in premium dollars and increases health care costs unnecessarily.
Insurers and their agents, while they are investigating suspected fraud claims, shall have access to all relevant public records that are required to be open for inspection under Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code, and any regulations thereunder. This section restates existing law, and the Legislature does not intend to grant insurers or their agents access to public records other than to those public records available to them under existing law.
An insurer who, in connection with any insurance application, contract, or provision of contract, prints, reproduces, or furnishes a form to any person upon which that person applies for a policy, seeks to amend insurance coverage, or furnishes information relating to underwriting criteria affecting premium or eligibility for coverage, under an existing policy, or gives notice of a claim to the insurer or makes a claim against the insurer by reason of accident, injury, death, or other noticed or claimed loss, shall cause to be printed or displayed in comparative prominence with other content on the form, exclusive of schedules attached to the form, or an endorsement separate from the form, the statement: “Any person who knowingly presents false or fraudulent information to obtain or amend insurance coverage or to make a claim for the payment of a loss is guilty of a crime and may be subject to fines and confinement in state prison.” This statement shall be preceded by the words: “For your protection California law requires the following to appear on this form” or other explanatory words of similar meaning.
This section is not applicable to a contract of reinsurance as defined in Section 620.
In the case of any claim arising from the theft of an insured vehicle, prior to the settlement of the claim, the insurer shall secure from the insured a claim form which shall contain, among other things, the following:
A warning that false representations made on the signed claim form by the insured subject the insured to a penalty of perjury.
A detailed description of the insured vehicle including the interior, exterior, and any special equipment.
The purchase location of the insured vehicle, the purchase date, and the name of the seller.
A detailed statement of the circumstances surrounding the theft.
The current driver’s license number of the insured, except where the vehicle is owned by a person that is not a natural person, or the claimant is a financial institution and the vehicle is insured pursuant to an insurance policy issued to the financial institution to protect vehicles that are collateral securing any loan made by the financial institution. A financial institution shall provide, to the extent it has the information, the current driver’s license number of the registered owner of the vehicle or the debtor who has obtained the loan.
For purposes of complying with the requirements of subdivision (a), the insured shall do either of the following:
Sign the claim form in the presence of the insurance agent, broker, adjuster, or other claims representative, who shall verify the driver’s license number of the insured who is signing the claim form.
Submit a claim form with a notarized signature.
The claim form shall be signed under penalty of perjury.
The insurer shall retain the following for at least three years:
A legible copy of the police report of the vehicle theft, or an electronic copy thereof.
It is unlawful to do any of the following:
Make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of obtaining or denying any compensation, as defined in Section 3207 of the Labor Code.
Present or cause to be presented a knowingly false or fraudulent written or oral material statement in support of, or in opposition to, a claim for compensation for the purpose of obtaining or denying any compensation, as defined in Section 3207 of the Labor Code.
Knowingly assist, abet, conspire with, or solicit a person in an unlawful act under this section.
Make or cause to be made a knowingly false or fraudulent statement with regard to entitlement to benefits with the intent to discourage an injured worker from claiming benefits or pursuing a claim.
For the purposes of this subdivision, “statement” includes, but is not limited to, a notice, proof of injury, bill for services, payment for services, hospital or doctor records, X-ray, test results, medical-legal expense as defined in Section 4620 of the Labor Code, other evidence of loss, injury, or expense, or payment.
Make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of obtaining or denying any of the benefits or reimbursement provided in the Return-to-Work Program established under Section 139.48 of the Labor Code.
Make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of discouraging an employer from claiming any of the benefits or reimbursement provided in the Return-to-Work Program established under Section 139.48 of the Labor Code.
Every person who violates subdivision (a) shall be punished by imprisonment in a county jail for one year, or pursuant to subdivision (h) of Section 1170 of the Penal Code, for two, three, or five years, or by a fine not exceeding one hundred fifty thousand dollars ($150,000) or double the value of the fraud, whichever is greater, or by both that imprisonment and fine. Restitution shall be ordered, including restitution for any medical evaluation or treatment services obtained or provided. The court shall determine the amount of restitution and the person or persons to whom the restitution shall be paid. A person convicted under this section may be charged the costs of investigation at the discretion of the court.
A person who violates subdivision (a) and who has a prior felony conviction of that subdivision, of former Section 556, of former Section 1871.1, or of Section 548 or 550 of the Penal Code, shall receive a two-year enhancement for each prior conviction in addition to the sentence provided in subdivision (b).
The existence of any fact that would subject a person to a penalty enhancement shall be alleged in the information or indictment and either admitted by the defendant in open court, or found to be true by the jury trying the issue of guilt or by the court where guilt is established by plea of guilty or nolo contendere or by trial by the court sitting without a jury.
This section may not be construed to preclude the applicability of any other provision of criminal law that applies or may apply to a transaction.
Any person convicted of workers’ compensation fraud pursuant to Section 1871.4 or Section 550 of the Penal Code shall be ineligible to receive or retain any compensation, as defined in Section 3207 of the Labor Code, where that compensation was owed or received as a result of a violation of Section 1871.4 or Section 550 of the Penal Code for which the recipient of the compensation was convicted.
It is unlawful to knowingly employ runners, cappers, steerers, or other persons to procure clients or patients to perform or obtain services or benefits pursuant to Division 4 (commencing with Section 3200) of the Labor Code or to procure clients or patients to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or their insurer.
Every person who violates any provision of this section or Section 549, 550, or 551 of the Penal Code shall be subject, in addition to any other penalties that may be prescribed by law, to a civil penalty of not less than five thousand dollars ($5,000) nor more than ten thousand dollars ($10,000), plus an assessment of not more than three times the amount of each claim for compensation, as defined in Section 3207 of the Labor Code or pursuant to a contract of insurance. The court shall have the power to grant other equitable relief, including temporary injunctive relief, as is necessary to prevent the transfer, concealment, or dissipation of illegal proceeds, or to protect the public. The penalty prescribed in this paragraph shall be assessed for each fraudulent claim presented to an insurance company by a defendant and not for each violation.
The penalties set forth in subdivision (b) are intended to be remedial rather than punitive, and shall not preclude, nor be precluded by, a criminal prosecution for the same conduct. If the court finds, after considering the goals of disgorging unlawful profit, restitution, compensating the state for the costs of investigation and prosecution, and alleviating the social costs of increased insurance rates due to fraud, that such a penalty would be punitive and would preclude, or be precluded by, a criminal prosecution, the court shall reduce that penalty appropriately.
The district attorney or commissioner may bring a civil action under this section. Before the commissioner may bring that action, the commissioner shall be required to present the evidence obtained to the appropriate local district attorney for possible criminal or civil filing. If the district attorney elects not to pursue the matter, then the commissioner may proceed with the action.
Any interested persons, including an insurer, may bring a civil action for a violation of this section for the person and for the State of California. The action shall be brought in the name of the state. The action may be dismissed only if the court and the district attorney or the commissioner, whichever is participating, give written consent to the dismissal.
A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the district attorney and commissioner. The complaint shall be filed in camera, shall remain under seal for at least 60 days from the date of service on the district attorney and commissioner, and shall not be served on the defendant until the court so orders. The local district attorney or commissioner may elect to intervene and proceed with the action within 60 days after the district attorney or commissioner receives both the complaint and the material evidence and information. If more than one governmental entity elects to intervene, the district attorney shall have precedence.
The district attorney or commissioner may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal under paragraph (2). The motions may be supported by affidavits or other submissions in camera. The defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed and served upon the defendant.
Before the expiration of the 60-day period or any extensions obtained under paragraph (3), the district attorney or commissioner shall either:
Proceed with the action, in which case the action shall be conducted by the district attorney or commissioner.
Notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.
When a person or governmental agency brings an action under this section, no person other than the district attorney or commissioner may intervene or bring a related action based on the facts underlying the pending action unless that action is authorized by another statute or common law.
If the district attorney or commissioner proceeds with the action, the district attorney or commissioner shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. That person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2).
The district attorney or commissioner may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the district attorney or commissioner of the filing of the motion, and the court has provided the person with an opportunity for a hearing on the motion.
The district attorney or commissioner may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances. Upon a showing of good cause, the hearing may be held in camera.
Upon a showing by the district attorney or commissioner that unrestricted participation during the course of the litigation by the person initiating the action would interfere with or unduly delay the district attorney’s or commissioner’s prosecution of the case, or would be repetitious, irrelevant, or for purposes of harassment, the court may, in its discretion, impose limitations on the person’s participation, including, but not limited to, the following:
Limiting the number of witnesses the person may call.
Limiting the length of the testimony of those witnesses.
Limiting the person’s cross-examination of witnesses.
Otherwise limiting the participation by the person in the litigation.
Upon a showing by the defendant that unrestricted participation during the course of the litigation by the person initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense, the court may limit the participation by the person in the litigation.
If the district attorney or commissioner elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the district attorney or commissioner so requests, the district attorney or commissioner shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts, at the district attorney’s or commissioner’s expense. When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the district attorney or commissioner to intervene at a later date upon a showing of good cause.
If at any time both a civil action for penalties and equitable relief pursuant to this section and a criminal action are pending against a defendant for substantially the same conduct, whether brought by the government or a private party, the civil action shall be stayed until the criminal action has been concluded at the trial court level. The stay shall not preclude the court from granting or enforcing temporary equitable relief during the pendency of the actions. Whether or not the district attorney or commissioner proceeds with the action, upon a showing by the district attorney or commissioner that certain actions of discovery by the person initiating the action would interfere with a law enforcement or governmental agency investigation or prosecution of a criminal or civil matter arising out of the same facts, the court may stay discovery for a period of not more than 180 days. A hearing on a request for the stay shall be conducted in camera. The court may extend the 180-day period upon a further showing in camera that the agency has pursued the criminal or civil investigation or proceedings with reasonable diligence and any proposed discovery in the civil action will interfere with the ongoing criminal or civil investigation or proceedings.
Notwithstanding subdivision (e), the district attorney or commissioner may elect to pursue its claim through any alternate remedy available to the district attorney or commissioner.
If the district attorney proceeds with an action brought by a person under subdivision (e), that person shall, subject to subparagraph (B), receive at least 30 percent but not more than 40 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action.
If the commissioner has brought an action or has proceeded with an action brought by another person under this section on or after January 1, 2006, the commissioner shall be entitled to attorney’s fees and costs in addition to any judgment, regardless of the date that judgment is entered. The court shall determine and award the commissioner the amount of reasonable attorney’s fees, including, but not limited to, reasonable fees for time expended by attorneys employed by the department and for costs incurred. Any attorney’s fees or costs awarded to the commissioner and collected shall be deposited in the Insurance Fund. In cases in which the commissioner has intervened, the commissioner and the person bringing the claim may stipulate to an allocation. The court may allocate the funds pursuant to the stipulation if, after the court’s ruling on objection by the district attorney, if any, the court finds it is in the interests of justice to follow the stipulation.
If the commissioner has proceeded with an action, if there is no stipulation regarding allocation, and if a judgment has been obtained or a settlement has been reached with the defendants, the court shall determine the allocation, upon motion of the commissioner or the person bringing the action, according to the following priority:
The person bringing the action, regardless of whether that person paid money to the defendants as part of the acts alleged in the complaint, shall first receive the amount the court determines is reasonable for attorney’s fees, costs, and expenses that the court determines to have been necessarily incurred.
(II) The commissioner shall receive the amount the court determines for reasonable attorney’s fees and costs.
(III) If the person bringing the suit has paid moneys to the defendants as part of the acts alleged in the complaint, that person shall receive the amount paid to the defendants.
(IV) At least 30 percent, but not more than 40 percent, of the remaining assets or moneys, shall be allocated to the person bringing the action, depending upon the extent to which the person substantially contributed to the prosecution of the action.
Those portions of a judgment or settlement not distributed pursuant to this subdivision shall be paid to the General Fund of the state and, upon appropriation by the Legislature, shall be apportioned between the Department of Justice and the Department of Insurance for enhanced fraud investigation and prevention efforts.
Where the action is one that the court finds to be based primarily on disclosures of specific information, other than information provided by the person bringing the action, relating to allegations or transactions in a criminal, civil, or administrative hearing, in a legislative or administrative report, hearing, audit, or investigation, or from the news media, the court may award those sums that it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation.
Any payment to a person under subparagraph (A) or under subparagraph (B) shall be made from the proceeds. The person shall also receive an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable attorney’s fees and costs. All of those expenses, fees, and costs shall be awarded against the defendant.
If the district attorney or commissioner does not proceed with an action under this section, the person bringing the action or settling the claim shall receive an amount that the court decides is reasonable for collecting the civil penalty and damages. Except as provided in subparagraph (B), the amount shall not be less than 40 percent and not more than 50 percent of the proceeds of the action or settlement and shall be paid out of the proceeds. That person shall also receive an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable attorney’s fees and costs. All of those attorney’s fees and costs shall be imposed against the defendant. The parties shall serve the commissioner and the local district attorney with complete copies of any and all settlement agreements, and terms and conditions, for actions brought under this article at least 10 days prior to filing any motion for allocation with the court under this paragraph. The court may allocate the funds pursuant to the settlement agreement if, after the court’s ruling on objection by the commissioner or the local district attorney, if any, the court finds it is in the interests of justice to follow the settlement agreement.
If the person bringing the action, as a result of a violation of this section has paid money to the defendant or to an attorney acting on behalf of the defendant in the underlying claim, then the person shall be entitled to up to double the amount paid to the defendant or the attorney if that amount is greater than 50 percent of the proceeds. That person shall also receive an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable attorney’s fees and costs. All of those expenses, fees, and costs shall be awarded against the defendant.
If a local district attorney has proceeded with an action under this section, one-half of the penalties not awarded to a private party, as well as any costs awarded shall go to the treasurer of the appropriate county. Those funds shall be used to investigate and prosecute fraud, augmenting existing budgets rather than replacing them. All remaining funds shall go to the state and be deposited in the General Fund and, when appropriated by the Legislature, shall be apportioned between the Department of Justice and the Department of Insurance for enhanced fraud investigation and prevention efforts.
Whether or not the district attorney or commissioner proceeds with the action, if the court finds that the action was brought by a person who planned and initiated the violation of this section, that person shall be dismissed from the civil action and shall not receive any share of the proceeds of the action. The dismissal shall not prejudice the right of the district attorney or commissioner to continue the action on behalf of the state.
If the district attorney or commissioner does not proceed with the action, and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorney’s fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.
In no event may a person bring an action under subdivision (e) that is based upon allegations or transactions that are the subject of a civil suit or an administrative civil money penalty proceeding in which the Attorney General, district attorney, or commissioner is already a party.
A court shall not have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing in a legislative or administrative report, hearing, audit, or investigation, or from the news media, unless the action is brought by the district attorney or commissioner, the district attorney or commissioner proceeds with an action brought by a person under subdivision (e), or the person bringing the action is an original source of the information.
For purposes of this paragraph, “original source” means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the district attorney or commissioner before filing an action under this section that is based on the information.
Except as provided in subdivision (j), the district attorney or commissioner is not liable for expenses that a person incurs in bringing an action under this section.
In civil actions brought under this section in which the commissioner or a district attorney is a party, the court shall retain discretion to impose sanctions otherwise allowed by law, including the ability to order a party to pay expenses as provided in Sections 128.5 and 1028.5 of the Code of Civil Procedure.
Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by their employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in, an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. That relief shall include reinstatement with the same seniority status the employee would have had but for the discrimination, two times the amount of backpay, interest on the backpay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorney’s fees. An employee may bring an action in the appropriate superior court for the relief provided in this subdivision. The remedies under this section are in addition to any other remedies provided by existing law.
An action pursuant to this section may not be filed more than three years after the discovery of the facts constituting the grounds for commencing the action.
An insurer or self-insured employer shall provide the following notice, in both English and Spanish, to an injured worker on or with a check for temporary disability benefits:
WARNING: You are required to report to your employer or the insurance company any money that you earned for work during the time covered by this check, and before cashing this check. If you do not follow these rules, you may be in violation of the law and the penalty may be jail or prison, a fine, and loss of benefits.
ADVERTENCIA: Es necesario que usted le avise a su patrón o a su compañía de seguro todo dinero que usted ha ganado por trabajar, durante el tiempo cubierto por éste cheque, y antes de cambiar éste cheque. Si usted no sigue estos reglamentos, Usted puede estar en violación de la ley y el castigo podría ser cárcel o prisión, una multa, y pérdida de beneficios.
The department shall post all of the following information on its Internet Web site for each person, as defined in Section 19, convicted of a violation of this article, Section 11760 or 11880, Section 3700.5 of the Labor Code, or Section 487 or 550 of the Penal Code, if the violation involved workers’ compensation insurance, services, or benefits:
The name, case number, county or court, and other identifying information with respect to the case.
The full name of the defendant.
The city and county of the defendant’s last known residence or business address.
The date of conviction.
A description of the offense.
The amount of money alleged to have been defrauded.
A description of the punishment imposed, including the length of any sentence of imprisonment and the amount of any fine imposed.
The information required to be posted under this section shall be maintained on the department’s Web site for a period of five years from the date of conviction or until the department is notified in writing by the person that the conviction has been reversed or expunged.
It is unlawful to make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of obtaining or amending an insurance policy under any line of insurance regulated by the department. A violation of this section is a public offense, punishable by a fine not to exceed ten thousand dollars ($10,000), by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail not to exceed one year, or by both that fine and imprisonment.
ARTICLE 2. Bureau of Fraudulent Claims [1872. - 1872.96.]
For purposes of this article, “insurer” means any person who undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event, including reciprocals and interinsurance exchanges.
If, by its own inquiries or as a result of complaints, the Fraud Division has reason to believe that a person has engaged in, or is engaging in, an act or practice that violates Section 1871.4 of this code, or Section 549 or 550 of the Penal Code, the commissioner in his or her discretion may do either or both of the following:
Make those public or private investigations within or outside of this state that he or she deems necessary to determine whether any person has violated or is about to violate any provision of Section 1871.4 of this code, or Section 549 or 550 of the Penal Code, or to aid in the enforcement of this chapter.
Publish information concerning any violation of this chapter or Section 550 of the Penal Code.
For purposes of any investigation under this section, the commissioner or any officer designated by the commissioner may administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records that the commissioner deems relevant or material to the inquiry, as provided by Section 12924.
If any matter that the commissioner seeks to obtain by request is located outside the state, the person so requested may make it available to the commissioner or his or her representative to be examined at the place where it is located. The commissioner may designate representatives, including officials of the state in which the matter is located, to inspect the matter on his or her behalf, and he or she may respond to similar requests from officials of other states.
Except as provided in subdivision (e), the department’s papers, documents, reports, or evidence relative to the subject of an investigation under this section shall not be subject to public inspection for so long a period as the commissioner deems reasonably necessary to complete the investigation, to protect the person investigated from unwarranted injury, or to serve the public interest. Furthermore, those papers, documents, reports, or evidence shall not be subject to subpoena or subpoena duces tecum until opened for public inspection by the commissioner, unless the commissioner otherwise consents or, after notice to the commissioner and a hearing, the superior court determines that the public interest and any ongoing investigation by the commissioner would not be unnecessarily jeopardized by compliance with the subpoena duces tecum.
The Fraud Division shall furnish all papers, documents, reports, complaints, or other facts or evidence to any police, sheriff, or other law enforcement agency, when so requested, and shall assist and cooperate with those law enforcement agencies.
Any company licensed to write insurance in this state that has determined, after the completion of the insurer’s special investigative unit investigation, that it reasonably suspects or knows an act of insurance fraud may have occurred or might be occurring shall, within 60 days after that determination by the insurer, send to the Fraud Division, on a form prescribed by the department, the information requested by the form and any additional information relative to the factual circumstances regarding the alleged insurance fraud and person or entity that may have committed or is committing insurance fraud, as specified in Section 2698.38 of Title 10 of the California Code of Regulations. The Fraud Division shall review each report and undertake further investigation it deems necessary and proper to determine the validity of the allegations. Whenever the commissioner is satisfied that fraud, deceit, or intentional misrepresentation of any kind has been committed in the submission of the claim, claims, application, or other insurance transaction, the commissioner shall report the violations of law to the insurer, to the appropriate licensing agency, and to the district attorney of the county in which the offenses were committed, as provided by Sections 12928 and 12930. If the commissioner is satisfied that fraud, deceit, or intentional misrepresentation has not been committed, the commissioner shall report that determination to the insurer. If prosecution by the district attorney concerned is not begun within 60 days of the receipt of the commissioner’s report, the district attorney shall inform the commissioner and the insurer as to the reasons for the lack of prosecution regarding the reported violations.
This section shall not require an insurer to submit to the Fraud Division the information specified in subdivision (a) in either of the following instances:
The insurer’s initial investigation indicated a potentially fraudulent claim but further investigation revealed that it was not fraudulent.
The insurer and the claimant have reached agreement as to the amount of the claim and the insurer does not have reasonable grounds to believe that claim to be fraudulent.
Nothing contained in this article shall relieve an insurer of its existing obligations to also report suspected violations of law to appropriate local law enforcement agencies.
Any police, sheriff, disciplinary body governed by the provisions of the Business and Professions Code, or other law enforcement agency shall furnish all papers, documents, reports, complaints, or other facts or evidence to the Fraud Division, when so requested, and shall otherwise assist and cooperate with the division.
If an insurer, at the time the insurer, pursuant to subdivision (a) forwards to the Fraud Division information on a claim that appears to be fraudulent, has no evidence to believe the insured on that claim is involved with the fraud or the fraudulent collision, the insurer shall take all necessary steps to assure that no surcharge is added to the insured’s premium because of the claim.
An agent or broker who, before placing an insurance application with an insurer, reasonably suspects or knows that a fraudulent application is being made shall, within 60 days after the determination by the agent or broker that the application appears to be fraudulent, submit to the Fraud Division, using the electronic form within Fraud Division’s Consumer Fraud Reporting Portal, the information requested by the form and any additional information relative to the factual circumstances of the application and the alleged material misrepresentations contained in the application. All data fields within the Fraud Division’s Consumer Fraud Reporting Portal electronic form shall be completed accurately, to the best of the agent or broker’s ability. An agent or broker shall not submit a fraud referral anonymously. The Fraud Division shall review each report and undertake further investigation it deems necessary and proper to determine the validity of the allegations.
An agent or broker who, after an insurance application has been placed with an insurer, reasonably suspects or knows that fraud has been perpetrated shall report that information directly to the insurer’s special investigative unit. An agent or broker shall furnish all papers, documents, reports, or other facts or evidence to the insurer’s special investigative unit upon request, and shall otherwise assist and cooperate with the insurer’s special investigative unit.
An agent or broker shall furnish all papers, documents, reports, or other facts or evidence to the department upon request, and shall otherwise assist and cooperate with the department.
An agent or broker is not considered a “contracted entity” or “integral antifraud personnel” pursuant to Section 2698.30 of Title 10 of the California Code of Regulations.
Notify each insurer affected by the acts that are the subject of the criminal complaint of the existence of the complaint and the names of all persons insured by the insurer who are the victims.
Notwithstanding any other provision of law, when an insurer receives notification pursuant to subdivision (a), and the insurer has increased the premiums of a person who is a victim because of a claim that is the subject of the criminal complaint, the insurer shall promptly rebate to that person the increased premiums that were charged to and paid by that person.
Notify the Department of Motor Vehicles of the criminal complaint and the names of all persons who are the victims.
Notify all the persons who are the victims in simple understandable language that a criminal complaint has been filed and that subdivision (b) of Section 1806 of the Vehicle Code requires the Department of Motor Vehicles not to record the accident on the record of the victim.
No insurer, or the employees or agents of any insurer, shall be subject to civil liability for libel, slander, or any other relevant tort cause of action by virtue of providing any of the following without malice:
Any information or reports relating to suspected fraudulent insurance transaction furnished to law enforcement officials, or licensing officials governed by the Business and Professions Code.
Any reports or information relating to suspected fraudulent insurance transaction furnished to other persons subject to this chapter.
Any information or reports required by this article or required by the commissioner under the authority granted in this chapter.
An agent or broker who furnishes written or oral information pursuant to Section 1872.41, or an authorized governmental agency, or its employees, that furnishes or receives written or oral information pursuant to Section 1872.41 or assists in an investigation of a suspected insurance fraud violation conducted by an authorized governmental agency, shall not be subject to any civil liability in a cause or action if the insurer, authorized agent, agent or broker, or authorized governmental agency acted in good faith, without malice, and reasonably believes that the action taken was warranted by the then-known facts, obtained by reasonable efforts.
This chapter does not abrogate or lessen the existing common law or statutory privileges and immunities of an insurer, agent authorized by that insurer to act on its behalf, agent or broker, licensed rating organization, or any authorized governmental agency or its employees.
Nothing contained in this article shall:
Preempt the authority of other law enforcement or licensing agencies to investigate and prosecute suspected violations of law.
Prevent or prohibit a person from voluntarily disclosing any information concerning violations of this chapter to any law enforcement or licensing agency governed by the Business and Professions Code.
Limit any of the powers granted to the department or the commissioner to investigate possible violations of the chapter and take appropriate action against wrongdoers.
An insurer doing business in this state shall pay an annual special purpose assessment to be determined by the commissioner, but not to exceed one dollar ($1) annually, for each vehicle insured under an insurance policy it issues in this state, in order to fund increased investigation and prosecution of fraudulent automobile insurance claims and economic automobile theft. Thirty-four percent of those funds received from ninety-five cents ($0.95) of the special purpose assessment per insured vehicle shall be distributed to the Fraud Division for enhanced investigative efforts, 15 percent of that ninety-five cents ($0.95) shall be deposited in the Motor Vehicle Account for appropriation to the Department of the California Highway Patrol for enhanced prevention and investigative efforts to deter economic automobile theft, and 51 percent of that ninety-five cents ($0.95) shall be distributed to district attorneys for purposes of investigation and prosecution of automobile insurance fraud cases, including fraud involving economic automobile theft.
The commissioner shall award funds to district attorneys according to population. The commissioner may alter this distribution formula as necessary to achieve the most effective distribution of funds. A local district attorney desiring a portion of those funds shall submit to the commissioner an application detailing the proposed use of any moneys that may be provided. The application shall include a detailed accounting of assessment funds received and expended in prior years, including, at a minimum, all of the following:
The amount of funds received and expended.
The uses to which those funds were put, including payment of salaries and expenses, purchase of equipment and supplies, and other expenditures by type.
The results achieved as a consequence of expenditures made, including the number of investigations, arrests, complaints filed, convictions, and the amounts originally claimed in cases prosecuted compared to payments actually made in those cases.
Other relevant information as the commissioner may reasonably require.
A district attorney who fails to submit an application by the deadline set by the commissioner shall be subject to loss of distribution of the moneys. The commissioner may consider recommendations and advice of the Fraud Division and the Commissioner of the California Highway Patrol in allocating moneys to local district attorneys. A district attorney that receives funds shall submit an annual report to the commissioner, which may be made public, as to the success of the program administered. The report shall provide information and statistics on the number of active investigations, arrests, indictments, and convictions. Both the application for moneys and the distribution of moneys shall be public documents. The commissioner shall conduct a fiscal audit of the programs administered under this subdivision at least once every three years. The costs of a fiscal audit shall be shared equally between the department and the district attorney. Information submitted to the commissioner pursuant to this section concerning criminal investigations, whether active or inactive, shall be confidential. If the commissioner determines that a district attorney is unable or unwilling to investigate and prosecute automobile insurance fraud claims as provided by this subdivision or Section 1874.8, the commissioner may discontinue the distribution of funds allocated for that county and may redistribute those funds to other eligible district attorneys.
The Department of the California Highway Patrol shall submit to the commissioner, for informational purposes only, a report detailing the department’s proposed use of funds under this section and an annual report in the same format as required of district attorneys under paragraph (1).
The remaining five cents ($0.05) shall be spent for enhanced automobile insurance fraud investigation by the Fraud Division.
Except for funds to be deposited in the Motor Vehicle Account for allocation to the Department of the California Highway Patrol for purposes of the Motor Vehicle Theft Prevention Act (Chapter 5 (commencing with Section 10900) of Division 4 of the Vehicle Code), the funds received under this section shall be deposited in the Insurance Fund and be expended and distributed when appropriated by the Legislature.
In the course of its investigations, the Fraud Division shall pursue aggressively all reported incidents of probable fraud and, in addition, shall forward to the appropriate disciplinary body the names of individuals licensed under the Business and Professions Code who are suspected of actively engaging in fraudulent activity along with all relevant supporting evidence.
As used in this section, “economic automobile theft” means automobile theft perpetrated for financial gain, including, but not limited to, the following:
Theft of a motor vehicle for financial gain.
Reporting that a motor vehicle has been stolen for the purpose of filing a false insurance claim.
Engaging in any act prohibited by Chapter 3.5 (commencing with Section 10801) of Division 4 of the Vehicle Code.
Switching of vehicle identification numbers to obtain title to a stolen motor vehicle.
In addition to the special purpose assessment imposed pursuant to Section 1872.8, effective July 1, 2014, an insurer doing business in this state shall, until January 1, 2016, pay to the commissioner an annual special purpose assessment of twenty-six cents ($0.26), and thereafter pay to the commissioner an annual special purpose assessment in an amount not to exceed twenty-six cents ($0.26), as determined by the commissioner, for each vehicle insured under an insurance policy it issues in this state, for expenditure, upon appropriation by the Legislature, as follows:
Two-thirds of the special purpose assessment shall be used for the purpose of funding the consumer service functions of the department that are related to regulating automobile insurers, including those functions performed by the rating and underwriting service bureau, the claims service bureau, the investigations bureau, or any successor bureaus of the department that may assume the consumer service functions of these bureaus, and legal services in support of these bureaus.
One-third of the special purpose assessment shall be used for the purpose of improving consumer functions identified in subdivision (a) of the department that are related to regulating automobile insurers, including, for improving the ability of the department to respond to consumer complaints and information requests through the department’s toll-free telephone number, and for improving the ability of the department to offer information about automobile insurance rates to the public.
Upon appropriation by the Legislature, the department may use up to five cents ($0.05) of the special purpose assessment revenues collected pursuant to this section to notify insurers and other members of the public about the existence of any low-cost automobile insurance program established pursuant to Section 11629.7 or other statutes that establish a program of the type identified in Section 11629.7. In requesting an appropriation for this purpose under its proposed plan developed pursuant to Section 11629.85, the department shall explain, with as much specificity as is reasonably possible, the objectives for the use of the funds and the quantitative criteria by which the Legislature may evaluate the effectiveness of the department’s use of the funds.
The commissioner shall include, in the annual report submitted pursuant to Section 12922, all of the following information:
The number of opened consumer complaints related to automobile insurance.
The number of opened investigations related to automobile insurance.
The number of investigations related to automobile insurance referred to prosecuting agencies.
The number of administrative or regulatory cases related to automobile insurance referred to the department’s legal division.
The number of administrative or regulatory enforcement actions taken in cases related to automobile insurance.
Total aggregate annual assessment revenue and expenditures pursuant to the assessment.
The commissioner shall ensure that the Fraud Division aggressively pursues all reported incidents of probable workers’ compensation fraud, as defined in Sections 11760 and 11880, and in subdivision (a) of Section 1871.4, and in Section 549 of the Penal Code, and forwards to the appropriate disciplinary body the names, along with all supporting evidence, of any individuals licensed under the Business and Professions Code who are suspected of actively engaging in fraudulent activity. The Fraud Division shall forward to the Insurance Commissioner or the Director of Industrial Relations, as appropriate, the name, along with all supporting evidence, of any insurer, as defined in subdivision (c) of Section 1877.1, suspected of actively engaging in the fraudulent denial of claims.
To fund increased investigation and prosecution of workers’ compensation fraud, and of willful failure to secure payment of workers’ compensation, in violation of Section 3700.5 of the Labor Code, there shall be an annual assessment as follows:
The aggregate amount of the assessment shall be determined by the Fraud Assessment Commission, which is hereby established. The commission shall be composed of seven members consisting of two representatives of organized labor, two representatives of self-insured employers, one representative of insured employers, one representative of workers’ compensation insurers, and the President of the State Compensation Insurance Fund, or their designee.
The Governor shall appoint members representing organized labor, self-insured employers, insured employers, and insurers. The term of office of members of the commission shall be four years, and a member shall hold office until the appointment of a successor. The President of the State Compensation Insurance Fund shall be an ex officio, voting member of the commission. Members of the commission shall receive one hundred dollars ($100) for each day of actual attendance at commission meetings and other official commission business, and shall also receive their actual and necessary traveling expenses incurred in the performance of commission duties. Payment of per diem and travel expenses shall be made from the Workers’ Compensation Fraud Account in the Insurance Fund, established in paragraph (4), upon appropriation by the Legislature.
In determining the aggregate amount of the assessment, the Fraud Assessment Commission shall consider the advice and recommendations of the Fraud Division and the commissioner.
The aggregate amount of the assessment shall be collected by the Director of Industrial Relations pursuant to Section 62.5 of the Labor Code. The Fraud Assessment Commission shall annually advise the Director of Industrial Relations, not later than March 15, of the aggregate amount to be assessed for the next fiscal year.
The amount collected, together with the fines collected for violations of the unlawful acts specified in Sections 1871.4, 11760, and 11880, Section 3700.5 of the Labor Code, and Section 549 of the Penal Code, shall be deposited in the Workers’ Compensation Fraud Account in the Insurance Fund, which is hereby created, and may be used, upon appropriation by the Legislature, only for enhanced investigation and prosecution of workers’ compensation fraud and of willful failure to secure payment of workers’ compensation as provided in this section.
For each fiscal year, the total amount of revenues derived from the assessment pursuant to subdivision (b) shall, together with amounts collected pursuant to fines imposed for unlawful acts described in Sections 1871.4, 11760, and 11880, Section 3700.5 of the Labor Code, and Section 549 of the Penal Code, not be less than three million dollars ($3,000,000). Any funds appropriated by the Legislature pursuant to subdivision (b) that are not expended in the fiscal year for which they have been appropriated, and that have not been allocated under subdivision (f), may be applied to satisfy for the immediately following fiscal year the minimum total amount required by this subdivision or, subject to appropriation by the Legislature, may be used to augment funding in the immediately following fiscal year. The money shall not be transferred to the General Fund.
After incidental expenses, at least 40 percent of the funds to be used for the purposes of this section shall be provided to the Fraud Division of the Department of Insurance for enhanced investigative efforts, and at least 40 percent of the funds shall be distributed to district attorneys, pursuant to a determination by the commissioner with the advice and consent of the division and the Fraud Assessment Commission, as to the most effective distribution of moneys for purposes of the investigation and prosecution of workers’ compensation fraud cases and cases relating to the willful failure to secure the payment of workers’ compensation. Each district attorney seeking a portion of the funds shall submit to the commissioner an application setting forth in detail the proposed use of any funds provided. A district attorney receiving funds pursuant to this subdivision shall submit an annual report to the commissioner with respect to the success of their efforts. Upon receipt, the commissioner shall provide copies to the Fraud Division and the Fraud Assessment Commission of any application, annual report, or other documents with respect to the allocation of money pursuant to this subdivision. Both the application for moneys and the distribution of moneys shall be public documents. Information submitted to the commissioner pursuant to this section concerning criminal investigations, whether active or inactive, shall be confidential.
If a district attorney is determined by the commissioner to be unable or unwilling to investigate and prosecute workers’ compensation fraud claims or claims relating to the willful failure to secure the payment of workers’ compensation, the commissioner shall discontinue distribution of funds allocated for that county and may redistribute those funds according to this subdivision.
The commissioner shall promptly determine whether any other county could assert jurisdiction to prosecute the fraud claims or claims relating to the willful failure to secure the payment of workers’ compensation that would have been brought in the nonparticipating county, and, if so, the commissioner may award funds to conduct the prosecutions redirected pursuant to this subdivision. These funds may be in addition to any other fraud prosecution funds or claims relating to the willful failure to secure the payment of workers’ compensation prosecution otherwise awarded under this section. Any district attorney receiving funds pursuant to this subdivision shall first agree that the funds shall be used solely for investigating and prosecuting those cases of workers’ compensation fraud or claims relating to the willful failure to secure the payment of workers’ compensation that are redirected pursuant to this subdivision and submit an annual report to the commissioner with respect to the success of the district attorney’s efforts. The commissioner shall keep the Fraud Assessment Commission fully informed of all reallocations of funds under this paragraph.
If the commissioner determines that no district attorney is willing or able to investigate and prosecute the workers’ compensation fraud claims or claims relating to the willful failure to secure the payment of workers’ compensation arising in the nonparticipating county, the commissioner, with the advice and consent of the Fraud Assessment Commission, may award to the Attorney General some or all of the funds previously awarded to the nonparticipating county. Before the commissioner may award any funds, the Attorney General shall submit to the commissioner an application setting forth in detail their proposed use of any funds provided and agreeing that any funds awarded shall be used solely for investigating and prosecuting those cases of workers’ compensation fraud or claims relating to the willful failure to secure the payment of workers’ compensation that are redirected pursuant to this subdivision. The Attorney General shall submit an annual report to the commissioner with respect to the success of the fraud prosecution efforts of their office.
Neither the Attorney General nor any district attorney shall be required to relinquish control of any investigation or prosecution undertaken pursuant to this subdivision unless the commissioner determines that satisfactory progress is no longer being made on the case or the case has been abandoned.
A county that has become a nonparticipating county due to the inability or unwillingness of its district attorney to investigate and prosecute workers’ compensation fraud or the willful failure to secure the payment of workers’ compensation shall not become eligible to receive funding under this section until it has submitted a new application that meets the requirements of subdivision (d) and the applicable regulations.
If in any fiscal year the Fraud Division does not use all of the funds made available to it under subdivision (d), any remaining funds may be distributed to district attorneys pursuant to a determination by the commissioner in accordance with the same procedures set forth in subdivision (d).
The commissioner shall adopt rules and regulations to implement this section in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Included in the rules and regulations shall be the criteria for redistributing funds to district attorneys and the Attorney General. The adoption of the rules and regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health, and safety, or general welfare.
The department shall report to the Governor, the Legislature, to the committees of the Senate and Assembly having jurisdiction over insurance, and the Fraud Assessment Commission on the activities of the Fraud Division and district attorneys supported by the funds provided by this section in the annual report submitted pursuant to Section 12922.
The annual report shall include, but is not limited to, all of the following information for the department and each district attorney’s office:
All allocations, distributions, and expenditures of funds.
The number of search warrants issued.
The number of arrests and prosecutions, and the aggregate number of parties involved in each.
The number of convictions and the names of all convicted fraud perpetrators.
The estimated value of all assets frozen, penalties assessed, and restitutions made for each conviction.
Any additional items necessary to fully inform the Fraud Assessment Commission and the Legislature of the fraud-fighting efforts financed through this section.
In order to meet the requirements of subdivision (g), the department shall submit a biannual information request to those district attorneys who have applied for and received funding through the annual assessment process under this section.
Assessments levied or collected to fight workers’ compensation fraud and insurance fraud are not taxes. Those funds are entrusted to the state to fight fraud and the willful failure to secure the payment of workers’ compensation by funding state and local investigation and prosecution efforts. Accordingly, any funds resulting from assessments, fees, penalties, fines, restitution, or recovery of costs of investigation and prosecution deposited in the Insurance Fund shall not be deemed “unexpended” funds for any purpose and, if remaining in that account at the end of any fiscal year, shall be applied as provided in subdivision (f) and to offset or augment subsequent years’ program funding.
The commissioner shall ensure that the Fraud Division forwards to the appropriate disciplinary body, in addition to the names and supporting evidence of individuals described in subdivision (a) of Section 1872.83, the names, along with all supporting evidence, of any individuals licensed under the Chiropractic Initiative Act who are suspected of actively engaging in fraudulent activity.
Every admitted disability insurer or other entity liable for any loss due to health insurance fraud doing business in this state shall pay an annual special purpose assessment to be determined by the commissioner, but not to exceed twenty cents ($0.20) annually for each person in this state covered under an individual or group insurance policy regardless of the situs of the contract or master group policyholder, and regardless of whether the insured has been issued an individual certificate of coverage, and including blanket insurance as defined in Section 10270.2, in order to fund increased investigation and prosecution of fraudulent disability insurance claims. The data supporting the special purpose assessment shall not be required to be submitted more often than once each calendar year, except that responses to questions from the commissioner and clarifying information regarding the data shall not be considered as additional submissions of data. For group and blanket insurance contracts, insurers may rely on information requested from and provided by the group policyholder after a reasonable effort to obtain timely and accurate information. After incidental expenses, 30 percent of those funds received from the assessment per insured shall be distributed to the Fraud Division of the Department of Insurance for enhanced investigative efforts, and 70 percent of the funds shall be distributed to local district attorneys, pursuant to subdivisions (b) and (c), for investigation and prosecution of disability insurance fraud cases. The funds received pursuant to this section shall be deposited into the Disability Insurance Fraud Account, which is hereby created in the Insurance Fund, and shall be expended and distributed, when appropriated by the Legislature, only for enhanced investigation and prosecution of disability insurance fraud.
In the course of its investigation, the Fraud Division shall aggressively pursue all reported incidents of probable fraud and, in addition, shall forward to the appropriate disciplinary body the names of any individuals licensed under the Business and Professions Code who are convicted of engaging in fraudulent activity along with all relevant supporting evidence.
The commissioner shall distribute funds pursuant to subdivision (a) to district attorneys who are able to show a likely positive outcome that will enhance the prosecution of disability insurance fraud in their jurisdiction based on specific criteria promulgated by the commissioner. A district attorney desiring funds pursuant to subdivision (a) shall submit to the commissioner an application that includes, but is not limited to, all of the following:
The proposed use of the moneys and the anticipated outcome.
A list of all prior cases or projects in the district attorney’s jurisdiction that have been funded under the provisions of this section, and a copy of the final accounting for each case or project. If a case or project is ongoing, the most recent accounting shall be provided.
A detailed budget for the moneys, including salaries and general expenses, that specifically identifies the purchase or rental cost of equipment or supplies.
The commissioner may conduct a fiscal audit of the programs administered under this subdivision. The fiscal audit shall be conducted by an internal audit unit of the department. The cost of fiscal audits shall be paid from the Disability Insurance Fraud Account, upon appropriation by the Legislature.
If the commissioner determines that a district attorney is unable or unwilling to investigate or prosecute a relevant disability insurance fraud case, the commissioner may discontinue distribution of moneys allocated for that matter pursuant to this section, and may redistribute moneys to other eligible district attorneys.
Activities of the Fraud Division with regard to investigating and prosecuting fraudulent disability insurance claims pursuant to this section shall be included in the report required by Section 1872.9.
This section shall not apply to policies issued by a reciprocal or interinsurance exchange, as defined by Sections 1303 and 1350, or coverage provided by or through a motor club, as defined by Section 12142, affiliated with a reciprocal or interinsurance exchange, if the annual premium charged for the coverage or the annual cost to the insurer for providing that coverage does not exceed one dollar ($1) per insured.
The commissioner shall adopt regulations to implement this section in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
An insurer doing business in this state shall pay an annual special purpose assessment to be determined by the commissioner, not to exceed five thousand one hundred dollars ($5,100), to be used exclusively for the support of the Fraud Division. All moneys received by the commissioner from insurers pursuant to this section shall be transmitted to the Treasurer to be deposited in the State Treasury to the credit of the Insurance Fund.
The Fraud Division shall report annually, on the department’s Internet Web site, all of the following information:
The number of suspected fraudulent claim referrals made to the Fraud Division pursuant to Section 1872.4, by line of insurance.
The number of investigations opened by the Fraud Division, by line of insurance, at the local, state, and federal levels.
The number of investigations referred by the Fraud Division for criminal prosecution, by line of insurance, at the local, state, and federal levels.
The number of insurer fraud cases investigated by the department’s Enforcement Branch.
The number of criminal complaints filed by prosecutors at the local, state, and federal levels.
The number of convictions at the local, state, and federal levels.
The total amount of court-ordered restitution, and the amount collected by the courts for the victims.
The number of training presentations focusing on the current schemes and trends, investigative tools and techniques, and proper reporting requirements needed to increase the quality of suspected fraudulent referrals by insurance industry special investigation units.
The number of vacant peace officer positions, including information on the number and rate of vacancies for which an employment commitment has been made and on the number and rate of vacancies required to meet budgeted salary savings requirements.
Each insurer required to pay special purpose assessments pursuant to Sections 1872.8, 1872.81, 1872.85, 1874.8, or subdivision (a) of Section 1872.86 may, over a reasonable length of time, but in no event later than the calendar year in which the assessment is paid, recoup the special purpose assessments by way of a surcharge on premiums charged for the insurance policies to which those sections apply or by including the assessments within the insurer’s rates. Amounts recouped shall not be considered premiums for any purpose, including the computation of gross premium tax or agents’ commission.
The amount of the surcharge shall be separately stated on either a billing or policy declaration sent to an insured.
The Fraud Division shall annually compile and report, as a part of the commissioner’s annual report as required by Section 12922, the following information:
The number of cases reported to the division pursuant to this chapter.
The number of cases rejected for which an investigation was not initiated by the division due to insufficient evidence to proceed and the number of cases rejected for which an investigation was not initiated by the division due to any other reason.
The number of cases that were prosecuted in cooperation with licensing agencies governed by the Business and Professions Code.
The number and kind of cases prosecuted as a result of moneys received under Section 1872.7.
An estimate of the economic value of insurance fraud by type of insurance fraud.
Recommendations on ways insurance fraud may be reduced.
A summary of the division’s activities with respect to pursuing a reduction of fraud with all of the following:
Insurance companies.
The Department of Motor Vehicles.
The Department of the California Highway Patrol.
Licensing agencies governed by the Business and Professions Code.
The Department of Insurance.
Local and state law enforcement agencies.
Employers, as defined in Section 3300 of the Labor Code, who are self-insured for workers’ compensation and doing business in the state.
Basic claims information including trends of payments by type of claim and other claim information that is generally provided in a closed claim study.
A summary of the division’s activities with respect to the reduction, pursuant to Section 1871.4, of fraudulent denials and payments of compensation.
The number and types of cases investigated and prosecuted with funds specified in Section 1872.83.
Within existing resources, the Medical Board of California, the Board of Chiropractic Examiners, and the State Bar shall each designate employees to investigate and report on possible fraudulent activities relating to workers’ compensation, motor vehicle insurance, or disability insurance by licensees of the board or the bar. Those employees shall actively cooperate with the Fraud Division in the investigation of those activities.
The Medical Board of California and the Board of Chiropractic Examiners shall each report annually, on or before March 1, to the committees of the Senate and Assembly having jurisdiction over insurance on their activities established pursuant to subdivision (a) for the previous year. The State Bar shall include this report in its Annual Discipline Report on or before April 30. That report shall specify, at a minimum, the number of cases investigated, the number of cases forwarded to the Fraud Division or other law enforcement agencies, the outcome of all cases listed in the report, and any other relevant information concerning those cases or general activities conducted under subdivision (a) for the previous year. The report shall include information regarding activities conducted in connection with cases of suspected automobile insurance fraud.
The commissioner shall prepare an annual report, which shall be a public record, with respect to the receipts, expenditures, and activities of the Fraud Division for the year just ended. The report shall be submitted to the Governor and to the Legislature, no later than January 31 of the following year. This report shall not contain any individually identifiable information.
ARTICLE 3. Insurance Fraud Reporting [1873. - 1873.4.]
Upon written request to an insurer by officers designated in subdivisions (a) and (b) of Section 830.1 and subdivision (a) of Section 830.2, and subdivisions (a), (c), and (i) of Section 830.3 of the Penal Code, an insurer, or agent authorized by that insurer to act on behalf of the insurer, shall release to the requesting authorized governmental agency any or all relevant information deemed important to the authorized governmental agency that the insurer may possess relating to any specific insurance fraud. Relevant information may include, but is not limited to, all of the following:
Insurance policy information relevant to the insurance fraud under investigation, including, but not limited to, any application for a policy.
Policy premium payment records which are available.
History of previous claims made by the insured.
Information relating to the investigation of the insurance fraud, including statements of any person, proof of loss, and notice of loss.
Complete copies of both sides of payment drafts.
The provisions of subdivision (a) shall not operate to authorize disclosure of medical information not otherwise authorized for disclosure pursuant to law.
Any information acquired pursuant to this article shall not be a part of any public record. Except as otherwise provided by law, any authorized governmental agency, an insurer, or an agent authorized by an insurer to act on its behalf, which receives any information furnished pursuant to this article, shall not release that information to public inspection until the time that its release is required in connection with a criminal or civil proceeding.
In the absence of fraud or malice, no insurer, or any employee or agent authorized by an insurer to act on behalf of the insurer, and no authorized governmental agency or its respective employees, shall be subject to any civil liability for libel, slander, or any other relevant cause of action by virtue of releasing or receiving any information pursuant to Section 1873 or 1873.1. Nothing in this article is intended to, nor does in any way or manner, abrogate or lessen the existing common law or statutory privileges and immunities of an insurer, or any employee or agent authorized by the insurer to act on behalf of the insurer, or of any authorized governmental agency or its respective employees.
For purposes of this article and Article 2 (commencing with Section 1872), “insurance fraud” does not include motor vehicle theft and motor vehicle insurance fraud reporting subject to the provisions of Article 4 (commencing with Section 1874), or workers’ compensation insurance fraud reporting subject to Article 7 (commencing with Section 1877).
As used in this article, “authorized governmental agency” means the Department of the California Highway Patrol, the Department of Motor Vehicles, the Department of Insurance, the Department of Justice, the police department of a city, or a city and county, the sheriff’s office or department of a county, the district attorney of any county, or city and county, those agencies employing officers designated in subdivisions (a) and (b) of Section 830.1, subdivision (a) of Section 830.2, and subdivisions (b), (d), and (k) of Section 830.3 of the Penal Code, any other law enforcement agency of this state or any city or county, or city and county, and any licensing agency governed by the Business and Professions Code.
ARTICLE 4. Motor Vehicle Theft and Motor Vehicle Insurance Fraud Reporting [1874. - 1874.8.]
This article shall be known and may be cited as the Motor Vehicle Theft and Motor Vehicle Insurance Fraud Reporting Act.
The following definitions govern the construction of this article, unless the context requires otherwise:
“Authorized governmental agency” means the Department of the California Highway Patrol, the Department of Insurance, the Department of Justice, the Department of Motor Vehicles, the police department of a city, or a city and county, the sheriff’s office or department of a county, a law enforcement agency of the federal government, the district attorney of any county, or city and county, and any licensing agency governed by the Business and Professions Code or the Chiropractic Initiative Act.
“Relevant” means having a tendency to make the existence of any fact that is of consequence to the investigation or determination of an issue more probable or less probable than it would be without the information.
Information shall be deemed important if, within the sole discretion of the authorized governmental agency, that information is requested by that authorized governmental agency.
“Insurer” means the automobile assigned risk plan established pursuant to Section 11620 of the Insurance Code, as well as any insurer writing insurance for motor vehicles or otherwise liable for any loss due to motor vehicle theft or motor vehicle insurance fraud.
“Motor vehicle” means motor vehicle as defined in Section 415 of the Vehicle Code.
Upon written request to an insurer by an authorized governmental agency, an insurer or agent authorized by that insurer to act on behalf of the insurer, shall release to the requesting authorized governmental agency any or all relevant information deemed important to the authorized governmental agency that the insurer may possess relating to any specific motor vehicle theft or motor vehicle insurance fraud. Relevant information may include, but is not limited to, all of the following:
Insurance policy information relevant to the motor vehicle theft or motor vehicle insurance fraud under investigation, including, but not limited to, any application for a policy.
Policy premium payment records that are available.
History of previous claims made by the insured.
Information relating to the investigation of the motor vehicle theft or motor vehicle insurance fraud, including statements of any person, proof of loss, and notice of loss.
When an insurer knows or reasonably believes it knows the identity of a person whom it has reason to believe committed a criminal or fraudulent act relating to a motor vehicle theft or motor vehicle insurance claim or has knowledge of the criminal or fraudulent act that is reasonably believed not to have been reported to an authorized governmental agency, then, for the purpose of notification and investigation, the insurer, or an agent authorized by an insurer to act on its behalf, shall notify the local police department, sheriff’s office, the Department of the California Highway Patrol, or district attorney’s office, and may notify any other authorized governmental agency of that knowledge or reasonable belief and provide any additional information in accordance with subdivision (a).
When an insurer provides the local police department, sheriff’s office, Department of the California Highway Patrol, or district attorney’s office with notice pursuant to this section, it shall be deemed sufficient notice to all authorized governmental agencies for the purpose of this chapter. Nothing in this section shall relieve an insurer of its obligations under Section 1872.4.
Nothing in this subdivision shall abrogate or impair the rights or powers created under subdivision (a).
The authorized governmental agency provided with information pursuant to subdivision (a) or (b) may release or provide that information to any other authorized governmental agency.
An authorized governmental agency shall notify the affected insurer in writing when it has reason to believe that a fraudulent act relating to a motor vehicle theft or motor vehicle insurance claim has been committed. The agency shall provide this notice within a reasonable time, not to exceed 30 days. The agency may also release more specific information pursuant to this section when it determines that an ongoing investigation would not be jeopardized. The agency may require a fee from the insurer equal to the cost of providing the notice or the information specified in this section.
An insurer providing information to an authorized agency pursuant to this section shall provide the information within a reasonable time, but not to exceed 30 days from the day on which the duty arose.
Any information acquired pursuant to this article shall not be a part of any public record. Except as otherwise provided by law, any authorized governmental agency, an insurer, or an agent authorized by an insurer to act on its behalf, which receives any information furnished pursuant to this article shall not release that information to public inspection.
The evidence or information described in this section shall be privileged and shall not be subject to subpoena or subpoena duces tecum in a civil or criminal proceeding unless, after reasonable notice to any insurer, agent authorized by an insurer to act on its behalf, and an authorized governmental agency which has an interest in the information, and a hearing, the court determines that the public interest and any ongoing investigation by the authorized governmental agency, insurer, or an agent authorized by an insurer to act on its behalf will not be jeopardized by its disclosure, or by the issuance of and compliance with a subpoena or subpoena duces tecum.
In the absence of fraud or malice, no insurer, or agent authorized by an insurer to act on behalf of the insurer, and no authorized governmental agency or its employees, shall be subject to any civil liability in a cause of action of any kind for releasing or receiving any information pursuant to Section 1874.1 or 1874.2. Nothing in this chapter is intended to, nor does in any way or manner, abrogate or lessen the existing common law or statutory privileges and immunities of an insurer, agent authorized by that insurer to act on behalf of the insurer, or of any authorized governmental agency or its employees.
Every insurer shall report covered private passenger automobiles involved in theft and salvage total losses, including the vehicle identification number and any other information as may be required, to the National Automobile Theft Bureau or a similar central organization engaged in automobile loss prevention approved by the commissioner, in accordance with regulations promulgated by the commissioner.
Prior to the payment of total theft losses, insurers shall comply with verification procedures in accordance with regulations adopted by the commissioner.
No insurer, the National Automobile Theft Bureau, or a similar central organization, engaged in automobile loss prevention approved by the commissioner, or their employees or agents, shall be liable for damages in a civil action when the insurer or person acts pursuant to this section in good faith, without malice, and in reasonable belief that the action taken is warranted by the known facts after a reasonable effort to obtain the facts.
As used in this section “private passenger automobile” a motor vehicle of the private passenger or station wagon type, any other four-wheel vehicle with a load capacity of 1,500 pounds or less, or a motorcycle.
Each insurer doing business in this state shall pay an annual special purpose assessment to be determined by the commissioner in an amount not to exceed fifty cents ($0.50) for each vehicle insured under an insurance policy it issues in this state, in order to fund the Fraud Division and the Organized Automobile Fraud Activity Interdiction Program.
From the funds to be distributed to district attorneys under this section, the commissioner shall fund between three and 10 grants at any one time for a coordinated program targeted at the successful prosecution and elimination of organized automobile fraud activity. These grants may be awarded only to district attorneys.
In determining whether to award a district attorney a grant pursuant to this subdivision, the commissioner shall consider factors indicating organized automobile fraud activity in the district attorney’s county, including, but not limited to, the county’s level of general criminal activity, population density, automobile insurance claims frequency, number of suspected fraudulent claims, and prior and current evidence of organized automobile fraud activity. Funding priority shall be given to those grant applications with the potential to have the greatest impact on reducing organized automobile insurance fraud activity committed by an insurer’s employees or agents, brokers, insureds, and others, and lessening the economic losses realized by insurers from that fraud.
All participants of a grant under this subdivision shall coordinate their efforts and work in conjunction with the Fraud Division, other participating agencies, and all interested insurers in this regard.
Of the funds collected pursuant to this section, upon appropriation by the Legislature, 42.5 percent shall be distributed to district attorneys, 42.5 percent shall be distributed to the Fraud Division, and 15 percent shall be distributed to the Department of the California Highway Patrol. Funds distributed pursuant to this section to the Fraud Division and to the Department of the California Highway Patrol shall be used to fund Fraud Division and Department of the California Highway Patrol investigators to work in conjunction with district attorneys who are awarded grants. Each grantee shall be notified by the Fraud Division of the identity of the investigators assigned to work with the grantee. In accordance with the terms and conditions of the applicable grant, each grantee shall provide the Fraud Division with information resulting from the investigations the grantee conducts pursuant to this section. This section does not prohibit the referral of any cases developed by the Fraud Division to any appropriate prosecutorial entity.
A grant under this section shall be awarded on the basis of a single application for a period of three years and shall be subject where applicable to the requirements of subdivision (b) of Section 1872.8, except for the requirement that grants be awarded according to population. Continued funding of a grant shall be contingent upon a grantee’s successful performance, as determined by an annual review by the commissioner. Any redirection of grant funds under this section shall be made only for good cause. The Department of the California Highway Patrol shall submit to the commissioner, for informational purposes only, an annual report on its expenditure of funds under this section in the same format as is required of grantees under this section.
Two or more district attorneys may submit a joint application for a grant award under this section.
The Fraud Division shall report to the Governor, the Legislature, and to the committees of the Senate and Assembly having jurisdiction over insurance on the results of the grant program established by this section, including funding distributed to the Department of the California Highway Patrol in the annual report submitted pursuant to Section 12922.
For purposes of this section, “organized automobile fraud activity” means two or more persons who conspire, aid and abet, or in any other manner act together, to engage in economic automobile theft as defined in subdivision (f) of Section 1872.8, or to violate any of the following sections in a manner that involved an automobile insurance claim:
Section 750.
ARTICLE 4.5. Insurer Inspections [1874.85. - 1874.87.]
An insurer that issues automobile liability or collision policies shall inspect vehicles for which it has approved a claim for the cost of auto body repairs, either during the repair process or after the work has been completed, and the number of vehicles inspected shall be a statistical sampling sufficient to demonstrate to the department the insurer’s efforts to reduce fraudulent auto body work during a calendar year.
Each insurer subject to this article shall report, at the request of the commissioner, but not more than annually, to the department on the following:
The number of vehicles inspected pursuant to Section 1874.85 and the percentage that this number represents of the total number of vehicles for which it paid a claim for the cost of auto body repairs in the prior calendar year.
The results of the inspections, including the nature of any fraud uncovered, and whether or not legal action was pursued.
The department shall make the information provided pursuant to this section available to the California Highway Patrol and the Bureau of Automotive Repair.
Each insurer subject to this article shall provide each insured with an Auto Body Repair Consumer Bill of Rights either at the time of application for an automobile insurance policy or following an accident that is reported to the insurer. If the insurer provides the insured with an electronic copy of a policy, the bill of rights may also be transmitted electronically.
The bill of rights shall be a standardized form developed by the department with the purpose of presenting easy-to-read facts for auto insurance consumers. The content of the bill of rights shall be determined by the department, and at a minimum, shall contain information about all of the following:
A consumer’s right to select an auto body repair shop for auto body damage covered by the insurance policy and that an insurer may not require this work to be done at a particular auto body repair shop.
The consumer’s right to be informed about auto body repairs made with new original equipment crash parts, new aftermarket crash parts, and used crash parts.
The consumer’s right to be informed about coverage for towing services, and for a replacement rental vehicle while a damaged vehicle is being repaired.
Toll-free telephone numbers and Internet addresses for reporting suspected fraud or other complaints and concerns about auto body repair shops to the Bureau of Automotive Repair.
A consumer’s right to seek and obtain an independent repair estimate directly from a registered auto body repair shop for repair of a damaged vehicle, even when pursuing an insurance claim for repair of that vehicle.
The department shall consult with the Bureau of Automotive Repair in determining the information to be contained in the bill of rights.
ARTICLE 4.6. Auto Insurance Fraud Crisis Areas [1874.90. - 1874.90.]
The commissioner may declare any region of the state as an auto insurance fraud crisis area upon making a finding that auto insurance fraud is endemic to the area. That declaration of an auto insurance fraud crisis area shall be in effect for not more than two years, unless extended or renewed by the commissioner. Auto insurance fraud is endemic to an area if the commissioner determines that organized automobile fraud activity exists in the area and contributes significantly to the cost of automobile insurance in that area.
ARTICLE 5. Arson Investigations [1875. - 1875.8.]
As used in this chapter:
“Authorized agency” means any of the following officers or agencies, or their duly authorized representatives, when investigating or prosecuting arson in connection with a specific fire: the State Fire Marshal, the Director of the Department of Forestry and Fire Protection, the chief of any city or county fire department, the chief of any fire protection district, the Attorney General, any district attorney, or any peace officer, the Department of Insurance, and any federal agency.
“Insurer” means any insurer admitted to write, or otherwise issuing, fire insurance covering property in this state and includes its agents, servants, investigators, and adjusters. “Insurer” includes the California FAIR Plan.
An authorized agency may, when there is evidence or suspicion that the crime of arson has been committed, request any insurer to release all information in its possession that the authorized agency determines to be relevant to the crime. The insurer shall release the following:
Any insurance policy or any application for such a policy.
Policy premium payment records.
History of previous claims made by the insured for fire loss.
Material relating to the investigation of the loss, including the statement of any person, proof of loss, and any other relevant evidence.
If any insurer has reason to suspect that a fire loss was caused by incendiary means, the insurer shall furnish an authorized agency with all relevant information acquired during its investigation of the fire loss and cooperate in an investigation by an authorized agency.
The authorized agency provided with the information pursuant to this article may release that information to any of the other authorized agencies.
An authorized agency shall notify the insurer, if known, and at the expense of the insurer, whenever it has reason to believe that a fire loss was not accidentally caused. The agency shall also release to the claimant’s insurer specific information regarding the fire loss at the earliest time possible unless it determines that an ongoing investigation would be jeopardized.
In the absence of fraud or malice, no insurer or person acting in its behalf who (a) furnishes information whether oral or written, pursuant to this article, or (b) assists in any investigation conducted by an authorized agency, shall be liable for damages in a civil action, nor shall any authorized agency which releases information pursuant to this chapter be liable for damages in a civil action.
The act of furnishing information required pursuant to this article shall not constitute an act of fraud or malice.
In any case in which an insurer willfully fails to comply with this article, the authorized agency may petition the superior court in an appropriate county for an order requiring compliance.
Any authorized agency that receives any information furnished as required by this article shall not make the information public until the time that its release is required in connection with a criminal or civil proceeding.
There is hereby created the Arson Information Reporting System to permit insurers, law enforcement agencies, fire investigative agencies, and district attorneys to deposit arson case information in a common data base within the Department of Justice. The State Fire Marshal shall oversee the establishment, operation, and maintenance of the Arson Information Reporting System. The Department of Justice shall implement the Arson Information Reporting System in consultation with the State Fire Marshal.
The purpose of the data base is to identify utilization patterns by individual claimants and the methods of operation of individuals, groups, or businesses engaged in the commission of arson, and to prevent the commission of insurance fraud by arson.
The use of the information deposited pursuant to this article shall be made available to law enforcement agencies, fire investigative agencies, district attorneys, and insurers, via modem, for the purpose of investigating and prosecuting arson and arson-related insurance fraud, or evaluating the validity and payment of fire-related insurance claims. The State Fire Marshal shall establish rules governing the access to, and use of, information and the circumstances under which information may be accessed and corrected.
Any information acquired pursuant to this section shall not be a part of any public record. Except as otherwise provided by law, any authorized governmental agency, an insurer, or an agent authorized by an insurer to act on its behalf, which receives any information furnished pursuant to this section, shall not release that information to public inspection until the time that its release is required in connection with a criminal or civil proceeding.
Information submitted to the State Fire Marshal pursuant to this section concerning active cases shall be confidential.
Nothing in this section shall prohibit the accumulation and public distribution by the bureau of statistical data if that data does not reveal the identity of specific claimants, injured parties, attorneys, physicians, or other service providers.
ARTICLE 5.5. Insurance Claims Analysis Bureaus [1875.10. - 1875.18.]
The Legislature finds and declares as follows:
That the business of insurance involves many transactions which have potential for abuse and illegal activities.
That insurers and their policyholders ultimately pay the cost of fraudulent insurance claims.
That the operation of insurance claims analysis bureaus would be to the benefit of the public, regulators, law enforcement, prosecutors, and insurers in suppressing and preventing insurance claims fraud.
That the purpose of insurance claims analysis bureaus is to provide a data service to encourage the identification of utilization patterns by individuals or businesses who provide services in support of insurance claims, and by individual claimants themselves, in order to facilitate the identification and prevention of fraudulent activities.
That promotion of an effective public-private partnership between the insurance industry and the commissioner to share data on suspected fraudulent claims is necessary to avoid unnecessary duplication and expense in reporting that data.
It is the intent of the Legislature that, to promote a data-sharing partnership that is efficient and cost-effective, the commissioner and the bureau make every effort to obtain suspected fraudulent claims data from reporting and collection sources already in existence and supported by the insurance industry, by licensing those sources as claims analysis bureaus, as provided in this chapter.
No insurance claims analysis bureau shall conduct any operations in this state without first filing a written application with the commissioner and obtaining a license to act in that capacity.
As used in this section, an insurance claims analysis bureau is an organization, duly licensed pursuant to this article, which collects claims information and data from and disseminates claims information and data to its members or subscribers which is utilized for the purpose of the prevention and suppression of insurance fraud.
The commissioner may license an organization as an insurance claims analysis bureau if it meets the following qualifications:
Is a nonprofit corporation organized for the purpose of fraud prevention or is a corporation that has made the filings required by Section 1855.2.
Has at least two years of experience, or has a managing officer with at least two years of experience, determined by the commissioner to be relevant to operation of an insurance claims analysis bureau, or has at least two years’ experience collecting and compiling insurance statistical information.
Has a member or subscriber base of sufficient size that is, in the opinion of the commissioner, adequate to assure uniformity in data collection and cost efficiency to the insurer.
Maintains its records in a computerized format.
An applicant seeking a license as an insurance claims analysis bureau shall file with the commissioner the following documents:
A copy of its articles of incorporation, its bylaws, and any rules and regulations governing the conduct of its business.
A list of members or subscribers.
A description of its technical capacity to collect and serve the volume of data necessary to act as an insurance claims analysis bureau.
A statement establishing that the applicant meets the conditions set forth in subdivision (a).
A certificate signed by an officer of the applicant that it will permit any licensed insurer to become a member or subscriber to the insurance claims analysis bureau.
A statement of all of the following:
That it will provide admitted insurers subject to Article 6 (commencing with Section 1876) the ability to submit required information to the claims analysis bureau at no cost to the insurer, and also provide nonmember or nonsubscriber insurers, at no cost to the insurer, any software that is specifically designed for the purpose of submitting information electronically that the bureau requires its insurers to use.
That information from its data base will be made available to state law enforcement agencies pursuant to existing law, and that it will be made available at no cost to those agencies.
This section shall not be interpreted to provide any nonmember or nonsubscriber any rights of membership or subscription in an organization licensed as an insurance claims analysis bureau.
The commissioner shall license an insurance claims analysis bureau by class of claims, if an insurance claims analysis bureau makes application and is appropriately qualified, for the following classes of claims:
Automobile bodily injury, which shall include liability, uninsured motorist, and medical payment.
Automobile physical damage.
Automobile theft.
Fire and allied lines property damage.
General liability bodily injury.
Disability.
Life.
Workers’ compensation.
An insurance claims analysis bureau shall perform the following functions:
Collect and compile information and data from members or subscribers concerning insurance claims.
Disseminate information to members or subscribers relating to insurance claims for the purpose of preventing and suppressing insurance fraud.
Promote training and education to further insurer investigation, suppression, and prosecution of insurance fraud.
Provide, without fee or charge, to the commissioner, all California data and information contained in the records of the insurance claims analysis bureau in furtherance of the prevention and prosecution of insurance fraud.
A licensed insurance claims analysis bureau shall develop rules governing the kind, quality, and frequency of data reporting, which shall be binding on all subscribers or members. The commissioner may require development of new claims categories for the suppression and prevention of fraud.
Every member or subscriber shall report, at a minimum, the following regarding any category of claims:
Name of claimant.
Address of claimant.
Date of accident or incident.
Identification of medical provider, if applicable.
Identification of property repair vendor, if applicable.
Identification of members or subscribers and, if applicable, adjusters.
Identification of attorneys representing claimants, if applicable.
Description of claim.
Claimant’s driver license or California Identification card number, if applicable.
Claimant’s social security number, if known to the insurer.
Vehicle license numbers, if the claim involves automobile insurance.
Vehicle identification numbers, if known and the claim involves automobile insurance.
Unless otherwise provided by law, any authorized entity which receives any information furnished pursuant to this article shall not release that information to public inspection (1) until such time as its release is required in connection with a criminal or civil proceeding, or (2) is necessary to analyze and present information for release in an insurance claims analysis bureau’s annual report. Any information acquired pursuant to this article shall not be part of any public record nor subject to disclosure under the California Public Records Act.
On or before May 1, 1992, and on or before May 1 of each year thereafter, any licensed insurance claims analysis bureau shall file with the department a report on the scope and extent of its activities in this state for the preceding year.
Every bodily injury, medical payment, or uninsured motorist claim made under a policy of automobile insurance shall be available, upon request, to law enforcement agencies in this state, whenever that claim relates to an event that occurred within the state.
Every claim subject to subdivision (a) shall be available without regard to any limitation in the Insurance Information and Privacy Protection Act (Article 6.6 (commencing with Section 791) of Chapter 1), or any other provision of law, whether or not the law enforcement agency has formed a reasonable belief that a violation of law may have occurred with regard to the claim.
A licensed insurance claims analysis bureau shall provide automobile claims information, upon request, to a law enforcement agency pursuant to the authority in subdivision (a).
A licensed insurance claims analysis bureau, and any person employed therein, that provides information pursuant to this section shall have the same immunity provided under Section 791.21 as any person disclosing personal or privileged information under Article 6.6 (commencing with Section 791) of Chapter 1.
ARTICLE 5.6. Insurer Fraud Investigation [1875.20. - 1875.24.]
Every insurer admitted to do business in this state, except those otherwise exempted in this code, shall provide for the continuous operation of a unit or division to investigate possible fraudulent claims by insureds or by persons making claims for services or repairs against policies held by insureds.
Insurers may maintain the unit or division required by this article using its employees or by contracting with others for that purpose.
Insurers shall establish the unit or division required by this article no later than July 1, 1992.
For purposes of this article, “unit or division” may include the assignment of fraud investigation to employees whose principal responsibilities are the investigation and disposition of claims. If an insurer creates a distinct unit or division, hires additional employees, or contracts with another entity to fulfill the requirements of this article, the additional cost incurred shall be included as an administrative expense for ratesetting purposes.
If after examination, or upon the basis of other information, the commissioner has good cause to believe that an insurer to whom the provisions of this article apply does not comply with the requirements of this article, or with the regulations set forth in Article 2 (commencing with Section 2698.30) of Subchapter 9 of Chapter 5 of Title 10 of the California Code of Regulations, the commissioner shall notify the insurer of its noncompliance. The notice shall state in what manner and to what extent the noncompliance is alleged to exist, shall specify a reasonable time, not less than 10 days thereafter, in which the noncompliance may be corrected, and shall set forth the amount of any penalty that may be due under subdivision (b).
Any insurer that fails to comply with the provisions of this article or with the regulations described in subdivision (a) shall be liable to the state for a civil penalty not to exceed five thousand dollars ($5,000) for each act, or, if the act was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each act. The commissioner shall have the discretion to determine what constitutes an act. However, when violations relative to the maintenance and operation of the unit or division are inadvertent, the violations shall be considered a single act for the purpose of this section. Any penalty imposed by the commissioner pursuant to this section shall be determined as provided in subdivision (d) of this section and Article 19 (commencing with Section 2591) of Subchapter 3 of Chapter 5 of Title 10 of the California Code of Regulations. Notwithstanding subdivision (c) of Section 2591.1 of Title 10 of the California Code of Regulations, enforcement of any provision of this section shall be deemed an enforcement action pursuant to Article 19 (commencing with Section 2591) of Subchapter 3 of Chapter 5 of that title.
An insurer served with a notice of noncompliance described herein shall, within the time specified therein, do one or more of the following:
Establish to the satisfaction of the commissioner that the noncompliance does not exist.
Request a hearing, notice of which must be given at least 30 days prior to the date set for a hearing.
Enter into a consent order with the commissioner to correct the specified noncompliance within the time period specified in the consent order.
If, after hearing, the commissioner finds that the facts alleged in the notice of noncompliance are true, he or she shall issue an order requiring compliance with the provisions of this article within a reasonable time. An insurer that fails to comply with an order issued by the commissioner, including a consent order, shall be liable to the state for a civil penalty not to exceed ten thousand dollars ($10,000) for each day the insurer fails to comply with the provisions of the order. Any order, including any consent order, issued pursuant to this section shall specify the amount of the penalty due under subdivision (b), and shall indicate that an additional penalty shall be imposed for each day the insurer fails to comply with the order within the time specified therein. In addition to any other remedy provided by statute, regulation, or otherwise, the commissioner may direct the insurer to take any other corrective action that he or she may deem necessary and proper.
The commissioner shall adopt regulations necessary to implement this section in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
ARTICLE 6. Deposit of Automobile Insurance Claims Information [1876. - 1876.5.]
Every insurer who receives a bodily injury, medical payment, or uninsured motorist claim made under a policy of automobile liability insurance defined in Section 660 or Section 11622 shall within 20 days of the receipt of that claim deposit that claim information with a licensed insurance claims analysis bureau. The claims information deposited pursuant to this section shall include at least the following: (1) the claimant’s driver’s license number or California identification card number, if applicable; (2) the vehicle license number; (3) the vehicle identification number, if known; and (4) the claimant’s social security number, if known to the insurer.
Any information acquired pursuant to this article shall not be part of any public record except as follows: Except as otherwise provided by law, any authorized governmental agency, and insurer, or an agent authorized by an insurer to act on its behalf, which receives any information furnished pursuant to this article shall not release that information to public inspection until such time as its release is required in connection with a criminal or civil proceeding; to analyze and present information for release in the bureau’s annual report pursuant to subdivision (h) of Section 1872.9.
Nothing in this section shall prohibit the accumulation and public distribution by the bureau of statistical data if that data does not reveal the identity of specific claimants, injured parties, attorneys, physicians, or other service providers.
No insurer, or the employees or agents of any insurer, shall be subject to civil liability for libel, slander, or any other tort cause of action arising from the deposit or furnishing of any information or data pursuant to this article.
As used in this article, “authorized governmental agency” and “insurer” have the same meaning as is given by Section 1874.1.
ARTICLE 7. Workers’ Compensation Insurance Fraud Reporting [1877. - 1877.5.]
This article shall be known and may be cited as the Workers’ Compensation Insurance Fraud Reporting Act.
The following definitions govern the construction of this article, unless the context requires otherwise:
“Authorized governmental agency” means the district attorney of any county, any city attorney whose duties include criminal prosecutions, any law enforcement agency investigating workers’ compensation fraud, the office of the Attorney General, the Department of Insurance, the Department of Industrial Relations, the Employment Development Department, the Department of Corrections and Rehabilitation, the Public Employees’ Retirement System, and any licensing agency governed by the Business and Professions Code.
“Relevant” means having a tendency to make the existence of any fact that is of consequence to the investigation or determination of an issue more probable or less probable than it would be without the information.
“Insurer” means an insurer admitted to transact workers’ compensation insurance in this state, the State Compensation Insurance Fund, an employer that has secured a certificate of consent to self-insure pursuant to subdivision (b) or (c) of Section 3700 of the Labor Code, or a third-party administrator that has secured a certificate pursuant to Section 3702.1 of the Labor Code.
“Licensed rating organization” means a rating organization licensed by the Insurance Commissioner pursuant to Section 11750.1.
Information shall be deemed important if, within the sole discretion of the authorized governmental agency, that information is requested by that authorized governmental agency.
For the purposes of this article, “authorized governmental agency” includes, in addition to the entities listed in subdivision (a) of Section 1877.1, any licensing agency governed by the Chiropractic Initiative Act.
Upon written request to an insurer or a licensed rating organization by an authorized governmental agency, an insurer, an agent authorized by that insurer, or a licensed rating organization to act on behalf of the insurer, shall release to the requesting authorized governmental agency any or all relevant information deemed important to the authorized governmental agency that the insurer or licensed rating organization may possess relating to any specific workers’ compensation insurance fraud investigation.
When an insurer or licensed rating organization knows or reasonably believes it knows the identity of a person or entity whom it has reason to believe committed a fraudulent act relating to a workers’ compensation insurance claim or a workers’ compensation insurance policy, including any policy application, or has knowledge of such a fraudulent act, then, for the purpose of notification and investigation, the insurer, or agent authorized by an insurer to act on its behalf, or licensed rating organization shall notify the local district attorney’s office and the Fraud Division of the Department of Insurance, and may notify any other authorized governmental agency of that suspected fraud and provide any additional information in accordance with subdivision (a). The insurer or licensed rating organization shall state in its notice the basis of the suspected fraud.
Insurers shall use a form prescribed by the department for the purposes of reporting suspected fraudulent workers’ compensation acts pursuant to this subdivision.
This section does not abrogate or impair the rights or powers created under subdivision (a).
The authorized governmental agency provided with information pursuant to subdivision (a), (b), or (e) shall, upon request, unless it would violate federal law or otherwise compromise an investigation, release or provide that information in a confidential manner to any other authorized governmental agency for purposes of investigation, prosecution, or prevention of insurance fraud or workers’ compensation fraud.
An insurer or licensed rating organization providing information to an authorized governmental agency pursuant to this section shall provide the information within a reasonable time, but not exceeding 60 days from the day on which the duty arose.
Upon written request by an authorized governmental agency, as specified in subdivision (o) of Section 1095 of the Unemployment Insurance Code, the Employment Development Department shall release to the requesting agency any or all relevant information that the Employment Development Department may possess relating to any specific workers’ compensation insurance fraud investigation. If an authorized governmental agency seeks to disclose this information to any other governmental agency that is not authorized to receive that information pursuant to subdivision (o) of Section 1095 of the Unemployment Insurance Code or subdivision (c) of Section 603.9 of Title 20 of the Code of Federal Regulations, that agency shall submit a request to the Employment Development Department for approval prior to disclosure. Relevant information may include, but is not limited to, all of the following:
Copies of unemployment and disability insurance application and claim forms and copies of any supporting medical records, documentation, and records pertaining thereto.
Copies of returns filed by an employer pursuant to Section 1088 of the Unemployment Insurance Code and copies of supporting documentation.
Copies of benefit payment checks issued to claimants.
Copies of any documentation that specifically identifies the claimant by social security number, residence address, or telephone number.
The Public Employees’ Retirement System may request information from an insurer for any specific investigation of eligibility for, and unlawful application or receipt of, benefits provided under Part 3 (commencing with Section 20000) of Division 5 of Title 2 of the Government Code.
Information received by the Public Employees’ Retirement System pursuant to this article may be used for purposes of determining eligibility for, and unlawful application or receipt of, benefits provided under Part 3 (commencing with Section 20000) of Division 5 of Title 2 of the Government Code.
Any information acquired pursuant to this article shall not be a part of the public record. Except as otherwise provided by law, any authorized governmental agency, an insurer, or an agent authorized to act on its behalf, which receives any information furnished pursuant to this article shall not release that information to any person not authorized to receive the information under this article. Any person who violates the prohibition of this subdivision is guilty of a misdemeanor.
The evidence or information described in this section shall be privileged and shall not be subject to subpoena or subpoena duces tecum in a civil or criminal proceeding, unless, after reasonable notice to any insurer, an agent authorized by an insurer to act on its behalf, licensed rating organization, or authorized governmental agency which has an interest in the information, and a hearing, the court determines that the public interest and any ongoing investigation by the authorized governmental agency, insurer, or an agent authorized by the insurer to act on its behalf, or licensed rating organization will not be jeopardized by its disclosure, or by the issuance of and compliance with a subpoena or subpoena duces tecum.
No insurer, agent authorized by an insurer to act on its behalf, or licensed rating organization who furnishes information, written or oral, pursuant to this article, and no authorized governmental agency or its employees who (a) furnishes or receives information, written or oral, pursuant to this article, or (b) assists in any investigation of a suspected violation of Section 1871.1, 1871.4, 11760, or 11880, or of Section 549 of the Penal Code, or of Section 3215 or 3219 of the Labor Code conducted by an authorized governmental agency, shall be subject to any civil liability in a cause or action of any kind where the insurer, authorized agent, licensed rating organization, or authorized governmental agency acts in good faith, without malice, and reasonably believes that the action taken was warranted by the then known facts, obtained by reasonable efforts. Nothing in this chapter is intended to, nor does in any way or manner, abrogate or lessen the existing common law or statutory privileges and immunities of an insurer, agent authorized by that insurer to act on its behalf, licensed rating organization, or any authorized governmental agency or its employees.
ARTICLE 8. Insurance Fraud Prevention [1879. - 1879.8.]
The purpose of this article is to confront aggressively the problem of insurance fraud in this state by facilitating the detection of insurance fraud, eliminating the occurrence of fraud through the development of fraud prevention programs, requiring the restitution of fraudulently obtained insurance benefits, and reducing the amount of premium dollars used to pay fraudulent claims.
The commissioner or their designated deputy commissioner may convene meetings with representatives of insurance companies or representatives of self-insured employers to discuss specific information concerning suspected, anticipated, or completed acts of insurance fraud.
A district attorney may convene meetings with representatives of insurance companies or representatives of self-insured employers to discuss specific information concerning suspected, anticipated, or completed acts of insurance fraud. The commissioner, their designated deputy commissioner, or designated employees of the department from the department’s Fraud Division or the department’s legal division shall attend such a meeting. Only one meeting per month may be convened pursuant to this subdivision. If more than one district attorney seeks to convene a meeting in a given month or a district attorney seeks to convene more than one meeting in a given month, then the commissioner shall choose which meeting the commissioner, their designated deputy commissioner, or designated employees of the department shall attend.
The party that convenes a meeting pursuant to this section may invite a district attorney to participate in the meeting if the suspected, anticipated, or completed acts of insurance fraud to be discussed at the meeting previously occurred or may occur in the county that the district attorney represents.
Information shared at a meeting convened pursuant to this section regarding specific suspected, anticipated, or completed acts of insurance fraud shall not make a person subject to civil liability for libel, slander, or any other relevant cause of action provided that all of the following requirements are met at the meeting:
The commissioner, their designated deputy commissioner, or designated employees of the department from the department’s Fraud Division or the department’s legal division are present at the meeting or meetings.
The commissioner, their designated deputy commissioner, or a designated employee of the department from the department’s Fraud Division or the department’s legal division advises meeting participants, at the beginning of any meeting convened pursuant to this section, of guidelines to ensure compliance with federal and state antitrust laws.
There is no fraud or malice on the part of any of the following attending the meeting:
The representatives of the insurance companies.
The representatives of the self-insured employers.
The commissioner, their designated deputy commissioner, or designated employees of the department.
Any district attorney or their employees.
A report of a fraudulent claim made by an insurance company under Section 1872.4 or made by a self-insured employer under Section 1877.3 that is based on information obtained at a meeting convened pursuant to this section shall comply with all requirements set forth in Section 1872.4 or 1877.3, as applicable, as well as Article 2 of Subchapter 9 of Chapter 5 of Title 10 of the California Code of Regulations and all other applicable regulations.
If the commissioner reasonably believes or knows that a fraudulent claim is being made based on information obtained at a meeting convened pursuant to this section, the commissioner may share this information with any district attorney with whom the department has entered into a written agreement for the investigation and prosecution of insurance fraud.
A district attorney may be represented at a meeting convened pursuant to this section only by employees who are licensees of the State Bar of California.
The commissioner shall appoint supervisory and investigatory personnel within the bureau. In addition, the commissioner shall assign staff counsel who are employed by the department and are under the supervision of the department’s general counsel to advise the department’s fraud division, and to further the purposes of this article and Article 1 (commencing with Section 1871). The attorneys’ duties may include representing the commissioner and the department in civil lawsuits pursuant to Article 1 (commencing with Section 1871). Those persons shall be qualified by training and experience to perform the duties of their position.
When so requested by the commissioner, the Attorney General may assign one or more deputy attorneys general to assist the commissioner in the performance of these duties.
The Chief of the Fraud Division and those investigators designated by him or her may expend funds to conduct undercover activities, employ civilian operatives, or in any other manner not prohibited by law to investigate insurance fraud or workers’ compensation fraud.
The money expended pursuant to subdivision (a) shall be paid out of the funds appropriated or made available by law for the support or use of the department.
Any person who believes that a violation of this article has been or is being made may notify the department immediately after discovery of the alleged violation and may send to the department, on a form and in a manner prescribed by the commissioner, the information requested and any additional information relative to the alleged violation as the department may request. The division shall review the reports and select those alleged violations as may require further investigation. It shall then cause an independent examination or evaluation of the facts surrounding the alleged violation to be made to determine the extent, if any, to which fraud, deceit, or intentional misrepresentation of any kind exists.
No person shall be subject to civil liability for libel, violation of privacy, or otherwise by virtue of the filing of reports or furnishing of other information, in good faith and without malice, provided pursuant to this section or requested by the department as a result of the authority conferred upon it by law.
The commissioner may, by regulation, require admitted insurers to keep any records and other information as he or she deems necessary for the effective enforcement of this article.
The commissioner may adopt administrative regulations as he or she deems necessary for the effective implementation of this article.
The commissioner shall report annually to the Legislature as to the activities of the department and the cost-effectiveness of the programs established pursuant to this article.
Nothing in this article shall be construed to preclude the applicability of any other provision of civil or criminal law that applies to any act committed or alleged to have been committed by any person.
DIVISION 2. CLASSES OF INSURANCE [1880. - 12880.8.]
PART 1. FIRE AND MARINE INSURANCE [1880. - 10108.1.]
CHAPTER 1. The Marine Contract [1880. - 2010.]
ARTICLE 1. Insurable Interests Peculiar to Marine Insurance [1880. - 1886.]
The owner of a ship has in all cases an insurable interest in it, even when it has been chartered by one who agrees to pay him its value in case of loss.
The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry.
Freightage, in marine insurance, signifies all the benefit derived by the owner, either from the chartering of the ship or its employment for the carriage of his own goods or those of others.
The owner of a ship has an insurable interest in expected freightage which he would have certainly earned but for the intervention of a peril insured against.
The interest mentioned in the last section exists, in the case of a charter party, when the ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods it exists when they are actually on board, or there is some contract for putting them on board, and both ship and goods are ready for the specified voyage.
In marine insurance, a person who has an interest in the thing from which profits are expected to proceed, has an insurable interest in the profits.
The charterer of a ship has an insurable interest in it, to the extent that he is liable to be damaged by its loss.
ARTICLE 2. Concealment and Representations—Rules Peculiar to Marine Insurance [1900. - 1905.]
In marine insurance each party is bound to communicate, in addition to what is required in the case of other insurance:
All the information which he possesses and which is material to the risk, except such as is exempt from such communication in the case of other insurance.
The exact and whole truth in relation to all matters that he represents or, upon inquiry assumes to disclose.
In marine insurance, information of the belief or expectation of a third person in reference to a material fact, is material.
A person insured by a contract of marine insurance is presumed to have, at the time of insuring, knowledge of a prior loss, if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication.
In marine insurance, concealment in respect to any of the following matters does not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the risk concealed:
The national character of the insured.
The liability of the subject matter to capture and detention.
The liability to seizure from breach of foreign laws of trade.
The want of necessary documents.
The use of false and simulated papers.
In marine insurance, if a representation by the insured is intentionally false in any respect, whether material or immaterial, the insurer may rescind the entire contract.
The failure of subsequent circumstances to conform to a representation as to expectation does not, in the absence of fraud, avoid marine insurance.
ARTICLE 3. Implied Warranties Peculiar to Marine Insurance [1920. - 1927.]
In every marine insurance upon a ship or involving transportation by ship, a warranty is implied that the ship is seaworthy.
A ship is seaworthy when reasonably fit to perform the services and encounter the ordinary perils of the voyage contemplated by the parties to the policy.
An implied warranty of seaworthiness is complied with if the ship is seaworthy at the time of the commencement of the risk, except in the following cases:
When the insurance is made for a specified length of time, the implied warranty is not complied with unless the ship is seaworthy at the commencement of every voyage it undertakes during that time.
When the insurance is upon the cargo and, by the terms of the policy, description of the voyage, or established custom of the trade, the cargo is to be transshipped at an intermediate port, the implied warranty is not complied with unless each vessel upon which the cargo is shipped or transshipped is seaworthy at the commencement of its particular voyage.
A warranty of seaworthiness extends not only to the condition of the structure of the ship itself, but also requires that it be properly laden and provided with:
A competent master.
A sufficient number of competent officers and seamen.
The requisite appurtenances and equipments.
Other necessary or proper stores and implements for the voyage.
Where any portion of the voyage contemplated by a policy differs from other portions in respect to the things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the commencement of each portion, the ship is seaworthy with reference to that portion.
When a ship becomes unseaworthy during the voyage, an unreasonable delay in repairing the defect exonerates the insurer from liability on any loss arising from the defect.
A ship may be seaworthy for the purpose of insurance upon itself and, at the same time, unseaworthy for the purpose of insurance upon the cargo because of unfitness to receive the cargo.
Where the nationality or neutrality of a ship or cargo is expressly warranted, it is implied that:
The ship will carry the requisite documents to show such nationality or neutrality.
It will not carry any documents which cast reasonable suspicion thereon.
ARTICLE 4. Effect of Course of Voyage [1940. - 1945.]
When the voyage contemplated by marine insurance is described by the places of beginning and ending, the voyage insured is one which conforms to the course of sailing fixed by mercantile usage between those places.
If the course of sailing is not fixed by mercantile usage, the voyage insured by marine insurance is that way between the places specified which, to a master of ordinary skill and discretion, would seem the most natural, direct, and advantageous.
Deviation is:
A departure from the course of the voyage insured.
An unreasonable delay in pursuing the voyage.
The commencement of an entirely different voyage.
A deviation is proper:
When caused by circumstances over which neither the master nor the owner of the ship has any control.
When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against.
When made in good faith and upon reasonable grounds of belief in its necessity to avoid a peril.
When made in good faith, for the purpose of saving human life or relieving another vessel in distress.
Every deviation not specified in the last section is improper.
An insurer is not liable for any loss happening to the subject matter of marine insurance after an improper deviation.
ARTICLE 5. Loss in Marine Insurance [1960. - 1997.]
A loss is either total or partial.
A total loss is either actual or constructive.
An actual total loss is caused by:
A total destruction of the subject matter of insurance.
The loss of the subject matter by sinking, or by being broken up.
Any damage to the subject matter which renders it valueless to the owner for the purposes for which he held it.
Any other event which entirely deprives the owner of the possession, at the port of destination, of the subject matter.
A constructive total loss is one which gives to a person insured a right to abandon, under section 1971.
An actual loss may be presumed from the continued absence of a ship without being heard of. The length of time which is sufficient to raise this presumption depends on the circumstances of the case.
When a ship is prevented, at an intermediate port and by the perils insured against, from completing the voyage, the master shall make every exertion to procure, in the same or a contiguous port, another ship for the purpose of conveying the cargo to its destination. The liability of a marine insurer on the cargo continues after it is thus reshipped and such insurer is additionally liable as prescribed in section 1966.
In addition to the liability mentioned in section 1965, a marine insurer is liable, up to the amount insured, for damages, expenses of discharging, storage, reshipment, extra freightage, and all other expenses incurred in saving cargo reshipped pursuant to section 1965.
Upon an actual total loss, the insured is entitled to payment without notice of abandonment.
Where it has been agreed that an insurance upon a particular subject matter, or class of subject matter, is to be free from particular average, a marine insurer is not liable for any particular average loss not depriving the insured of the possession, at the port of destination of the whole of such subject matter or class, even though the subject matter or class becomes entirely worthless; but such insurer is liable for his proportion of all general average loss assessed upon the subject matter insured.
When insurance is confined in its terms to an actual total loss, it does not cover a constructive total loss, but it does cover any loss which necessarily results in depriving the insured of the possession, at the port of destination, of the entire subject matter insured.
Abandonment, in marine insurance, is the act of the insured by which, after a constructive total loss, he declares the relinquishment to the insurer of the insured’s interest in the subject matter.
In marine insurance, after abandonment of the subject matter of insurance or of any particular portion thereof which is separately valued by the policy or otherwise separately insured, in a case where the cause of the loss is a peril insured against the insured may recover for a total loss, as described in section 1963, if:
More than half in value of the subject matter is actually lost by such peril, or would have to be expended to recover it from the peril.
The subject matter is injured to such an extent as to reduce its value more than half.
The subject matter is a ship, and either the contemplated voyage can not be lawfully performed without incurring either an expense to the insured of more than half the value of the ship abandoned or a risk which a prudent man would not take under the circumstances.
The subject matter is cargo or freightage and the voyage can not be performed, nor another ship procured by the master to forward the cargo, within a reasonable time, with reasonable diligence and without incurring an expense to the insured of more than half the value of the subject matter or a risk which a prudent man would not take under the circumstances. But freightage can not in any case be abandoned unless the ship also is abandoned.
An abandonment can not be either partial or conditional.
An abandonment can be made only at a time limited by all of the following:
Within a reasonable time after the information of the loss.
After the commencement of the voyage.
Before the insured has information of the completion of the voyage.
Where the information upon which an abandonment has been made proves incorrect, or the subject matter of insurance is so far restored when the abandonment is made that there is in fact no total loss, the abandonment is not effective.
Abandonment is made by giving oral or written notice thereof to the insurer.
A notice of abandonment shall be explicit, and shall specify the particular cause of the abandonment, but need state only enough to show that there is probable cause therefor, and need not be accompanied with proof of interest or of loss.
An abandonment can be sustained only upon the cause specified in the notice thereof.
An abandonment is equivalent to a transfer to the insurer of the insured’s interest, with all the chances of recovery and indemnity.
Whenever a marine insurer pays for a loss as if it were an actual total loss, he is entitled to whatever remains of the subject matter insured, or its proceeds or salvage, to the same extent as in the case of a formal abandonment.
Upon an abandonment, acts done subsequent to the loss and in good faith by persons who at the time were the insured’s agents in respect to the subject matter insured, are at the risk of the insurer, and for his benefit.
An acceptance of an abandonment is not necessary to the rights of the insured, and is not to be presumed from the mere silence of the insurer at the time of receiving notice of abandonment.
The acceptance of an abandonment, whether express or implied, is conclusive upon the parties and admits the loss and the sufficiency of the abandonment.
An abandonment once made and accepted is irrevocable, unless the ground upon which it was made proves to be unfounded.
On an accepted abandonment of a ship, freightage earned previous to the loss belongs to the insurer of the freightage; but freightage subsequently earned belongs to the insurer of the ship.
If an insurer refuses to accept a valid abandonment, he is liable as upon an actual total loss, after deducting from the amount of the loss any proceeds of the insured subject matter which have come to the hands of the insured.
If an insured omits to abandon, he may nevertheless recover his actual loss.
A valuation fraudulent in fact entitles a marine insurer to rescind the contract.
When the subject matter has been hypothecated by bottomry or respondentia, before its insurance and without the knowledge of the person actually procuring the insurance, such person may show the real value.
Otherwise a valuation in a policy of marine insurance is conclusive between the parties in the adjustment of either a partial or total loss if the insured has some interest at risk and there is no fraud on his part.
In a case of partial loss, a marine insurer is liable only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the subject matter.
Where profits are separately insured in marine insurance, in case of loss the insured is entitled to recover that proportion of such profits which the value of the subject matter lost bears to the value of the whole.
In case of a valued policy of marine insurance on freightage or cargo, if only a part of the subject matter is exposed to risk, the valuation applies only in proportion to such part.
When profits are valued and insured by marine insurance, a loss of them is conclusively presumed from a loss of the property out of which they were expected to arise, and the valuation fixes their amount.
In estimating a loss under an open policy of marine insurance, the following rules are to be observed:
The value of a ship is its value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured.
The value of cargo is either its actual cost to the insured, when laden on board, or, where that cost can not be ascertained, its market value at the time and place of lading, adding the charges incurred in purchasing and placing it on board, but without reference to:
Any losses incurred in raising money for its purchase.
Any drawback on its exportation.
The fluctuations of the market at the port of destination.
Expenses incurred on the way or on arrival.
The value of freightage is the gross freightage, exclusive of primage, without reference to the cost of earning it.
The cost of insurance is in each case to be added to the value thus estimated.
If cargo insured against partial loss arrives at the port of destination in a damaged condition, the loss of the insured is computed as follows:
Deduct the market price, at port of destination, of the damaged subject matter from its market price there when sound.
Take that proportion of the value which the remainder thus ascertained bears to such market price when sound.
A marine insurer is liable for all the expense attendant upon a loss which forces the ship into port to be repaired. Where it is agreed that the insured may labor for the recovery of the property, the insurer is liable for the expense incurred thereby. In either case, the liability for such expense is in addition to the liability for a subsequent total loss.
In marine insurance, when an insured is required to make a contribution in respect to the subject matter of insurance toward a general average loss, if the average was called for on a loss by a peril insured against, the insurer is liable for the insured’s loss through the contribution.
In marine insurance, where an insured has a demand against others for contribution, he may claim the whole loss from the insurer, subrogating the insurer to the insured’s right to contribution. But no such claim can be made upon the insurer after the separation of the interests liable to contribution, nor after the insured, having the right and opportunity to enforce contribution from others, neglects or waives the exercise of that right.
In the case of a partial loss of a ship or its equipments, the old materials are to be applied towards payment for the new. Whether the ship is new or old, a marine insurer is liable for only two-thirds of the remaining cost of the repairs after such deduction, except that anchors and cannon must be paid for in full, and sheathing metal at a depreciation of only two and one-half per cent for each month that it has been fastened to the ship.
ARTICLE 6. Exemptions [2010. - 2010.]
CHAPTER 2. The Fire Insurance Contract [2030. - 2097.]
ARTICLE 1. Change of Risk [2030. - 2033.]
An insurer is entitled to rescind a contract of fire insurance upon an alteration in the use or condition of the subject matter insured from that to which it is limited by the policy, when such alteration is made without the consent of the insurer by means within the control of the insured, and increases the risk.
When a contract of fire insurance does not restrict use or condition of insured subject matter, such contract is not affected by an alteration in such use or condition if the alteration does not increase the risk.
After the execution of a contract of fire insurance, an act of the insured does not affect the contract unless the act violates policy provisions, even though such act increases the risk and causes a loss.
The California Safe Homes grant program is hereby established to be developed and administered by the department for the purpose of achieving the following goals:
Reducing local and statewide wildfire losses.
Improving insurability and resilience of vulnerable communities.
Home hardening of insurable properties to mitigate wildfire risk and enable consumers to get access to insurance premium incentives offered by insurance companies and in alignment with the department’s rules.
The Sustainable Insurance Account is hereby established within the Insurance Fund. Funds in the Sustainable Insurance Account shall be available to the department for the program upon appropriation by the Legislature, upon receipt of federal grants or funds, or upon receipt of other sources of grants or funds.
Special funds in the Sustainable Insurance Account shall not be redistributed. Funds shall be used to support activities necessary to carry out the functions and purposes of the program.
The department may adopt rules and establish eligibility requirements and additional procedures as necessary for the effective administration of the program and in accordance with any conditions associated with grants or funds received by the program. The department may contract with a third party to assist with program administration.
When awarding grant funds under the program, the department shall prioritize the following, in descending order:
Projects that improve communitywide mitigation to reduce the risk of losses caused by wildfires, with consideration of all of the following priorities:
Collective actions that mitigate risks before a disaster occurs by addressing risk factors on structures and in the surrounding area that exacerbate insurable wildfire losses.
Alignment with existing risk mitigations identified in Section 2644.4.5 or 2644.9 of Title 10 of California Code of Regulations.
Anticipated benefit to insurance policyholders.
Eligible program applicants shall be qualifying individuals and qualifying cities, counties, and special districts, as follows:
For a qualifying individual, grant funds related to incentives specified in paragraphs (1) and (2) of subdivision (d) may be awarded if the following criteria are met:
The property of the applicant is covered by an admitted insurer or the California FAIR Plan Association.
The property of the applicant is in a ZIP Code that overlaps with a high or very high fire hazard severity zone, as shown on current maps published by the Department of Forestry and Fire Protection.
The income of the applicant is no higher than the low-income limit for the county in which they reside, as designated by the Department of Housing and Community Development.
For a qualifying city, county, or special district, the applicant shall demonstrate the alignment of the use of grant funds to enhance and expand the priorities stated in subdivision (d) and the criteria for tracking performance.
The department shall collect information to account for the performance of the program over time, including both of the following:
The department shall require that grantees provide subsequent information on the use of grant funds, including receipt for contractor services, if appropriate, written attestation of work done by the recipient, and documentation that demonstrates if the grantee qualified for wildfire incentives from their insurance company after the grant funds were used to reduce wildfire risk of loss to the home.
Regional information on the geographic distribution of grant funding.
The California FAIR Plan Association shall submit an annual report to the department stating the number of policyholders that have qualified for each of the wildfire mitigation rating factors specified in the department’s Safer from Wildfires regulations (Section 2644.9 of Title 10 of California Code of Regulations).
On or before January 1, 2027, and every two years thereafter, the department shall publish a performance report using aggregate information collected from grantees and metrics for the beneficial impacts of the grants awarded, including an accounting of the funding for each of the mitigation actions, geographic distributions, and present recommendations on how to improve the implementation of the program. The report shall be posted on the department’s internet website and submitted to the Legislature pursuant to Section 9795 of the Government Code.
ARTICLE 2. Measure of Indemnity [2050. - 2062.]
The effect of a valuation in a fire policy is the same as in a marine policy.
Under an open policy, the measure of indemnity in fire insurance is the expense to the insured of replacing the thing lost or injured in its condition at the time of the injury, the expense being computed as of the time of the commencement of the fire.
Under an open policy that requires payment of actual cash value, the measure of the actual cash value recovery, in whole or partial settlement of the claim, for either a total or partial loss to the structure or its contents, shall be the amount it would cost the insured to repair, rebuild, or replace the thing lost or injured less a fair and reasonable deduction for physical depreciation based upon its condition at the time of the injury or the policy limit, whichever is less. A deduction for physical depreciation shall apply only to components of a structure that are normally subject to repair and replacement during the useful life of that structure.
Under an open policy that requires payment of the replacement cost for a loss, the measure of indemnity is the amount that it would cost the insured to repair, rebuild, or replace the thing lost or injured, without a deduction for physical depreciation, or the policy limit, whichever is less.
If the policy requires the insured to repair, rebuild, or replace the damaged property in order to collect the full replacement cost, the insurer shall pay the actual cash value of the damaged property, as defined in Section 2051, until the damaged property is repaired, rebuilt, or replaced. Once the property is repaired, rebuilt, or replaced, the insurer shall pay the difference between the actual cash value payment made and the full replacement cost reasonably paid to replace the damaged property, up to the limits stated in the policy.
A time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall not be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit.
In the event of a loss relating to a “state of emergency,” as defined in Section 8558 of the Government Code, a time limit of less than 36 months from the date that the first payment toward the actual cash value is made shall not be placed upon the insured in order to collect the full replacement cost of the loss, subject to the policy limit.
This section does not prohibit an insurer from allowing the insured additional time to collect the full replacement cost.
An insurer shall provide to a policyholder one or more additional extensions of six months for good cause pursuant to subparagraph (A) or (B) of paragraph (1) if the insured, acting in good faith and with reasonable diligence, encounters a delay or delays in approval for, or reconstruction of, the home or residence that are beyond the control of the insured. Circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, the lack of necessary construction materials, or the unavailability of contractors to perform the necessary work.
In the event of a loss relating to a state of emergency, as defined in Section 8558 of the Government Code, an insurer shall not require the insured to provide proof of loss less than 100 days after the loss.
The insurer shall provide to the insured one or more additional extensions of three months for submission of proof of loss for good cause if the insured, acting in good faith and with reasonable diligence, encounters a delay in providing proof of loss that is beyond the control of the insured. Circumstances beyond the control of the insured may include, but are not limited to, any of the following, where applicable to the specific claim:
Delays by the insurer in acknowledging the claim or providing the claimant necessary forms, instructions, and reasonable assistance, including, but not limited to, specifying the information the claimant must provide for proof of loss.
For personal property coverage, the fact that a personal property inventory is premature if the primary structure has not yet commenced construction.
The unavailability of contractors to either perform the necessary work or create an estimate to rebuild, repair, or replace.
The disability, injury, or incapacity of the insured.
The inability of the insured to access the insured property as a result of governmental action or because the insured property is located in an area that is exposed to hazardous materials posing a health risk.
In the event of a total loss of the insured structure, a policy issued or delivered in this state shall not contain a provision that limits or denies, on the basis that the insured has decided to rebuild at a new location or to purchase an already built home at a new location, payment of the building code upgrade cost or the replacement cost, including any extended replacement cost coverage, to the extent those costs are otherwise covered by the terms of the policy or any policy endorsement. However, the measure of indemnity shall not exceed the replacement cost, including the building code upgrade cost and any extended replacement cost coverage, if applicable, to repair, rebuild, or replace the insured structure at its original location.
This section does not prohibit an insurer from restricting payment in cases of suspected fraud.
On and after July 1, 2026, all policy forms issued or renewed by an insurer shall comply with this section in its entirety, including the changes made to this section by the act that added this paragraph.
Whenever the insured desires to have a valuation named in his policy insuring any building or structure against fire, he may require such building or structure to be examined by the insurer and the value of the insured’s interest therein shall be fixed at that time by the parties. The cost of the examination shall be paid by the insured.
A clause shall be inserted in such a valued policy, stating substantially that the value of the insured’s interest in the insured building or structure has been thus fixed.
In case of a total loss, the whole amount insured upon the insured’s interest in such building or structure, as stated in the policy and upon which the insurers have received a premium.
In case of a partial loss the full amount of the partial loss.
In case there are two or more policies covering the insured’s interest, each policy shall contribute pro rata to the payment of such whole or partial loss.
Except as provided by section 2056, the insurer shall not be required to pay more than the amount stated in such a valued policy.
Under a contract of fire insurance, payment to the insured shall be made within 30 days after the amount of the loss and the liability of the company have been agreed upon or settled by the insured and the company in writing.
If the company fails to pay within the 30 days, the payment shall bear interest, beginning the 31st day, at the prevailing legal rate. The company also shall be liable for all costs of collection, including reasonable attorneys’ fees, if legal action is necessary to obtain payment after the company has willfully failed to pay within the 30 days.
Notwithstanding any other provision of law, if a loss arising out of fire is rebuilt or replaced, an insured covered by a valued policy shall receive full payment for the loss up to the face amount of the policy. If the loss is not rebuilt or replaced, an insured covered by a valued policy shall receive either the replacement value of the loss or the face amount of the policy, whichever is less. As used in this section, “valued policy” has the meaning set forth in Section 412.
This section applies only to valued policies issued or renewed on and after July 1, 1992.
In the event of a loss under a homeowners’ insurance policy for which the insured has made a claim for additional living expenses, the insurer shall provide the insured with a list of items that the insurer believes may be covered under the policy as additional living expenses. The list may include a statement that the list is not intended to include all items covered under the policy, but only those that are commonly claimed, if this is the case. If the department develops a list for use by insurers, the insurer may use that list.
In the event of a covered loss relating to a state of emergency, as defined in Section 8558 of the Government Code, coverage for additional living expenses shall be for a period of no less than 24 months from the inception of the loss, but shall be subject to other policy provisions. An insurer shall grant an extension of up to 12 additional months, for a total of 36 months, if an insured acting in good faith and with reasonable diligence encounters a delay or delays in the reconstruction process that are the result of circumstances beyond the control of the insured. Circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, lack of necessary construction materials, and lack of available contractors to perform the necessary work. Additional extensions of six months shall be provided to policyholders for good cause.
A policy that provides coverage for additional living expenses subject to this subdivision shall not limit the policyholder’s right to recovery if the insured home is rendered uninhabitable by a covered peril. However, an insurer may, in lieu of making living expense payments required by this subdivision, provide a reasonable alternative remedy that addresses the property condition that precludes reasonable habitation of the insured premises. The additional living expense coverage subject to this section does not include a utility public safety power shut off event, which is the deenergization of a portion of the electrical distribution or transmission system to reduce the risk of wildfire ignition.
For a loss that is otherwise not subject to paragraph (1) or (2) of subdivision (b), in the event of a state of emergency, as defined in Section 8558 of the Government Code, that is accompanied by an order of civil authority restricting access to the home, related to a covered peril, additional living expense coverage shall be provided for at least two weeks. Additional extensions of two weeks shall be provided to a policyholder for good cause, but shall be subject to other policy provisions.
The amendments made by the act that added this subdivision shall be operative on July 1, 2021.
In the event of a covered loss relating to a state of emergency, as defined in Section 8558 of the Government Code, the following special provisions shall apply under a residential property insurance policy:
If an insured has made a claim for additional living expenses related to a total loss, an insurer shall, upon request by an insured, render an advance payment of no less than four months of living expenses. Additional payment for additional living expenses shall be payable upon proper proof following the advance period.
If an insured has made a claim for contents related to a total loss of a primary residence, an insurer shall not require that the insured use a company-specific inventory form if the insured can provide an inventory using a form that contains substantially the same information. This subdivision does not limit the authority of an insurer to seek additional reasonable information from an insured upon receipt of an inventory form submitted by an insured.
If an insured has made a claim for contents related to a total loss of a primary residence, an insurer shall accept an inventory that includes groupings of categories of personal property, including clothing, shoes, books, food items, CDs, DVDs, or other categories of items for which it would be impractical to separately list each individual item claimed.
This section applies to a claim that arises on or after January 1, 2021.
In the event of a state of emergency, as defined in Section 8558 of the Government Code, an insurer shall offer a 60-day grace period for payment of premiums for residential property insurance policies covering a property located within the affected area defined in the state of emergency for a period of 60 days after the emergency. This section does not require any change to insurer billing practices regarding billing, automatic payment, or cancellation for nonpayment if the insurer reinstates, without a lapse in coverage or late fees, any policy subject to this section that was canceled for nonpayment of premiums, if requested by the insured and upon reasonably timely payment of all premiums due.
ARTICLE 3. California Standard Form Fire Insurance Policy [2070. - 2085.]
All fire policies on subject matter in California shall be on the standard form, and, except as provided by this article shall not contain additions thereto. No part of the standard form shall be omitted therefrom except that any policy providing coverage against the peril of fire only, or in combination with coverage against other perils, need not comply with the provisions of the standard form of fire insurance policy or Section 2080; provided, that coverage with respect to the peril of fire, when viewed in its entirety, is substantially equivalent to or more favorable to the insured than that contained in such standard form fire insurance policy.
Any insurer whose insured has made a claim under his or her residential fire or property insurance policy for loss due, in whole or in part, to corrosive soils shall, at least 30 days before the expiration of the applicable statute of limitation, notify its insured in writing of the statute of limitation applicable to the insured’s claim for damage. Failure of the insurer to provide the written notice shall operate to toll the applicable statute of limitation for a period of 30 days from the date written notice is actually given. The notice shall not be required if the insurer has received notice that the insured is represented by an attorney.
This section applies only to claims presented and not denied prior to January 1, 1989, and to claims presented on or after January 1, 1989.
The following is adopted as the standard form of fire insurance policy for this state:
California Standard Form Fire Insurance Policy
No.
[Space for insertion of name of company or companies issuing the policy and other matter permitted to be stated at the head of the policy.]
[Space for listing amounts of insurance, rates and premiums for the basic coverages insured under the standard form of policy and for additional coverages or perils insured under endorsements attached.]
In consideration of the provisions and stipulations herein or added hereto and of ____ dollars premium this company, for the term of ________
at location of property involved, to an amount not exceeding ____ dollars, does insure ________ and legal representatives, to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair, and without compensation for loss resulting from interruption of business or manufacture, nor in any event for more than the interest of the insured, against all LOSS BY FIRE, LIGHTNING AND BY REMOVAL FROM PREMISES ENDANGERED BY THE PERILS INSURED AGAINST IN THIS POLICY, EXCEPT AS HEREINAFTER PROVIDED, to the property described hereinafter while located or contained as described in this policy, or pro rata for five days at each proper place to which any of the property shall necessarily be removed for preservation from the perils insured against in this policy, but not elsewhere.
Assignment of this policy shall not be valid except with the written consent of this company.
This policy is made and accepted subject to the foregoing provisions and stipulations and those hereinafter stated, which are hereby made a part of this policy, together with any other provisions, stipulations and agreements as may be added hereto, as provided in this policy.
IN WITNESS WHEREOF, this company has executed and attested these presents; but this policy shall not be valid unless countersigned by the duly authorized agent of this company at
Concealment, fraud
This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto.
Uninsurable and excepted property
This policy shall not cover accounts, bills, currency, deeds, evidences of debt, money or securities; nor, unless specifically named hereon in writing, bullion or manuscripts.
Perils not included
This company shall not be liable for loss by fire or other perils insured against in this policy caused, directly or indirectly, by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack; (b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) civil war; (g) usurped power; (h) order of any civil authority except acts of destruction at the time of and for the purpose of preventing the spread of fire, provided that the fire did not originate from any of the perils excluded by this policy; (i) neglect of the insured to use all reasonable means to save and preserve the property at and after a loss, or when the property is endangered by fire in neighboring premises; (j) nor shall this company be liable for loss by theft.
Other insurance
Other insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto.
Conditions suspending or restricting insurance
Unless otherwise provided in writing added hereto this company shall not be liable for loss occurring (a) while the hazard is increased by any means within the control or knowledge of the insured; or (b) while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of 60 consecutive days; or (c) as a result of explosion or riot, unless fire ensues, and in that event for loss by fire only.
Other perils or subjects
Any other peril to be insured against or subject of insurance to be covered in this policy shall be by endorsement in writing hereon or added hereto.
Added provisions
The extent of the application of insurance under this policy and of the contribution to be made by this company in case of loss, and any other provision or agreement not inconsistent with the provisions of this policy, may be provided for in writing added hereto, but no provision may be waived except such as by the terms of this policy or by statute is subject to change.
Waiver provisions
No permission affecting this insurance shall exist, or waiver of any provision be valid, unless granted herein or expressed in writing added hereto. No provision, stipulation or forfeiture shall be held to be waived by any requirement or proceeding on the part of this company relating to appraisal or to any examination provided for herein.
Cancellation of policy
This policy shall be canceled at any time at the request of the insured, in which case this company shall, upon demand and surrender of this policy, refund the excess of paid premium above the customary short rates for the expired time. This policy may be canceled at any time by this company by giving to the insured a 20 days’ written notice of cancellation with or without tender of the excess of paid premium above the pro rata premium for the expired time, which excess, if not tendered, shall be refunded on demand. Notice of cancellation shall state that said excess premium (if not tendered) will be refunded on demand. If the reason for cancellation is nonpayment of premium, this policy may be canceled by this company by giving to the insured a 10 days’ written notice of cancellation.
Mortgagee interests and obligations
If loss hereunder is made payable, in whole or in part, to a designated mortgagee not named herein as the insured, the interest in this policy may be canceled by giving to the mortgagee a 10 days’ written notice of cancellation.
If the insured fails to render proof of loss the mortgagee, upon notice, shall render proof of loss in the form herein specified within 60 days thereafter and shall be subject to the provisions hereof relating to appraisal and time of payment and of bringing suit. If this company shall claim that no liability existed as to the mortgagor or owner, it shall, to the extent of payment of loss to the mortgagee, be subrogated to all the mortgagee’s rights of recovery, but without impairing mortgagee’s right to sue; or it may pay off the mortgage debt and require an assignment thereof and of the mortgage. Other provisions relating to the interests and obligations of the mortgagee may be added hereto by agreement in writing.
Pro rata liability
This company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not.
Requirements in case loss occurs
The insured shall give written notice to this company of any loss without unnecessary delay, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed; and within 60 days after the loss, unless the time is extended in writing by this company, the insured shall render to this company a proof of loss, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required and obtainable, verified plans and specifications of any building, fixtures or machinery destroyed or damaged.
The insured, as often as may be reasonably required and subject to the provisions of Section 2071.1, shall exhibit to any person designated by this company all that remains of any property herein described, and submit to examinations under oath by any person named by this company, and subscribe the same; and, as often as may be reasonably required, shall produce for examinations all books of account, bills, invoices, and other vouchers, or certified copies thereof if the originals be lost, at any reasonable time and place as may be designated by this company or its representative, and shall permit extracts and copies thereof to be made. The insurer shall inform the insured that tax returns are privileged against disclosure under applicable law but may be necessary to process or determine the claim.
The insurer shall notify every claimant that they may obtain, upon request, copies of claim-related documents. For purposes of this section, “claim-related documents” means all documents that relate to the evaluation of damages, including, but not limited to, repair and replacement estimates and bids, appraisals, scopes of loss, drawings, plans, reports, third-party findings on the amount of loss, covered damages, and cost of repairs, and all other valuation, measurement, and loss adjustment calculations of the amount of loss, covered damage, and cost of repairs. However, attorney work product and attorney-client privileged documents, and documents that indicate fraud by the insured or that contain medically privileged information, are excluded from the documents an insurer is required to provide pursuant to this section to a claimant. Within 15 calendar days after receiving a request from an insured for claim-related documents, the insurer shall provide the insured with copies of all claim-related documents, except those excluded by this section. Nothing in this section shall be construed to affect existing litigation discovery rights.
After a covered loss, the insurer shall provide, free of charge, a complete, current copy of this policy within 30 calendar days of receipt of a request from the insured. The time period for providing this policy may be extended by the Insurance Commissioner.
An insured who does not experience a covered loss shall, upon request, be entitled to one free copy of this policy annually. The policy provided to the insured shall include, where applicable, the policy declarations page.
Appraisal
In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon the umpire, then, on request of the insured or this company, the umpire shall be selected by a judge of a court of record in the state in which the property covered is located. Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, “informal” means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of appraisal and umpire shall be paid by the parties equally. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either the insured or this company but shall not be compelled.
Adjusters
If, within a six-month period, the company assigns a third or subsequent adjuster to be primarily responsible for a claim, the insurer, in a timely manner, shall provide the insured with a written status report. For purposes of this section, a written status report shall include a summary of any decisions or actions that are substantially related to the disposition of a claim, including, but not limited to, the amount of losses to structures or contents, the retention or consultation of design or construction professionals, the amount of coverage for losses to structures or contents and all items of dispute.
Company’s options
It shall be optional with this company to take all, or any part, of the property at the agreed or appraised value, and also to repair, rebuild or replace the property destroyed or damaged with other of like kind and quality within a reasonable time, on giving notice of its intention so to do within 30 days after the receipt of the proof of loss herein required.
Abandonment
There can be no abandonment to this company of any property.
When loss payable
The amount of loss for which this company may be liable shall be payable 60 days after proof of loss, as herein provided, is received by this company and ascertainment of the loss is made either by agreement between the insured and this company expressed in writing or by the filing with this company of an award as herein provided.
Suit
No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 12 months next after inception of the loss. If the loss is related to a state of emergency, as defined in subdivision (b) of Section 8558 of the Government Code, the time limit to bring suit is extended to 24 months after inception of the loss.
Subrogation
This company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this company.
Any amendments to this section by the enactment of Senate Bill 658 of the 2001–02 Regular Session shall govern a policy utilizing the form provided in subdivision (a) when that policy is originated or renewed on or after January 1, 2002.
The amendments to this section made by the act adding this subdivision shall govern a policy utilizing the form provided in subdivision (a) when that policy is originated or renewed on or after January 1, 2004.
The amendments to this section made by the act adding this subdivision govern a policy originated or renewed on or after the effective date of this act.
Notwithstanding paragraph (1), an insurer shall incorporate the revisions to the standard form of fire insurance policy made by the act adding this subdivision on or before July 1, 2019.
This section applies to an examination of an insured under oath pursuant to Section 2071 labeled “Requirements in case loss occurs” and other relevant provisions of that section, and to any policy that insures property and contains a provision for examining an insured under oath, when the policy is originated or renewed on and after January 1, 2002.
The following are among the rights of each insured who is requested to submit to an examination under oath:
An insurer that determines that it will conduct an examination under oath of an insured shall notify the insured of that determination and shall include a copy of this section in the notification.
An insurer may conduct an examination under oath only to obtain information that is relevant and reasonably necessary to process or investigate the claim.
An examination under oath may only be conducted upon reasonable notice, at a reasonably convenient place and for a reasonable length of time.
The insured may be represented by counsel and may record the examination proceedings in their entirety.
The insurer shall notify the insured that, upon request and free of charge, it will provide the insured with a copy of the transcript of the proceedings and an audio or video recording of the proceedings, if one exists. Where an insured requests a copy of the transcript, the recording, or both, of the examination under oath, the insurer shall provide it within 10 business days of receipt by the insurer or its counsel of the transcript, the recording, or both. An insured may make sworn corrections to the transcript so it accurately reflects the testimony under oath.
In an examination under oath, an insured may assert any objection that can be made in a deposition under state or federal law. However, if as a result of asserting an objection, an insured fails to provide an answer to a material question, and that failure prevents the insurer from being able to determine the extent of loss and validity of the claim, the rights of the insured under the contract may be affected.
An insured who submits a fraudulent claim may be subject to all criminal and civil penalties applicable under law.
The department shall conduct a study quantifying the number of examinations under oath performed by carriers regulated by the department and the number of contacts made by consumers regarding alleged concerns with the utilization of the examination under oath process for the resolution of pending claims. The department shall report both the number of examinations under oath performed by each carrier and the number of justified and unjustified claims alleged by insureds as defined in this code. To the best extent practicable, the department shall also determine if any of these complaints also resulted in suspected fraudulent claims with the department’s fraud division.
The department shall also survey licensed carriers as to the number of suspected fraudulent claims under residential property insurance policies that are submitted to the department’s fraud division as required by law, and that resulted, or eventually resulted, in the utilization of the examination under oath process. Policies of residential property insurance shall be as defined in Section 10087.
The department shall submit the findings of this report to the chairpersons of the Assembly and Senate Committees on Insurance no later than March 1, 2003.
The policy is not required to be used for reinsurance between insurers.
The policy shall be plainly printed. The type shall not be smaller than eight-point and in a style not less legible than Century and subheads shall be in type larger than eight-point and in a style not less legible than Century. The lines of the policy following the countersignature clause shall be numbered consecutively.
Either the blanks in the standard form or those in an endorsement attached thereto shall be appropriately filled. The first page of the policy or an endorsement attached thereto may be arranged to show in schedule form the amounts of insurance, rates and premiums for the basic coverages insured under the standard form of policy and additional coverages or perils insured under endorsements attached, and such other data as may be conveniently included for duplication on daily reports for office records.
If such a schedule clearly shows the amount at risk, the rate, and the premium in respect of fire insurance, the words, “the above specified” may be inserted in the blanks preceding the word “dollars” in the two places in which “dollars” appears in that portion of the standard form which precedes the countersignature clause, or in identical blanks in an endorsement attached to the standard form and containing the paragraph in the standard form in which the blanks appear.
In lieu of showing the term of coverage in the form set forth in Section 2071, the standard form policy may show the term in any form which clearly states the period during which the insurance is to continue. The period shall begin and end on specified dates at 12:01 a.m. standard time, at the location of the property involved. An example of a permissible method of showing the term is:
In lieu of showing the attestation clause and official signatures in the form as set forth in Section 2071, the standard form policy may show, immediately following the policy provisions, the following:
“In witness whereof, this company has executed and attested these presents; but this policy shall not be valid unless countersigned by the duly authorized agent of this company at the agency hereinbefore mentioned.
Notwithstanding the provisions of Section 2071 granting the right to both insured and insurer to cancel a policy of insurance, or the provisions of any policy conforming to that section, the right of the insurer, but not that of the insured, to so cancel shall be subject to modification by written general order or orders of the commissioner, if: (1) the property insured is in the State of California; (2) the insurance policy contains any “basic property insurance” as that term is defined in Chapter 9 (commencing with Section 10090) of Part 1, Division 2 of this code; and (3) the property insured is, on the date of the order or orders of the commissioner, within any geographic area to which any “Fair Plan” approved by the commissioner pursuant to that chapter is applicable.
The commissioner’s order or orders may deny to insurers the right to cancel those policies on less than 60 days’ notice, or on a lesser number of days of notice that the commissioner may designate, except that the number of days of notice may not be less than 20. The commissioner’s order or orders shall apply uniformly to all insurers having those policies outstanding in all or any designated portions of such a geographic area.
This section, and any order of the commissioner, shall not be effective as to any policy unless the property insured therein is then within a geographic area to which a “Fair Plan” is applicable.
The orders of the commissioner may contain generally applicable exceptions of certain types of properties, certain types of policies, policies solicited in a particular manner, or policies obtained upon particular representations of the insured. The orders shall except policies upon which premiums or premium installments have not been paid in accordance with the agreement of the insured, whether payable directly to the insurer or its agent, or indirectly under any premium finance plan or plans for the extension of credit.
No order shall be adopted by the commissioner pursuant to this section unless he or she has determined that the order is reasonably necessary to carry out the provisions of a “Fair Plan”.
Notwithstanding any of the other provisions of Sections 2071 and 6010, those paragraphs in Sections 2071 and 6010 captioned “Cancellation of policy” may, in any policy subject to Chapter 11 (commencing with Section 675) of Part 1 of Division 1, have that paragraph in the text of the policy stricken or changed by endorsement and the following paragraph substituted therefor:
“This policy shall be canceled at any time at the request of the insured, in which case this company shall, upon demand and surrender of the policy, refund the excess of paid premiums above the customary short rate for the expired time. This policy may be canceled by this company by written notice mailed or delivered to the named insured at the address shown in the policy, with or without tender of the excess of paid premiums above the pro rata premiums for the expired time, stating when, not less than 20 days after that mailing or delivery, cancellation shall be effective. Notice of cancellation shall state that the excess premiums, if not tendered, will be refunded on demand, and contain those matters that are required to comply with Chapter 11 (commencing with Section 675) of Part 1 of Division 1.”
During such time as countersignatures are not required by law, the provisions of Section 2071 requiring policies to make provision for countersignatures shall not be in effect and an insurer may omit such provisions from its policies.
By special agreement indorsed on the policy or added thereto, the provisions regarding appraisement or apportionment of loss may be waived and the valuations of all or any of the insured subject matter in case of total loss may be agreed upon in advance of loss.
The insurer may add to the standard form any matter relating to its financial condition, directors, officers, shareholders and history, and the address of its home office and principal office in the United States.
The insurer may add to the standard form, in red ink, any provisions required or permitted in its policies by the State or country of its organization, respecting limitation of liability of the insurer, its shareholders or members.
There may be added to the standard form, clauses providing for and defining the rights, duties and obligations of mortgagees, assignees and other parties having or acquiring an interest in, right to, or lien upon the insured subject matter.
Clauses may be added to the standard form:
Covering subject matter and risks not otherwise covered; provided that clauses covering loss or damage caused by nuclear reaction, nuclear radiation or radioactive contamination, all whether directly or indirectly resulting from an insured peril under the standard policy issued pursuant to Section 2071 may be insured under said policy only by a written endorsement providing such insurance, with such endorsement affixed to said standard policy.
Assuming greater liability than is otherwise imposed on the insurer.
Granting insured permits and privileges not otherwise provided.
Waiving any of the matters which may be waived and which avoid the policy or suspend the insurance.
Waiving any of the requirements imposed on the insured after loss.
As provided in Section 3047.
Except as otherwise provided in this article, clauses imposing specified duties and obligations upon the insured and limiting the liability of the insurer may be attached to the standard form. Such clauses shall be in the rider or riders attached to the standard form of policy and shall be in type as provided in Section 2073.
Whenever a clause is inserted, or rider attached, affecting the standard form liability of the insurer for loss or damage by fire occasioned either directly or indirectly by hurricane, volcanic action or other disturbance of nature, the clause or rider shall be printed in red ink in type larger than small pica and at the head of the policy there shall be printed in red ink and in large boldfaced type the words, “This policy contains limitations of liability not permitted in the California standard form.”
Nothing in this section exempts an insurer from, or permits an insurer to limit, its liability or obligation under a fire insurance policy to cover the losses from a fire that is caused by, or follows, an earthquake.
Any insurers, other than corporations, issuing policies on subject matter in California, shall use the standard form, changing only such words as refer to the corporation or company, to officers or agents of the corporation or company, or to its organization. Such other insurers may substitute, in place of the words having peculiar reference to corporations, appropriate words having similar reference to themselves.
Where an insurer has no president or secretary in the United States, the facsimile signature on the standard form may be that of its principal executive officer or manager residing within the United States.
It is a misdemeanor for any insurer or any agent to countersign or issue a fire policy covering in whole or in part property in California and varying from the California standard form of policy otherwise than as provided by this article. Any policy so issued shall, notwithstanding, be binding upon the issuing insurer.
After a covered loss under a policy covered by Section 2071, an insurer shall provide to the insured, free of charge, a complete copy of the policy that was in effect at the time of the loss within 30 calendar days of receipt of a request from the insured. The time period for providing the policy may be extended by the Insurance Commissioner. The policy provided to the insured shall include, where applicable and without limitation, the full insurance policy, any endorsements to the policy, and the policy declarations page.
An insured under a policy covered by Section 2071 who does not experience a covered loss shall, upon request, be entitled to one free copy of his or her policy annually. The policy provided to the insured shall include, where applicable and without limitation, the full insurance policy, any endorsements to the policy, and the policy declarations page.
An insurer responding to a request made pursuant to subdivision (a) for a covered loss that was the result of a state of emergency, as defined in Section 8558 of the Government Code, may, and an insurer compliant with the electronic transaction requirements of Section 38.6 shall, upon the request of an insured who has not elected to receive electronic documents pursuant to Section 38.6, transmit or provide access to an electronic copy of the entire policy. Section 38.6 shall not apply to transmitting or providing access to a policy pursuant to this paragraph.
A request of an insured pursuant to paragraph (1) does not constitute a request to participate in electronic transactions or communications for any purpose other than receiving the documents described in this section.
In the case of a declaration of a disaster by the President of the United States or the Governor, if a property owner or owner’s legal representative is unable to identify the insurer of the owner’s property that is located in the declared disaster area, the commissioner shall, at the request of the property owner or owner’s legal representative, electronically provide the property owner’s name, any contact information provided to the commissioner, and property location information to insurers that issue homeowners’ insurance policies subject to Section 2071.
The commissioner or an insurer may conclusively presume that a request submitted pursuant to paragraph (1) is a bona fide request from the property owner or owner’s legal representative. Information transmitted to the commissioner or an insurer pursuant to this section shall, within the meaning of subdivision (b) of Section 1798.24 of the Civil Code, constitute information provided with the voluntary written consent of the person transmitting the information and shall authorize the commissioner or an insurer to provide the information to others in accordance with this section. No reasonable expectation of privacy shall exist for the information provided to the commissioner or an insurer pursuant to this section and no cause of action shall arise nor shall any liability be imposed against the commissioner or an insurer, the commissioner’s or an insurer’s authorized representatives, or any department or insurer employee for statements made or conduct performed in good faith while carrying out the provisions of this section.
Communication between a property owner or owner’s legal representative and the commissioner, and between the commissioner and insurers, shall not constitute the filing of a claim.
An insurer that issues homeowners’ insurance policies subject to Section 2071 shall provide the commissioner with an email address for accepting an electronic transmission from the commissioner pursuant to subdivision (a).
An insurer that issues homeowners’ insurance policies subject to Section 2071 shall respond to the property owner or owner’s legal representative within 90 days after receiving a transmission pursuant to subdivision (a) and shall indicate if the insurer issued a homeowners’ insurance policy on the property located in the disaster area and identified in the commissioner’s communication that was in force at the time that the disaster occurred. An insurer’s response to the property owner or owner’s legal representative pursuant to this paragraph shall not be an acknowledgment of a claim, and shall not constitute an admission of coverage under any policy for any loss.
Notwithstanding paragraph (1), neither the department nor the insurer shall be required to respond to a property owner or the owner’s legal representative if the insurer determines that it did not issue a policy for the property.
A response by an insurer to the property owner or the owner’s legal representative pursuant to paragraph (1) shall be provided free of charge.
ARTICLE 5. Reduced Wildfire Risk [2095. - 2097.]
The Legislature finds and declares all of the following:
More than 2,000,000 California households, or approximately one in four residential structures in California, are located within or near “high” or “very high” fire hazard severity zones. These households are particularly vulnerable to increasingly catastrophic wildfires that pose urgent threats to lives, property, and resources in California.
The state has invested nearly three billion dollars ($3,000,000,000) since the Budget Act of 2019 into programs and projects to improve forest health and resilience, create fuel breaks, harden homes and communities, and build resilient lifeline infrastructure to withstand wildfire disasters when they do occur.
Chapter 391 of the Statutes of 2019, which created the California Wildfire Mitigation Program jointly administered by the Office of Emergency Services and the Department of Forestry and Fire Protection, recognized that “California must develop statewide options to encourage cost-effective structure hardening to create fire-resistant homes, businesses, and public buildings within wildfire hazard areas and with a focus on vulnerable communities.”
State support for home hardening incentive programs is especially critical now. California residents are finding homeowners’ insurance in very high risk fire areas to be increasingly difficult and costly to obtain, if coverage is even available. The Department of Insurance determined that the majority of nonrenewals, refusals to insure, and increased premiums resulted from insurers’ use of wildfire risk models that do not account for wildfire risk reduction or home hardening measures completed by the homeowner or community.
On September 21, 2023, Governor Newsom issued Executive Order No. N-13-23 asking the Insurance Commissioner to take “prompt regulatory action to strengthen and stabilize California’s marketplace for homeowners insurance and commercial property insurance,” including maintaining “the long-term availability of homeowners and commercial property insurance coverage.”
Regular review of and updates to the Department of Insurance’s Safer from Wildfires regulations will advance these goals. The Safer from Wildfires regulations incentivize homeowners to invest in specified wildfire risk reduction and home hardening measures by requiring admitted insurers to reflect and take into account these measures in their ratings plans. The voluntary home hardening measures included in the Safer from Wildfires regulations provide a higher level of fire protection than what is otherwise required by state law and help contain the spread of wildfires, reduce property damage, save lives, and encourage insurance companies to remain committed to the California insurance market.
It is the intent of the Legislature to further incentivize homeowners to invest in demonstrably effective home hardening measures by requiring the Department of Insurance to periodically review its Safer from Wildfires regulations and consider whether or not to amend the regulations to include additional communitywide mitigation programs and building hardening measures, including use of specified noncombustible construction materials that are included by the Office of the State Fire Marshal on the Building Materials Listing. Noncombustible construction materials, as defined by the California Building Standards Code (Title 24 of the California Code of Regulations), provide the highest level of fire safety among materials included on the Building Materials Listing because these materials do not ignite, even when exposed to high temperatures for extended periods of time. Use of noncombustible construction materials is an effective means of reducing fire-related property damage and the contribution of structures to the spread of wildfires.
The Building Materials Listing includes construction materials that have been tested and analyzed by a laboratory accredited by the Office of the State Fire Marshal to confirm the materials meet established performance and reliability features.
For purposes of this article:
“Building Materials Listing” means the list of construction materials and equipment biennially prepared by the Office of the State Fire Marshal pursuant to Section 13144.1 of the Health and Safety Code as part of the Office of the State Fire Marshal’s Building Materials Listing Program.
“Safer from Wildfires regulations” means the regulations set forth in Section 2644.9 of Title 10 of California Code of Regulations.
On or before January 1, 2030, and every five years thereafter, the department shall consider whether to update the Safer from Wildfires regulations to include additional building hardening measures for property-level mitigation efforts and communitywide wildfire mitigation programs.
If the department updates the Safer from Wildfires regulations, it shall, as a part of its first consideration, consider whether to update these regulations to include in the regulations the installation of construction materials included by the Office of the State Fire Marshal on the Building Materials Listing or in compliance with the most recent provisions of Chapter 7A of the California Building Standards Code.
As part of its consideration pursuant to subdivision (a), the department shall do both of the following:
Consult with the Office of Emergency Services, the Department of Forestry and Fire Protection, the Public Utilities Commission, and the Office of Planning and Research to identify additional building hardening measures for property-level mitigation efforts and communitywide wildfire mitigation programs to consider.
Consult with relevant stakeholders to consider potential revisions to the Safer from Wildfires regulations.
Develop and implement a process that allows for meaningful public participation that includes, at a minimum, all of the following:
Holding at least one public meeting to allow interested persons to submit suggestions for additional building hardening measures for property-level mitigation efforts and communitywide wildfire mitigation programs for the department to consider.
Making available for public review and comment, including during at least one public meeting, a preliminary list of building hardening measures for property-level mitigation efforts and communitywide wildfire mitigation programs being considered by the department for inclusion in the Safer from Wildfires regulations.
Making available to the public a final list of building hardening measures for property-level mitigation efforts and communitywide wildfire mitigation programs the department proposes to include in the list of building hardening measures identified in the Safer from Wildfires regulations before amending the regulations pursuant to the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
If the department makes public a final list of building hardening measures for property-level mitigation efforts and communitywide wildfire mitigation programs to be included in the list of building hardening measures identified in the Safer from Wildfires regulations pursuant to subparagraph (C) of paragraph (3) of subdivision (b), the department shall initiate the Administrative Procedure Act rulemaking process to amend the Safer from Wildfires regulations within 30 days of publishing the final list.
CHAPTER 4. General Mutual Insurers [4010. - 4097.20.]
ARTICLE 1. General Provisions [4010. - 4019.]
A “mutual” insurer is an insurance corporation without capital stock owned by its policyholders collectively, who have the right to vote in the election of its directors.
The provisions of Section 36 shall apply to domestic mutual insurers as well as foreign mutual insurers.
Domestic mutual insurers, incorporating or qualifying to transact any or all of the classes of insurance designated in Sections 100 through 123 and 700. 01, shall be subject to all provisions of this code applicable to other incorporated insurers, except where otherwise provided. Domestic mutual insurers shall not be required to have or issue capital stock or shares nor shall they be required to distribute an annual report to a member other than at the time of the initial policy issuance or once each year on renewal. The provisions of Section 1140 shall apply to such an insurer except that the provisions of the Corporation Law referring to shareholders or members shall be applied as though such provisions referred to the policyholders or members of a mutual.
Each policyholder of a domestic mutual insurer, other than the holder of a reinsurance contract, is a member of the insurer during the policy period, as defined in the policy or the declarations page of the policy, with all rights and obligations of that membership, and the policy shall so specify.
A “tail” or extended reporting policy or endorsement permitting claims to be reported after the expiration or termination of the policy period shall not extend the policy period of a “claims made” policy and all rights and obligations of membership shall cease upon the expiration or termination of the policy period. If an insurer has allowed or does allow, by contract, conduct, or otherwise, the holder of a “tail” or extended reporting policy or endorsement to have privileges, in whole or in part, identical, or similar to some or all of the rights of membership, the holder is nevertheless not deemed a member.
Subdivision (b) and the modifications to subdivision (a) made by the act adding this subdivision, are declaratory of existing law and do not affect any existing contract rights.
Any person, government or governmental agency, state or political subdivision thereof, public or private corporation, board, association, estate, trustee or fiduciary may be a policyholder member of a mutual insurer.
With respect to the management, records, and affairs of a domestic mutual insurer qualified to transact any or all of the classes of insurance designated in Section 700.01, and except as otherwise provided in this chapter, a member of such mutual insurer shall have the same character of rights and relationship as a stockholder has toward a domestic stock insurer subject to the provisions of this code.
Each member of a domestic mutual insurer is entitled to one vote upon each matter coming to a vote at meetings of members.
Notice of all meetings of members whether annual or special shall be given in writing to the members entitled to vote by the secretary, or an assistant secretary, or other persons charged with that duty, or if there be no such officer, or in case of his or her neglect or refusal, by any director or member. At the option of the insurer the notice may be imprinted on premium notices or receipts or on both.
A notice may be given by the insurer to any member either personally, or by mail, or other means of written communication, charges prepaid, addressed to the member at his or her address appearing on the books of the insurer, or given by him or her to the insurer for the purpose of notice. If a member gives no address, notice shall be deemed to have been given him or her if sent by mail or other means of written communication addressed to the place where the principal office of the insurer is situated, or if published at least once in a newspaper of general circulation in the county in which the office is located.
Notice of any meeting of members shall be sent to each member entitled thereto not less than seven days before a meeting, unless the bylaws provide otherwise.
Notice of any meeting of members shall specify the place, the day, and the hour of the meeting and the general nature of the business to be transacted.
Notice of an annual meeting to be held at the time and place specified shall be sufficiently given if published at least once in each of four successive weeks in a newspaper of general circulation in the county in which the principal office of the insurer is located, and if so published no other notice of the meeting shall be required.
The presence in person or by proxy of 5 percent of the members of a domestic mutual insurer entitled to vote at any meeting shall constitute a quorum for the transaction of all business of the insurer, including but not limited to, the amendment of the articles of incorporation or bylaws of the insurer, unless otherwise provided in the articles of incorporation or bylaws of such insurer.
A member shall have the right to vote in person or by his written proxy filed with the corporate secretary not less than five days prior to the meeting. No such proxy shall be made irrevocable, nor be valid beyond the earliest of the following dates:
The date of expiration set forth in the proxy; or
The date of termination of membership; or
Eleven months from the date of execution of the proxy; or
Such time as may be specified in the bylaws, not to exceed eleven months.
No member’s vote upon any proposal to divest the insurer of its business or assets, or the major part thereof, shall be registered or taken except in person or by proxy newly executed and specific as to the matter to be voted upon.
This chapter does not apply to a mutual insurer that has converted to a mutual legal reserve insurer pursuant to former Chapter 9 (commencing with Section 10810) of Part 2 of Division 2. Except for Section 4016.2, this chapter does not apply to (a) a mutual insurer that has completed proceedings for voluntary mutualization pursuant to Chapter 13 (commencing with Section 11525) of Part 2 or (b) a stock life insurer that has converted from a mutual life insurer, or a mutual holding company or a stock holding company formed, pursuant to proceedings under Chapter 14 (commencing with Section 11535) of Part 2.
ARTICLE 2. Directors [4020. - 4023.]
The affairs of every domestic mutual insurer shall be managed by a board of directors consisting of not less than 5 directors nor more than 15 directors.
Directors shall be elected by the members of a domestic mutual insurer at the annual meeting of members. Directors may be elected for terms of not more than five years each and until their successors are elected and have qualified, and if to be elected for terms of more than one year, the insurer’s bylaws shall provide for a staggered term system under which the terms of a proportionate part of the number of the board of directors shall expire on the date of each annual meeting of members.
A director of a mutual insurer shall be a policyholder thereof.
As to an insurer operating as an authorized insurer only in the State of California, a majority of the members of the insurer’s board of directors shall be citizens of and shall actually reside in this State.
ARTICLE 3. Management and Exclusive Agency Contracts [4030. - 4034.]
A domestic mutual insurer shall not hereafter make any contract whereby any person is granted or is to enjoy in fact the management of the insurer to the substantial exclusion of its board of directors or to have the controlling or preemptive right to produce substantially all insurance business for the insurer, unless the contract is filed with and approved by the commissioner. That contract shall not be effective unless and until approved by the insurance commissioner. That approval shall be obtained by filing application for approval with the commissioner accompanied by a one-hundred-fifty-dollar ($150) fee. Any disapproval shall be delivered to the insurer in writing, stating the grounds therefor.
Any such contract shall provide that any such manager or producer of its business shall within 90 days after expiration of each calendar year furnish the insurer’s board of directors a written statement of amounts received under or on account of the contract and amounts expended thereunder during such calendar year, including the emoluments received therefrom by the respective directors, officers, and other principal management personnel of the manager or producer, and with such classification of items and further detail as the insurer’s board of directors may reasonably require.
The commissioner shall disapprove any such contract if he finds that it:
Subjects the insurer to excessive charges; or
Is to extend for an unreasonable length of time; or
Does not contain fair and adequate standards of performance; or
Contains other inequitable provisions or provisions which impair the proper interests of policyholders of the insurer.
The commissioner may, after a hearing held thereon, withdraw his approval of any such contract theretofore approved by him, if he finds that the bases of his original approval no longer exist, or that the contract has, in actual operation, shown itself to be subject to disapproval on any of the grounds referred to in Section 4032 above.
The holder of any such contract described in this Article shall be subject to examination by the commissioner pursuant to Article 4 (beginning with Section 730), Chapter 1, Part 2, Division 1 of this code.
ARTICLE 4. Loans [4040. - 4044.]
A mutual insurer may borrow money to defray the expenses of its organization, provide it with surplus funds, or for any purpose of its business, upon a written agreement that the money is required to be repaid only out of the insurer’s surplus in excess of that stipulated in the agreement. The agreement may provide for fixed or variable interest not exceeding an amount allowed by the commissioner, which interest shall or shall not constitute a liability of the insurer as to its funds other than the excess that is stipulated in the agreement. Any agreement of this type shall provide that all interest payments and principal repayments require prior approval by the commissioner. Unless otherwise approved by the commissioner, written agreements evidencing this borrowed money shall not be issued in units of less than ten thousand dollars ($10,000). Unless otherwise allowed by the commissioner, no commission or promotion expense shall be paid in connection with any loan of this type. An agreement to borrow money to provide surplus funds, or for any business purpose, may be termed a surplus note. No surplus note or other agreement may be issued unless it conforms to the requirements set forth at the time the note is issued in the Accounting Practices and Procedures Manual adopted by the National Association of Insurance Commissioners for the reporting of agreements as surplus and not as debt in the financial statements required to be filed by an insurer with the commissioner. No permit or other agreement shall constitute authorization or approval for any other issuance of securities that is connected to the note or agreement in any way.
The issuance of any document evidencing any such loan shall require the commissioner’s securities permit under Article 8 of Chapter 1, Part 2, Division 1 (commencing with Section 820).
This section shall not apply to loans obtained by the insurer in ordinary course of business from banks and other financial institutions, nor to loans secured by pledge or mortgage of assets.
ARTICLE 5. Dividends to Policyholders [4050. - 4052.]
The directors of a domestic mutual insurer may from time to time apportion and pay or credit to its members dividends only out of that part of its surplus funds which represents net realized savings, net realized earnings, and net realized capital gains, all in excess of a surplus equivalent to the aggregate of paid-in capital and unassigned surplus required by this code for the issuance of a certificate of authority to a capital stock insurer transacting the same classes of insurance.
A dividend otherwise proper may be payable out of such savings, earnings, and gains even though the insurer’s total surplus is then less than the aggregate of contributed surplus remaining unpaid by the insurer.
The payment of any such dividends on a workers’ compensation policy shall be subject to the provisions of Section 11738 and for that purpose a mutual policy shall be considered to be a participating policy.
ARTICLE 6. Nonassessable Policies [4060. - 4064.]
A domestic mutual insurer while maintaining unimpaired surplus funds not less in amount than one and one-half times the minimum paid-in capital stock required of a domestic stock insurer formed under this code for authority to transact the same class or classes of insurance, may, upon receipt of the commissioner’s certificate so authorizing, extinguish the contingent liability to assessment of its members as to all its policies in force and may omit provisions imposing contingent liability in all policies currently issued. A fee of two hundred eighty-three dollars ($283) shall accompany any application for that certificate.
The commissioner shall not authorize a domestic insurer to extinguish the contingent liability of any of its members or in any of its policies to be issued, unless it qualifies to and does extinguish such liability of all its members and in all such policies for all kinds of insurance transacted by it. No assessment shall be levied against any member or subscriber with respect to any nonassessable policy issued when the insurer had an unrevoked certificate to issue nonassessable policies.
A foreign or alien mutual insurer may issue nonassessable policies to its members in this State pursuant to its charter and the laws of its domicile.
The commissioner shall revoke the certificate of a domestic mutual insurer to issue policies without contingent liability if
At any time the insurer’s assets are less than the sum of its liabilities and the surplus required for such certificate, or
The insurer, by resolution of its board of directors approved by a majority of its members, requests that the certificate be revoked.
During the absence of such certificate the insurer shall not issue any policy without providing therein for the contingent liability of the policyholder, nor renew any policy which is then in force without endorsing the same to provide for such contingent liability.
ARTICLE 7. Insolvency [4070. - 4070.]
Such an insurer is insolvent if its surplus becomes less than the amount of paid-in capital required of a capital stock company to qualify to transact the same classes of insurance.
ARTICLE 8. Applicable Insurance Laws [4080. - 4081.]
Such an insurer shall be subject to all the provisions of this code and all the applicable rules and regulations of the commissioner. Such code provisions and such rules and regulations, when applied to such insurers, shall be construed in accordance with the fundamental nature of a mutual insurer. In the event of any direct conflicts between such code provisions and the provisions of this chapter, the latter shall prevail. Such other code provisions may, however, be used to supplement or explain the provisions of this chapter.
Any county mutual fire insurer, or two or more such insurers, may merge into a general mutual insurer described in this chapter by following the procedure in Article 9.5 (commencing with Section 7040) of Chapter 5, Part 1, Division 2 of this code. Such general mutual insurer shall become the surviving corporation.
In addition, by following the above-mentioned procedure any two or more county mutual fire insurers may merge, concurrently with the transformation of one of them into a general mutual insurer described herein, as provided in Section 7044. 5.
ARTICLE 9. Merger, Consolidation, Reinsurance, or Transfer of Assets and Liabilities [4090. - 4096.]
By following the procedure specified in this article, any domestic mutual insurer described in this article may merge, consolidate, or otherwise unite with or become a part of, or may reinsure all of its policies with and, upon assumption of all of its liabilities, may transfer all of its assets to, another insurer, domestic or foreign. Chapter 13 (commencing with Section 1300) of Division 1 of Title 1 of the Corporations Code and Article 1 (commencing with Section 11535) of Chapter 14 of Part 2 of Division 2 do not apply to any such transaction.
The plan and agreement by which any such transaction is to be effected shall be approved by a resolution of the majority of the board of directors of each domestic mutual insurer reciting the reasons for and the purposes of the proposed transaction and the manner in which the transaction is expected to benefit and serve the best interests of the domestic mutual insurer and its members. The plan and agreement shall thereafter be submitted to the commissioner, who shall examine the same and require such provisions to be inserted in the agreement and such actions to be taken in connection with the transaction including, but not limited to the following:
The terms and conditions of the transaction.
Any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation paid to any director, officer, agent, or employee of the domestic mutual insurer in connection with the transaction.
At the expense of the applicant, an opinion as to the fairness of the terms of the plan and an appraisal of the fair value of each insurer, together with the respective equity interests of the members therein, by one or more qualified disinterested persons appointed by the domestic mutual insurer with the approval of the commissioner unless the commissioner finds that such an opinion or appraisal is not necessary to protect the interests of current members of the domestic mutual insurer.
The contents of the notice of the vote on the transaction by the members of each domestic mutual insurer that is a party thereto.
The manner and form of voting thereon by the members of each such domestic mutual insurer.
Any other change as the commissioner may deem necessary in order that the transaction may be fair, just, and equitable to the parties to the transaction and their respective policyholders, owners, creditors, and the public.
When any such plan and agreement shall have been approved by the commissioner, with any changes required by him, the same shall be approved in the case of each domestic mutual insurer that is a party to the transaction by not less than two-thirds of the votes cast by the members thereof represented in person or by proxy at a meeting called to consider the same. At least 30 days before the day fixed for the meeting, notice of such meeting and its purpose shall be given to the members at their addresses appearing on the books maintained at the home office of the insurer. With respect to members whose addresses do not appear on such books of the insurer, notice shall be deemed to have been given if published at least once in some newspaper of general circulation in the county in which the principal office of the insurer is located. At such meeting the presence in person or by proxy of 10 percent of such members of such insurer shall constitute a quorum. In the absence of a quorum the members present at the meeting in person or by proxy may adjourn the meeting to a later date. No further notice need be given of the date to which the meeting is adjourned.
If the vote is in the affirmative, a certified copy of all proceedings relating to the proposed transaction shall be filed with the commissioner. If one of the insurers that is a party to the transaction is a foreign corporation there shall also be filed with the commissioner evidence of an approval, consent, or authorization as may be required by the laws of the state of incorporation of the foreign insurer. If the commissioner finds that the proceedings have been in accordance with the law and the commissioner’s requirements, he or she shall issue a certificate approving the plan and agreement and the transaction shall become effective when the certificate, the agreement, and any other documents required by law have been filed with the Secretary of State.
The fee for issuing the certificate approving the transaction shall be six thousand three hundred fifty dollars ($6,350), payable in advance with the filing with the commissioner of the first papers relating to the proposed transaction; eight dollars ($8) shall be charged for each signed and sealed or certified copy thereof issued as part of the same transaction in which the original certificate is issued.
Any plan of merger, consolidation, or other unification under this article shall provide that all rights and properties of the parties to the plan of merger, consolidation or other unification shall accrue to and become the rights and properties of the surviving or consolidated or continuing corporation which shall succeed to and assume all the obligations and liabilities of the merged, consolidating, or transferring corporation in the same manner as if incurred or contracted by the surviving, consolidated, or continuing corporation.
In the event a mutual insurer is merged, consolidated, or part of a reorganization under the procedures specified in this article, and the surviving, consolidated, or continuing company is an incorporated stock insurer, the plan shall provide for the manner of converting or exchanging the equity interests of current members in the domestic mutual insurer into shares, subscription rights, warrants, options, cash, dividends, premium credits, certificates of contribution, or any other interests that may be provided in the plan. However, notwithstanding the foregoing, the equity interest of a policyholder in the mutual insurer may be converted or exchanged solely into premium credits if the plan and agreement shall so provide, but only at the policyholder’s election. Any person holding a subscription note or other debt instrument evidencing a capital contribution to the domestic mutual insurer shall be entitled upon demand to have the note or debt instrument redeemed for cash or securities as provided in the plan. The plan may provide for additional securities to be sold to directors, officers, employees, and former members of the domestic mutual insurer in accordance with the provisions of Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. Nothing in this section shall preclude the issuance of different securities, subject to the approval of the commissioner, provided that comparable securities shall be issued at prices not less than the conversion or exchange values of any such securities distributed to current policyholders. Notwithstanding any other provision of law, conversion or exchange constitutes full payment and discharge of the members’ property interest in the domestic mutual insurer and the members have no other rights with respect thereto, except for rights relating to a continuing debt or equity interest that a former member holds in the surviving insurer.
In the event a domestic mutual insurer is merged, consolidated, or a part of a reorganization under the procedures specified in this article, and the surviving, consolidated, or continuing company is a nonadmitted insurer, the plan of merger shall provide either for that insurer to be admitted to transact insurance in California or for any nonsurviving insurer admitted in California to withdraw from the state.
ARTICLE 10. Conversion of an Incorporated Medical Malpractice Mutual Insurer into an Incorporated Stock Insurer [4097. - 4097.20.]
A domestic incorporated medical malpractice mutual insurer, issuing nonassessable policies on a reserve basis may be converted into an incorporated stock insurer issuing, on a reserve basis, nonassessable policies either by demutualization or by establishing a mutual holding company. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this article.
A mutual holding company may be converted into a stock corporation. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this article.
As part of the conversion authorized in this section, a domestic incorporated medical malpractice mutual insurer may merge with an incorporated stock insurer, if the merging insurers comply with the provisions of Article 9 (commencing with Section 4090) applicable to their participation in the merger, or may transfer its domicile to any other state, if the insurer complies with Section 709.5.
The definitions in this section apply to the following terms when used in this article.
“Adoption date” means the date the board of directors adopts the plan of conversion.
“Converted company” means the converted insurer or converted mutual holding company, as the case may be.
“Converted insurer” means the incorporated stock insurer into which a medical malpractice mutual insurer has been converted or merged or redomiciled in accordance with the provisions of this article.
“Converted mutual holding company” means the stock corporation into which a mutual holding company has been converted in accordance with this article.
“Converting mutual company” means, for a plan of conversion under this article, the medical malpractice mutual insurer or mutual holding company that is converting under the plan.
“Demutualization” means the conversion of a medical malpractice mutual insurer into a stock insurer without the establishment of a mutual holding company or the conversion of a mutual holding company into a stock corporation.
“Effective date” means, for the conversion of a medical malpractice mutual insurer, the date upon which the conversion of the mutual insurer is effective, as specified in the commissioner’s amendment to the mutual insurer’s certificate of authority issued in accordance with Section 4097.11, as a result of conversion proceedings under this article. For the conversion of a medical malpractice mutual holding company, “effective date” means the date upon which the conversion of a mutual holding company is effective, as specified in the amended articles of incorporation of the mutual holding company filed with the Secretary of State in accordance with Section 4097.11, as a result of conversion proceedings under this article.
“Eligible members” means, for the conversion of a mutual insurer, members of the mutual insurer who are of record, fully paid-up and otherwise in good standing on the mutual insurer’s adoption date and on its effective date, but shall not include those persons covered solely under a reporting endorsement to a claims made policy on either date. For the conversion of a mutual holding company, “eligible members” means the members of the mutual holding company who are of record, fully paid-up with respect to policies in effect issued by the converted insurer and are otherwise in good standing on the mutual holding company’s adoption date and on its effective date.
“Medical malpractice mutual insurer” means a mutual insurer organized under this chapter that writes predominantly medical malpractice insurance, as that class of insurance is defined in subdivision (d) of Section 108. A mutual insurer shall be considered to write predominantly medical malpractice insurance if, for each of the most recent five calender years, its direct written premiums for medical malpractice insurance, as reported in the annual statement filed with the commissioner pursuant to Section 900, is not less than 50 percent of its aggregate direct premiums for all classes of insurance.
“Member” means a person who, by the records of the mutual company and by its articles of incorporation or bylaws, is deemed to be a holder of a membership interest in the mutual company. On and after the effective date of a plan of conversion that creates a mutual holding company, the term “member” means a member of a mutual holding company, as provided in Section 4097.12.
“Membership interests” means the interests of members arising under this code and the articles of incorporation and bylaws of the mutual company or otherwise by law. Membership interests include the right to vote for directors of the mutual company and the right to vote on any plan of merger, consolidation, reinsurance, or transfer of assets and liabilities of the mutual company.
“Mutual company” means, in the case of a plan of conversion, the medical malpractice mutual insurer or mutual holding company that is converting pursuant to the plan.
“Mutual holding company” means a corporation organized under the laws of this state subject to the general corporation law as set forth in the Corporations Code. The articles of incorporation of a mutual holding company shall contain provisions stating the following:
It is a mutual holding company organized under this article.
One purpose of the mutual holding company is to hold not less than 51 percent of the voting stock of a stock holding company, which in turn holds all of the voting stock of a converted insurer. In addition, the mutual holding company shall own not less than 51 percent of the total stockholders’ equity of the stock holding company at all times.
It is not authorized to issue voting stock.
Its members have the rights specified in Section 4097.12 and in its articles of incorporation and bylaws.
“Mutual holding company independent director” means a member of the board of directors of the mutual holding company who does not own shares, options, or any other equity interests in the stock holding company.
“Mutual insurer” means, in the case of a plan of conversion under this article, the medical malpractice mutual insurer that is converting pursuant to the plan.
“Person” means an individual, partnership, firm, association, corporation, joint-stock company, limited liability company, trust, government or governmental agency, state or political subdivision of a state, public or private corporation, board, association, estate, trustee, or fiduciary, or any similar entity.
“Plan of conversion” or “plan” means a plan adopted by a mutual company in compliance with this article.
“Policy” means an individual or group policy of insurance issued by a mutual insurer or a converted insurer. If a policy takes a form other than an individual form but holders of certificates or other interests under the policy are treated by the mutual insurer as if they were holders of individual policies, the mutual insurer may provide in its plan of conversion under this article that such a certificate or other interest is deemed to be a policy and deem the holder of the certificate or other interest to be an owner of a policy. Such a provision shall be for the sole purpose of determining the rights, if any, of policyholders of the mutual insurer to vote upon and receive consideration under the plan of conversion and shall not affect the other voting rights and qualifications of members of the mutual insurer.
“Policyholder” means the holder of a policy other than a reinsurance contract.
“Rights in surplus,” for a mutual insurer, means rights of members of the insurer to a return of that portion of the surplus that has not been apportioned or declared by the board of directors for policyholder dividends. “Rights in surplus” includes rights of members of the insurer to a distribution of surplus in liquidation, conservation or demutualization of the insurer under this code, or in a dissolution or winding up. “Rights in surplus,” for a mutual holding company, means rights of members of the company to a return of any surplus that has not been apportioned or declared by its board of directors for member dividends. “Rights in surplus” includes rights of members of the mutual holding company to a distribution of surplus in liquidation, conservation, or demutualization of the insurer under this code, or in a dissolution or winding up. “Rights in surplus” does not include any right expressly conferred solely by the terms of an insurance policy.
“Stock holding company” means a corporation authorized to issue one or more classes of capital stock, the corporate purposes of which include holding all of the voting stock in an insurer that has been converted from a mutual insurer to a stock insurer in proceedings under Section 4097.05 in which a mutual holding company is formed.
“Voting stock” means securities of any class or any ownership interest having voting power for the election of directors, trustees, or management of a person, other than securities having voting power only because of the occurrence of a contingency. All references to a specified percentage of voting stock of any person mean securities having the specified percentage of the voting power in that person for the election of directors, trustees, or management of that person, other than securities having voting power only because of the occurrence of a contingency.
The plan of conversion shall include appropriate proceedings for amending the mutual company’s articles of incorporation to give effect to the conversion from a nonstock corporation into a stock corporation. The plan shall be:
Approved by a resolution of two-thirds of the board of directors. The resolution shall specify the reasons for and the purposes of the proposed conversion of the mutual company and the manner in which the conversion is expected to benefit and serve the best interests of the policyholders, for a mutual insurer, or members, for a mutual holding company.
Submitted to the commissioner for consent in writing, subject to the provisions of Section 4097.06, by an application executed by an authorized officer of the mutual company and accompanied by the following documents, or true and correct copies of the documents:
The proposed plan of conversion.
The proposed articles of incorporation of each corporation that is a constituent corporation of the conversion.
The proposed bylaws of each corporation that is a constituent corporation of the conversion.
A list of officers and directors, together with their biographies in the form customarily required by the commissioner, of each corporation that is a constituent corporation of the conversion.
The resolution of the board of directors of the mutual company, certified by the secretary of the board of directors, authorizing the conversion under this article, and a report of the percentage of directors approving the resolution.
Financial statements, which may be prepared on a pro forma basis, in the form required by the commissioner.
For a conversion of a mutual insurer, a plan of operations for the converted insurer.
A summary of the plan of conversion and drafts of written materials to be mailed to members seeking their approval of the plan.
If the plan provides for the establishment of a mutual holding company under Section 4097.05, it shall contain all of the following:
An information statement containing, at a minimum, the information required under Section 4097.07.
A description of any plans for an initial public offering, including a description of the maximum percentage of stock to be sold, the process to be used in offering the stock and setting the initial sale price for the stock, and how policyholders would be treated in an initial public offering.
A description of any plans for the transfer of assets and liabilities, including any subsidiaries, to the mutual holding company.
Any final rulings relating to the plan of reorganization obtained from any federal government agency, and all supporting documents submitted to the agency in connection with those rulings.
A copy of the proposed form of notice of the special meeting sent to members pursuant to Section 4097.07.
Other relevant information that the commissioner may require.
Approved by two-thirds of the members of the mutual company voting at a meeting of the members called for that purpose, subject to the provisions of Section 4097.07.
For the conversion of a medical malpractice mutual insurer, the plan of conversion shall provide for either a demutualization in compliance with Section 4097.04 or for a mutual holding company in compliance with Section 4097.05. For the conversion of a mutual holding company, the plan of conversion shall provide for demutualization in compliance with Section 4097.04.
For the demutualization of a mutual insurer into a stock insurer or for the demutualization of a mutual holding company into a stock corporation, the plan for conversion shall include the following:
A fair, just, and equitable formula, approved by the commissioner, for determining the rights in surplus of each eligible member in the mutual company. The formula shall take account of both the total premiums paid by each eligible member and the duration of his or her membership. The rights in surplus shall be based upon an appraisal of the fair value of the mutual company by one or more qualified disinterested persons appointed by the mutual company with the approval of the commissioner. Those persons shall consider the assets and liabilities of the mutual company and any factors bearing on the value of the mutual company.
Each eligible member of the mutual company shall be given a preemptive right to acquire his or her proportionate part of all of the proposed capital stock of the converting mutual company, within a designated reasonable period, by applying upon the purchase of that part the amount of his or her rights in surplus as determined under the formula described in subdivision (a).
Each member not applying his or her rights in surplus upon the purchase price of stock shall elect to receive either a cash payment or a certificate of contribution. The cash payment shall not be greater than 50 percent of his or her rights in surplus as determined by the formula in subdivision (a). The certificate of contribution shall be in an amount equal to 100 percent of his or her rights in surplus, as determined by the formula in subdivision (a), shall bear interest at the rate established in Section 10489.4 for minimum standard valuation of all life insurance policies of more than 20 years’ duration issued in the year, and shall be repayable within 10 years or, if necessary under the terms of the plan, later, only on written approval of the commissioner and only out of surplus in excess of an amount established in the plan. Any member not electing to receive cash or purchase stock shall be deemed to have elected to receive a certificate of contribution. The stock purchased, cash payment, or certificate of contribution shall constitute full payment and discharge of the member’s rights in surplus or property interest in the mutual company, and, notwithstanding any other provision of law, the member shall have no other rights with respect thereto.
The number of shares to be authorized for the new stock insurer, their par value, and the method for determining the price at which the shares will be offered to eligible members, to the end that the plan, when completed, would satisfy the financial requirements for issuance of a license to transact insurance.
Provision for the offering to others of shares not purchased by eligible members within the designated period referred to in subdivision (b) at a price not less than the offering price to members.
A plan of conversion adopted by a medical malpractice mutual insurer to establish a mutual holding company shall provide that the medical malpractice mutual insurer will become a stock insurer, that the members of the medical malpractice mutual insurer will become members of a mutual holding company, that the mutual holding company will acquire at least 51 percent of the voting stock of the stock holding company, and that the stock holding company will acquire all of the voting stock of the converted insurer.
Will not require members to pay additional funds to retain their rights in surplus, but nothing herein is intended to prohibit or restrict a mutual insurer that is converting to a stock insurer by establishing a mutual holding company from offering to its members subscription rights that are in addition to the rights in surplus to be held in the mutual holding company.
Issued to officers, directors, employees, or employee benefit plans for their benefit, if any, will be fair, just and equitable and not hazardous to policyholders, stockholders, or creditors.
Provides sufficient means for the accumulated earnings, cash, and other non-operating assets held by the mutual holding company to inure to the exclusive benefit of its members.
As part of the examination the commissioner shall order a public hearing on the plan after written notice of the hearing to the mutual company, its members, and the public. Members of the mutual company, their representatives, and the public shall have the right to appear at the public hearing and to submit written comments to the commissioner. The hearing shall occur before the policyholder vote. The commissioner may require as a condition of consent that the mutual company make modifications of the proposed plan that the commissioner finds necessary for the protection of policyholders. The commissioner shall consent to the plan if he or she finds all of the following:
For the conversion of a mutual insurer, the plan is fair, just, and equitable to the insurer and its policyholders.
For the conversion of a mutual holding company, the plan is fair, just, and equitable to the company, its members, and the policyholders of the converted insurer.
The plan does not violate the law.
The converted insurer will, after the conversion, satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.
For the conversion of a mutual company, the commissioner may appoint one or more actuarial, financial, or other consultants, including legal counsel, as the commissioner finds necessary to advise the commissioner in making the determination of whether the proposed plan of conversion meets the applicable requirements of this article. The mutual company is responsible for the reasonable fees and expenses of any actuarial, financial, or other consultants, including legal counsel, appointed, and for the mailing and publication of notices to the mutual company and its members.
The meeting of members prescribed by subdivision (c) of Section 4097.02 shall be called by the board of directors, the chairperson of the board, or the president of the mutual company. Notice of the meeting shall be given to eligible members by mail at least 45 days prior to the date set for the meeting to members of the mutual company of record on the date the plan of conversion was adopted by the board of directors. In the event that a plan of reorganization provides for the establishment of a mutual holding company under Section 4097.05, the notice shall be accompanied by an information statement describing the proposed reorganization. The information statement shall include, at a minimum, the following items:
A full copy and a summary of the plan of reorganization.
A discussion addressing the reasons and purposes of the proposed restructuring, which shall include a comparison to a demutualization.
An analysis of the benefits and risks associated with the proposed reorganization to the mutual company and its policyholders.
An explanation of how the restructuring will benefit policyholders, as well as a description of any potential risks to policyholder interests and a description of how the policyholders’ rights differ at the mutual holding company level from those in the existing company.
A description of any stock issuance, including any shares or options to be issued to directors, officers, agents, employees, or employee benefit plans, for their benefit, that will be made in conjunction with the plan of conversion, if any, and the guidelines and parameters which shall apply in the event stock is to be issued, including a detailed discussion of subscription rights that are to be granted to policyholders.
Any proposed amendments to the mutual insurer’s articles of incorporation to address the restructuring from a mutual to a stock insurer.
Any proposed articles and bylaws of the mutual holding company and any other entities to be created in the reorganization.
Financial information.
Any other information that the commissioner determines is necessary to make a complete and adequate disclosure to policyholders.
Voting shall be by ballot, in person or by proxy. A quorum shall consist of 10 percent of the members of the mutual company entitled to vote at the meeting.
Nothing in this article shall be deemed to prohibit the inclusion in the plan of conversion of provisions under which the insurer’s officers, directors, employees, agents, and employee benefit plans for their benefit may be entitled, in accordance with reasonable classifications of those individuals and employee benefit plans as may be included in the plan, to purchase for cash, at the same price as offered to the public in the initial public offering, voting stock not purchased by members upon exercise of subscription rights. Nothing in this code shall be deemed to prohibit the establishment of stock option, incentive, and share ownership plans customary for publicly traded companies in the same and similar industries. The plan may not permit those persons to acquire any of the following:
Greater than 25 percent of the voting stock issued pursuant to the plan for a medical malpractice mutual insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a medical malpractice mutual insurer having assets of two hundred million dollars ($200,000,000) or less.
Greater than 25 percent of the stockholders’ equity for a medical malpractice mutual insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a medical malpractice mutual insurer having assets of less than two hundred million dollars ($200,000,000).
Unexercised options that exceed 20 percent of the number of the issued and outstanding shares.
No director, officer, agent, or employee of the mutual company shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the conversion except as set forth in the plan approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the mutual company.
At any time before that plan of conversion becomes effective as provided in Section 4097.11, the mutual company may, by resolution of at least two-thirds of the board of directors, amend the plan of conversion or withdraw the plan of conversion. Any plan amendment shall require the written consent of the commissioner. For a plan amendment, all references in this article to the plan of conversion shall be deemed to refer to the plan as amended, but no amendment shall be deemed to change the adoption date of the plan of conversion. No amendment may change the plan of conversion in a manner that the commissioner determines is materially disadvantageous to policyholders of the mutual insurer or members of the mutual holding company, unless a further public hearing is held on the plan as amended, if the amendment is made after the initial public hearing, or if the plan as amended is submitted for reconsideration by the members if the amendment is made after the plan has been approved by the members.
Upon consent by the commissioner to the plan of conversion of a mutual insurer and filing of the plan of conversion in accordance with the provisions of this article, the commissioner shall issue a new certificate of authority to the converted insurer. Upon issuance of the certificate of authority to a mutual insurer and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the articles of incorporation, certificate of amendment of articles of incorporation, or agreement of merger and officers’ certificates of the converted insurer for the conversion of a mutual insurer. For a plan of conversion that provides for the establishment of a mutual holding company in accordance with Section 4097.05, the Secretary of State shall accept for filing the articles of incorporation of the mutual holding company and the stock holding company. Upon consent to the plan of conversion of a mutual holding company and filing of the plan of conversion in accordance with the provisions of this article, the Secretary of State shall accept for filing the articles of incorporation or certificate of amendment of articles of incorporation of the converted mutual holding company. The plan is effective upon the filing of the articles of incorporation or certificate of amendment of articles of incorporation.
Upon the effective date of the plan of conversion of a mutual insurer, the mutual insurer shall immediately become a stock corporation. The converted insurer shall be a continuation of the original mutual insurer, and the conversion shall in no way annul, modify, or change any of the original mutual insurer’s existing suits, rights, contracts, or liabilities except as provided in the approved conversion plan. The insurer, after conversion, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and shall retain the rights and contracts existing prior to conversion, subject to the effect of the plan.
Upon the effective date of the plan of conversion of a mutual holding company, all membership interests and rights in surplus are extinguished, members eligible to receive consideration under the plan of conversion are entitled to receive the consideration in exchange for their membership interests and liquidation of their rights in surplus, and the plan otherwise becomes effective in accordance with its terms. The conversion in no way annuls, modifies, or changes any of the converting mutual holding company’s existing suits, rights, contracts, or liabilities, except as provided in the approved plan of conversion.
Upon the effective date of a plan of conversion in accordance with Section 4097.05, the mutual insurer immediately becomes a stock corporation, the membership interests and rights in surplus of its members are extinguished, the members of the mutual insurer immediately become members of the mutual holding company and are granted rights in surplus in the mutual holding company equivalent to those rights in surplus previously held in the converted company, all of the voting stock initially issued by the converted insurer is owned by the stock holding company, and all of the voting stock initially issued by the stock holding company is owned by the mutual holding company. Except for the membership interests in the mutual insurer, which become membership interests in the mutual holding company, nothing herein is intended to, nor shall eliminate, curtail or otherwise diminish the contract rights of policyholders of a converted company. The stock holding company may thereafter, subject to compliance with Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1, issue securities to other persons. After the effective date, owners of policies that are issued by a stock insurer that has been converted from a mutual insurer pursuant to proceedings under this article shall become members of the mutual holding company immediately upon issuance of the policies, except that owners of a reporting endorsements issued by the insurer that provide strictly tail coverage on expired claims made policies shall not be members of the mutual holding company. Any person may be a member of a mutual holding company.
From the effective date, the mutual holding company shall hold at least 51 percent of the issued and outstanding voting stock of the stock holding company and the stock holding company thereafter shall at all times hold all of the issued and outstanding voting stock of the converted insurer. The stock holding company may issue additional voting stock, and securities convertible into voting stock, to the mutual holding company and to other persons if, in the aggregate, the voting stock of the stock holding company held by the mutual holding company is not less than 51 percent of the issued and outstanding voting stock of the stock holding company. For purposes of the 51 percent limitation, any issued and outstanding securities of the stock holding company that are convertible into voting stock are considered issued and outstanding voting stock.
From the effective date, the mutual holding company’s equity interest in the stock holding company shall not be less than 51 percent of the total stockholders’ equity in the stock holding company. For purposes of the 51 percent limitation, any issued and outstanding securities of the stock holding company that are convertible into equity securities, whether voting or nonvoting, shall be considered stockholders’ equity. Debt securities that include a default contingency conversion interest shall not be considered stockholders’ equity for compliance with the foregoing limitation.
The commissioner shall retain jurisdiction over the mutual holding company pursuant to this article. For purposes of Section 1215.5, the mutual holding company shall be considered as if it were an insurance company. The commissioner shall also retain jurisdiction over the issuance of debt securities by the mutual holding company in accordance with the protections provided in Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1.
If any proceedings under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), Article 14.5 (commencing with Section 1065.1), or Article 15.5 (commencing with Section 1077), of Chapter 1 of Part 2 of Division 1, are brought naming as a party a stock insurer created as a result of proceedings authorized by this article, the mutual holding company formed as part of the conversion automatically becomes a party to the proceedings. All of the assets of the mutual holding company, including, but not limited to, its interest in the stock holding company formed pursuant to this article, are deemed assets of the estate of the stock insurer to the extent necessary to satisfy claims of persons against the stock insurer who have claims falling within the priorities established in paragraphs (1) to (5), inclusive, of subdivision (a) of Section 1033. Claims of persons in their capacity as members of the mutual holding company shall be claims falling within the priority established in paragraph (6) of subdivision (a) of Section 1033. A mutual holding company may not dissolve, liquidate, or wind up and dissolve without the prior written approval of the commissioner or the court pursuant to proceedings brought pursuant to Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of Division 1.
Except as provided in this code, a mutual holding company is subject to the provisions of the general corporation law in like manner with other corporations. However, provisions of that law referring to shareholders or members shall be applied as though those provisions referred to the members of a mutual holding company. With respect to the management, records, and affairs of a mutual holding company and except as otherwise provided in this chapter, a member of a mutual holding company has the same character of rights and relationship as a stockholder has toward a domestic stock insurer subject to the provisions of this code.
Each member of a mutual holding company is entitled to one vote on each matter coming to a vote at any meeting of members, regardless of the number of policies that the member holds.
Notice of all meetings of members of the mutual holding company, whether annual or special, shall be given in writing to the members entitled to vote. The notice shall be given by the secretary, assistant secretary, or other persons charged with that duty. If there is no officer so charged, or if he or she neglects or refuses this duty, notice may be given by any director. At the option of the converted insurer, the notice may be imprinted on premium notices or receipts or on both. A notice may be given to any member either personally, or by mail, or other means of written communication, charges prepaid, addressed to the member at his or her address appearing on the books of the insurer, or given by the member to the converted insurer for the purpose of notice. If a member gives no address, and if there is no address on the books of the insurer, notice shall be deemed to have been given the member if sent by mail or other means of written communication addressed to the place where the principal office of the converted insurer is situated, or if published at least once in a newspaper of general circulation in the county in which the office is located and in the newspaper that has the largest daily circulation in this state. Notice of any meeting of members shall be sent to each member entitled to notice not less than 14 days before a meeting. Notice of any meeting of members shall specify the place, the day, and the hour of the meeting and the general nature of the business to be transacted. For any member who gives no address and has no address on the books of the insurer, notice of an annual meeting to be held at the time and place specified is deemed adequate if published at least once in each of four successive weeks in a newspaper of general circulation in the county in which the principal office of the converted insurer is located and in the newspaper that has the largest daily circulation in this state. If the notice is so published, no other notice of the meeting is required.
The presence in person or by proxy of 5 percent of the members of a mutual holding company entitled to vote at any meeting constitutes a quorum for the transaction of all business of the mutual holding company, including, but not limited to, the amendment of the articles of incorporation or bylaws of the mutual holding company.
Any required member approval shall be by the affirmative vote of a majority of the members who vote, or a higher percentage of the members as may be required by law or the articles of incorporation, a quorum being present.
The board of the mutual holding company shall be comprised of not less than 6 nor more than 18 directors. A majority of the mutual holding company directors shall be policyholders of the converted insurer. Unless the plan provides that at least a majority of the directors of the boards of the stock holding company and the converted insurer are also directors of the mutual holding company, the commissioner shall determine whether the proposed composition of the boards of directors of each of the constituent corporations of the mutual holding company system, as provided in the articles of incorporation and bylaws, facilitate the control of the converted insurer by the mutual holding company. No term shall continue longer than six years. In the absence of such provisions, each director shall be elected for a term of one year. All directors shall hold office for the term for which they are elected and until their successors are elected and qualified. The bylaws of the mutual holding company shall set forth a procedure for establishing mutual holding company independent directors in the event that the stock holding company issues securities. Not less than one of every six directors of the mutual holding company shall be so designated. A director may, but need not, be a member of the mutual holding company of which he or she is acting as director. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum. Each director so elected shall hold office until the next annual meeting.
Membership interests in a mutual holding company are exempt from Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. A description of the membership interests and related factual disclosure shall not be considered to be an inducement to buy insurance in violation of Section 10430. Any promise of returns, profits, or distributions, or representations with regard to the benefits of membership, made as an inducement in connection with the issuance and delivery of a policy is subject to Section 10430 and the remedy provided in Section 10433.
Prior to, and for a period of five years following, the effective date of the plan of conversion, no person or group of persons acting in concert shall directly or indirectly offer to acquire or acquire in any manner the beneficial ownership of 5 percent or more of any class of voting securities of a converted insurer or of a person that controls, as defined by subdivision (c) of Section 1215, the converted insurer, without the prior consent of the commissioner. Any application for that approval shall contain information as the commissioner may require and shall be accompanied by a filing fee in an amount equal to the filing fee specified in Section 1215.2.
In the event of any violation of this section, or of any action that, if consummated, would constitute a violation, all voting securities of the converted insurer or of the person acquired by any person in excess of the maximum amount permitted to be acquired by the person pursuant to this subdivision shall be deemed to be nonvoting securities of the converted insurer or of that person. The violation or action may be enforced or enjoined by an appropriate proceeding commenced by the converted insurer, a person, the commissioner, any policyholder or stockholder of the converted insurer, or the person on behalf of the converted insurer or the person in the superior court in the judicial district in which the converted insurer has its home office or in any other court having jurisdiction. The court may issue any order it finds necessary to cure the violation or to prevent the proposed action. In addition to the foregoing, whenever it appears to the commissioner that any person has committed a violation of this section, the commissioner may proceed as provided in Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 to take possession of the property of the converted insurer and to conduct the business thereof.
For the purposes of this section, “beneficial ownership,” with respect to voting securities, means the sole or shared power to vote, or direct the voting of, voting securities or the sole or shared power to dispose, or direct the disposition, of voting securities.
For the purposes of this section, “voting security” includes voting stock as defined in Section 4097.01, any preorganization certificate or subscription, including subscription rights issued pursuant to a plan of conversion, or any security convertible, with or without consideration, into voting security, or carrying any warrant or right to subscribe for, or purchase any, voting security, or any such warrant or right.
For the purposes of this section, “offer” includes an offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of a security or interest in a security for value.
Unless otherwise provided in the plan of conversion, the directors and officers of the mutual company shall serve as directors and officers of the converted company until new directors and officers have been duly elected and qualified pursuant to the articles of incorporation and bylaws of the stock company.
Notwithstanding any other provision of law and except as otherwise provided in subdivision (b), actions concerning any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this article or any acts taken or proposed to be taken under this article shall be commenced within one year after the plan of conversion or plan amendment is filed in the office of the commissioner pursuant to subdivision (d) of Section 4097.02 or subdivision (a) of Section 4098.1, or six months from the effective date of the plan of conversion, whichever is later. If the plan of conversion is withdrawn, the actions or acts shall be commenced within six months from the date the board of directors approves a resolution to withdraw the plan. If an action concerns or arises out of a plan amendment or proposed plan amendment made under Section 4097.18, the applicable time period is measured from the filing, effective date, or approval of withdrawal of the plan amendment, whichever is later.
Judicial review of any act of the commissioner or any other governmental body or officer concerning or arising out of any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this article may only be had by filing a petition for a writ of mandate within 30 days of the date of the act. However, any petition seeking judicial review shall be filed no later than 30 days from the effective date of the plan of conversion or plan amendment, whichever is the subject of the petition.
The offer or sale of securities, including any debt securities, issued pursuant to the plan of conversion developed and approved in accordance with the provisions of this article, shall be exempt from Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1.
The commissioner shall have the authority from time to time, to make, amend, and rescind any rules and regulations as may be necessary to carry out the provisions of this article. The commissioner shall also have the authority to charge and collect from the insurer for the actual amount of expenses reasonably incurred by the state in discharge of the commissioner’s duties hereunder.
Upon completion of the act of conversion and issuance of the certificate of authority under Section 4097.11, the Secretary of State shall accept for filing a verified copy of the amended articles of incorporation.
The amended articles of incorporation of a converted company that have been adopted pursuant to a plan of conversion and filed with the Secretary of State in accordance with Section 4097.11 may be further amended after the effective date pursuant to applicable law. The plan of conversion may be amended in other respects after the effective date of the plan as specified in this section. The amendment shall take effect upon filing with the Secretary of State after compliance with the following:
Approval by a resolution of at least two-thirds of the board of directors of the converted company. The resolution shall specify the reasons for and the purposes of the proposed amendment.
Submission to the commissioner for consent in writing, subject to the provisions of Section 4097.06.
For the conversion of a mutual insurer, approval by at least two-thirds of those current policyholders of the corporation who were members of the former mutual insurer and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 4097.02 and who vote at a meeting called for that purpose.
For the demutualization of a mutual holding company, approval by at least two-thirds of those current members of the corporation who were members of the former mutual holding company and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 4097.02 and who vote at a meeting called for that purpose.
Filed in the office of the commissioner after having been consented to and approved as contemplated by paragraphs (2), (3), and (4).
If an amendment proposed under subdivision (a) would adversely affect the rights of one or more classes of members, but not all those members, then only the members of each class whose rights would be adversely affected by the proposed amendment are entitled to vote on the proposed plan amendment.
A policyholder or member meeting prescribed by paragraph (3) or (4) of subdivision (a) shall be called by the board of directors, the chairperson of the board, or the president of the converted company. Notice of the meeting shall be given to policyholders or members entitled to vote at the meeting by mail at least 45 days prior to the date set for the meeting. Voting shall be by ballot, in person, or by proxy. A quorum consists of 10 percent of the policyholders or members of the converted company entitled to vote at the meeting.
At any time before the plan amendment becomes effective, the converted company may, by resolution of two-thirds of the board of directors, amend the plan amendment or withdraw its plan amendment. For an amendment to a plan amendment, all references in this section to the plan amendment shall be deemed to refer to the plan amendment as amended. Any amendment of the plan amendment shall require the written consent of the commissioner. No amendment shall be deemed to change the date of adoption of the plan amendment. No amendment made after approval by the policyholders or members as provided in paragraph (3) or (4) of subdivision (a) may change the plan amendment in a manner that the commissioner determines is materially disadvantageous to any of the affected policyholders or members unless the plan amendment as amended is submitted for reconsideration under the procedures prescribed for the original plan amendment policyholder or member approval.
If the name of a mutual insurer converting to a stock insurer pursuant to this article includes the word “mutual,” the new stock insurer may continue to use the word “mutual” in its name if the name includes a word or words that identify the new stock insurer as a stock insurer and the commissioner finds that the continued use of the word “mutual” in its name is not likely to mislead or deceive the public.
CHAPTER 5. County Mutual Fire Insurers [5050. - 7060.]
ARTICLE 1. Formation and Organization [5050. - 5063.]
Two hundred fifty (250) or more persons residing in one county of this State may incorporate for the purpose of forming a mutual fire insurer upon all such persons agreeing to:
Secure fire insurance from such insurer when organized through policies to be issued by such insurer having face amounts aggregating one million five hundred thousand dollars ($1,500,000) or more covering their property of the same or greater value. Such insurer shall retain net of reinsurance aggregate amounts on such policies at least equal to such amount.
Pay the premium for such insurance immediately upon notification by such insurer that it is prepared to issue such policies providing such insurance.
Pay to the insurer immediately upon its incorporation a special deposit of at least one dollar ($1) on each one hundred dollars ($100) of insurance applied for under (a) above, such special deposit to be applied to future premiums payable by such persons either after the expiration of three years or upon the commissioner determining that the insurer has a surplus earned by insurance operations in the amount of at least fifteen thousand dollars ($15,000), whichever occurs first.
If such persons have not performed all acts and secured all agreements necessary to complete the incorporation of such insurer within one year from the date of their first securing an agreement from any person, all proceedings and agreements in connection with such incorporation shall become null and void and all persons entering into such agreements shall be released therefrom.
Any county mutual fire insurer heretofore or hereafter incorporated and doing business under the provisions of this chapter may, if it has issued an insurance policy against fire, and as long as it maintains an excess of admitted assets over liabilities of at least fifty thousand dollars ($50,000), endorse such policy to extend the coverage thereof to include insurance of the kinds included in Sections 107, 112, 120 and 122 (excluding liability insurance).
Upon the payment in advance of seven thousand fifty-five dollars ($7,055) to the commissioner for all services to be rendered by him or her in the matter of organization of the insurer, those persons shall file with the commissioner a declaration of their intention to incorporate for the purposes expressed in Section 5050. The declaration shall be signed by all of those persons, and shall contain a copy of the articles of incorporation proposed to be adopted.
The commissioner shall examine the proposed articles of incorporation. If they conform to this chapter he shall deliver to such persons a certificate permitting them to incorporate such insurer. The certificate shall be directed to the clerk of the county in which such insurer is proposed to be organized and shall contain a copy of the proposed articles of incorporation.
The duly executed articles of incorporation and a copy of the certificate of the commissioner shall be filed with the Secretary of State in conformity with Section 200 of the Corporations Code. Upon organizing under the articles of incorporation and obtaining from the commissioner a certificate of authority, the county mutual fire insurer may carry on a fire insurance business as provided by this chapter. The term and nature of the certificate of authority, annual renewal fee therefor, the due date and delinquent date of the fee shall be the same as prescribed by Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1 for stock and mutual insurers governed by that article.
The articles of incorporation and certificate obtained by any county mutual fire insurer operating under the provisions of this chapter are subject to control and modification by the Legislature of this State.
The by-laws and all amendments thereto shall be filed with the commissioner within sixty days after their adoption.
Such insurer shall have not less than seven, nor more than 11 directors, a majority of whom shall constitute a quorum to do business.
The by-laws or the articles may provide or be amended to provide for either concurrent terms of one year for all directors or staggered terms of not more than five years. If provision is made for staggered terms, such terms shall, except for the first directors elected for staggered terms, be uniform for all directors and so arranged that as nearly equal a number of directors as is feasible shall be elected each year.
The directors shall be elected by ballot from the members of the insurer. They shall hold office for the terms for which they were elected, and until their successors are elected and qualified.
The annual meeting of the members of the insurer shall be held on the second Monday of February of each year, unless its board of directors fixes the time for the annual meeting in which event the board may select any day between the second and third Mondays of February.
In the election of the first board of directors each member shall be entitled to one vote. At every subsequent election each member shall be entitled to as many votes as there are directors to be elected.
A member may cast his votes in person or by proxy, distributing them among the directors to be elected, or among a less number of the directors, or cumulating them upon one candidate, as he sees fit.
The directors shall elect, from their own number, a president and a vice president. They shall also elect a treasurer and a secretary, who need not be members of the insurer nor natural persons. All of such officers hold their office for one year from the date of their election, and until their successors are elected and qualified.
The treasurer and secretary shall give bonds to the insurer for the faithful performance of their duties, in such amounts as are prescribed by the board of directors.
No incorporators or persons acting in their behalf or other persons participating in the management of such insurer shall advance to or for the subscribers or members any premium, special deposit or assessment required to be paid. It is the intent of this chapter that no person shall have a proprietary interest in such insurer, except equally with all other members.
No such insurer may enter into any general agency or management contract whereby it authorizes or delegates to a person the right to assume virtual control of its operations or of the production of business for it in this State or any specified portion thereof.
ARTICLE 2. Powers [5080. - 5081.]
Such insurer and its directors possess the usual powers, and are subject to the usual duties of corporations and directors.
Such insurer may accumulate such surplus as its directors deem desirable for meeting contingencies, to cover the catastrophe hazard, and for general corporate purposes.
ARTICLE 3. Membership [5090. - 5094.]
Any person having an insurable interest in property in the county in which any such insurer is formed or any person having such an interest in property in any adjoining county may become a member by insuring therein. Every member shall be entitled to all the rights and privileges appertaining to membership, except that at least a majority of the directors shall reside either in the county in which the insurer is formed or in any of the counties which were the original domicile of any of the constituent companies of a county mutual merged under Article 9.5 (commencing with Section 7040) of this chapter, and not more than one member from each of the adjoining counties in which it transacts insurance may become one of its directors. Whenever any public or private corporation, board or association in this State has entered into an agreement for and holds a policy in any county mutual insurer operating under this chapter, any officer, stockholder or trustee of any such corporation, board or association may be recognized as acting for or on its behalf for the purpose of such membership, but shall not be personally liable upon such contract of insurance by reason of acting in such representative capacity. The right of any corporation organized under the laws of this State to participate as a member of such county mutual insurer is hereby declared to be incidental to the purpose for which such corporation is organized and as much granted as the rights and powers expressly conferred.
Not more than one person licensed as an insurance agent, broker or solicitor, or who is a member of an association or partnership or a stockholder or employee of a corporation which is so licensed is eligible to be a director of a county mutual insurer. If a director of the board is licensed as an insurance agent, broker or solicitor, or is a member of an association or partnership or a stockholder or employee of a corporation which is so licensed, neither he nor the association, partnership or corporation shall transact insurance with or for a county mutual insurer as an agent, broker or solicitor, or receive any commission from a county mutual insurer.
The secretary or other person who passes upon the risks and upon whose decisions or recommendations the application for insurance is accepted or rejected by the insurer, shall not receive, as any part of his compensation, a commission upon the premiums. His compensation shall be determined by the directors.
Any member of such insurer may commence to withdraw therefrom by surrendering his policy for cancellation, and by giving notice in writing to the secretary at any time during the life of the policy and while the insurer continues the business for which it was organized.
The withdrawal may be completed by paying the member’s share, if any, under the terms of his policy, of all claims that exist against the insurer on the day of such completion.
The insurer may cancel any policy by giving the insured 20 days’ written notice of cancellation with or without tender of the excess of paid premium above the pro rata premium for the expired time, which excess, if not tendered, shall be refunded on demand. Notice of cancellation shall state that the excess premium (if not tendered) will be refunded on demand. The notice may be served in person or by mail, addressed either to the member’s last post office address or, if this is not known, to the address given upon the application which is part of the policy.
In case of cancellation by the insurer it shall also notify in the same manner any holder of a mortgage whose name appears, either on the signed application which is a part of the policy, or otherwise upon the policy and any party to whom loss, if any, is payable.
ARTICLE 4. The Policy [6010. - 6021.]
The following is adopted as the standard form of county mutual fire insurer’s policy for this state:
California Standard Form of County Fire Insurance Policy
No.
(Space for insertion of name of company or companies issuing the policy and other matter permitted to be stated at the head of the policy.)
(Space for listing amounts of insurance, rates and premiums for the basic coverages insured under the standard form of policy and for additional coverages or perils insured under endorsements attached.)
In consideration of the provisions and stipulations herein or added hereto, of the obligations herein and in the application, and of ____ dollars premium this company, for the term of ________
at location of property involved, to an amount not exceeding ____ dollars, does accept as a member and insure ____ and legal representatives, to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair, and without compensation for loss resulting from interruption of business or manufacture, nor in any event for more than the interest of the insured, against all LOSS BY FIRE, LIGHTNING AND BY REMOVAL FROM PREMISES ENDANGERED BY THE PERILS INSURED AGAINST IN THIS POLICY, EXCEPT AS HEREINAFTER PROVIDED, to the property described hereinafter while located or contained as described in this policy, or pro rata for five days at each proper place to which any of the property shall necessarily be removed for preservation from the perils insured against in this policy, but not elsewhere.
For a more particular description, and as forming a part of this policy, reference is had to application No. ___ on file in the office of this company.
This policy is made and accepted subject to the foregoing provisions and stipulations and those hereinafter stated, which are hereby made a part of this policy, together with such other provisions, stipulations and agreements as may be added hereto, as provided in this policy.
The charter and bylaws of this company are to be resorted to and used to explain the rights and obligations of the parties hereto in all cases not herein otherwise specially provided for, and are hereby made a part of this policy. This policy is made and accepted upon the above expressed condition.
IN WITNESS WHEREOF, this company has executed and attested these presents; but this policy shall not be valid unless countersigned by the duly authorized secretary of this company at ____.
Concealment, fraud
This entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto.
Uninsurable and excepted property
This policy shall not cover accounts, bills, currency, deeds, evidences of debt, money or securities; nor, unless specifically named hereon in writing, bullion or manuscripts.
Perils not included
This company shall not be liable for loss by fire or other perils insured against in this policy caused, directly or indirectly, by: (a) enemy attack by armed forces, including action taken by military, naval or air forces in resisting an actual or an immediately impending enemy attack; (b) invasion; (c) insurrection; (d) rebellion; (e) revolution; (f) civil war; (g) usurped power; (h) order of any civil authority except acts of destruction at the time of and for the purpose of preventing the spread of fire; provided, that such fire did not originate from any of the perils excluded by this policy; (i) neglect of the insured to use all reasonable means to save and preserve the property at and after a loss, or when the property is endangered by fire in neighboring premises; (j) nor shall this company be liable for loss by theft.
Other insurance
Other insurance may be prohibited or the amount of insurance may be limited by endorsement attached hereto.
Conditions suspending or restricting insurance
Unless otherwise provided in writing added hereto this company shall not be liable for loss occurring (a) while the hazard is increased by any means within the control or knowledge of the insured; or (b) while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of 60 consecutive days; or (c) as a result of explosion or riot, unless fire ensue, and in that event for loss by fire only.
Other perils or subjects
Any other peril to be insured against or subject of insurance to be covered in this policy shall be by endorsement in writing hereon or added hereto.
Added provisions
The extent of the application of insurance under this policy and of the contribution to be made by this company in case of loss, and any other provision or agreement not inconsistent with the provisions of this policy, may be provided for in writing added hereto, but no provision may be waived except such as by the terms of this policy or by statute is subject to change.
Waiver provisions
No permission affecting this insurance shall exist, or waiver of any provision be valid, unless granted herein or expressed in writing added hereto. No provision, stipulation or forfeiture shall be held to be waived by any requirement or proceeding on the part of this company relating to appraisal or to any examination provided for herein.
Cancellation of policy
This policy may be canceled and the insured as a member of this company may withdraw therefrom by the insured surrendering the policy for cancellation at any time during the life of the policy and while the company continues the business for which it was organized, by giving notice in writing to the company and by paying such obligations as may have accrued against the insured on the day of cancellation. This policy may be canceled at any time by this company by giving to the insured 20 days’ written notice of cancellation with or without tender of the excess of paid premium above the pro rata premium for the expired time, which excess, if not tendered, shall be refunded on demand. Notice of cancellation shall state that said excess premium (if not tendered) will be refunded on demand. If the reason for cancellation is nonpayment of premium, this policy may be canceled by this company by giving to the insured a 10 days’ written notice of cancellation.
Assignment
This company may give its consent in writing allowing the assignment of this policy upon the bona fide sale of the property insured herein; provided, within 30 days from the transfer of the title to the within property and upon the assignment thereof such purchaser or his or her agent signs an agreement becoming a member and accepting the conditions of the within policy; otherwise this policy to be null and void, except as to holders of a mortgage or deed of trust.
Mortgagee interests and obligations
If loss hereunder is made payable, in whole or in part, to a designated mortgagee not named herein as the insured, such interest in this policy may be canceled by giving to such mortgagee a 10 days’ written notice of cancellation.
If the insured fails to render proof of loss such mortgagee, upon notice, shall render proof of loss in the form herein specified within 60 days thereafter and shall be subject to the provisions hereof relating to appraisal and time of payment and of bringing suit. If this company shall claim that no liability existed as to the mortgagor or owner, it shall, to the extent of payment of loss to the mortgagee, be subrogated to all the mortgagee’s rights of recovery, but without impairing mortgagee’s right to sue; or it may pay off the mortgage debt and require an assignment thereof and of the mortgage. Other provisions relating to the interests and obligations of such mortgagee may be added hereto by agreement in writing.
Pro rata liability
This company shall not be liable for a greater proportion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved, whether collectible or not.
Requirements in case loss occurs
The insured shall give written notice to this company of any loss without unnecessary delay, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed; and within 60 days after the loss, unless such time is extended in writing by this company, the insured shall render to this company a proof of loss, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: The time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required and obtainable, verified plans and specifications of any building, fixtures or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person designated by this company all that remains of any property herein described, and submit to examinations under oath by any person named by this company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices and other vouchers, or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by this company or its representative, and shall permit extracts and copies thereof to be made.
Appraisal
In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand. The appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon such umpire, then, on request of the insured or this company, such umpire shall be selected by a judge of a court of record in the state in which the property covered is located. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of appraisal and umpire shall be paid by the parties equally.
Company’s options
It shall be optional with this company to take all, or any part, of the property at the agreed or appraised value, and also to repair, rebuild or replace the property destroyed or damaged with other of like kind and quality within a reasonable time, on giving notice of its intention so to do within 30 days after the receipt of the proof of loss herein required.
Abandonment
There can be no abandonment to this company of any property.
When loss payable
Except where assessment is required as hereinafter provided, the amount of loss for which this company may be liable shall be payable 60 days after proof of loss, as herein provided, is received by this company and ascertainment of the loss is made either by agreement between the insured and this company expressed in writing or by the filing with this company of an award as herein provided.
Assessment for deficiency
When the amount of any loss shall have been ascertained, which exceeds in amount the cash funds of the company, the president shall convene the directors of this company, who shall proceed in the manner provided by Article 8 (commencing with Section 7010) of Chapter 5 of Part 1 of Division 2 of the Insurance Code.
Notice of assessment
It shall be the duty of the secretary, whenever assessment shall have been made, to immediately notify every person holding a risk in this company, personally, by an agent, or by letter directed to the person’s usual post office address, of the amount of such loss, and the sum due from him or her, as his or her share thereof, and of the time and to whom such payment is made; but such time shall not be less than 30 days, nor more than 90 days from date of such notice. No assessment or assessments can be levied under this policy in excess of three times the premium named herein.
Action for neglect or refusal to pay assessments
An action may be brought against the member whose property is insured herein and this policy is automatically suspended if the insured shall not have paid, before it is delinquent, the insured’s portion of any assessment levied or other liability due this company for a period in excess of 90 days. The directors of this company who shall willfully refuse or neglect to perform the duties imposed upon them by law or the bylaws of the company, shall be liable in their individual capacity to the person sustaining such loss. An action may also be brought and maintained against this company by members thereof for losses sustained if payment is withheld after the amount of such losses have been determined and is due by the terms of the policy.
Suit
No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within 12 months next after inception of the loss. If the loss is related to a state of emergency, as defined in subdivision (b) of Section 8558 of the Government Code, the time limit to bring suit is extended to 24 months after inception of the loss.
Subrogation
This company may require from the insured an assignment of all right of recovery against any party for loss to the extent that payment therefor is made by this company.
The amendments to this section made by the act adding this subdivision shall govern a policy utilizing the form provided in subdivision (a) when that policy is originated or renewed on or after January 1, 2004.
The amendments to this section made by the act adding this subdivision govern a policy originated or renewed on or after the effective date of this act.
Notwithstanding paragraph (1), an insurer shall incorporate the revisions to the standard form of county mutual fire insurer’s policy made by the act adding this subdivision on or before July 1, 2019.
The policy is not required to be used for reinsurance between insurers.
Either the blanks in the standard form or those in an endorsement attached thereto shall be appropriately filled. The first page of the policy or an endorsement attached thereto may be arranged to show in schedule form the amounts of insurance, rates and premiums for the basic coverages insured under the standard form of policy and additional coverages or perils insured under endorsements attached, and such other data as may be conveniently included for duplication on daily reports for office records.
If such a schedule clearly shows the amount at risk, the rate, and the premium in respect of fire insurance, the words, “the above specified” may be inserted in the blanks preceding the word “dollars” in the two places in which “dollars” appears in that portion of the standard form which precedes the countersignature clause, or in identical blanks in an endorsement attached to the standard form and containing the paragraph in the standard form in which the blanks appear.
In lieu of showing the term of coverage in the form set forth in Section 6010, the standard form policy may show the term in any form which clearly states the period during which the insurance is to continue. The period shall begin and end on specified dates at 12:01 a.m., standard time, at the location of the property involved. An example of permissible method of showing the term is:
In lieu of the attestation clause and official signatures in the form as set forth in Section 6010, the standard form policy may show, immediately following the policy provisions, the following:
“In witness whereof, this company has executed and attested these presents; but this policy shall not be valid unless countersigned by the duly authorized secretary of this company at ______.
By special agreement indorsed on the policy or added thereto, the provisions regarding appraisement or apportionment of loss may be waived and the valuations of all or any of the insured property in case of total loss may be agreed upon in advance of loss.
The standard form of policy shall be plainly printed. The type shall not be smaller than eight-point and in a style not less legible than Century and subheads shall be in type larger than eight-point and in a style not less legible than Century. The lines of the policy following the countersignature clause shall be numbered consecutively.
All county mutual fire insurance policies on subject matter in this State shall be on the county mutual standard form and, except as provided by this article, shall not contain additions thereto. Except as provided in Section 6017, no part of the standard form shall be omitted from the policy.
The insurer may add to the policy any matter relating to its financial condition, directors, officers, members and history, and the address of its home office and principal office in the State.
Clauses may be added to the policy providing for and defining the rights, duties and obligations of mortgagees, assignees, and other parties having an interest in, right to or lien upon the insured subject matter.
Insurers authorized to limit or eliminate their assessment liability in accordance with the terms of this chapter may make such changes in the standard form as will properly accomplish that purpose.
Insurers authorized to eliminate their assessment liability in accordance with the terms of this chapter may use the California standard form insurance policy in lieu of the standard form prescribed in this chapter.
No clause shall be inserted nor rider attached affecting the standard form liability of the insurer for loss or damage by fire occasioned either directly or indirectly by earthquake, hurricane, volcanic action or other disturbance of nature, unless such rider or clause is printed in red ink in type larger than pica or in capital letters measuring not less than eight one-hundredths (8/100's) of an inch in height, and unless there is printed at the head of the policy in red ink and in large bold-faced type the words: “This policy contains limitations of liability not permitted in the California standard form.”
Clauses may be added to the policy:
Covering property and risks not otherwise covered; provided that clauses covering loss or damage caused by nuclear reaction, nuclear radiation or radioactive contamination, all whether directly or indirectly resulting from an insured peril under the standard policy issued pursuant to Section 6010 may be insured under said policy only by a written endorsement providing such insurance, with such endorsement affixed to said standard policy.
Assuming greater liability than is otherwise imposed on the insurer.
Granting the insured permits and privileges not otherwise provided.
Waivers of any of the matters voiding the policy or suspending the insurance.
Waivers of any of the requirements imposed on the insured after loss.
Except as otherwise provided by this article, clauses may be attached, by separate riders in type larger than pica or in capital letters measuring not less than eight one-hundredths (8/100's) of an inch in height, to the policy, imposing specified duties and obligations upon the insured and limiting the liability of the insurer.
It is a misdemeanor for any insurer or its agent to countersign or issue a county mutual fire insurance policy covering in whole or part subject-matter in this State in violation of this article. Any policy so issued shall notwithstanding be binding upon the issuing insurer.
ARTICLE 5. Risks [6040. - 6050.]
Such insurer may issue policies on dwellings, schoolhouses, churches, fraternal or lodge halls, community, creamery, or farm buildings and property contained in or on such premises or owned by the insured and stored in public or private warehouses.
Insurance permitted by this chapter upon personal property owned by the insured, including automobiles and livestock, shall continue in full force and effect during the use or transportation of the property in the ordinary course of the insured’s affairs if the primary situs of the property is located at the time of loss within this State. Otherwise such insurance is governed by Section 6048.
Policies may be executed for any time not exceeding five years and not extending beyond the time limited for the existence of the insurer.
All members of such an insurer shall agree in writing to pay their pro rata share to the insurer of the necessary expense and loss sustained by any member thereof during the time for which their respective policies are in force. They shall also, at the time of effecting the insurance, pay the insurer such percentage of the estimated cost and such other charges as are required by law or the insurer’s rules and by-laws.
All such insurers shall classify the subject matter insured by them at the time of issuing policies thereon. Such classification shall be under rates corresponding as nearly as practicable to the greater or less risk from loss attached to the several kinds of subject matter insured.
For the purpose of this chapter:
“A city or town block” is an area of not more than one hundred sixty thousand square feet having at least one frontage in a closely built up district fronting on a used public highway, surrounded on all sides by a clear space at least equal in width to the clear space of such public highway.
“Closely built up district” means territory abutting a public highway where for not less than a quarter of a mile the buildings average less than one hundred feet apart.
“One risk” means one hazard under one or more policies, subject to one fire and relates to the amount named in the policy or policies.
“Clear space” means space free from combustible material likely to communicate fire.
Except as provided in this section, such insurer shall not issue policies to an amount in excess of six thousand dollars ($6,000) on any one risk, whether under one or more policies, without immediately reinsuring the excess amount in some other insurer. Any such insurer having more than ten million dollars ($10,000,000) direct insurance in force as shown by its books may, for each one million dollars ($1,000,000) in excess of ten million dollars ($10,000,000), write five hundred dollars ($500) additional insurance in excess of six thousand dollars ($6,000) on each such risk; provided, however, that any such insurer 90 percent of whose business in force is reinsurance assumed and which has more than ten million dollars ($10,000,000) gross insurance in force may, for each one million dollars ($1,000,000) in excess of ten million dollars ($10,000,000), write five hundred dollars ($500) additional insurance in excess of six thousand dollars ($6,000) on each such risk. Any such insurer issuing nonassessable policies as provided in Section 7015 (c) (3) hereof, may issue policies in accordance with Section 3080 of this code.
Except as provided in Section 6041 such insurer shall insure only property within the limits of the county wherein it is organized, or in a county next adjoining the county of organization. In the event that no such insurer may, under the provisions of the preceding sentence, insure property in a county contiguous to the said next adjoining county, then such insurer may also insure property in the said contiguous county.
Such an insurer shall not assume any risks on property situated within any one block of a closely built-up district or of territory within the limit of any incorporated city, unless on a single risk in such block it immediately reinsures all of the amount at risk which is in excess of the limit provided in this article or unless in the case of more than one risk in any such block it immediately reinsures all of the amount at risk which is in excess of one-quarter of 1 percent of its direct amount of insurance in force; provided, however, that any such insurer 90 percent of whose business in force is reinsurance assumed, and which has more than ten million dollars ($10,000,000) gross insurance in force, in the case of more than one risk in any such block, shall immediately reinsure all of the amount at risk which is in excess of one-quarter of 1 percent of its net amount of insurance in force.
Where the amount of insurance in policies already written equals the amount limited by the provisions of this article, no additional insurance shall be written by such insurer on country property within a radius of one hundred feet of an existing risk. Such radius shall continue at not less than seventy-five feet during the life of the policy, unless insurance within the radius is covered by reinsurance.
ARTICLE 6. Reinsurance [6070. - 6072.]
Any such insurer may accept reinsurance under any agreement for reinsurance between two or more county mutual fire insurers or from any authorized insurer the stock of which is wholly owned by county mutual insurers. In any such case the reinsurance accepted by any one insurer shall not exceed the amount of risk retained by the insurer originating the business.
Any such insurer may cede reinsurance provided the amount retained by the originating insurer shall be not less than 10 percent nor less than five hundred dollars ($500); provided, however, that the minimum required hereunder shall never exceed six thousand dollars ($6,000).
The applicable provisions of Sections 922.1 to 922.8 inclusive shall govern for the purposes of testing the solvency and preparing the annual statement of the ceding insurer.
The restrictions imposed by this chapter upon any insurer as to original insurance shall apply to reinsurance written by it.
ARTICLE 7. Loss [6090. - 6091.]
Every member of such insurer who sustains loss by any hazard covered by his policy shall immediately notify the insurer in accordance with the terms of his policy.
An action may be brought and maintained against any such insurer by its members to recover for losses insured against by the insurer, if payment is withheld after the amount of such losses is determined, and is due by the terms of the policy.
ARTICLE 8. Assessments [7010. - 7018.]
When any loss exceeds in amount the cash funds of the insurer and also exceeds one-eighth of one per cent of the total amount of the insurer’s insurance in force, its president shall convene its directors to make an assessment.
Upon being convened for the purpose, the directors shall make an assessment upon all of the property insured in the insurer. Such assessment shall be in proportion to the amount for which each piece of property is insured, taken in connection with the rate of premium under which it is classified.
When the amount of such loss does not exceed one-eighth of one per cent of the total amount of insurance in force in the insurer, its directors may, by resolution in writing signed by two-thirds of all the directors while present at a meeting, borrow money in the name of the insurer and give its evidence of indebtedness therefor, in a total amount not exceeding one-eighth of one per cent of the total amount of insurance thus in force.
The term of any such loan shall not be greater than twelve months nor shall the date of maturity be in excess of thirty days beyond the date of the next annual meeting of the insurer.
The board of directors may at its annual meeting levy an assessment not to exceed twenty-five cents on the $100 of the first class of insurance and a pro rata amount on lower classes. The sum so raised shall constitute a reserve fund to be used in emergency cases only. Another assessment for this fund shall not be made while this reserve fund remains intact.
No assessment or assessments may be levied upon any policy in excess of three times the amount of the premium named therein. The liability to assessment on any policy may be further reduced or eliminated as provided in subdivisions (b), (c), (d), and (e).
Upon written request, and if the commissioner finds that an insurer has a surplus of admitted assets over liabilities of at least:
Seventy-five thousand dollars ($75,000) but less than one hundred fifty thousand dollars ($150,000).
One hundred fifty thousand dollars ($150,000) but less than two hundred fifty thousand dollars ($250,000), or
Two hundred fifty thousand dollars ($250,000); he or she shall issue his or her certificate stating that the insurer has a surplus of at least $____, but less than $____, filling in the applicable amounts, or of at least two hundred fifty thousand dollars ($250,000), as the case may be.
If, when a policy is issued, there is in force an unrevoked certificate issued by the commissioner stating that the insurer has a surplus of admitted assets over liabilities of at least:
Whenever the commissioner finds that the surplus of the insurer is less than the minimum specified in an outstanding certificate he or she shall revoke the certificate.
Upon revocation of the certificate no policy shall thereafter be issued nor be permitted to remain in force beyond the date fixed for the next payment of premium without provision therein or endorsement thereon providing for that assessment liability as may be applicable at the time of issuance or at the time for the payment of the premium.
As used in this section “liabilities” includes liabilities for losses reported, expenses, taxes and all other indebtedness, and provision for reinsuring all outstanding risks.
The commissioner shall charge and collect in advance a fee of one hundred seventy-seven dollars ($177) for issuing a certificate under this article, or for reissuing and amending or changing an obsolete certificate at the request of an insurer.
The secretary, whenever such an assessment is made, shall immediately notify every policyholder in such insurer either personally, by agent, or by letter directed to the policyholder’s usual post-office address, stating:
The amount of the loss.
The sum due from the policyholder as his share.
To whom such payment is to be made.
The time when the payment is to be made. Such time shall not be less than thirty days nor more than ninety days from the date of mailing notice.
The insurer may bring an action against any member who neglects or refuses to pay an assessment made upon him under the provisions of this chapter, or to pay other liabilities due the insurer.
A director of any such insurer who wilfully refuses or neglects to perform the duties imposed upon him by law or by the insurer’s by-laws shall be liable in his individual capacity to the person sustaining a loss.
ARTICLE 9. Reports and Statements [7030. - 7031.]
The secretary shall prepare an annual statement, showing the condition of such insurer on December thirty-first preceding the annual meeting. He shall present the statement at the annual meeting.
The president and secretary shall, on or before the first day of March of each year, prepare, under oath, and transmit to the commissioner a statement of the condition of the insurer as of the thirty-first day of December then next preceding.
ARTICLE 9.5. Merger [7040. - 7044.5.]
Notwithstanding the provisions of Section 900 of the Corporations Code, any two or more of such insurers may merge. The plan and agreement by which any such merger is to be effected shall be submitted to the commissioner who shall examine the same and may require such provisions to be inserted in the agreement and such actions to be taken in connection with the merger (including but not limited to: (1) the terms of the merger, (2) the terms of the notice of the vote by the members of each such insurer on the merger, and (3) the manner and form of voting thereon by the members of each such insurer) as he may deem necessary in order that the transaction shall be mutually fair and equitable between the respective members and policyholders of the companies parties to the merger. The commissioner shall not approve any such plan and agreement if the bylaws of any insurer party to the merger have been amended within one year prior to the date of filing of such plan and agreement with the commissioner.
When any such plan and agreement shall have been approved by the commissioner, with changes, if any required by him, the same shall be approved by a vote of not less than two-thirds of the members voting at a meeting of the members of each such insurer involved at which there shall be present in person or by proxy at least 10 percent of the members entitled to vote.
If the vote is in the affirmative a certified copy of all proceedings relating to the proposed merger shall be filed with the commissioner. If the commissioner finds that the proceedings have been in accordance with the law and his or her requirements, he or she shall issue his or her certificate approving the plan and agreement and the merger shall become effective when the certificate, the agreement, and any other documents required by law have been filed with the Secretary of State.
The fee for issuing a certificate approving the merger shall be three hundred nine dollars ($309) for the original certificate, payable in advance, with the filing of the first merger papers with the commissioner; and nine dollars ($9) shall be charged for each signed and sealed or certified copy thereof issued as part of the same transaction in which the original certificate is issued.
After any merger made under the provisions of this article shall have been completed, the surviving corporation shall be deemed, for the purpose of the territorial limit provided in Section 6048, to have been organized not only in its county of organization but also in the county of organization of the county mutual insurer which was merged into it.
Any plan of merger under this article shall provide that all rights and properties of the parties to the plan of merger shall accrue to and become the rights and properties of the surviving corporation, which surviving corporation shall succeed to and assume all the obligations and liabilities of the merged corporations in the same manner as if incurred or contracted by the surviving corporation.
Any one or more county mutual fire insurers, by following the procedure of this article, may merge into a general mutual insurer described in Chapter 4 (commencing with Section 4010) of Part 1, Division 2 of this code. Such general mutual insurer shall become the surviving corporation.
Any two or more county mutual fire insurers may merge, concurrently with the transformation of one of the constituent corporations under Article 9.6 (commencing with Section 7045) of Chapter 5, Part 1, Division 2 into a general mutual insurer. The constituent transformed into a general mutual insurer shall be the surviving corporation.
ARTICLE 9.6. Transformation [7045. - 7049.]
The board of directors of any county mutual fire insurer that desires to commence proceedings for transformation of that insurer to a general mutual insurer shall adopt a resolution to that effect and submit to the commissioner a plan for effecting that transformation accompanied by an application for approval thereof and a fee of four hundred ninety-four dollars ($494).
After the commissioner has granted tentative approval of any such application, a county mutual fire insurer that shall meet the financial requirements applicable to other insurers under Article 3 (commencing with Section 699), Chapter 1, Part 2, Division 1, may by the majority vote of those of its policyholders voting at a meeting duly called for the purpose, elect to transform itself into a general mutual insurer as defined in Chapter 4 (commencing with Section 4010) of Part 1, Division 2 and amend its articles of incorporation and bylaws to conform to, cover, and enjoy any or all of the provisions, powers, rights, and privileges of such a mutual insurer, notwithstanding the restrictions or limitations of any other provision of law, including, but not limited to, Section 900 of the Corporations Code. No such transformed county mutual fire insurer may engage in the business of life, title, mortgage, or mortgage guarantee insurance.
The meeting called for the purpose of transformation, shall be preceded by a written or printed notice of the meeting and its purpose addressed to each policyholder of record on the date of the notice, mailed at least 30 days before that date fixed for the meeting. The presence in person or by proxy of 5 percent of the policyholders entitled to vote shall constitute a quorum unless a higher percentage is required by the bylaws or articles of incorporation of the insurer.
Such corporation shall be a continuance of the original corporation by the same name or by any other name approved by the commissioner. Such transformation, however, shall in no way annul, modify or change any of the existing contracts and liabilities of such corporations, and any and all such contracts and liabilities shall continue in force and effect the same as though such corporation had not transformed or qualified under this article, nor shall such transformation in any way prejudice, impede or impair any pending action or proceeding or any rights previously acquired. Certified copies of all proceedings in connection with such transformation, together with a certified copy of the articles of incorporation as amended, shall be filed with the commissioner.
After the policyholders have elected such a transformation a county mutual insurer shall submit to the insurance commissioner for final approval of the transformation a certified copy of all proceedings together with an application for a new certificate of authority accompanied by the necessary filing fee. The said transformation shall become effective upon the occurrence of the last of the three following events: (1) the final approval by the insurance commissioner, (2) the issuance of a new certificate of authority, and (3) the filing of certified copies of amended articles of incorporation with the Secretary of State.
ARTICLE 10. Dissolution [7050. - 7050.]
Any such insurer may be proceeded against and dissolved in the same manner and upon the same conditions as in the case of other domestic incorporated insurers.
ARTICLE 11. Exemptions [7060. - 7060.]
The provisions of subdivision (f) of Section 381 and the provisions of Sections 382, 383, 384, 750, 751, 752, 753, 754, 755, 756, 757, 758, 759, 761, 762, 763, 764, 765, 766, 800, 801, 802, 803, 804, 805, 806, 807, 808, 809, 980, 981, 982, 983, 984, 985, 986, 987, 988, 989, 990, 991, 992, and 993 shall not apply to county mutual fire insurers.
CHAPTER 6. County Mutual Fire Reinsurers [7080. - 9060.]
ARTICLE 1. Formation and Organization [7080. - 7093.]
Five or more insurers, operating under Chapter 5 of this part and having insurance liabilities exceeding a total of $150,000 which they wish to reinsure, may incorporate for the purpose of mutual reinsurance against any loss or damage by any hazard which county mutual fire insurers may insure.
Upon payment in advance of two hundred fifty dollars ($250) cash, lawful money of the United States, to the commissioner for all services to be rendered by him in the matter of the organization of the reinsurer, such insurers shall first file with the commissioner a declaration of their intention to incorporate such a reinsurer.
The declaration shall be signed by the president and secretary of each of the incorporators. It shall be accompanied by a certified copy of a resolution passed by the board of directors of each incorporator stating that it is the desire of the particular insurer to become one of the incorporators. Such declaration shall also contain a copy of the articles of incorporation proposed to be adopted.
The articles shall be executed by each incorporator through its president or secretary, each signature being acknowledged as required by the general corporation law.
The commissioner shall examine the proposed articles of incorporation, and if they conform to this chapter, he shall deliver to such incorporators a certificate permitting them to incorporate as such reinsurer. The certificate shall contain the proposed articles of incorporation.
Upon filing with the Secretary of State of the articles of incorporation and the certificate provided for in Section 7084, the incorporation of the reinsurer shall be complete and it may engage in business as such reinsurer upon applying for and obtaining from the commissioner a certificate of authority. The term and nature of such certificate of authority, annual renewal fee therefor, the due date and delinquent date of such fee shall be the same as provided by Article 3, Chapter 1, Part 2, Division 1, of this code for stock and mutual insurers governed by said article. No county mutual fire reinsurer shall transact business in this State without a valid and subsisting certificate of authority as provided for herein; provided, however, that any such reinsurer presently authorized to conduct such business shall not be required to pay the first ten dollars ($10) annual certificate of authority fee until April 1, 1964.
Three delegates shall be elected by each member at its regular annual meeting to represent it at all meetings of the reinsurer.
The delegates shall be elected by ballot and shall hold office for one year, or until their successors have been elected and qualified.
The annual meeting of the members of the reinsurer shall be held on the third Monday in February of each year.
At such meeting one director shall be elected from the delegates of each member so that the number of directors is equal to the number of members of the reinsurer. The by-laws shall fix the manner of, and time for, increasing or diminishing the number of member insurers and, correspondingly, of directors. A majority of the directors shall constitute a quorum for the transaction of business.
In the election of the first board of directors each member insurer shall be entitled to one vote. At every subsequent election, each delegate from each member shall have as many votes as there are directors to be elected, and he may cast the votes in person or by proxy, distributing them among the directors to be elected or among a less number of directors, or cumulating them upon one candidate as he sees fit.
The directors of the reinsurer shall elect from their own number a president, a vice president, and an executive committee of three. They shall also elect a treasurer and a secretary, who need not be members of any member insurer nor natural persons.
The directors and all of such officers shall hold office for one year from the date of their election, and until their successors are elected and qualified.
The treasurer and secretary shall give bonds to the reinsurer in such amounts as are prescribed by the board of directors, conditioned upon the faithful performance of their duties.
ARTICLE 2. Powers and Duties [8010. - 8011.]
Upon organizing under its articles of incorporation, such reinsurer may carry on a fire reinsurance business as provided by this chapter.
Such reinsurer and its directors shall possess such of the usual powers, and be subject to such of the usual duties of corporations and directors thereof as are necessary for the management of its affairs in accordance with the provisions of this chapter, including the power to prescribe the duties of its officers and fix their compensation.
ARTICLE 3. Additional Memberships [8030. - 8031.]
Any county mutual fire insurer in this State may become a member of such a reinsurer and entitled to all the rights and privileges appertaining thereto.
County mutual fire insurers, upon becoming members of such reinsurer, shall give it their written obligation binding themselves and their successors to pay their pro rata share of the necessary expenses and loss sustained by any member of the reinsurer during the time for which their respective policies are written. They shall also at the time of effecting the reinsurance pay such percentages and such other charges as are required by law or by the rules and by-laws of the reinsurer.
ARTICLE 4. Risks [8050. - 8053.]
Restrictions on risks as to “distances,” “city or town block,” “closely built up district,” “one risk,” and “clear space,” in chapter 5 of this part are binding upon such reinsurers and shall govern the writing of all reinsurance.
All such reinsurers shall classify the reinsured subject matter at the time of issuing policies thereon, under rates corresponding as nearly as practicable to the several kinds of subject matter.
Such reinsurer may write reinsurance on property which is located in this State and which is insured in any member insurer.
Such reinsurer shall not at any time write reinsurance, subject to one risk, in excess of five per cent of the total amount of reinsurance on its books at the time of accepting the risk.
ARTICLE 5. Loss [8070. - 8078.]
A member of such reinsurer, upon sustaining loss covered by reinsurance, shall immediately notify the president or secretary, stating the amount of loss.
The president and secretary shall proceed to ascertain the amount of such loss and make adjustment.
If the claim is for more than five thousand dollars ($5,000), the secretary shall forthwith notify each member of the executive committee. At each regular meeting of the directors the secretary shall furnish them with a statement showing all claims filed since the previous regular meeting of the directors.
If in any case there is a failure of the parties to agree upon the amount of such loss they may submit the question of the amount to arbitration. In that event the president of the reinsurer shall appoint one disinterested person to act as an arbitrator, and the member shall appoint another.
If the two arbitrators thus appointed fail to agree upon the amount of such loss, they shall select a third disinterested person to act with them.
Such arbitrators so appointed may examine witnesses and do all other things necessary to the proper determination of the amount of loss sustained by the claimant.
The arbitrators shall make their award in writing to the president of the reinsurer and to the member. Such award shall be final as to the amount of the loss sustained.
The pay of each arbitrator shall be five dollars per day for each day’s services rendered, and five cents for each mile necessarily traveled in the discharge of his duties. Such compensation shall be paid by the claimant unless the award of the arbitrators exceeds the sum offered by the reinsurer in liquidation of the loss. In the latter case such expense shall be paid by the reinsurer.
The president and secretary of the reinsurer may secure the services of an adjuster to represent it on any loss, subject to confirmation by its executive committee.
ARTICLE 6. Assessments and Coverage of Loss [8090. - 8097.]
When the amount of any ascertained loss exceeds the cash funds of the reinsurer and also exceeds one-eighth of one per cent of the total amount of the insurance in force in the reinsurer, the president shall convene its directors. On so convening, the directors shall assess each member in proportion to the member’s reinsurance, taken in connection with the rate of premium under which such reinsurance is classified.
When the amount of such loss does not exceed one-eighth of one per cent of the total amount of insurance in force in the reinsurer, the directors may, by resolution in writing signed by two-thirds of all the directors while present at a meeting, borrow in the name of the reinsurer and give its evidence of indebtedness therefor, in an amount not exceeding one-eighth of one per cent of the total amount of such insurance in force.
The term of such loan shall not be longer than twelve months, and the date of maturity shall not be more than thirty days beyond the date of the next annual meeting of the reinsurer.
The board of directors may at their annual meeting levy an assessment not exceeding twenty-five cents on the $100 of reinsurance. The sum so raised shall constitute a reserve fund to be used in emergency cases only. Another assessment for this purpose shall not be made while this reserve fund remains intact.
Whenever an assessment is made, the secretary shall immediately notify every member by registered letter addressed to the secretary of the member at its usual post-office address, stating:
The amount of such loss.
The sum due from the member as its share.
To whom payment is to be made.
The time, not less than thirty nor more than ninety days from the date of mailing notice, when payment is to be made.
An action may be brought against any member of such reinsurer that neglects or refuses to pay the liabilities due such reinsurer.
The directors of any such reinsurer who wilfully refuse or neglect to perform the duties imposed upon them by law or by the by-laws of the reinsurer are liable in their individual capacity to the reinsurer sustaining loss.
An action may also be brought and maintained against any such reinsurer by members thereof to recover sums owing them for losses sustained when payment is withheld after the amount of such losses is determined and is due by the terms of the policy.
ARTICLE 7. Cancellation of Membership [9010. - 9012.]
Any member of such reinsurer may cancel any policy of reinsurance at any time while the reinsurer continues its reinsurance business.
The cancellation may be accomplished only by complying with all of the following requirements:
Surrender of policy for cancellation.
Giving ten days’ notice in writing to the secretary of the reinsurer.
Payment of the member’s share of all claims that exist against the reinsurer.
The reinsurer may cancel or terminate any policy by giving the member ten days’ written notice and returning to it any excess of premium paid during the term of the policy over the cost of its reinsurance as measured by the rules or methods of admitted fire insurers issuing nonassessable policies on a reserve basis.
ARTICLE 8. Reports and Statements [9030. - 9031.]
The secretary shall prepare an annual statement, showing the condition of such reinsurer on December thirty-first and a supplemental report of the business of the reinsurer to January thirty-first and present both reports at the ensuing annual meeting.
The president and secretary shall, on or before the first day of March of each year, prepare under oath, and transmit to the commissioner, a statement of the condition of the insurer as of the thirty-first day of December then next preceding.
ARTICLE 9. Dissolution [9050. - 9050.]
Any such reinsurer may be proceeded against and dissolved in the same manner and upon the same conditions as in the case of other domestic insurers.
ARTICLE 10. Exemptions [9060. - 9060.]
CHAPTER 7. Fraternal Fire Insurers [9080. - 9103.]
Except as provided by this chapter, an association organized and operating on or before January 1, 1947, under this chapter is not governed by the provisions of this code or other insurance laws of this State. No other association shall be formed or transact insurance under this chapter.
On and after January 1, 1954, no association shall transact insurance under this chapter unless it has theretofore received and continues to hold a certificate of exemption from the commissioner.
Before procuring such certificate such association shall file with the commissioner certified copies of the articles of incorporation, association, by-laws, rules and regulations or other organization or governing documents, together with certified copies of all evidences of insurance which it proposes to issue. It shall thereafter file with the commissioner certified copies of all amendments to such documents or evidences. The commissioner shall issue such certificate of exemption upon application by such association and a showing by it that it qualifies therefor under the provisions of this chapter.
Such certificate of exemption is subject to suspension or revocation by the commissioner if the organization fails to comply with the requirements of this chapter.
The proceedings shall be conducted in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all the powers granted therein.
Such association is subject to Sections 1 to 41, inclusive, and to Articles 4 and 14 of Chapter 1, Part 2, Division 1 of this code.
Any religious organization engaged in the business of writing fire insurance solely for its members and its churches on the effective date of this section, and which has been doing so continuously in California since January 1, 1925, is subject to all applicable provisions of this chapter.
Any religious organization described in this section shall not write insurance:
In excess of 10 percent of its capital and surplus as shown in its last statement on file with the commissioner, on any one risk, or in excess of 20 percent of its capital and surplus as shown in its last statement on file with the commissioner in any one city block within an incorporated city without immediately reinsuring the excess over those amounts.
On business property within any incorporated city.
Secret fraternal societies, having lodges, councils or granges in this State, conducting their business and securing their membership on the lodge, council or grange system exclusively, and having ritualistic work and ceremonies in their lodges, councils or granges, may form an insurer by association of the members of their order or society, binding themselves to contribute to each other’s loss by fire.
Such association shall be formed by filing a certificate in the office of the Secretary of State and a like certificate in the office of the clerk of each county in which a member has property insured in said association. Each such certificate shall state:
Generally, the objects of the association.
Its principal place of business.
The names of its officers.
Such certificates shall be signed by the officers of the association and verified by at least three of them.
The officers of the association shall be members of the association, having property insured therein.
Such an association may insure the property of its members against loss or damage by fire for an amount not exceeding ten thousand dollars ($10,000) on any one risk, subject to the following conditions as to amount:
A risk in excess of three thousand five hundred dollars ($3,500) shall not be binding as to such excess until risks to the amount of two hundred thousand dollars ($200,000) have been written and all premiums paid thereon.
A risk of more than one thousand five hundred dollars ($1,500) shall not be binding as to such excess until risks to the amount of one hundred thousand dollars ($100,000) have been written and all premiums paid thereon.
A risk regardless of amount, shall not be binding until risks to the amount of seventy-five thousand dollars ($75,000) have been written and all premiums paid thereon.
A risk shall not be written by such association except for members in good standing on the books of the society forming the association. A suspension or withdrawal from membership in such society shall suspend the insurance until the member is restored to good standing in the society and association. A restoration to membership after suspension therefrom shall not extend the term of the insurance.
All such associations shall classify the property insured by them at the time of issuing policies on such property. The classification shall be under different rates, corresponding as nearly as practicable to the greater or less risk from fire loss attached to the insured property.
No property within the corporate limits of any city or town shall be insured except dwellings and the contents thereof, grange halls and the contents thereof, other grange property, and any buildings appurtenant thereto.
Section 9087 is not applicable to insurance covering an insurable interest of a member in property which was insured by the association prior to the inclusion of the property within the corporate limits of a city.
Such association shall provide in its by-laws for the ascertainment of loss or damage by fire, and for the payment thereof.
Such association by and in its own name may:
Sue and be sued.
Loan such funds as it has on hand in such manner as its articles of association and its by-laws provide.
Own sufficient real property for its business purposes, and such other real property as it becomes necessary to purchase on foreclosure of its mortgages. Real estate obtained by such foreclosure shall be sold and conveyed within five years from the time title vests in the association.
Make such by-laws, not inconsistent with the laws of this State, as are necessary for its government and for the transaction of its business.
Such association creates a mutual agreement of its members to participate in each other’s loss by fire.
Every insured shall give to the association a written instrument binding him to pay his share, proportioned to his insurance in the association, of the expense of operation and of the fire loss sustained by it during the term of his policy. Such loss consists of amounts paid or owing to insureds by reason of losses under the terms of fire policies issued by the association, together with the necessary expenses of the association in respect to such losses.
Persons insuring property with the association shall, at the time of effecting the insurance, pay such a percentage in cash, and such other charges, as are required by the rules or by-laws of the association.
Policies of the association may be canceled by either party thereto. In such case settlement or adjustment shall be made in accordance with the terms of the by-laws of the association.
The secretary of each such association shall prepare an annual statement showing the financial condition of the association, including a statement of all assets and liabilities, as of the thirty-first day of December then next preceding. Such statement shall be verified under oath by the president and secretary of the association. A copy of the verified statement shall be transmitted to the commissioner on or before the first day of March of each year.
An association may, if it has issued an insurance policy against fire, endorse that policy to extend the coverage thereof to include loss or damage caused by windstorm, cyclone, tornado and hail, explosion, riot, riot attending a strike, aircraft, vehicles and smoke, and to include waiver of the fallen building clause.
An association may also insure against any or all of the following:
Water damage from plumbing and heating systems.
Rupture or bursting of steam or hot water heating system.
Vandalism or malicious mischief.
Glass breakage.
Ice, snow, and freezing.
Fall of trees.
Collapse.
Burglary and theft.
Mysterious disappearance.
Liability.
As used in this section “explosion” does not include explosions (1) of any boiler, heater, or other fired pressure vessel, caused by pressure of contents, (2) of any unfired pressure vessel or of any piping caused by pressure of contents or vacuum, (3) of any engine, turbine, compressor, pump, or wheel, (4) of any electrical apparatus, or (5) of any other machine having moving or rotating parts. This restricted definition of “explosion” does not exclude loss or damage by fire only where fire ensues.
As used in this section, the terms “boiler,” “heater,” and “pressure vessel,” do not include hot water heaters used solely to provide hot water for delivery to faucets for domestic purposes and having a storage capacity of not more than 50 gallons.
An association certificated under this chapter is hereby declared to be a charitable and benevolent institution, and all of its funds shall be exempt from all and every state, county, district, municipal, and school tax, other than taxes on real estate and office equipment.
An association or organization certified under this chapter may reinsure all of its policies with, and, upon the assumption of all of its liabilities, may transfer its assets to, any mutual insurer admitted to transact the classes of insurance embraced within the policies issued by such organization or association, upon compliance with Sections 9098 through 9103, inclusive.
The plan and agreement by which any transaction permitted by Section 9097 is to be effected shall be approved by the board of directors or other governing body of that organization or association and submitted to the commissioner accompanied by an application for approval thereof and a fee of four hundred ninety-four dollars ($494).
The commissioner shall examine such plan and agreement and may require such provisions to be inserted in the agreement and such actions to be taken in connection with the transaction (including but not limited to: (1) the terms of the reinsurance, transfer and assumption, (2) the terms of the notice of the vote thereon by the members of such organization or association, and (3) the manner and form of voting thereon by such members) as he may deem necessary in order that the transaction shall be fair and equitable to the members of such organization or association.
When any such plan and agreement shall have been approved by the commissioner with such changes, if any, required by him, the same shall be approved by a vote of not less than two-thirds of those members of such organization or association voting in person or by proxy at a meeting of the members.
The meeting of members at which the transaction is voted upon shall be preceded by a written or printed notice of the meeting and of the purpose to vote thereat upon the plan or agreement for reinsurance, transfer and assumption, addressed to each member of record on the date of the notice and mailed at least 30 days before the date fixed for the meeting. The presence in person or by proxy of 5 percent of the members of such organization or association entitled to vote shall constitute a quorum unless a higher percentage is required by the articles of incorporation, association, bylaws, rules or regulations or other organization or governing documents. In the absence of a quorum, the members present at the meeting in person or by proxy may adjourn the meeting to a later date and no further notice need be given of the date to which the meeting is adjourned.
If the members vote to approve the plan of reinsurance, transfer and assumption, a certified copy of all proceedings relating thereto shall be filed with the commissioner. If the commissioner finds that the proceedings have been in accordance with the law and his requirements, he shall issue his certificate approving the plan and the agreement and the transaction shall become effective at that time or upon such later date as may be specified in the agreement.
The board of directors or other governing body of such organization or association shall file with the Secretary of State a duplicate original of the commissioner’s certificate approving the plan and agreement and thereupon such organization or association shall cease to exist except for the purpose of completing the winding up of its affairs.
CHAPTER 8. Underwriters Fire Patrols [10020. - 10080.]
ARTICLE 1. Scope of Chapter and Definitions [10020. - 10022.]
As used in this chapter, an underwriters’ corps means a corps of men with proper officers and equipment, maintained to discover and prevent fires and save life and property from fire.
This chapter shall not impair or interfere with the powers or duties of the regular fire department of any municipality.
Any act of an underwriters’ corps shall not justify any owner of any property in abandoning such property.
ARTICLE 2. Formation and Organization [10040. - 10040.]
Any domestic corporation of insurance underwriters, organized to discover and prevent fires and save life and property from fire and doing business within any municipal corporation of this State, may at its own expense maintain an underwriter’s corps.
ARTICLE 3. Powers [10050. - 10052.]
For the effective discharge of such duties, an underwriter’s corps may enter any burning building or any building in which property is burning, or any building such corps or any officer thereof deems to be immediately exposed to an existing fire or in danger of taking fire from a burning building, and may remove or otherwise protect any property from fire or damage by water during and immediately after such fire.
Such corporation, with its officers and corps, when going to a fire with its equipment, has the same right of way as the regular fire department of the municipality in which such corporation is operating, except as to such fire department.
All ordinances passed by the municipal authorities of any city or town wherein such a corporation carries on business, and all laws of this State applicable to such municipality which provide for the punishment of any person or persons wilfully or carelessly obstructing the progress of the apparatus of the fire department of such municipality while going to a fire, or of any person or persons wilfully or carelessly injuring any animal or property of said fire department, shall likewise apply to such corporation to the same extent as to such fire department. Such laws and ordinances and their penalties, may be enforced in the same courts and in the same manner, and with equal force and effect in the case of such corporation as in the case of the fire department.
ARTICLE 4. Meetings and Assessments [10070. - 10080.]
In July of every year, there shall be held a meeting of every corporation created for the purpose specified in this chapter.
Ten days’ notice of the meeting shall be inserted in at least one daily newspaper published in the municipality in which the corporation is established.
At such meeting each insurer or insurance agent, doing a fire insurance business in the municipality, whether a member of the corporation or not, has a right to be represented and is entitled to one vote.
A majority of the whole number so represented may decide the question of sustaining the fire patrol organized by the corporation and may fix the maximum amount of expenses to be incurred therefor during the ensuing fiscal year.
The amount of expense so fixed shall not exceed two per cent of the aggregate premiums returned as received, as provided in section 10076. The whole of such amount, or so much thereof as is necessary, may be assessed upon all insurers or insurance agents who assume risks or accept premiums for fire insurance in said municipality. Such assessment shall be made in proportion to the several amounts of premiums returned as received by each in the statement required by section 10076.
Such assessment is collectible by and in the name of the corporation, in any court of competent jurisdiction, in such manner and at such time or times as the corporation determines.
In order to pay persons employed by the corporation, and to maintain apparatus for saving life and property and suitable quarters the corporation may require a statement to be furnished, semiannually, by all persons mentioned in section 10074, setting forth the aggregate amount of premiums received for insuring property in the municipality during the six months next preceding July first and January first, respectively, of each year.
Each statement shall be under oath and shall be handed to the secretary of the corporation within ten days after each first day of July and each first day of January. A statement covering the receipts of a natural person shall be sworn to by the person whose receipts it covers. Otherwise the statement shall be sworn to by the president, secretary or agent of the person whose receipts it covers.
The secretary of such corporation shall, within the prescribed ten days, by written demand signed by him, require the statement from every person assessable under this chapter.
The demand may be delivered personally at the office of every person required to furnish the statement. Every such person, or officer thereof, who, for fifteen days after said demand, neglects to render the statement forfeits fifty dollars for the use of the corporation, and also forfeits for its use twenty-five dollars in addition for every day such neglect is continued after the expiration of the fifteen days. Such additional penalty may be computed and collected up to the time of the trial of any action brought for its recovery.
The corporation may bring action to recover such penalty, with costs, in any court of competent jurisdiction.
CHAPTER 8.5. Earthquake Insurance [10081. - 10089.4.]
No policy of residential property insurance may be issued or delivered or, with respect to policies in effect on the effective date of this chapter, initially renewed in this state by any insurer unless the named insured is offered coverage for loss or damage caused by the peril of earthquake as provided in this chapter. That coverage may be provided in the policy of residential property insurance itself, either by specific policy provision or endorsement, or in a separate policy or certificate of insurance which specifically provides coverage for loss or damage caused by the peril of earthquake alone or in combination with other perils.
The earthquake coverage shall be in accordance with the insurer’s rules and rating plan, provided, however, that nothing contained in this chapter shall require an insurer to issue a policy of residential property insurance except in accordance with the insurer’s usual underwriting standards. However, those standards shall not permit an insurer to provide a policy of residential property insurance unless the offer of coverage required by this chapter is made.
Notwithstanding any other provision of law, the following provisions regarding loss requirements, appraisals, and adjusters shall apply to the following types of policies originated or renewed on and after January 1, 2002: all policies of residential property insurance, as defined in Section 10087, all policies, endorsements, or certificates of insurance providing coverage for loss or damage caused by the peril of earthquake issued pursuant to this chapter; and all policies of basic residential earthquake insurance issued pursuant to Chapter 8.6 (commencing with Section 10089.5).
Requirements in case loss occurs
The insured shall give written notice to this company of any loss without unnecessary delay, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged and undamaged property, showing in detail quantities, costs, actual cash value and amount of loss claimed; and within 60 days after the loss, unless the time is extended in writing by this company, the insured shall render to this company a proof of loss, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom and for what purpose any building herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies and, if required and obtainable, verified plans and specifications of any building, fixtures or machinery destroyed or damaged. The insured, as often as may be reasonably required and subject to the provisions of Section 2071.1, shall exhibit to any person designated by this company all that remains of any property herein described, and submit to examinations under oath by any person named by this company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices and other vouchers, or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by this company or its representative, and shall permit extracts and copies thereof to be made. The insurer shall inform the insured that tax returns are privileged against disclosure under applicable state law but may be necessary to process or determine the claim.
The insurer shall notify every claimant that they may obtain, upon request, copies of claim-related documents. For purposes of this section, “claim-related documents” means all documents that relate to the evaluation of damages, including, but not limited to, repair and replacement estimates and bids, appraisals, scopes of loss, drawings, plans, reports, third party findings on the amount of loss, covered damages, and cost of repairs, and all other valuation, measurement, and loss adjustment calculations of the amount of loss, covered damage, and cost of repairs. However, attorney work product and attorney-client privileged documents, and documents that indicate fraud by the insured or that contain medically privileged information, are excluded from the documents an insurer is required to provide pursuant to this section to a claimant. Within 15 calendar days after receiving a request from an insured for claim-related documents, the insurer shall provide the insured with copies of all claim-related documents, except those excluded by this section. Nothing in this section shall be construed to affect existing litigation discovery rights.
Appraisal
In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon the umpire, then, on request of the insured or this company, the umpire shall be selected by a judge of a court of record in the state in which the property covered is located. Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, “informal” means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of appraisal and umpire shall be paid by the parties equally. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either the insured or this company but shall not be compelled.
Adjusters
If, within a six-month period, the company assigns a third or subsequent adjuster to be primarily responsible for a claim, the insurer, in a timely manner, shall provide the insured with a written status report. For purposes of this section, a written status report shall include a summary of any decisions or actions that are substantially related to the disposition of a claim, including, but not limited to, the amount of losses to structures or contents, the retention or consultation of design or construction professionals, the amount of coverage for losses to structures or contents and all items of dispute.
If an insurer subject to this chapter charges an additional earthquake insurance premium or deductible because a dwelling fails to comply with paragraph (1), (2), or (3) and the dwelling is subsequently brought into compliance with any one of these paragraphs, then the additional premium or deductible attributed to noncompliance shall not be charged.
Compliance with Section 19215 of the Health and Safety Code for the bracing, anchoring, or strapping of all water heaters to resist falling or horizontal displacement due to earthquake motion.
Compliance with the foundation anchor bolt requirements of the 2007 edition of the California Building Standards Code as specified in Title 24 of the California Code of Regulations, or a successor edition of that code, or with any local government modifications to those requirements.
Compliance with the bracing requirements for cripple walls of the 2007 edition of the California Building Standards Code as specified in Title 24 of the California Code of Regulations, or a successor edition of that code, or with any local government modifications to those requirements.
A copy of the approved inspection record for the building permit for work performed pursuant to this section shall be submitted by the insured to the insurer in order to verify that retrofits performed pursuant to this section have been performed. The additional premium or deductible paid shall be refunded to the insured and prorated as of the date the approved inspection record is received by the insurer.
The offer of coverage required by Section 10081 may be made prior to, concurrent with, or within 60 days following the issuance or renewal of a residential property insurance policy. If the offer of coverage is mailed to the named insured or applicant, it shall be mailed to the mailing address shown on the policy of residential property insurance or on the application.
If the offer is made by a nonparticipating insurer as defined in Section 10089.5, the offer of earthquake coverage shall contain all of the following language in at least 10-point boldface type:
“Your residential property insurance policy does not cover earthquake damage to your home or its contents.
To cover earthquake damage to your home and its contents you need to purchase a separate earthquake insurance policy. The coverage provided by an earthquake insurance policy is different from, and typically more limited than, the coverage provided by your residential property insurance policy.
California law requires insurance companies to offer earthquake insurance in conjunction with a residential property insurance policy. If you do not accept the offer of earthquake insurance below within 30 days of the mailing of this notice, your insurance company shall presume that you have not accepted this offer of earthquake insurance.
You may purchase earthquake insurance coverage on the following terms:
Amount of Dwelling/Building Coverage Limit: _______________
Deductible: ______________
Contents Coverage Limit: _______________
Additional Living Expenses Coverage Limit: _____________
Estimated Annual Premium:_______________
The deductible represents the amount of damage your covered property must incur before the earthquake insurance coverage begins. If your covered loss is less than the applicable deductible, you may not receive any payment.
Contact your insurance agent or your insurance company to obtain details regarding this offer of earthquake insurance and other coverage options.”
If the offer is made by a participating insurer as defined by Section 10089.5, the offer of earthquake coverage shall contain all of the following language in at least 10-point boldface type:
“Your residential property insurance policy does not cover earthquake damage to your home or its contents.
To cover earthquake damage to your home and its contents you need to purchase a separate earthquake insurance policy. The coverage provided by an earthquake insurance policy is different from, and typically more limited than, the coverage provided by your residential property insurance policy.
California law requires insurance companies to offer earthquake insurance in conjunction with a residential property insurance policy. If you do not accept the offer of earthquake insurance below within 30 days of the mailing of this notice, your insurance company shall presume that you have not accepted this offer of earthquake insurance.
You may purchase earthquake insurance coverage on the following terms:
Amount of Dwelling/Building Coverage Limit: _______________
Deductible: ______________
Contents Coverage Limit: _______________
Additional Living Expenses Coverage Limit: _____________
Estimated Annual Premium:_______________
The deductible represents the amount of damage your covered property must incur before the earthquake insurance coverage begins. If your covered loss is less than the applicable deductible, you may not receive any payment.
If you choose not to accept this offer within the 30-day period, you may apply for earthquake coverage at a later date.
Your insurance company contracts with the California Earthquake Authority (CEA) to offer earthquake insurance to its customers. For an additional premium, you can choose CEA coverage options such as higher limits for Contents or Additional Living Expenses, increased building code upgrade limits, or a lower deductible. You can also choose to buy certain CEA coverages separately.
Contact your insurance agent or your insurance company to obtain details regarding this offer of earthquake insurance and other coverage options.”
If the offer of earthquake coverage made pursuant to Section 10081 is not accepted, the insurer or any affiliated insurer shall be required on an every other year basis to offer earthquake coverage in connection with any continuation, renewal, or reinstatement of the policy following any lapse thereof, or with respect to any other policy that extends, changes, supersedes, or replaces the policy of residential property insurance.
The offer may contain additional provisions not in conflict with or in derogation of this section.
The commissioner may approve modifications to the language prescribed in subdivision (a) only if all of the following conditions are met:
The modifications are not in conflict with or in derogation of any provision of this section or Section 10089.
The modifications accurately describe the coverage provided by the policy being offered.
The modifications are strictly limited to necessary changes so that the modified offer is otherwise identical to the offer prescribed in subdivision (a).
Use of the language prescribed by this section, or modified language approved pursuant to subdivision (d), shall constitute compliance with the requirements of Section 10081 by an insurer subject thereto.
If an insurer issues or causes to be issued a policy with earthquake coverages other than the coverages specified in subdivisions (a) and (b) of Section 10089, pursuant to a rate application approved by the commissioner in accordance with subdivision (c) of Section 10089, no further or other offer of earthquake coverage as specified in subdivisions (a) and (b) of Section 10089 and no further or other notice of noncoverage is required by the insurer if both of the following apply:
A renewal of that policy is offered.
A written notice is provided with that renewal regarding additional earthquake coverage that is available.
The form of the written notice in paragraph (1) shall be filed with the commissioner at least 30 days before its first use. The form shall not be used if the commissioner disapproves the form of the written notice within that period for being misleading or incomplete.
This section shall become operative on January 1, 2019.
An insurer which issues or delivers a policy of residential property insurance in this state may comply with the provisions of Section 10081 in any of the following ways:
By offering to underwrite directly the risk of loss or damage caused by peril of earthquake.
By arranging for earthquake coverage to be offered by an affiliated insurer.
By arranging for the coverage to be offered through an insurance agent or broker under a policy or certificate of insurance issued by a nonaffiliated insurer.
If the insurer establishes proof of mailing or delivery of the required offer and the offer of earthquake coverage is not accepted by the named insured within 30 days from the date of mailing or delivery of the offer, there shall be a conclusive presumption that the named insured elected not to accept the coverage. An election, actual or presumed, by any named insured shall be binding upon any other person insured or any other party having an insurable interest in the insured property.
If an offer of earthquake coverage, made pursuant to Section 10081, is accepted, the coverage shall be continued at the applicable rates and conditions for the policy term, provided the policy of residential property insurance is not terminated by the named insured or insurer.
At any renewal, an insurer may modify the terms and conditions of an existing policy, rider, or endorsement providing coverage against loss or damage caused by the peril of earthquake if the modified terms and conditions provide the minimum coverages required by Section 10089.
If the modification referenced in paragraph (1) reduces or substantially differs from the coverage previously provided, an insurer shall provide the insured with the renewal offer required by Section 10083 and a stand-alone document stating the changes in the terms and conditions of the insured’s existing policy, rider, or endorsement.
Before July 1, 2020, the stand-alone document shall include the following statement in 14-point boldface type:
“THE COVERAGE IN THE POLICY WE ARE OFFERING YOU WITH THIS RENEWAL HAS BEEN REDUCED, AND SUBSTANTIALLY DIFFERS FROM THE COVERAGES PROVIDED BY YOUR HOMEOWNERS’ POLICY. INSURANCE COMPANIES ARE ALLOWED TO RENEW EARTHQUAKE INSURANCE POLICIES WITH COVERAGE THAT IS REDUCED FROM THE COVERAGE YOU PREVIOUSLY PURCHASED. YOU MAY REQUEST A SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR TO MAKING A DECISION TO ACCEPT THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14 DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE COPY SHALL NOT CHANGE OR EXTEND THE POLICY EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE. A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS NOTICE.”
On and after July 1, 2020, the stand-alone document shall include the following statement in 14-point boldface type:
“IMPORTANT NOTICE:
• The extent of the coverage for earthquake damage has been reduced or substantially changed in this renewal.
• You may request a sample copy of this renewal policy for your review prior to making your decision to renew.
• We will mail or deliver that sample copy to you within 14 days. However, your renewal date will not be extended or changed.
• A summary of the changes to your coverage is included with this notice.
• Be aware that your earthquake coverage may have different limits, deductibles, and other limitations than your homeowners’ policy.”
The commissioner shall approve the form of the offer of renewal at the time the commissioner approves the policy. The offer of renewal shall include the information contained in subdivision (a) of Section 10083, and may be included with the renewal notice in standard type.
The commissioner may approve a substantially similar form of the offer of renewal if necessary to accurately disclose relevant information to the policyholder.
This section does not preclude the named insured from terminating the earthquake coverage at any time.
Where the offer of earthquake coverage has not been accepted, the insurer shall notify the named insured that the policy does not provide that coverage. After the offer on an every other year basis, the notice of noncoverage shall be provided prior to or concurrent with the renewal of the policy of residential property insurance. This section shall not affect any other provisions of this chapter nor shall it affect coverage under the policy of residential property insurance.
No further or other notice of noncoverage is required pursuant to subdivision (a) for policies subject to subdivision (f) of Section 10083, and the insurer has complied with the conditions of subdivision (f) of Section 10083.
The Legislature hereby finds and declares that the continued regulation of the business practices of insurers and their products is in the interest of the citizens of the state and that the control and limitation of unlawful nonrenewal, rejection, or cancellation of residential property insurance after an offer of earthquake coverage is accepted is an essential component of that regulation which is necessary to effectuate an adequate and complete system and regulation of insurer and producer business practices. The Legislature finds that this chapter continues to provide critical protection to insureds in this state from the numerous consequences that would occur in the absence of that regulation.
An insurer shall not refuse to renew, reject, or cancel a policy of residential property insurance after an offer of earthquake coverage is accepted solely because the insured has accepted that offer of earthquake coverage, except in cases in which the policy is terminated by the named insured.
Underwriting standards applicable to residential property insurance shall not be applied in a discriminatory fashion against any person who accepts or elects to continue earthquake coverage.
As used in this chapter, “policy of residential property insurance” means a policy insuring individually owned residential structures of not more than four dwelling units, individually owned condominium units, or individually owned mobilehomes, and their contents, located in this state and used exclusively for residential purposes or a tenant’s policy insuring personal contents of a residential unit located in this state.
“Policy of residential property insurance,” does not include any of the following:
Insurance for real property or its contents used for any commercial, industrial, or business purpose, except a structure of not more than four dwelling units rented for individual residential purposes.
A policy that does not include any of the perils insured against in a standard fire policy.
A policy that provides, or is construed to provide, any coverage or indemnity for the payment of any fine, penalty, or restitution in any criminal, civil, or administrative action or proceeding, or any coverage or indemnity for the payment of any loss or liability, arising from the operation of either a recovery residence, as defined in Section 11833.05 of the Health and Safety Code, or an alcoholism or drug abuse recovery or treatment facility, as defined in Section 11834.02 of the Health and Safety Code. This subparagraph shall apply to policies issued, renewed, or amended on or after January 1, 2022.
Subparagraph (C) of paragraph (2) does not prohibit a recovery residence that is managed by its residents and operates on a not-for-profit basis from obtaining coverage under a policy of residential property insurance.
For purposes of subparagraph (A), a recovery residence operates on a not-for-profit basis if it satisfies all of the following:
It does not accept or require valuable consideration from or on behalf of residents other than a pro rata share of living expenses.
It is not owned by, or under contract with, an alcoholism or drug abuse recovery or treatment facility, as defined in Section 11834.02 of the Health and Safety Code.
It is not owned by, or under contract with, an affiliate, contractor, or intermediary of an alcoholism or drug abuse recovery or treatment facility, as defined in Section 11834.02 of the Health and Safety Code.
Proof of mailing of any offer, disclosure, or document required to be delivered by this chapter by first-class mail addressed to a named insured or applicant at the mailing address shown on the policy or application shall create a conclusive presumption that the offer was made or that the disclosure or document was delivered as required. If an offer, disclosure, or document required to be delivered by this chapter is not mailed, but is hand delivered to the insured, the insured’s signed receipt creates a conclusive presumption that the offer was provided or that the disclosure or document was delivered as required.
Every policy of residential property insurance which provides coverage for loss or damage to a structure from the peril of earthquake, but that provides for an uninsured deductible amount computed as a percentage, shall clearly disclose on the page setting forth the policy declarations the basis upon which the percentage is computed. This disclosure shall be printed in at least 10-point bold typeface.
Every advertisement for a policy subject to subdivision (a) shall clearly disclose the deductible by stating the applicable percentage and the basis upon which the percentage is computed.
Every policy of residential property insurance or policy endorsement covering an individual condominium unit for loss or damage from the peril of earthquake shall disclose on the policy declarations page, in at least 10-point bold typeface, if the policy or endorsement provides no coverage for loss assessment. If the policy or endorsement provides that loss assessment coverage is limited or changed as a result of any provision of the insurance policy or policy endorsement purchased by the corporation or association of property owners, or as a result of an assessment to pay a deductible amount under the corporation or association policy, the nature of the limitation or change shall also be disclosed on the policy declarations page. If because of lack of space or other practical limitations the policy declarations page cannot contain the disclosure required by this subdivision, the disclosure may be placed on the page immediately following the policy declarations page and shall be printed in at least 12-point bold typeface. Nothing in this subdivision shall be construed to require an insurer to provide a disclosure for loss assessment if the only limitations on loss assessment coverage are the policy limits.
The commissioner shall issue a bulletin that specifies the language of the disclosure required by subdivision (c). The commissioner may specify different disclosures to explain more accurately different coverages offered by insurers.
Notwithstanding the provisions of Section 530, 532, or any other provision of law, and in the absence of an endorsement or an additional policy provision specifically covering the peril of earthquake, no policy which by its terms does not cover the peril of earthquake shall provide or shall be held to provide coverage for any loss or damage when earthquake is a proximate cause regardless of whether the loss or damage also directly or indirectly results from, or is contributed to, concurrently or in any sequence by any other proximate or remote cause, whether or not covered by the policy. The term “policy” as used in this section includes all policies of any nature, including, but not limited to, business and commercial forms providing coverage against loss due to damage to the property of the insured. Nothing in this section shall operate to affect the provisions of Section 2071 or preclude an insurer from specifically providing coverage for direct loss caused by explosion, theft, or glass breakage resulting from an earthquake.
At a minimum, an offer of coverage of loss or damage caused by the peril of earthquake pursuant to Section 10081 shall include the following coverages: (1) dwelling, not including outbuildings, appurtenant structures, swimming pools, masonry fences and walls not necessary for the structural integrity of the dwelling, walkways and patios not necessary for regular ingress or egress from the dwelling, awnings or other patio coverings, decorative or artistic features including plaster if other covering would be more cost-effective, landscaping, or masonry chimneys, provided that the policy covers replacement of a damaged masonry chimney with a nonmasonry, earthquake resistant chimney. An insurer that provides earthquake coverage for the dwelling that is narrower than coverage provided under the policy of residential property insurance shall, upon approval of the commissioner, establish the premium for the earthquake coverage in a manner that reflects the exclusion of those items not covered by the earthquake policy, rider, or endorsement; (2) contents coverage either in an amount not less than 10 percent of the amount of the covered dwelling loss, or in an amount not less than five thousand dollars ($5,000), provided that if the underlying policy of residential property insurance does not cover structural loss, the amount of contents coverage after deductible shall be not less than five thousand dollars ($5,000). The insurer shall elect at the time the insurer files its rate application with the commissioner which of the two contents coverages it will use to satisfy the requirements of this chapter. Upon election, the option shall be required to be offered to every policyholder who receives an offer of earthquake coverage pursuant to this chapter. In the case of either coverage, the insurer may exclude from coverage glassware, china, porcelain, or ceramic items, artwork, or other decorative items; and (3) additional living expenses of an amount no less than one thousand five hundred dollars ($1,500) to cover expenses while the residential dwelling remains uninhabitable due to physical loss or damage from the peril of earthquake.
Coverages provided in paragraphs (1) and (2) of subdivision (a) shall not contain a deductible of more than 15 percent of coverage provided for the dwelling.
The commissioner may approve rate applications that allow the insurer to offer policies providing coverage other than the coverage specified in this section provided that at least one coverage offered meets the criteria provided in this section.
In the case of a residential dwelling which is not owner occupied, the minimum coverage for additional living expenses may be waived by the applicant or policyholder, provided the insurer gives notice to the applicant or policyholder that coverage for additional living expenses is offered but may be waived, and the waiver is in writing.
To the extent that the coverage is not already provided in the minimum offer of coverage, every insurer shall offer the following optional coverage as part of the offer of coverage as required by Section 10081 only after the insured has completed and the insurer has verified retrofitting of the residential dwelling as described in subdivision (a) of Section 10089.2:
Coverage in the amount of ten thousand dollars ($10,000) for the purpose of reconstruction costs required to bring the residential dwelling on the residential property up to required current local residential dwelling building code standards as required by the local entity as part of the approval of the reconstruction permit process after an earthquake.
Subject to the approval of the commissioner, every insurer subject to this chapter shall, at the time of offering to issue or offer to renew coverage as part of the offer of coverage required by Section 10081, disclose to the applicant, in writing as a freestanding document or in the same document containing the offer of coverage required by Section 10081, which brings attention to the applicant, all discounts or surcharges, if any that are available from the insurer for that insurance and for any related insurance provided under that coverage as part of the offer of coverage required by Section 10081.
The insurer shall provide and disclose in writing any discounts or surcharges, if any, for earthquake hazard reductions, which shall include, but not be limited to, retrofitting of the residential dwelling by tying the structure to the foundation or bracing the structure to the foundation, reinforcement of the fireplace chimney, or securing of the hot water heater, and any other discounts that are available from the insurer.
Each insurer that offers earthquake insurance through licensed agents or brokers shall provide in writing the document required in subdivision (a) and any documents required by subdivision (a) of Section 10083 to the agents and brokers listing all of the discounts or surcharges, if any, that are required to be disclosed to the applicant under this section, and shall require its agents and brokers to make the disclosures required by this section.
An insurer is not subject to this section where an insured has completed earthquake hazard reductions and the insurer has provided discounts or surcharges for the specific policy in the form of premium rate changes.
The department shall adopt regulations setting forth standards governing the training of insurance adjusters in evaluating damage caused by earthquakes. For purposes of this section, the California Earthquake Authority shall make available to the Department of Insurance the standards used by the authority in order for the department to develop regulations that are consistent with the authority’s standards. On or before December 31, 2004, insurers shall train and accredit adjusters in accordance with these standards. Thereafter, an insurer using one or more adjusters who are not trained and accredited in accordance with those standards shall submit the names of those adjusters to the department, along with the claim number of the claim adjusted by that adjuster. An adjuster trained and accredited by one insurer pursuant to this section shall not be required to receive training and accreditation again in order to adjust claims for a different insurer. An insurer using an adjuster who has been trained and accredited by another insurer pursuant to this section shall not be required to submit the name of that adjuster to the department.
For purposes of this section, “insurance adjuster” shall include the following persons:
Persons licensed pursuant to Chapter 1 (commencing with Section 14000) of Division 5.
Employees of an insurer who perform insurance adjusting activities as defined in Section 14021.
No person may use a geographically based earthquake assessment system or program for the purpose of requiring earthquake insurance, or imposing a fee or any other condition in lieu of requiring earthquake insurance, in connection with a loan secured by a condominium project or an individual unit of a condominium project unless the system’s or program’s analytical assumptions and methodology used in the assessment have been submitted to and approved by the commissioner. In determining whether to approve a submission, the commissioner shall consult with and consider the input of the State Geologist.
The department may charge a fee to defray the actual cost of reviewing earthquake risk assessment methods. Any costs incurred by the State Geologist or Department of Conservation as required by subdivision (a) shall be reimbursed by the department.
CHAPTER 8.6. California Earthquake Authority [10089.5. - 10089.55.]
As used in this chapter:
“Authority” means the California Earthquake Authority.
“Available capital” means the sum of all moneys and invested assets actually held in the California Earthquake Authority Fund, less loss reserves and loss adjustment expense reserves under all of the authority’s policies of residential earthquake insurance, and less the unearned premium reserve. “Available capital” includes all interest or other income from the investment of money held in the California Earthquake Authority Fund. “Available capital” does not include unearned premium, the proceeds of contracts of reinsurance procured by or in the name of the authority pursuant to subdivision (a) of Section 10089.10, any funds realized on capital market contracts authorized by subdivision (b) of Section 10089.10, or the proceeds of bonds issued by or in the name of the authority.
“Basic residential earthquake insurance” means that policy of residential earthquake insurance described in Section 10089 except as follows:
If one year after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than two thousand five hundred dollars ($2,500) in coverage for additional living expenses.
If the authority met the available capital requirements of subparagraph (A) and two years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses.
If the authority did not meet the available capital requirement of subparagraph (A) of paragraph (1) but, two years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than two thousand five hundred dollars ($2,500) in coverage for additional living expenses.
If the authority met the available capital requirements as provided by subparagraph (A) and three years after the authority commences operation the authority has available capital equal to or exceeding seven hundred million dollars ($700,000,000), any policy issued or renewed on or after that date shall provide, less any applicable deductible, not less than three thousand dollars ($3,000) in coverage for additional living expenses.
“Board” means the governing board of the authority.
“Bonds” means bonds, notes, commercial paper, variable rate and variable maturity securities, and any other evidence of indebtedness.
“Capital market contract” means an agreement between the authority and a purchaser pursuant to which the purchaser agrees to purchase bonds of the authority.
“Nonparticipating insurer” means an insurer that elects not to transfer or place any residential earthquake policies in the authority.
“Panel” means the advisory panel of the authority.
“Participating insurer” means an insurer that has elected to join the authority.
“Policy of residential property insurance” means those policies described in Section 10087.
“Private capital market” means one or more purchasers of bonds of the authority pursuant to a capital market contract.
“Qualifying residential property” includes all those residential dwellings set forth in Section 10087.
“Residential earthquake insurance market share” means an individual insurer’s total direct premium received for (1) residential earthquake policies and endorsements written or renewed by the insurer in California and (2) residential earthquake policies written or renewed by the authority for which the insurer has written or renewed an underlying policy of residential property insurance, divided by the total gross premiums received by all admitted insurers and the authority for their basic residential earthquake insurance in California.
“Residential property insurance market share” means an individual insurer’s total gross premiums received for residential property insurance policies written or renewed by the insurer, divided by the total gross premiums received by all admitted insurers for residential property insurance in California.
“Revenue” means all income and receipts of the authority, including, but not limited to, income and receipts derived from premiums, bond purchase agreements, capital contributions by insurers, assessments levied on insurers, surcharges applied to authority earthquake policyholders, and all interest or other income from investment of money in any fund or account of the authority established for the payment of principal or interest, or premiums on bonds, including reserve funds.
“Unearned premium reserve” means an amount equal to the unearned portion of premiums due to, or received by, the authority on all of its policies of residential earthquake insurance, without deduction on account of reinsurance ceded. The unearned premium reserve shall be charged as a reserve liability in determining the authority’s financial condition. Because the unearned premium reserve is established and maintained to protect the interests of authority policyholders in their unexpired authority policies, authority assets in an amount equal to the unearned premium reserve shall not be subject to encumbrance by, or distribution to, creditors of or claimants against the authority unless and until the authority has paid in full all policyholder claims and policyholder liabilities.
There is hereby created the California Earthquake Authority, which shall be administered and governed by the governing board described in Section 10089.7 under the authority of the commissioner and overseen by the California Catastrophe Response Council solely with regard to any administrative or support services the authority may provide to, or for the benefit of, the Wildfire Fund created pursuant to Section 3284 of the Public Utilities Code or the Wildfire Fund Administrator appointed pursuant to Section 8899.72 of the Government Code. All other businesses or activities of the authority unrelated to the Wildfire Fund shall be governed solely by the board. The authority shall have the powers conferred by this chapter. The authority shall be authorized to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance in the manner set forth in Sections 10089.26, 10089.27, and 10089.28. The authority shall have no authority to transact any other type of insurance business.
The authority shall be authorized to exercise the powers of the Wildfire Fund Administrator as provided in Section 3281 of the Public Utilities Code until the appointment of the administrator by the council.
The investments of the authority shall be limited to those securities eligible under Section 16430 of the Government Code.
The rights, obligations, and duties owed by the authority to its insureds, beneficiaries of insureds, and applicants for insurance shall be the same as the rights, obligations, and duties owed by insurers to its insureds, beneficiaries of insureds, and applicants for insurance under common law, regulations, and statutes. The authority shall be liable to its insureds, beneficiaries of insureds, and applicants for insurance as an insurer is liable to its insureds, beneficiaries of insureds, and applicants for insurance under common law, regulations, and statutes.
The operating expenses of the authority shall be capped at not more than 6 percent of the premium income received by the authority. The funds shall be available to pay any advocacy fees awarded in a proceeding under subdivision (c) of Section 10089.11.
For purposes of this section, the term “operating expenses of the authority” excludes solely the following:
The cost of repayment of bonds guaranteed, insured, or otherwise backed by any department or agency of the United States or of this state, or by any private entity.
Payments to third parties for all of the following services provided to the authority:
Investment.
Loss-modeling.
Legal services.
Costs associated with the authority’s efforts to acquaint the public with and market authority products, promote earthquake preparedness, and earthquake-loss mitigation under the authority’s duly adopted strategic plan.
Producer compensation.
Participating insurer fees and reimbursement amounts arising under written contracts.
Amounts paid by the authority to support research in seismic science and seismic engineering.
Loans, grants, and expenses to support and maintain the authority’s earthquake loss-mitigation goals and programs, whether conducted by the authority alone or in collaboration with or by other persons.
The costs of and loss-adjustment expenses associated with adjusting and paying policyholder claims for earthquake losses that are incurred by the authority under its earthquake insurance policies, including all costs and expenses associated with claim-related litigation, provided that all of those costs and expenses shall be reported to the Legislature in the manner required by subdivision (e) of Section 10089.13.
Any cost incurred to provide administrative services and other support to or for the benefit of the Wildfire Fund created pursuant to Section 3284 of the Public Utilities Code, which cost shall be borne by the Wildfire Fund.
The board may authorize the authority to contract with the Wildfire Fund created under Section 3284 of the Public Utilities Code to provide services and other support as the Wildfire Fund may require.
The authority shall be governed by a three-member governing board consisting of the Governor, the Treasurer, and the Insurance Commissioner, each of whom may name designees to serve as board members in their place. The Speaker of the Assembly and the Chairperson of the Senate Committee on Rules shall serve as nonvoting, ex officio members of the board, and may name designees to serve in their place.
The board shall be advised by an advisory panel whose members shall be appointed by the Governor, except as provided in this subdivision. The advisory panel shall consist of four members who represent insurance companies that are licensed to transact fire insurance in the state, two of whom shall be appointed by the commissioner, two licensed insurance agents, one of whom shall be appointed by the commissioner, and three members of the public not connected with the insurance industry, at least one of whom shall be a consumer representative. In addition, the Speaker of the Assembly, and the Chairperson of the Senate Committee on Rules may each appoint one member of the public not connected with the insurance industry. Panel members shall serve for four-year terms, which may be staggered for administrative convenience, and panel members may be reappointed. The commissioner shall be a nonvoting, ex officio member of the panel and shall be entitled to attend all panel meetings, either in person or by representative.
The board shall have the power to conduct the affairs of the authority and may perform all acts necessary or convenient in the exercise of that power. Without limitation, the board may: (1) employ or contract with officers and employees to administer the authority; (2) retain outside actuarial, geological, and other professionals; (3) enter into other obligations relating to the operation of the authority; (4) invest the moneys in the California Earthquake Authority Fund; (5) obtain reinsurance and financing for the authority as authorized by this chapter; (6) contract with participating insurers to service the policies of basic residential earthquake insurance issued by the authority; (7) issue bonds payable from and secured by a pledge of the authority of all or any part of the revenues of the authority to finance the activities authorized by this chapter and sell those bonds at public or private sale in the form and on those terms and conditions as the Treasurer shall approve; (8) pledge all or any part of the revenues of the authority to secure bonds and any repayment or reimbursement obligations of the authority to any provider of insurance or a guarantee of liquidity or credit facility entered into to provide for the payment of debt service on any bond of the authority; (9) employ and compensate bond counsel, financial consultants, and other advisers determined necessary by the Treasurer in connection with the issuance and sale of any bonds; (10) issue or obtain from any department or agency of the United States or of this state, or any private company, any insurance or guarantee of liquidity or credit facility determined to be appropriate by the Treasurer to provide for the payment of debt service on any bond of the authority; (11) engage the commissioner to collect revenues of the authority; (12) issue bonds to refund or purchase or otherwise acquire bonds on terms and conditions as the Treasurer shall approve; (13) exercise the powers of the California Catastrophe Response Council created in Section 8899.70 of the Government Code until a majority of the council members are appointed; and (14) perform all acts that relate to the function and purpose of the authority, whether or not specifically designated in this chapter.
The authority shall reimburse board and panel members for their reasonable expenses incurred in attending meetings and conducting the business of the authority.
There shall be a limited civil immunity, and no criminal liability in a private capacity, on account of any act performed or omitted or obligation entered into in an official capacity, when done or omitted in good faith and without intent to defraud, on the part of the board, the panel, or any member of either, or on the part of any officer, employee, or agent of the authority. This provision shall not eliminate or reduce the responsibility of the authority under the covenant of good faith and fair dealing.
In any claim against the authority based upon an earthquake policy issued by the authority, the authority shall be liable for any damages, including damages under Section 3294 of the Civil Code, for a breach of the covenant of good faith and fair dealing by the authority or its agents.
In any claim based upon an earthquake policy issued by the authority, the participating carrier shall be liable for any damages for a breach of a common law, regulatory, or statutory duty as if it were a contracting insurer. The authority shall indemnify the participating carrier from any liability resulting from the authority’s actions or directives. The board shall not indemnify a participating carrier for any loss resulting from failure to comply with directives of the authority or from violating statutory, regulatory, or common law governing claims handling practices.
A licensed insurer, its officers, directors, employees, or agents, shall not have any antitrust civil or criminal liability under the Cartwright Act (Part 2 (commencing with Section 16600) of Division 7 of the Business and Professions Code) by reason of its activities conducted in compliance with this chapter. Further, the California Earthquake Authority shall be deemed a joint arrangement established by statute to ensure the availability of insurance pursuant to subdivision (b) of Section 1861.03.
Subject to Section 10089.21, this chapter shall not be construed to limit any exercise of the commissioner’s power, including enforcement and disciplinary actions, or the imposition of fines and orders to ensure compliance with this chapter, the rules and guidelines of the authority, or any other law or rule applicable to the business of insurance.
Except as provided in paragraph (3) and by any other provision of this chapter, liability on the part of, and a cause of action, shall not be permitted in law or equity against, any participating insurer for any earthquake loss to property for which the authority has issued a policy unless the loss is covered by an insurance policy issued by the participating insurer. A policy issued by the authority shall not be deemed to be a policy issued by a participating insurer.
The Attorney General, in the Attorney General’s discretion, shall provide a representative of the Attorney General’s office to attend and act as antitrust counsel at all meetings of the panel. The Attorney General shall be compensated for legal service rendered in the manner specified in Section 11044 of the Government Code.
The authority may sue or be sued and may employ or contract with that staff and those professionals the board deems necessary for its efficient administration.
The authority may contract for the services of a chief executive officer, a chief financial officer, a chief mitigation officer, and an operations manager, and may contract for the services of reinsurance intermediaries, financial market underwriters, modeling firms, a computer firm, an actuary, an insurance claims consultant, counsel, and private money managers. These contracts shall not be subject to otherwise applicable provisions of the Government Code and the Public Contract Code and, for those purposes, the authority shall not be considered a state agency or other public entity. Other employees of the authority shall be subject to civil service provisions.
When the authority hires multiple private money managers to manage the assets of the California Earthquake Authority Fund, other than the primary custodian of the securities, the authority shall consider small California-based firms who are qualified to manage the money in the fund. The purpose of this provision is to prevent the exclusion of small qualified investment firms solely because of their size.
Members of the board and panel, and their designees, and the chief executive officer, the chief financial officer, the chief mitigation officer, and the operations manager of the authority shall be required to file financial disclosure statements with the Fair Political Practices Commission. The appointing authorities for members and designees of the board and panel shall, when making appointments, avoid appointing persons with conflicts of interest. Section 87406 of the Government Code, the Milton Marks Postgovernment Employment Restrictions Act of 1990, shall apply to the authority. Members of the board, the chief financial officer, the chief executive officer, the chief operations manager, the chief counsel, and any other person designated by the authority shall be deemed to be designated employees for the purpose of that act. In addition, no member of the board, nor the chief financial officer, the chief executive officer, the chief operations manager, and the chief counsel, shall, upon leaving the employment of the authority, seek, accept, or enter into employment or a consulting or other contractual arrangement for the period of one year with any employer or entity that entered into a participating agreement, or a reinsurance, bonding, letter of credit, or private capital markets contract with the authority during the time the employee was employed by the authority, which that member or employee had negotiated or approved, or participated in negotiating. A violation of these provisions shall be subject to enforcement pursuant to Chapter 11 (commencing with Section 91000) of Title 9 of the Government Code.
The board shall establish the duties of, and give direction to, the chief mitigation officer, to support and enhance the authority’s appropriate efforts to create and maintain all of the following:
Program activities that mitigate against seismic risks, for the benefit of homeowners, other property owners, including landlords with smaller holdings, and the general public of the state.
Collaboration with academic institutions, nonprofit entities, and commercial business entities in joint efforts to conduct mitigation-related research and educational activities, and conduct program activities to mitigate against seismic risk.
Programs to provide financial assistance in the form of loans, grants, credits, rebates, or other financial incentives to further efforts to mitigate against seismic risk, including, but not limited to, structural and contents retrofitting of residential structures.
Collaborations and joint programs with subdivisions and programs of local, state, and federal governments and with other national programs that may further California’s disaster preparedness, protection, and mitigation goals.
Other programs, support efforts, and activities deemed appropriate by the board to further the authority’s appropriate mitigation and mitigation-related goals.
The authority may accept grants and gifts of property, real or personal, tangible and intangible, and services for the Earthquake Loss Mitigation Fund, established pursuant to Section 10089.37, or the related residential retrofit program from federal, state, and local government sources and private sources.
The Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) applies to meetings of the board and the panel.
The authority shall operate pursuant to a written plan of operations. The panel shall submit a plan to the board for approval. If it approves the plan, the board shall submit the plan to the commissioner for his or her approval. On receiving the commissioner’s approval, the board shall formally adopt the plan and submit the plan to the Legislature. Upon commencement of the issuance of insurance policies by the authority, any subsequent amendments to the plan of operation shall be approved by the board and the commissioner.
If at any time the commissioner disapproves the submitted plan or any plan amendments adopted by the board, the board may within 15 days submit changes in the plan to the commissioner. If the commissioner disapproves the plan or the changes in the plan, or if the board fails to submit a plan or to make and submit the requested changes, the commissioner may require the board to adopt that plan or those changes directed by the commissioner.
The plan of operations shall establish in detail the policies and procedures of the authority, including, but not limited to, financial operations of the authority, claims procedures, methods of premium collection, procedures consistent with constitutional, statutory, and common law requirements for resolving grievances of applicants or policyholders who are dissatisfied with application handling or adverse claims decisions, whether by the authority or by a participating insurer, assessment procedures, a plan for resolution of assessment disputes between the authority and insureds, grievances between the authority and participating insurers, participating insurer fees and expenses, reasonable underwriting standards, and producer compensation.
The plan of operations shall include provisions that establish a mechanism for policyholders to make installment payments of the annual premium paid for coverage by the authority. The authority shall make the installment payment option available to all policyholders who elect to purchase coverage from the authority. The authority may charge a nominal fee to policyholders who opt to make installment payments. The fees, in the aggregate, shall cover the full costs of administering the installment payment option incurred by the authority and the participating insurer but shall not include any interest or finance charge. The authority shall not require a participating insurer, in the case of a policyholder who opts to make installment payments as provided in this subdivision, to remit any portion of the annual premium to the authority before that amount of the annual premium is collected by the participating insurer. The authority shall consult with participating insurers in establishing or amending the provisions of the plan of operations that govern the installment payment option.
Upon commencement of participation in the authority, each participating insurer shall be required to execute a contract with the commissioner and the authority that sets forth its rights and responsibilities as an authority participant. The form of contract shall be part of the authority’s plan of operations and shall be uniform for every participating insurer.
The uniform authority participation contract required by subdivision (a) may be modified by the full execution of a writing, in a form drawn in accordance with this act, that embodies the mutual intent and understandings of the commissioner, the authority, and each participating insurer that has executed the authority participation contract.
In the event a nonparticipating insurer elects to become a participating insurer of the authority, the authority is authorized to present to the nonparticipating insurer the most recent form of the amended uniform authority participation contract it has executed or proposed to execute with existing participating insurers and require its execution as a condition of authority participation. The acceptance by the authority of, and reliance by the authority on, the executed amended authority participation contract that is authorized by this subdivision shall not be deemed a lack of the uniformity of contract required by subdivision (a).
To expand the capacity of the authority and achieve maximum capacity for writing earthquake coverage, the authority shall do both of the following acts, on prior approval of the commissioner:
The authority shall purchase contracts of reinsurance at rates and on terms the board considers reasonable and appropriate.
The authority, through the Treasurer, shall enter capital market contracts on terms as the board and Treasurer may consider reasonable and appropriate. The Treasurer shall not withhold approval except for good cause related to the purposes of the authority. Such terms may include indemnification and contribution provisions protecting parties to the capital market contracts of the authority against material misstatements in or material omissions from the authority’s official statements and other authority documents referred to in the capital markets contracts.
The total annual expenditure for reinsurance contracts and capital market contracts pursuant to this section shall not exceed a reasonable and appropriate percentage of the annual earthquake insurance premiums collected by the authority.
The commissioner shall adopt regulations to implement the provisions of this chapter within 60 days of its effective date. The regulations shall be adopted as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of the Government Code, and for the purposes of that chapter, including Section 11349.6 of the Government Code, the adoption of the regulations shall be considered by the Office of Administrative Law to be necessary for the immediate preservation of the public peace, health and safety, and general welfare.
Regulations shall specify procedures for ratemaking and forms approval, define the type and quality of investments the authority is authorized to make, define coverage types and limits, set forth producer compensation rates, and specify the procedures to be followed by the authority following any earthquake event where the magnitude of earthquake losses make it likely that prorated benefits may be paid. The regulations shall be consistent with the requirements of Proposition 103.
The rights provided by Section 1861.10 shall apply to proceedings under this chapter relating to establishing rates and regulations for earthquake insurance sold by the authority.
All materials and documents prepared or used by the authority to determine its rates other than proprietary materials and documents owned or licensed by third parties shall be considered public documents, and copies of the public documents shall be made available to the public for inspection at no charge. Members of the public may purchase public ratemaking related documents from the authority at actual cost.
The commissioner shall have full power and authority to examine the books and records of the authority at any time, and in connection with the operations and function of the authority, the commissioner shall have the duties and powers set forth in Article 14.5 (commencing with Section 1065.1) of Chapter 1 of Part 2 of Division 1 and in Division 3 (commencing with Section 12900).
One year following its commencement of operations, and annually thereafter by each August 1, the authority shall report to the Legislature and the commissioner on program operations in a format prescribed by the commissioner. The report shall include, but shall not be limited to, the financial condition of the authority, a description of all rates and rating plans approved for use in the authority, an evaluation of the functioning of the authority in light of its stated purpose of making residential property insurance and residential earthquake insurance more available. The report shall also include an analysis of the growth by market share of residential property insurance of participating insurers compared to nonparticipating insurers, any adverse consequences on the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of the residential property insurance market share between participating insurers and nonparticipating insurers, any adverse consequences of the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of homeowners’ insurance market share between participating insurers and nonparticipating insurers, and an analysis of any recommended program changes to permit the authority to better fulfill its stated purpose. In making this determination the board shall be mindful of the competitive nature of the market and how any decision can negatively impact insurers who are currently competing in the marketplace. The report shall be posted on the authority’s official Internet Web site.
The annual report shall include full information describing the following matters relating to the authority’s condition and affairs:
The property or assets held by the authority, including the amount of cash on hand and deposited in banks to its credit, the amount of cash in the hands of servicing insurance companies, the amount of any stocks or bonds owned by the authority, specifying the amount, number of shares, and the par and market value of each kind of stock or bond, and all other assets, specifying each.
The liabilities of the authority, including the amount of losses due and unpaid, the amount of claims for losses resisted by the authority and the amount of losses in the process of adjustment or in suspense, including all reported and supposed losses, the amount of revenue bonds or other debt financing issues under Section 10089.29 or Section 10089.50, and all other liabilities.
Income of the authority during the preceding year, specifying premiums received, interest money received, and income from all other sources, specifying the source.
Expenditures of the authority during the preceding year, specifying the amount of losses paid, the amount of expenses paid by category, and the amount of all other payments and expenditures.
The costs and scope of all reinsurance and capital market contracts entered into by the authority under Section 10089.10.
As part of the annual report, the authority shall make a separate, summary report on the financial capacity of the authority to pay claims made against the authority. Copies of this report shall also be made available to the public. The report shall include, but shall not be limited to, the following information, valued as of 30 days prior to the date of the report:
The amount of surcharges previously assessed against policyholders and the amount of surcharges that are currently outstanding against policyholders under Section 10089.29.
The amount of capital committed and actually available by contract from private capital markets that is available to pay claims against the authority.
The amount of all assessments previously made and the amount of all assessments that may be made in the future under Section 10089.30.
The amount of all assessments previously made and the amount of all assessments that may be made in the future under Section 10089.31.
In verification of the matters set forth in the annual report provided for in subdivision (a), the Department of Finance shall approve independent qualified auditors selected by the commissioner to examine the books and accounts relating to all matters concerning the financial and program operations of the authority. The commissioner shall file a certified report of the examination with the President pro Tempore of the Senate, the Speaker of the Assembly, the Chairpersons of the Senate and Assembly Insurance Committees, and the Chairperson of the Senate Committee on Judiciary within 10 days of its receipt. Copies of this report shall also be made available to the public. The expense of examining the books and accounts of the authority shall be paid out of the operating funds of the authority.
The authority shall, within 120 days following a seismic event that results in the payment of claims by the authority, and within one year of a major seismic event that results in the payment of claims by the authority, submit to the President pro Tempore of the Senate, the Speaker of the Assembly, the Chairpersons of the Senate and Assembly Insurance Committees, the Chairperson of the Senate Committee on Judiciary, and the commissioner a concise written report of program operations related to that seismic event. The reports shall include, but not be limited to, progress on payment of claims, claims payments made and anticipated, and the functioning of the authority in response to the seismic event. Copies of this report shall also be made available to the public.
The authority shall not issue any earthquake policy and no insurer shall transfer any earthquake risk to the authority until all of the following conditions have been met:
The Internal Revenue Service has determined that the authority will be or is exempt from federal income tax.
Insurers whose cumulative residential property insurance market share is more than 70 percent of the total residential property insurance market in California, measured as of January 1, 1995, have filed letters of intent, with binding contractual obligation, to participate in the authority.
The authority has obtained letters of intent, with binding contractual obligation, for capital contributions in the amounts set forth in Section 10089.15.
The authority has obtained appropriate risk transfer ability in the form of firm reinsurance commitments in an aggregate amount of not less than 200 percent of the total capital contributions committed by all participating insurers.
Except as permitted by subdivision (e) of Section 10089.15 and subdivision (b) of Section 10089.16, insurers shall not be entitled to transfer any earthquake risk to the authority until they have met the capital contribution requirements set forth in Section 10089.15, and no insurer shall be entitled to transfer any earthquake risk to the authority pursuant to Section 10089.27 unless the insurer has signed a contract to participate in the authority, is in compliance with the capital contribution requirements set forth in Section 10089.15, and has complied with any related requirements set by the board.
Initial operating capital shall be contributed by insurance companies admitted to write residential property insurance in the state. Each insurer that elects to participate in the authority shall contribute as its share of operating capital an amount equal to one billion dollars ($1,000,000,000) multiplied by the percentage representing that insurer’s residential earthquake insurance market share as of January 1, 1994, as determined by the board. A minimum of seven hundred million dollars ($700,000,000) in commitments shall be required before the authority may become operational.
Until the authority becomes operational, contributions of initial operating capital shall be held by the commissioner in trust for the contributing insurers in the California Earthquake Authority Fund.
Because insurers will retain the risk of earthquake losses on individual earthquake policies until they are renewed into the authority, participating insurers may elect to contribute operating capital in 12 installments payable on the first day of each successive calendar month after the insurer elects to participate. Each insurer shall compute its monthly installment based on the portion of the insurer’s earthquake coverage that will be renewed into the authority during the next month. The final installment shall be equal to the excess of the participating insurer’s required contribution over the sum of the previous 11 installments. Those insurers that elect to participate in the authority after the beginning operating date of the authority shall make initial capital contributions calculated using their residential earthquake insurance market share as of January 1, 1994, or the date of their election to participate in the authority, whichever contribution amount is greater.
An insurer or insurer group that represents 1.25 percent or less of the residential property insurance market, as measured by premium volume, or that has a surplus of less than one billion dollars ($1,000,000,000), may elect to become a participating insurer with the full rights and responsibilities of participating insurers of the authority, pursuant to the provisions of this section.
The insurer or insurer groups defined in subdivision (d) may elect to contribute their operating capital, as required by subdivision (a) of Section 10089.15, in 60 equal monthly installments, payable on the first day of each successive calendar month after the insurer elects to participate. In the event that earthquake losses result in the authority’s payment of claims while the authority’s available funds are inadequate to meet claims liabilities, and insurers participating under this section have operating capital contributions outstanding, the operating capital contributions necessary to meet any unfunded claims liabilities will become due and payable within 30 days of a request for such accelerated payment by the board, not to exceed the maximum contribution owed by each insurer.
No insurer may elect to contribute operating capital pursuant to subdivision (e) unless the aggregate premium or aggregate surplus of all affiliated insurers in its group meets the eligibility standards established by subdivision (d).
On application to the board, payment of any assessments and fees calculated by the board, and fulfillment of any additional requirements imposed by the board, nonparticipating insurers may become participants in the authority with all rights and privileges attendant to that participation.
In order to act upon any findings and recommendations reported to the Legislature pursuant to Section 10089.13, or to implement a specific finding by the commissioner or the board that modification of requirements for entry into the authority is necessary to broaden the availability of residential property or residential earthquake insurance, the board is authorized to open the authority to participation by insurers who have not elected to participate in compliance with Section 10089.15. In implementing the authority granted by this section, the board may:
Offer incentives for insurers to participate in the authority.
Allow any insurer or insurer group that has not elected to become a participating insurer to become an associate participating insurer without complying with the capital contribution requirements of Section 10089.15 if it has maintained or exceeded its number of policies of residential property insurance written as of January 1, 1996.
Any action by the board pursuant to subdivision (b) shall be subject to the following conditions and limitations:
Notwithstanding Section 10089.11, any action of the board pursuant to subdivision (b) shall be by regulation promulgated by the board. Notwithstanding any other provision of law, there shall be no authority by the board to promulgate emergency regulations to implement subdivision (b). No regulations may be proposed within one year of the date upon which the authority begins writing policies of basic residential earthquake insurance. Notwithstanding any exception provided in Section 11343 of the Government Code, any regulation adopted pursuant to subdivision (b) shall be submitted to the Office of Administrative Law for approval pursuant to the Administrative Procedure Act.
Any action by the board to establish an incentive pursuant to subdivision (b) that is available to a single insurer or insurer group shall be based upon standards adopted by the board that are not arbitrary or discriminatory. Notwithstanding Section 10089.11, these standards shall be established by regulation promulgated by the board.
A finding of necessity pursuant to subdivision (b) shall state the specific facts and conditions that establish the necessity and justify the actions to implement subdivision (b). All materials and documents prepared or used by the authority to determine the necessity to implement subdivision (b), other than proprietary materials and documents owned or licensed by third parties, shall be considered public documents, and copies of the public documents shall be made available to the public for inspection at no charge. Members of the public may purchase copies of these documents from the authority at actual cost.
Associate participating insurers shall place all new policies of residential earthquake insurance, when writing new policies of residential property insurance, into the authority. Insurers placing policies with the authority under this section shall be subject to the assessments provided for in Sections 10089.23, 10089.30, and 10089.31. Notwithstanding subdivision (m) of Section 10089.5, “residential earthquake insurance market share” for purposes of any assessments pursuant to Sections 10089.23, 10089.30, and 10089.31 levied on an associate participating insurer shall mean an individual associate participating insurer’s total direct premium received for residential earthquake policies written or renewed by the authority for which the insurer has written or renewed an underlying policy of residential property insurance, divided by the total gross premiums received by all admitted insurers and the authority for their basic residential earthquake insurance in California.
An associate participating insurer shall not cancel or refuse to renew a residential property insurance policy existing on the date it elected to become an associate participating insurer after an offer of earthquake coverage is accepted solely because the insured has accepted that offer of earthquake coverage.
An associate participating insurer shall maintain in force any policy of residential property insurance existing on the date it elected to become an associate participating insurer after an offer of earthquake insurance has been accepted, unless the policy is properly canceled pursuant to Section 676 or the associate participating insurer has grounds for nonrenewal pursuant to subdivision (g).
An associate participating insurer may refuse to renew a policy of residential property insurance after an offer of earthquake coverage has been accepted if one of the following exceptions applies:
The policy is terminated by the named insured.
The policy is refused renewal on the basis of sound underwriting principles that relate to the coverages provided by the underlying policy of residential property insurance and that are consistent with the approved rating plan and related documents filed with the department as required by existing law.
The commissioner finds that the exposure to potential losses will threaten the solvency of the associate participating insurer or place the associate participating insurer in a hazardous condition. “Hazardous condition” has the same meaning as in Section 1065.1 and includes, but is not limited to, a condition in which an associate participating insurer makes claims payments for losses resulting from an earthquake that occurred within the preceding two years and that required a reduction in policyholder surplus of at least 25 percent for payment of those claims.
There is cancellation under Section 676.
The associate participating insurer has lost or experienced a substantial reduction in the availability or scope of reinsurance coverage or a substantial increase in the premium charged for reinsurance coverage for its residential property insurance policies, and the commissioner has approved a plan for the nonrenewals that is fair and equitable, and that is responsive to the changes in the associate participating insurer’s reinsurance position.
For associate participating insurers, underwriting standards applicable to residential property insurance shall not be applied in an unfairly discriminatory fashion against any person who accepts or elects to continue earthquake coverage.
Associate participating insurers shall be subject to the following requirements:
Associate participating insurers shall conform to all provisions of the authority’s plan of operation applicable to participating insurers.
No property that has previously been covered by a policy of residential earthquake insurance written by the associate participating insurer or associate participating insurer group, absent at least one full policy year with an insurer not affiliated with the associate participating insurer or its group, may be placed into the authority by an associate participating insurer.
Any associate participating insurer or associate participating insurer group defined in paragraph (2) of subdivision (b) that has failed to maintain or exceed the number of policies of residential property insurance in force on January 1, 1996, may become an associate participating insurer by contributing additional capital into the authority at a rate to be established by the board, which shall be a per policy rate comparable to the average cost per policy paid by a participating insurer that joins the authority pursuant to Section 10089.15.
Any associate participating insurer shall be required to establish procedures to verify compliance with this section. The procedures shall require verification that each basic residential earthquake policy written by the authority complies with paragraph (2) of subdivision (i).
Any violation of this section may be enforced as a violation of the Unfair Trade Practices Act (Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1). Each policy of basic residential earthquake insurance written in the authority by an associate participating insurer in violation of this section shall be deemed to be a separate violation of the Unfair Trade Practices Act.
For purposes of this section, no insurer or associate participating insurer may participate in the authority unless all affiliated insurers participate in the authority.
Policies of basic residential earthquake insurance written by associate participating insurers shall be subject to assessment by the California Insurance Guarantee Association and shall be covered to the extent provided in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1. Except as provided in Section 10089.34, insurance policies written by participating insurers that are not associate participating insurers shall not be subject to assessment by the California Insurance Guarantee Association if the assessment is imposed to pay claims covered by policies of basic residential earthquake insurance written by an associate participating insurer.
Notwithstanding subdivision (h) of Section 10089.7, the authority shall be subject to the provisions of the Political Reform Act of 1974 (Title 9 (commencing with Section 81000) of the Government Code).
Participating insurers that want to withdraw from the authority may do so on 12 months’ written notice to the authority. Insurers that withdraw shall not be entitled to any refund, reimbursement, or reduction of any initial capital contribution obligation or earthquake loss assessments previously paid or accrued with respect to losses incurred prior to the withdrawal. Insurers that withdraw shall offer residential earthquake insurance coverage pursuant to Chapter 8.5 (commencing with Section 10081) to those policyholders for whom they write the underlying residential property insurance upon the first renewal following the insurer’s notice to the authority. The authority shall nonrenew all policies of basic residential earthquake insurance issued to policyholders whose provider of residential earthquake insurance has withdrawn from the authority. No participating insurer may withdraw unless every insurer affiliated with that insurer, as defined in subdivision (a) of Section 1215, or under common control with that insurer, defined in subdivision (c) of Section 1215, simultaneously withdraws from the authority.
If a noticed withdrawal would result in participation by insurers whose cumulative residential property insurance market share is less than 65 percent of the total residential property insurance market in California, the commissioner shall make recommendations to the Legislature for the continuation or termination of the authority.
The authority shall renew any policy of basic residential earthquake insurance, provided the authority receives payment of the applicable renewal premium on or before the expiration date stated in the policy. The authority shall nonrenew, rescind, or cancel a policy if the property is no longer covered by an underlying policy of residential property insurance. The policy issued by the authority shall not provide coverage in the event that there is no underlying policy of property insurance at the time of loss. In that case, any unearned premiums shall be returned to the policyholder on a pro rata basis.
The authority is a public instrumentality of the State of California and the exercise of its powers is an essential state governmental function. No provision of law, including, but not limited to, subdivision (h) of Section 10089.7 and subdivision (e) of Section 10089.22, shall be construed to affect the status of the authority as a public instrumentality of the State of California. Notwithstanding any other provision of law, the authority is not and shall never be authorized to become a debtor in a case under the United States Bankruptcy Code (Title 11 of the United States Code) or to make an assignment for the benefit of creditors or to become the subject of any similar case or proceeding, nor is the authority subject to Article 14 (commencing with Section 1010) and Article 14.3 (commencing with Section 1064.1) of Chapter 1 of Part 2 of Division 1. Notwithstanding any other provision of law, the commissioner shall not, directly or indirectly, when exercising the power and authority contained or referred to in or arising from Section 10089.6, paragraph (5) of subdivision (e) of Section 10089.7, Section 10089.12, subdivision (e) of Section 10089.22, subdivision (b) of Section 10089.35, or any other statute, rule, or regulation, impede or in any manner interfere with, but shall affirmatively take all necessary steps to effect, and no person acting under subdivision (c) of Section 10089.11, or any other provision of law or principle of equity shall be permitted in any way to impede or in any manner interfere with: (a) the full and timely payment of principal, interest, and premiums on revenue bonds of the authority and amounts due those bond insurers and providers of credit support and letters of credit; and (b) any pledge or assignment of revenues as security for those payments or amounts due, and the full and timely application of those pledged or assigned revenues to those payments and amounts due, in each or either case, (a) or (b), as and when due in accordance with and subject to the limitations contained in Section 10089.22 and the terms of the constituent instruments defining the rights of the holders of the bonds and the providers of bond insurance, credit support, and letters of credit.
Division 3.6 (commencing with Section 810) of Title 1 of the Government Code shall not apply to acts of the authority.
The authority shall be continued in existence for so long as its bonds are outstanding. Unless and until the authority is terminated pursuant to Section 10089.43, the commissioner and the authority shall execute assignments and contracts and take all necessary steps to assure that all revenue of the authority is paid to a trustee appointed by the Treasurer, which trustee may be the treasurer. The revenue of the authority shall be pledged and assigned to and held in trust by the trustee and invested and disbursed by the trustee, to pay, or to set aside funds to pay, principal, interest, and premiums on bonds and amounts due bond insurers and providers of credit support and letters of credit for those bonds, but only in the manner and in accordance with the terms of the constituent instruments defining the rights of the holders of bonds of the authority and the providers of bond insurance, credit support and letters of credit for those bonds. Amounts held by the trustee from time to time after provisions for those payments may be disbursed free of trust to the California Earthquake Authority Fund. Notwithstanding the foregoing provisions of this section, (1) debt service payments on bonds of the authority secured by or payable from securities described in Section 16430 of the Government Code shall not be secured by a pledge or assignment of revenue of the authority other than revenue of the authority from (A) the proceeds of sale of such bonds, (B) the securities described in Section 16430 of the Government Code, and (C) principal and interest payments on such securities described in Government Code Section 16430, but debt service payments on such bonds of the authority may also be made payable from revenue of the authority in the California Earthquake Authority Fund, and (2) the constituent instruments defining the rights of the holders of bonds of the authority referred to in paragraph (1) shall specify that payment of a portion of the interest on such bonds is contingent upon payment of policyholder claims for which the bonds are responsible and that the obligation of the authority is to first apply such assigned or pledged revenue to the payment of such policyholder claims instead of paying that contingent interest.
There is hereby created the California Earthquake Authority Fund, which is not a fund in the State Treasury. Notwithstanding Section 13340 of the Government Code, the fund is continuously appropriated without regard to fiscal years for the purposes of this chapter. The fund shall be administered by the commissioner, subject to the direction of the board, to pay all costs arising from this chapter, including, but not limited to, premiums payable by the authority under contracts of reinsurance, claims arising under policies of basic residential earthquake insurance issued by the authority, operating and other expenses of the authority, and to establish reserves. At the discretion of the commissioner, segregated, dedicated accounts within the fund may be established for those payments.
The board may cause moneys in the fund to be invested and reinvested, from time to time, in accordance with paragraph (4) of subdivision (c) of Section 10089.7 and subject to subdivision (b) of Section 10089.6. Moneys in the fund and not so invested may be deposited from time to time in (1) financial institutions authorized by law to receive deposits of public moneys, or (2) with the approval of the Treasurer, the Surplus Money Investment Fund as provided in Article 4 (commencing with Section 16470) of Division 4 of Title 2 of the Government Code.
A national bank shall be custodian of all securities belonging to the fund, except as otherwise provided in this chapter and except as otherwise provided in the constituent instruments that define the rights of the holders of bonds of the authority and the providers of bond insurance, credit support, and letters of credit for those bonds.
The board may, in cooperation with the Treasurer, authorize the establishment of an account or fund in the State Treasury in the name of the authority, but money deposited with the Treasurer in that account or fund is not state money within the intent of Section 16305.2 of the Government Code, and Sections 16305.3 to 16305.7, inclusive, of the Government Code shall not apply to money drawn or collected by the authority.
If at any time following the payment of earthquake claims and claim expenses the authority’s available capital is reduced to less than three hundred fifty million dollars ($350,000,000), or if at any time the authority’s available capital is insufficient to pay benefits and continue operations, the authority shall have the power to assess participating insurance companies subject to the maximum limits as set forth in this section and Section 10089.30. The assessment shall be limited to the amount necessary to pay the outstanding or expected claims and claim expenses of the authority and to return the authority’s available capital to three hundred fifty million dollars ($350,000,000), as determined by the board, subject to approval by the commissioner.
Each participating insurer’s assessment shall be determined by multiplying the percentage share of the authority’s total gross written premium that is attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent year for which premium data not more than one year old are available, by the amount of the total assessment sought by the authority.
The maximum permissible insurer assessments pursuant to this section and Sections 10089.30 and 10089.31 shall be reduced uniformly by multiplication of the maximum assessments and other amounts provided in those sections by the percentage of the total residential property insurance market share participation attained by the authority. The total amount of all assessments levied on participating insurance companies by the authority pursuant to this section shall not exceed three billion dollars ($3,000,000,000), regardless of the frequency or severity of earthquake losses at any and all times subsequent to the creation of the authority. Once a participating insurer has paid, pursuant to this section, amounts equal to the percentage share of the authority’s total gross written premium attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent full year for which premium data not more than one year old are available, multiplied by three billion dollars ($3,000,000,000) reduced as provided in this paragraph from the maximum assessment, the authority’s power to assess that insurer under this section shall cease and the authority shall be prohibited from levying additional assessments on that insurer pursuant to this section.
Beginning December 31 of the first year of operations, and each December 31 thereafter, the board shall adjust the maximum permissible insurer assessments pursuant to this section, the maximum permissible insurer assessments pursuant to Sections 10089.30 and 10089.31, the maximum permissible authority policyholder assessment pursuant to Section 10089.29, and the maximum permissible bond issuances or other debt financing issued or secured by the Treasurer pursuant to Section 10089.29 to reflect the market share of new insurers entering into the authority as authorized by Sections 10089.15 and 10089.16 and participating insurers withdrawing from the authority as authorized by Section 10089.19. The adjustments shall be made in the same manner as authorized by paragraph (3).
In the case of any insurer assessment, the authority shall cause to be sent to each participating insurer a notice of that insurer’s assessment, and full payment shall be due within 30 days and shall be overdue after 30 days. Penalties and interest shall be assessed for late payments in the same manner as provided for late payments of the insurer gross premium tax pursuant to Section 12258 of the Revenue and Taxation Code. The board may waive the penalties and interest for good cause shown. The board shall make every effort to assess insurers only for funds reasonably anticipated to be necessary for claims payments and claim expenses and to return the authority’s available capital to three hundred fifty million dollars ($350,000,000).
Notwithstanding the other provisions of this section, the aggregate assessment the authority is authorized by this section to impose shall be reduced to zero on December 1, 2008, with respect to earthquake events that commence on or after December 1, 2008.
The authority shall not assess a participating insurer under this section based on any insurance business that is attributable to the insurer selling the insurer’s insurance products that supplement or augment the basic residential earthquake insurance provided by the authority.
Notwithstanding any other provision of this chapter, the maximum permissible assessment pursuant to Section 10089.23 of a participating insurer that began renewing business into the authority less than 12 months prior to the date of the assessment shall be based on the residential earthquake market share of business actually placed into the authority by the insurer as of the date of the assessment.
Notwithstanding any other provision of this chapter, the maximum permissible assessments pursuant to Section 10089.23 that are permitted for all participating insurers not covered by subdivision (a) shall not be modified to reflect the addition of a new participating insurer until 12 months after that insurer has begun renewing business into the authority.
Beginning December 31, 1997, and annually thereafter on the 30th of April, the board shall notify each participating insurer of the maximum earthquake loss funding assessment level that it may be required to meet.
The authority shall issue policies of basic residential earthquake insurance, including an option for earthquake loss assessment policies for individual condominium unit properties, to any owner of a qualifying residential property, as long as the owner has secured a policy of residential property insurance from a participating insurer.
For purposes of this section, earthquake loss assessment coverage shall be issued in a minimum amount of fifty thousand dollars ($50,000) for individual condominium units valued at more than one hundred thirty-five thousand dollars ($135,000). Earthquake loss assessment coverage shall be issued in a minimum amount of twenty-five thousand dollars ($25,000) for individual condominium units of one hundred thirty-five thousand dollars ($135,000) in value or less. The value of the land shall be excluded when determining the value of the condominium, as it relates to the earthquake loss assessment coverage offered by the authority.
The panel shall submit to the board, and the board shall approve, rates for earthquake loss assessment coverage that reasonably balance the earthquake loss assessment coverages offered and the potential exposure to earthquake loss resulting from an earthquake loss assessment policy as compared to the coverages offered and the potential exposure to earthquake loss resulting from residential property other than individual condominium policies.
It is the intent of the Legislature, to the extent practicable, that rates charged by the authority to condominium loss assessment policyholders and residential property owner policyholders are treated equitably, and that a proportionate share of premiums is paid for potential exposure to loss, to the authority.
Nothing in this section shall prohibit a participating or nonparticipating insurer from offering a condominium earthquake loss assessment policy for different amounts of coverage other than those offered by the authority.
Every participating insurer that has in-force residential earthquake insurance policies in the state as of the date of commencement of authority operations shall renew each in-force residential earthquake insurance policy or earthquake coverage provided by endorsement into the authority at the time the policy or endorsement comes up for renewal. The effective date of each policy renewal into the authority shall be the renewal date of the policy as recorded in the records of the insurer and disclosed to the policyholder. The risk of loss under the insurance policy does not transfer to the authority until 12:01 a.m. of the policy renewal date.
All policies of residential earthquake insurance written by any participating insurer shall have been renewed into the authority within one year of the commencement of operations of the authority or the date an insurer elects to participate in the authority, whichever is later, and after that date, no participating insurer shall be permitted to write a policy of insurance that provides coverage within the terms and limits of a policy of basic residential earthquake insurance for any qualifying residential property in the state. Participating insurers may sell residential earthquake insurance products that supplement or augment the basic residential earthquake insurance provided by the authority.
Upon application to the authority demonstrating good cause and approval of the commissioner, a participating insurer may take up to 60 days beyond that one-year period to complete its renewal of earthquake policies into the authority. No extension of time to complete earthquake policy renewals into the authority shall serve to extend the due date by which an insurer is to make its initial capital contribution, as set forth in Section 10089.15. The commissioner shall not approve any extension if the effect of the extension would allow an insurer to selectively transfer earthquake policies with high risks to the authority while retaining policies with lower risks during that interim period.
After policies of residential earthquake insurance are renewed in the authority, insurers shall have no responsibilities or liabilities regarding those policies for losses incurred after the date of renewal of those policies, except for duties and responsibilities to the authority and policyholders under the terms of this chapter.
All policies of residential earthquake insurance provided by the authority shall be written by the authority. Authority policies shall be marketed and policyholders serviced by the participating insurer that writes the underlying policy of residential property insurance, and participating insurers shall be reasonably compensated for the claims and policyholder services they provide on behalf of the authority. Authority services may be performed on behalf of the authority in any reasonable manner by the participating insurer that is in compliance with statutory, regulatory, and case law regarding claims handling practices; provided, however, where the authority has promulgated specific procedures to govern its operations, the participating insurer shall conform its practices to those procedures. The authority procedures shall comply with statutory, regulatory, and case law governing claims handling practices. Nothing in this provision shall be deemed or construed to affect any duty or liability of the authority or participating carrier as set forth in paragraphs (2) and (3) of subdivision (e) of Section 10089.7.
Concurrent with the issuance or renewal by the authority of a residential earthquake insurance policy, the following disclosure shall be provided to the insured in 14-point boldface type:
“California Earthquake Authority Policy Disclosure
You have purchased a California Earthquake Authority (CEA) earthquake insurance policy, which can help you cover the cost of repairing damage to your property and possessions caused by an earthquake.
The CEA is not part of your homeowners’ insurance company.
Please keep in mind these important things about your CEA insurance policy:
1. CEA policy coverages are different from the coverages provided in your homeowners’ insurance policy. For example, this policy does not cover earthquake damage to swimming pools, and it may provide more limited coverage for chimneys, outbuildings, and masonry fences. These are examples of possible differences between your CEA policy and your homeowners’ policy, and you should consult your CEA policy to understand the types of losses that are limited or excluded and those that are covered.
2. If CEA’s liability for earthquake losses exceeds the CEA’s available resources the CEA may reduce its payment to you or pay you in installments. This policy is not covered by the California Insurance Guarantee Association, and therefore, the California Insurance Guarantee Association will not pay your claims if the CEA becomes insolvent and is unable to make payments as promised.
3. In certain cases, your CEA policy premium may be subject to future surcharges if the CEA’s obligations to pay earthquake losses rise to a predefined level. In that case, in addition to your annual premium you may be charged up to an additional 20% of that premium.”
The authority shall provide to participating insurers appropriate applications and forms and shall maintain records of all policies written, moneys received, and claims paid.
The duty of an agent or broker to investigate the financial condition of the authority before placement of insurance shall be the same as the duty of an agent or broker to investigate the financial condition of an admitted insurer before placement of a policy of insurance.
This section shall become operative on January 1, 2016.
Notwithstanding the prior approval requirement of Section 10089.10, the authority shall issue and sell investment grade revenue bonds or secure other debt financing of the authority, or both, in amounts determined by the board pursuant to Section 10089.32, but not to exceed one billion dollars ($1,000,000,000) plus costs of issuance and sale of those revenue bonds, costs of securing that debt financing, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt, if claims and claim expenses incurred by the authority from an earthquake event exhaust the total of the following:
The authority’s available capital.
All reinsurance actually available and under contract to the authority.
All risk transfer provided and any other capital committed through capital market contracts that is actually under contract to the authority from private capital markets.
The Treasurer shall act as agent for sale of the revenue bonds described in paragraph (1), and shall make available the net proceeds of those revenue bonds as funding for the authority. Failure of the authority to sell those revenue bonds or obtain that debt financing for any reason shall not obligate the State of California to provide or arrange replacement funding for the authority. The Treasurer may sell revenue bonds for the purpose of refunding the revenue bonds or other debt financing when authorized to do so by the board, and the surcharge authorized by this section may be used to repay that refunding, plus costs of issuance and sale of those revenue bonds or other debt financing being refunded, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt being refunded.
In the event of a revenue bond sale or debt financing arrangement pursuant to this section, the authority shall have the power to surcharge annually all authority policies to secure funds, which the authority may use solely to repay the bonded indebtedness or other debt, plus costs of issuance and sale of those revenue bonds or other debt, and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt. Notwithstanding paragraph (3) of subdivision (a) of Section 10089.23, the total net surcharge collected shall not exceed one billion dollars ($1,000,000,000), plus costs of issuance and sale of those revenue bonds or other debt and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt. The surcharge on an authority policy shall not exceed 20 percent of the annual authority residential earthquake insurance policy premium in any one year. A surcharge levied and collected pursuant to this section shall not be considered revenue, notwithstanding subdivision (o) of Section 10089.5, including for purposes of the calculation of rates filed with the commissioner pursuant to subdivision (e) of Section 10089.40. A surcharge levied and collected pursuant to this section also shall not be considered basic residential earthquake premium for any purpose, including the calculation of producer commission.
If a policy issued by the authority includes a premium surcharge pursuant to this subdivision, the participating insurer shall provide the insured a notice in a stand-alone document stating that the policyholder may cancel or nonrenew the earthquake policy. The notice shall specify that cancellation or nonrenewal of the earthquake policy will not affect the underlying residential property insurance policy. The statement shall be provided with the premium billing and shall include the following statement in 14-point boldface type:
NOTICE OF SURCHARGE ON CEA EARTHQUAKE INSURANCE POLICY AND RIGHT TO CANCEL
THE CEA IS IMPOSING A SURCHARGE ON THE PREMIUM OF ALL CEA EARTHQUAKE INSURANCE POLICIES. You may choose to renew, to cancel, or not to renew (“nonrenew”) your CEA earthquake insurance policy. If you choose to cancel or nonrenew your CEA earthquake insurance policy, your CEA earthquake insurance policy will be canceled and that cancellation will have no effect on your policy of residential property insurance. If you fail to cancel or to nonrenew your CEA earthquake insurance policy, and if you also fail to pay the CEA earthquake insurance policy premium and surcharge by the payment deadline, both your CEA earthquake insurance policy and your policy of residential property insurance will be canceled. IF YOU WANT EARTHQUAKE INSURANCE PROVIDED BY THE CEA, YOU MUST PAY THE PREMIUM FOR THE CEA EARTHQUAKE INSURANCE POLICY AND THE SURCHARGE.
The total amount of indebtedness and policy surcharges authorized under this section shall not exceed one billion dollars ($1,000,000,000) plus costs of issuance and sale of those revenue bonds or other debt and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt, regardless of the frequency or severity of earthquake losses incurred after the creation of the authority. Once the authority has levied policy surcharges in a total amount of one billion dollars ($1,000,000,000) plus costs of issuance and sale of those revenue bonds or securing other debt financing and amounts paid or payable to bond issuers and providers of credit support and letters of credit for, and interest on, those revenue bonds or other debt financing, the authority’s power to surcharge authority policies shall cease and the authority shall be prohibited from levying additional surcharges pursuant to this section.
Consistent with Section 676, the authority shall cancel the policy of basic residential earthquake insurance if the policyholder fails to pay the earthquake policy surcharge authorized by the authority, and the insurer shall cancel the policy of residential property insurance if the policyholder fails to pay the policy surcharge authorized by the authority.
If claims and claim expenses paid by the authority due to earthquake events exhaust the total of (a) the authority’s available capital, (b) the maximum amount of all insurer capital contributions and assessments pursuant to Sections 10089.15 and 10089.23, (c) all reinsurance actually available and under contract to the authority, (d) the maximum amount of all authority policyholder assessments pursuant to Section 10089.29, and (e) all capital committed and actually available from the private capital markets, the board, subject to the approval of the commissioner, shall have the power to assess participating insurance companies subject to the maximum limits in this section. Each participating insurer’s assessment shall be determined by multiplying the percentage share of the authority’s total gross written premium attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent year for which premium data not more than one year old are available, by the amount of the total assessment sought by the authority. The total amount of all assessments levied against participating insurance companies by the authority pursuant to this section shall not exceed two billion dollars ($2,000,000,000), regardless of the frequency or severity of earthquake losses at any and all times subsequent to the creation of the authority. Once a participating insurer has paid, pursuant to this section, amounts equal to its percentage share of the authority’s total gross written premium, multiplied by two billion dollars ($2,000,000,000) reduced from the maximum assessment as provided in paragraph (3) of subdivision (a) of Section 10089.23, the authority’s power to assess that insurer under this section shall cease and the authority shall be prohibited from levying additional assessments on that insurer pursuant to this section. The assessment shall be limited to the amount necessary to pay the expected claims and claim expenses of the authority and return the authority’s available capital to three hundred fifty million dollars ($350,000,000), as determined by the board, subject to approval by the commissioner.
If claims and claim expenses paid by the authority due to earthquake events that commence on or after December 1, 2008, exhaust the total of all (a) the authority’s available capital, (b) the maximum amount of all insurer capital contributions and assessments pursuant to Sections 10089.15, 10089.23, and 10089.30, (c) all reinsurance actually available and under contract to the authority, (d) the maximum amount of all authority policyholder assessments pursuant to Section 10089.29, and (e) all capital committed and actually available from the private capital markets, the board, beginning December 1, 2008, for earthquake events commencing on or after December 1, 2008, shall have the power to assess participating insurance companies subject to the maximum limits in this section. Each participating insurer’s assessment shall be determined by multiplying the percentage share of the authority’s total gross written premium attributable to that participating insurer’s sales of authority insurance policies as of April 30 of the immediately preceding year, or the most recent year for which premium data not more than one year old are available, by the amount of the total assessment sought by the authority. The total amount of all assessments levied against participating insurance companies by the authority pursuant to this section shall not exceed one billion seven hundred eighty million dollars ($1,780,000,000), regardless of the frequency or severity of earthquake losses at any and all times subsequent to the creation of the authority. Once a participating insurer has paid pursuant to this section amounts equal to its percentage share of the authority’s total gross written premium, multiplied by one billion seven hundred eighty million dollars ($1,780,000,000) reduced as provided in paragraph (3) of subdivision (a) of Section 10089.23 from the maximum assessment, which is to be reduced periodically pursuant to subdivision (b) of Section 10089.33, or upon the earlier occurrence of the effective date stated in paragraph (6) of subdivision (b) of Section 10089.33, the authority’s power to assess that insurer under this section shall cease and the authority shall be prohibited from levying additional assessments on that insurer pursuant to this section. The assessment shall be limited to the amount necessary to pay the expected claims and claim expenses of the authority and return the authority’s available capital to three hundred fifty million dollars ($350,000,000), as determined by the board.
The authority shall endeavor at all times to make specific authority earthquake policyholder assessments, and the Treasurer shall endeavor at all times to secure debt financing, only for the actual funds reasonably estimated to be required for immediate authority operations.
If the average daily balance of the authority’s available capital exceeds six billion dollars ($6,000,000,000) for the last 180 days of any calendar year, the board shall relieve all participating insurers of their obligation to pay additional earthquake loss assessments under Section 10089.30, by an aggregate amount equal to the amount of available capital in excess of six billion dollars ($6,000,000,000). Each December 31 thereafter, the board shall further reduce the aggregate assessment authorized under Section 10089.30 by the net increase in available capital in excess of the previous levels of available capital at which a reduction in the aggregate Section 10089.30 assessment was made. No reduction pursuant to this subdivision shall exceed 15 percent of the original aggregate Section 10089.30 assessment in any year of operation of the authority.
Commencing April 1, 2010, and on each April 1 thereafter, but only in years that such relief is authorized by this subdivision, the board shall reduce the combined assessment obligation of all participating insurers under Section 10089.31 by 5 percent of the maximum aggregate Section 10089.31 assessment authorized as of January 1, 2009, as provided in this subdivision. Each year of Section 10089.31 assessment reduction is referred to in this subdivision as an “assessment-reduction year.” Assessment reductions shall take place as follows:
Unless the authority has made payments and established appropriate reserves for claims and claim expenses, including for losses incurred but not reported, that in the aggregate exceeded five hundred million dollars ($500,000,000) on account of a single earthquake event commencing in 2009, as certified by the authority’s consulting actuary and accepted by the board, and the authority’s available capital as of January 1, 2010, did not exceed the authority’s available capital as of December 1, 2008, then effective April 1, 2010, the maximum aggregate Section 10089.31 assessment shall be reduced by an amount equal to the sum of an amount equal to 5 percent of the initial maximum aggregate Section 10089.31 assessment amount and an amount equal to the retained earnings differential, and 2009 shall be an assessment-reduction year.
Unless the authority has made payments and established appropriate reserves for claims and claim expenses, including for losses incurred but not reported, that in the aggregate exceeded five hundred million dollars ($500,000,000) on account of a single earthquake event commencing in 2010, as certified by the authority’s consulting actuary and accepted by the board and the authority’s available capital as of January 1, 2011, did not exceed the authority’s available capital as of December 1, 2008, then effective April 1, 2011, the maximum aggregate Section 10089.31 assessment shall be reduced by an amount equal to the sum of an amount equal to 5 percent of the initial maximum aggregate Section 10089.31 assessment amount and an amount equal to the retained earnings differential, and 2010 shall be an assessment-reduction year.
Beginning in 2012 and each year thereafter, unless the authority made payments and established appropriate reserves for claims and claim expenses, including for losses incurred but not reported, that in the aggregate exceeded five hundred million dollars ($500,000,000) on account of all earthquake events commencing in the preceding year, as certified by the authority’s consulting actuary and accepted by the board and the authority’s available capital as of January 1 of that year did not exceed the authority’s available capital as of December 1, 2008, then effective April 1 of that year, the maximum aggregate Section 10089.31 assessment shall be reduced by an amount equal to the sum of an amount equal to 5 percent of the initial maximum aggregate Section 10089.31 assessment amount and an amount equal to the retained earnings differential, and the preceding year shall be an assessment-reduction year.
If through operation of this subdivision a year is not deemed an assessment-reduction year, no subsequent year shall be an assessment reduction year unless and until either the authority’s available capital as of a subsequent April 1 exceeds the authority’s available capital as of December 1, 2008; or the limitation established in paragraph (5), below, occurs.
No more than two annual periods may be deemed not to constitute assessment-reduction years.
Effective on the day after the last day of the 10th assessment-reduction year authorized by the board, the remaining maximum aggregate Section 10089.31 assessment shall be reduced to zero.
As used in this section, “retained earnings differential” means the positive dollar-amount difference between: (A) the authority’s positive one-year retained-earnings growth for the preceding calendar year, minus (B) the authority’s capacity growth for the preceding calendar year, both calculated as of December 31. As used in this paragraph, “one-year retained-earnings growth” means the difference between the authority’s cumulative retained earnings at December 31 of the preceding calendar year and the authority’s cumulative retained earnings at December 31 of the year before the preceding calendar year, calculated in accordance with generally accepted accounting principles as of the preceding December 31. As used in this paragraph, the term “capacity growth” is the one-year amount of purchased risk transfer, such as reinsurance, or borrowed risk transfer such as bonds, put in place in the authority’s financial structure to account for the authority’s aggregate exposure growth over the preceding year ending December 31. The board shall be authorized and entitled, in its sole discretion, to make all final decisions regarding the authority’s level of financial strength and security and the authority’s choice and use of financing and risk-transfer mechanisms. As used in this paragraph, the term “aggregate exposure” means the aggregate of the limits of liability under all coverages of all earthquake insurance policies issued by the authority.
In no event shall the board reinstate, in whole or in part, any assessment obligation it has reduced pursuant to this section.
The policies issued by the authority shall not be subject to assessment for, nor shall any authority policyholder be eligible for benefits from, the California Insurance Guaranty Association.
Policies of residential earthquake insurance written by participating insurers that supplement, augment, or are in excess of the authority’s policy of basic earthquake insurance shall be subject to assessment by the California Insurance Guaranty Association and shall be covered to the extent provided in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
Policies of basic residential earthquake insurance written by nonparticipating insurers shall be subject to assessment by the California Insurance Guaranty Association and shall be covered to the extent provided in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
Participating insurers of the authority shall have no obligation to pay assessments to the California Insurance Guaranty Association for covered claims obligation arising from policies of basic residential earthquake insurance written by nonparticipating insurers.
If at any time the board determines that all the authority’s available capital may be exhausted and no source of additional funds such as assessments, reinsurance, or private capital market moneys will be available to the authority to pay policyholder claims, the board shall draw up and present to the commissioner a plan to pay policyholder claims on a pro rata basis or in installment payments. The board shall maintain sufficient capital to ensure the continued operation of the authority for the purpose of implementing the proration or installment plan. At this point, the commissioner shall adopt a schedule for reinstitution of an insurer’s statutory obligation to offer earthquake coverage by a means other than placement in the authority. In no event shall the schedule adopted pursuant to this subdivision be for a period longer than six months.
Upon presentation of that plan to prorate or pay in installments, the commissioner shall order the authority to cease renewing or accepting new earthquake insurance policies and may apply to the superior court for orders or injunctions as the commissioner deems necessary to prevent any event or occurrence adverse to the authority, including, but not limited to, any or all of the following:
Interference with the commissioner’s consideration and implementation of a plan for pro rata or installment payment of policyholder claims under this section.
Interference with or attachment of the assets of the authority.
Institution or prosecution of any actions or proceedings against the authority.
The obtaining of preferences, judgments, attachments, or other liens or levies against the authority or its assets.
The withholding by a participating insurer or any other person of any premium, surcharge, assessment, or other amount lawfully due and owing to the authority.
Entry of orders or injunctions obtained by the commissioner upon the application permitted by subdivision (a) shall not vest the superior court with general jurisdiction over the business or assets of the authority or any plan for the pro rata or installment payment of policyholder claims under this section, and the superior court’s jurisdiction shall be limited to the entry and enforcement of those orders and injunctions.
The State of California shall have no liability for payment of claims in excess of funds available pursuant to this chapter. The State of California, and any of the funds of the State of California, shall have no obligations whatsoever for payment of claims or costs arising from this act, except as specifically provided in this act.
In the event a natural disaster program is enacted by Congress, the panel shall convene and prepare a plan to dissolve the authority or conform this act with the federal program. Following its deliberations, the panel shall recommend a plan of action to the board and the Legislature.
The board shall set aside in each calendar year an amount equal to 5 percent of investment income accruing on the authority’s invested funds, or five million dollars ($5,000,000), whichever is less, if deemed actuarially sound by a consulting actuary employed or hired by the authority, to be maintained as a subaccount in the California Earthquake Authority Fund. The authority shall use those funds to fund the establishment and operation of an Earthquake Loss Mitigation Fund. In the event a set-aside of mitigation-related funds may impair the actuarial soundness of the authority, the board may delay the implementation of this section. Any delay shall be reported to the Legislature and the commissioner and reported publicly.
Upon the development and implementation of an economical system satisfactory to the board and the commissioner to prevent misapplication of mitigation funds, the Earthquake Loss Mitigation Fund may be applied to supply grants and loans or loan guarantees to dwelling owners who wish to retrofit their homes to protect against earthquake damage.
The operational rules of the Earthquake Loss Mitigation Fund shall be part of the authority’s plan of operations.
On or before July 1, 2000, the authority shall establish in the operational rules of the Earthquake Loss Mitigation Fund, a plan for the expedited expansion of the residential retrofit program statewide. The program shall include personnel and administrative requirements and all other programmatic specifications necessary to the implementation of the plan.
The Legislature finds and declares that there exists the California Residential Mitigation Program, also known as the CRMP, a joint powers authority created in 2012 by agreement between the California Earthquake Authority and the Office of Emergency Services.
Any funds appropriated by the Legislature for the purpose of funding the CRMP’s implementation of the grant program described in this section shall be to the department, which shall provide the funds to the California Earthquake Authority’s Earthquake Loss Mitigation Fund, pursuant to subdivision (k) of Section 10089.7 and according to the terms of an agreement negotiated by the department and the authority. The authority, the prime funder of the CRMP, shall then transfer the funds from its Earthquake Loss Mitigation Fund to the CRMP for further implementation and expansion of the CRMP’s Earthquake Brace and Bolt program, upon actions by the respective governing boards of the authority and the CRMP, authorizing and accepting that transfer. The CRMP shall, pursuant to the requirements of this section, implement the grant program and make grants that assist a qualifying owner of a single-family residential structure by defraying the owner’s costs of seismic retrofitting of the structure.
The CRMP may make a grant to an applicant who satisfies all of the following:
The applicant is an owner of record of, and lives in, the structure to be retrofitted.
The structure is a single-family, detached, residential building composed of one to four dwelling units.
The structure meets structural requirements established pursuant to subdivision (e).
The structure is located in a high-risk earthquake area, based on criteria established pursuant to subdivision (e).
The retrofit work qualifies as work for which the applicant may receive a grant, based on criteria established pursuant to subdivision (e).
Subject to the policies, procedures, and criteria adopted pursuant to subdivision (e), a grant shall not exceed the lesser of 75 percent of the cost of the qualifying retrofit work, or three thousand dollars ($3,000).
The governing board of the CRMP shall adopt policies and procedures to implement this section, including, but not limited to, establishing structural eligibility requirements for structures that will receive a grant for seismic retrofit work, defining criteria for determining whether a structure is located in a high-earthquake-risk area, and defining criteria for seismic retrofit work that qualifies as work eligible for receipt of a grant, which may be awarded in amounts of greater or lesser than the amounts established by subdivision (d). In adopting those policies and procedures, the governing board shall provide notice and opportunity for public review and comment, publish the policies and procedures on the CRMP’s Internet Web site, and otherwise make the policies and procedures available to the public.
In administering the Earthquake Brace and Bolt program pursuant to Section 10089.395, the California Residential Mitigation Program (CRMP) shall do both of the following:
Provide outreach to low-income households to increase awareness of the Earthquake Brace and Bolt program in those communities where the program is offered.
A homeowner in a low-income household may apply for a supplemental grant, which shall be awarded on a first-come-first-served basis until the funding set aside for supplemental grants is exhausted.
The supplemental grant shall be in an amount as necessary to provide the homeowner in the low-income household with 90 percent of the retrofit costs remaining after payment of the grant awarded to that homeowner pursuant to subdivision (c) of Section 10089.395.
Any unexpended supplemental grant funding shall be available to provide grants to other eligible applicants on the waiting list.
For purposes of this section, “low-income household” means a household that has an income at or below 80 percent of the median household income in California.
The Legislature finds and declares that there exists the California Residential Mitigation Program, also known as the CRMP, a joint powers authority created in 2012 by agreement between the California Earthquake Authority and the Office of Emergency Services.
Any funds appropriated by the Legislature for the purpose of funding the CRMP’s implementation of the grant program described in this section shall be to the department, which shall provide the funds to the California Earthquake Authority’s Earthquake Loss Mitigation Fund, pursuant to subdivision (k) of Section 10089.7 and according to the terms of an agreement negotiated by the department and the authority. The authority, the prime funder of the CRMP, shall then transfer the funds from its Earthquake Loss Mitigation Fund to the CRMP for further implementation and expansion of the CRMP’s Earthquake Brace and Bolt program, upon actions by the respective governing boards of the authority and the CRMP, authorizing and accepting that transfer. The CRMP may, pursuant to the requirements of this section, implement the grant program and on or after July 1, 2015, make grants that assist a qualifying owner of a multiunit residential structure by defraying the owner’s cost of seismic retrofitting of the structure.
The CRMP may make a grant to an applicant who satisfies all of the following:
The applicant is an owner of record of the structure to be retrofitted and has secured the written consent of all other owners of the structure to make a grant application.
The structure is a residential building of not fewer than two, but not more than 10, dwelling units.
The dwelling units in the structure are occupied by tenants who are members of “lower income households,” as defined in subdivision (a) of Section 50079.5 of the Health and Safety Code.
The structure meets structural requirements established pursuant to subdivision (d).
The structure is located in a high-risk earthquake area, based on criteria established pursuant to subdivision (d).
The retrofit work qualifies as work for which the applicant may receive a grant, based on criteria established pursuant to subdivision (d).
The governing board of the CRMP shall adopt policies and procedures necessary to implement this section, including, but not limited to, establishing the means by which the applicant may satisfy the tenant-related economic eligibility criteria for the program, establishing structural eligibility requirements for a structure that will receive seismic retrofit work, defining criteria for determining whether a structure is located in a high-risk earthquake area, defining criteria for seismic retrofit work that qualifies as work eligible for receipt of a grant, and defining criteria for the determination of the amount of a grant awarded pursuant to the program created by this section. In adopting those policies and procedures, the governing board shall provide notice and opportunity for public review and comment, publish the policies and procedures on the CRMP’s Internet Web site, and otherwise make the policies and procedures available to the public.
Rates established by the authority shall be actuarially sound so as to not be excessive, inadequate, or unfairly discriminatory. Rates shall be established based on the best available scientific information for assessing the risk of earthquake frequency, severity, and loss. Rates shall be equivalent for equivalent risks. Factors the board shall consider in adopting rates include, but are not limited to, the following:
Location of the insured property and its proximity to earthquake faults and to other geological factors that affect the risk of earthquake or damage from earthquake.
The soil type on which the insured dwelling is built.
Construction type and features of the insured dwelling.
Age of the insured dwelling.
The presence of earthquake hazard reduction factors, including those set forth in subdivision (a) of Section 10089.2.
If scientific information from geologists, seismologists, or similar experts that assesses the frequency or severity of risk of earthquake is considered in setting rates or in arriving at the modeling assumptions upon which those rates are based, the information may be used to establish differentials among risks only if the information, assumptions, and methodology used are consistent with the available geophysical data and the state of the art of scientific knowledge within the scientific community.
Scientific information from geologists, seismologists, or similar experts shall not be conclusive to support the establishment of different rates between the most populous rating territories in the northern and southern regions of the state unless that information, as analyzed by experts such as the United States Geological Survey, the California Division of Mines and Geology, and experts in the scientific or academic community, clearly shows a higher risk of earthquake frequency, severity, or loss between those most populous rating territories to support those differences.
It is not the intent of the Legislature in adopting this subdivision to mandate a uniform statewide flat rate for California Earthquake Authority policies.
The classification system established by the board shall not be adjusted or tempered in any way to provide rates lower than are justified for classifications that present a high risk of loss or higher than are justified for classifications that present a low risk of loss.
Policyholders who have retrofitted their homes to withstand earthquake shake damage according to standards and to the extent set by the board shall enjoy a premium discount or credit of 5 percent on the authority-issued policy of residential earthquake coverage. For residential dwellings, the 5-percent discount shall be applicable if the dwelling, at a minimum, meets the following requirements: the dwelling was built prior to 1979, is tied to the foundation, has cripple walls braced with plywood or its equivalent, and the water heater is secured to the building frame. For mobilehomes, the 5-percent discount shall be applicable if the mobilehome, at a minimum, is reinforced by an earthquake resistant bracing system certified by the Department of Housing and Community Development. The board may approve a premium discount or credit above 5 percent, as long as the discount or credit is determined actuarially sound by the authority.
All rates shall be approved by the commissioner prior to their use.
If the authority ceases operation for any reason, including, but not limited to, repeal of this chapter or insolvency of the authority, participating carriers shall no longer be able to satisfy the requirement to offer residential earthquake insurance coverage by placement within the authority. The commissioner shall adopt a schedule in accordance with subdivision (a) of Section 10089.35 to establish when participating carriers shall be required to offer coverage by another mode authorized pursuant to Chapter 8.5 (commencing with Section 10081) of Part 1 of Division 2 to those policyholders for whom they write the underlying policies of residential property insurance.
If the authority ceases operation pursuant to a statute enacted by the Legislature, that statute shall determine the duty of participating insurers to provide earthquake insurance pursuant to Chapter 8.5 (commencing with Section 10081). Chapter 8.5 (commencing with Section 10081) shall remain in effect unless specifically repealed by that statute.
At least once each year a participating insurer shall provide each of its residential property insureds with marketing documents produced at the authority’s expense.
This section shall become operative on January 1, 2016.
Upon termination of the authority by the Legislature, its remaining funds shall be transferred to the General Fund unless otherwise directed by the Legislature.
Notwithstanding any other provision of law, premiums collected by the authority shall be exempt from collection of the state’s insurance premium tax, and the amount of tax foregone by the state shall be considered for all purposes a contribution by the state and its citizens to the capital and operating revenues of the authority.
No funds contributed to, or collected or held by, the authority shall be available to meet the general obligations of the state unless the authority has been terminated and wound up, and all funds due or owing to any person pursuant to this act have been paid, held in reserve, or returned.
Bonds issued under this chapter shall not be a debt or liability of the state or of any political subdivision of the state, or a pledge of the full faith and credit of the state or of any political subdivision, but shall be payable solely from the funds provided in this chapter.
Bonds issued by the authority are legal investments for all trust funds, the funds of all insurance companies, banks, trust companies, executors, administrators, trustees, and other fiduciaries. The bonds are securities that may legally be deposited with, and received by, any state or municipal officer or agency or political subdivision of the state for any purpose for which the deposit of bonds or obligations of the state is now, or may hereafter be, authorized by law, including deposits to secure public funds.
Interest earned on any bonds issued by the authority shall at all times be free from state personal income tax and corporate income tax.
The state hereby pledges to and agrees with the holders of bonds that the state will not limit, alter, or restrict the rights hereby vested in the authority to fulfill each pledge of revenues and any other terms of any agreement made with or for the benefit of the holders of bonds or in any way impair the rights or remedies of the holders of bonds.
The Treasurer may from time to time enter into one or more credit facilities permitting the authority to draw an amount up to one billion dollars ($1,000,000,000) with payment, interest rate, indemnity, compensation, security, default, remedy, and other terms and conditions as determined by the authority. All drawings under these credit facilities shall be available as funding for the authority as provided in Section 10089.29.
The authority shall have the power to pledge to the providers of credit facilities and to the owners of bonds the surcharges imposed or to be imposed pursuant to subdivision (b) of Section 10089.29 to secure payment of all obligations of the authority under those credit facilities and bonds, respectively. A pledge of those surcharges shall constitute a lien and security interest that shall immediately attach to the surcharges whether or not imposed or collected at the time the pledge is made, and shall be effective, valid, and binding and enforceable against the authority, the Treasurer, the beneficiaries of the basic residential earthquake insurance issued from time to time, and all others asserting rights in the surcharges to the extent set forth, and in accordance with, the terms of the pledge contained in the credit facilities or bonds, as the case may be, whether or not those parties have notice of the pledge and without the need for any physical delivery, recordation, filing, or further act.
Any insurer that withdraws from the authority under Section 10089.19 while bonds or other debt is outstanding shall impose annually a premium surcharge on each policy of residential earthquake insurance written by it equal in percentage amount, calculated as a percentage of the basic residential earthquake insurance premium, to the percentage amount of the surcharge being imposed in that year by the authority pursuant to subdivision (b) of Section 10089.29. That insurer shall remit promptly all those surcharges collected by it to the trustee appointed pursuant to Section 10089.22. The surcharges shall be used solely to repay the bonded indebtedness or other debt issued pursuant to subdivision (a) of Section 10089.29. If the sum of the surcharges remitted to the trustee pursuant to this section plus the amount of the surcharges imposed by the authority pursuant to subdivision (b) of Section 10089.29 would exceed the amount authorized by that provision, then surcharges of the authority shall be reduced by an amount equal to that excess.
Should the Legislature and Governor approve legislation that causes the authority to cease operation while bonds or other debt are outstanding, participating insurers shall impose annually a premium surcharge on each policy of residential earthquake insurance written by them equal in percentage amount, calculated as a percentage of the basic residential earthquake insurance premium, to the percentage amount of the surcharge being imposed in that year by the authority pursuant to subdivision (b) of Section 10089.29. Those insurers shall remit promptly all these surcharges collected by them to the trustee appointed pursuant to Section 10089.22. The surcharges shall be used solely to repay the bonded indebtedness or other debt issued pursuant to subdivision (a) of Section 10089.29. If the sum of the surcharges remitted to the trustee pursuant to this section plus the amount of the surcharges imposed by the authority pursuant to subdivision (b) of Section 10089.29 would exceed the amount authorized by that provision, then surcharges of the authority shall be reduced by an amount equal to that excess.
Unless authorized by a statute enacted subsequent to the effective date of this section, the authority shall cease writing new earthquake insurance policies 180 days after implementation by both the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Association (“Freddie Mac”) of policies to require earthquake insurance for any single-family residential structure, other than a condominium unit or townhome, as a condition of purchasing a mortgage or trust deed secured by that structure. Notwithstanding this restriction, the authority shall continue to renew its existing earthquake insurance policies and shall accept applications for earthquake insurance from residential property insurance policyholders of participating insurers in accordance with subdivision (b) of Section 10086.
In the event that both the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Association (“Freddie Mac”) have proposed to implement policies to require earthquake insurance for any single-family residential structure, other than a condominium unit or townhome, as a condition of purchasing a mortgage or trust deed secured by that structure, it is the intent of the Legislature that the Legislature should convene to consider whether the authority should continue to write new earthquake insurance policies, with or without modification, or to cease writing new earthquake insurance policies.
The board shall conduct the affairs of the authority with respect to transacting earthquake insurance, including administering the California Earthquake Authority Fund. Except as provided in paragraph (2) of subdivision (a) of Section 10089.6, the board has no authority to administer the Wildfire Fund. At every meeting of the board, the board shall post an agenda that clearly identifies the meeting as relating to the business of earthquake insurance.
CHAPTER 8.9. Insurance Mediation [10089.70. - 10089.83.]
The department shall establish a program for the mediation of the disputes between insured complainants and insurers arising pursuant to any of the following:
A claim that arises under a homeowners’ insurance policy and that involves loss due to a fire for which the Governor has declared a state of emergency pursuant to Section 8558 of the Government Code. The department may refer to mediation any dispute covered by this paragraph in which the parties to the contract wish to discuss possible payments beyond policy limits.
A claim that arises under a policy covering earthquake damage and that involves loss due to an earthquake for which the Governor has declared a state of emergency pursuant to Section 8558 of the Government Code. With respect to disputes arising under this paragraph, the program shall apply only to personal lines of insurance related to residential coverage.
A claim that arises under automobile collision coverage or automobile physical damage coverage, in a policy as defined in Section 660.
The goal of the program shall be to favorably resolve a statistically significant number of disputes sent to mediation under the program. This section shall not apply to any dispute that turns on a question of major insurance coverage or a purely legal interpretation, or any dispute involving the actions of an agent or broker in which the insurer is not alleged to have been responsible for the conduct, or any complaint the commissioner finds to be frivolous, or any dispute in which a party is alleged to have committed fraud.
Any insured having a dispute with an insurer under a policy that qualifies for this program may file a written complaint with the department. The complaint shall indicate that the complainant has not been able to reach a satisfactory settlement of a claim with the insurer. The department shall, if deemed appropriate, notify the insurer against whom the complaint is made of the nature of the complaint, may request appropriate relief for the complainant, and may meet and confer with the complainant and the insurer in order to attempt resolution of the dispute.
If, after the department’s intervention, the insurer and the insured do not reach agreement, the department may notify the insurer that in order to avoid referral to mediation, the insurer shall have 28 calendar days to resolve the dispute, unless the department, for good cause, extends the period by an additional 7 calendar days.
The department may not refer a claim or dispute to mediation unless the amount claimed by the insured exceeds seven thousand five hundred dollars ($7,500) and the amount in dispute exceeds two thousand dollars ($2,000).
If the dispute is not resolved within the time period prescribed by Section 10089.72, the insurer shall notify the department of the failure, and may include the reason for the failure. The insurer shall, within the time period prescribed by Section 10089.72, notify the department of its position if it believes that the dispute is not eligible for the mediation program.
If the insurer notifies the department of the failure to resolve the dispute, the department shall notify the insured of the insured’s ability to request mediation and ask the insured whether the insured requests mediation. If the insured responds affirmatively, the department shall refer the dispute to mediation.
If the insurer fails to give the required notice to the department prior to the expiration of the time limits set forth in Section 10089.72, the department shall notify the insured of the insured’s ability to request mediation and ask the insured whether the insured requests mediation. If the insured responds affirmatively, the department shall refer the dispute to mediation. The department may not refer a dispute to mediation if the matter turns upon any of the reasons or conditions set forth in Section 10089.70, relative to applicability, or if for other good cause the commissioner determines that mediation of the dispute is inappropriate.
If the insured has filed a civil complaint, the insurer is excused from mediating under this chapter any claims or disputes involved in the civil action.
Any insurer may inform an insured who has filed a complaint with the department concerning a dispute that qualifies for this program of the existence of the mediation program and may ask the insured to seek mediation under this chapter jointly with the insurer. Any insurer may notify the department of any dispute arising out of a qualifying event that it believes may be appropriately resolved through the mediation program. The department, with respect to that notification, shall proceed as provided in subdivision (a) of Section 10089.74.
Notwithstanding Section 10089.82, if the commissioner makes a finding that an individual insurer has engaged in unreasonable or arbitrary refusals to mediate, the commissioner shall have the authority to require that insurer to participate in mediation in all cases deemed by the commissioner appropriate for mediation under this chapter.
Any insurer who has been ordered to participate in mediation on a mandatory basis may seek a review of the order by filing in a court of competent jurisdiction within 30 calendar days of the order. The commissioner’s order to participate in mediation, however, may not be stayed during the pendency of any judicial proceeding for any period beyond 60 calendar days after the initial date of the order to participate. The basis for the commissioner’s decision to require an insurer to participate in the mediation program shall not be made public unless review is sought. The commissioner’s decision not to require an insurer to participate, including the basis for the decision, shall be made public.
Any insured whose request to mediate his or her claim under this chapter was declined by an insurer may request the commissioner to require the insurer to participate in the mediation program and may seek review in a court of competent jurisdiction of the commissioner’s decision not to require the insurer to participate in the mediation program. The review shall be required to be sought within 30 calendar days after the commissioner’s decision.
Upon referral of a complaint to mediation, the department shall immediately transfer all necessary information concerning the claim, including the name and address of the insured and the insurer, to a mediator.
The department shall contract with a diverse pool of mediators for the provision of mediation services. The contractors shall be qualified mediators who meet standards established by the commissioner. The commissioner shall establish standards in consultation with consumer groups, policyholder groups, mediators, alternative dispute resolution groups, insurers, and the State Bar. These standards shall include:
Mandatory training that may be provided by the department, which shall include, at a minimum, the legal rules for insurance policy interpretation and the rights of insureds under California law, and methods of determining costs of construction and reconstruction and costs of automobile repair in given geographical areas.
A requirement that no mediator participating in this program may have business, familial, contractual, or other affiliation with, or financial interest in, the insured, or in any insurer, insurance agent, or agency. For purposes of this subdivision, an investment in a mutual fund that holds insurer stocks is not a financial interest. Financial interest does not include prior representation of, or an employment or contractual relationship with a law firm or lawyer who represents, one or more insurers or who represents insurance agents in connection with their business affairs, provided the law firm or lawyer has not previously represented any of the parties to the mediation.
However, any prior representation, employment, or contractual relationship shall be disclosed to the parties to the mediation. If any party objects to the mediator because of the prior representation, employment, or contractual relationship, the department shall dismiss that mediator and select a new mediator. An objection under this subdivision does not limit a party’s right to object once under subdivision (d).
A requirement that no mediator participating in this program may be either a lawyer or an employee of a lawyer or law firm that has represented any party to the mediation in the previous 36 months, or a person who has a business, familial, contractual, or other affiliation with a lawyer or law firm that has represented any party to the mediation in a lawsuit against the insurer in the last 36 months.
Each party to the mediation may object once to the mediator assigned by the department. If a party objects to the mediator, the department shall dismiss the mediator and assign another mediator.
Upon receipt of a complaint, the mediation service, to the extent possible, shall issue a notice to the insured and the insurer setting a date and time within 21 calendar days of the date of the notice for commencement of a mediation conference. The mediator shall make all reasonable efforts to schedule the mediation at a time agreeable to both parties. The notice shall inform the parties that the cost of mediation will be borne by the insurer, except to the extent provided in Section 10089.81. The notice shall also state that in the event of a proposed settlement the insured may have three business days in which to rescind the agreement, as specified in subdivision (c) of Section 10089.82.
The costs of mediation shall be reasonable, and shall be borne by the insurer, except as provided in Section 10089.81. The commissioner may set a fee not to exceed one thousand five hundred dollars ($1,500) for each homeowners’ or earthquake coverage dispute mediated pursuant to this chapter, and seven hundred dollars ($700) for each automobile coverage dispute mediated pursuant to this chapter.
The administrative expenses for the mediation program shall be paid from existing resources available to the department. If additional resources are required by the department, those resources shall be made available by an annual appropriation in the Budget Act.
The representatives of the insurer shall know the facts of the case and be familiar with the allegations of the complainant. The insurer or the insurer’s representative shall produce at the settlement conference a copy of the policy and all documents from the claims file relevant to the degree of loss, value of the claim, and the fact or extent of damage. For disputes mediated pursuant to paragraph (1) of subdivision (a) of Section 10089.70, the department shall refer to mediation issues related to the settlement of the claim. The insured and insurer shall produce, to the extent available, documents relevant to the successful mediation of the claim, including documents related to the degree of loss, the value of the claim, and the fact or extent of damage.
The mediator may also order production of other documents that the mediator determines to be relevant to the issues under mediation. If a party declines to comply with that order, the mediator may appeal to the commissioner for a determination of whether the documents requested should be produced. The commissioner shall make a determination within 21 days. However, the party ordered to produce the documents shall not be required to produce while the issue is before the commissioner in this 21-day period. If the ruling is in favor of production, any insurer that is subject to an order to participate in mediation issued under subdivision (a) of Section 10089.75 shall comply with the order to produce. Insureds, and those insurers that are not subject to an order to participate in mediation, shall produce the documents or decline to participate further in the mediation after a ruling by the commissioner requiring the production of those other documents. Declination of mediation by the insurer under this section may be considered by the commissioner in exercising authority under subdivision (a) of Section 10089.75.
The mediator shall have the authority to protect from disclosure information that the mediator determines to be privileged, including, but not limited to, information protected by the attorney-client or work-product privileges, or to be otherwise confidential.
The mediator shall determine prior to the mediation conference whether the insured will be represented by counsel at the mediation. The mediator shall inform the insurer whether the insured will be represented by counsel at the mediation conference. If the insured is represented by counsel at the mediation conference, the insurer’s counsel may be present. If the insured is not represented by counsel at the mediation conference, then no counsel may be present.
Section 703.5 and Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code apply to a mediation conducted under this chapter.
The statements made by the parties, negotiations between the parties, and documents produced at the mediation are confidential. However, this confidentiality shall not restrict the access of the department to documents or other information the department seeks in order to evaluate the mediation program or to comply with reporting requirements. This subdivision does not affect the discoverability or admissibility of documents that are otherwise discoverable or admissible.
All parties to the mediation proceeding shall negotiate in good faith and shall have the authority to immediately settle claims. An insurer that fails to appear for a scheduled mediation conference or meeting for which the consumer appears shall pay the consumer for his or her actual expenses incurred in attending the conference plus the value of lost wages. An insured who has good cause for a failure to appear may reschedule one time, at a time set by the mediator. If an insured fails to demonstrate good cause for the first failure to appear or subsequent failures to appear, that insured loses his or her right to mediate the claim under this chapter and shall pay all costs charged by the mediator up to the time of the failure to appear that terminates the mediation.
An insured may not be required to use the department’s mediation process. An insurer may not be required to use the department’s mediation process, except as provided in Section 10089.75.
Neither the insurer nor the insured is required to accept an agreement proposed during the mediation.
If the parties agree to a settlement agreement, the insured will have three business days to rescind the agreement. Notwithstanding Chapter 2 (commencing with Section 1115) of Division 9 of the Evidence Code, if the insured rescinds the agreement, it may not be admitted in evidence or disclosed unless the insured and all other parties to the agreement expressly agree to its disclosure. If the agreement is not rescinded by the insured, it is binding on the insured and the insurer, and acts as a release of all specific claims for damages known at the time of the mediation presented and agreed upon in the mediation conference. If counsel for the insured is present at the mediation conference and a settlement is agreed upon that is signed by the insured’s counsel, the agreement is immediately binding on the insured and may not be rescinded.
This section does not affect rights under existing law for claims for damage that were undetected at the time of the settlement conference.
All settlements reached as a result of department-referred mediation shall address only those issues raised for the purpose of resolution. Settlements and any accompanying releases are not effective to settle or resolve any claim or dispute not addressed by the mediator for the purpose of resolution, nor any claim that the insured may have related to the insurer’s conduct in handling the claim. However, for mediations conducted pursuant to paragraph (1) of subdivision (a) of Section 10089.70, the insurer and insured may agree to a complete settlement and release of all disputes related to the claim, including any claim the insured may have related to the insurer’s conduct in handling the claim, provided the legal effect of the release is disclosed and fully explained to the claimant by the mediator.
Referral to mediation or the pendency of a mediation under this article is not a basis to prevent or stay the filing of civil litigation arising in whole or in part out of the same facts. Any applicable statute of limitations or limitation on the insured’s right to sue as set forth in Section 2071 is tolled for the number of days beginning from the notification date to the insurer pursuant to Section 10089.72, until the date on which the mediation is either completed or declined, or the date on which the insured fails to appear for a scheduled mediation for the second time, or, in the event that a settlement is completed, the expiration of any applicable three-business-day cooling off period.
On or before August 1 of each year in which this program is in effect, the commissioner shall report to the Governor, the Legislature, and to the committees of the Senate and Assembly having jurisdiction over insurance on the status of the program in the prior year, including statistics about the number of cases suitable for mediation, the number sent to mediation, and the number accepted, as well as declined, by the insurers, and other similar information concerning the operation of the program in the annual report submitted pursuant to Section 12922.
At six-month intervals, the department shall collect from the mediators with which it contracts for this service the following information: the number of persons to whom mediation was offered, the number of insurers that accepted and declined mediation, the number of settlements, and of those settlements, the number rejected within the three business day cooling off period. For each settlement, the mediation service shall also report the amount initially claimed by the consumer and the amount agreed to be paid, if any, by the insurer or other party.
The department may adopt regulations, including reporting requirements, in the commissioner’s discretion, to implement this chapter. The regulations shall be adopted as emergency regulations pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. The adoption of the regulations is deemed necessary for the immediate preservation of the public peace, health or safety, or general welfare.
CHAPTER 9. Basic Property Insurance Inspection and Placement Plan [10090. - 10100.3.]
The purposes of this chapter are to do all of the following:
To assure stability in the property insurance market for property located in the State of California.
To assure the availability of basic property insurance as defined by this chapter.
To encourage maximum use, in obtaining basic property insurance, of the normal insurance market provided by admitted insurers and licensed surplus line brokers.
To provide for the equitable distribution among admitted insurers of the responsibility for insuring qualified property for which basic property insurance cannot be obtained through the normal insurance market by the establishment of a FAIR Plan (fair access to insurance requirements), an industry placement facility and a joint reinsurance association.
Unless the provision or context otherwise requires, the following definitions govern the construction of this chapter:
“Association,” “industry placement facility,” or “facility,” means a joint reinsurance association, the California FAIR Plan Association, formed by insurers licensed to write and engaged in writing basic property insurance within this state to assist persons in securing basic property insurance and to formulate and administer a program for the equitable apportionment among insurers of basic property insurance.
“Commissioner” means the Insurance Commissioner of this state.
“Basic property insurance” means insurance against direct loss to real or tangible personal property at a fixed location in those geographic or urban areas, as designated by the commissioner, from perils insured under the standard fire policy and extended coverage endorsement, from vandalism and malicious mischief, and includes other insurance coverages as may be added with respect to that property by the industry placement facility with the approval of the commissioner or by the commissioner. “Basic property insurance” includes insurance for manufactured homes and mobilehomes under the same terms and conditions as basic property insurance sold for other residential dwellings. “Basic property insurance” does not include insurance on automobile risks, commercial agricultural commodities or livestock, or equipment used to cultivate or transport agricultural commodities or livestock.
For the purposes of earthquake coverage that is provided as a component of basic property insurance, the association shall sell only the policy described in Section 10089. In force policies of basic property insurance that include earthquake coverage shall be renewed with the coverage specified in Section 10089, and the association shall comply with the notice requirements of paragraph (2) of subdivision (a) of Section 10086.
“Inspection bureau” means the organization or organizations designated by the association with the approval of the commissioner to make inspections to determine the condition of the properties for which basic property insurance is sought and to perform other duties as may be authorized by the association.
“Premiums written” means gross direct premiums charged with respect to property in this state on all policies of basic property insurance and the basic property insurance premium components of all multiperil policies, less return premiums, dividends paid or credited to policyholders, or the unused or unabsorbed portions of premium deposits.
“Insurer” means a person who undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event, and shall include reciprocals and interinsurance exchanges.
“Manufactured home” shall have the same meaning as defined in Section 18007 of the Health and Safety Code.
“Mobilehome” shall have the same meaning as defined in Section 18008 of the Health and Safety Code.
This chapter shall not apply to county mutual fire insurers nor to fraternal fire insurers.
Any person having an insurable interest in real or tangible personal property who, after diligent effort, has been unable to obtain basic property insurance through normal channels from an admitted insurer or a licensed surplus line broker, shall be entitled upon application to the facility to an inspection of the property by representatives of the inspection bureau. Such inability to obtain such insurance after diligent effort through normal channels may, in the discretion of the association, be demonstrated by a signed general statement to that effect on a form prescribed by the association.
The manner and scope of the inspection and the form of the inspection report shall be prescribed by the facility with the approval of the commissioner. The inspection shall include, but need not be limited to, pertinent structural and occupancy features as well as the general condition of the building and surrounding structures. A representative photograph of the property may be taken as part of the inspection.
Promptly after the request for inspection is received, an inspection shall be made and an inspection report filed with the company or companies designated by the facility. A copy of the completed inspection report shall be sent to the facility and to the applicant upon request.
Within 30 days after the effective date of this chapter, with the approval of the commissioner, all insurers licensed to write and engaged in writing in this state, on a direct basis, basic property insurance or any component of basic property insurance in multiperil policies, shall establish an industry placement facility, the California FAIR Plan Association, to formulate and administer a program for the equitable apportionment among insurers of basic property insurance that may be afforded to persons having an interest in real or tangible personal property who, after diligent effort, as specified in subdivision (a) of Section 10093, are unable to procure insurance through normal channels from an admitted insurer or a surplus line broker. Each insurer, as a condition of its authority to transact those kinds of insurance in this state, shall participate in an industry placement facility program in accordance with rules to be established by a governing committee, composed of nine insurers annually elected in the manner to be provided in the program. The governing committee shall also have as nonvoting members one representative of insurance agents, one representative of insurance brokers, one representative of surplus line brokers, and one representative of the public, each to be appointed by the Governor. The Speaker of the Assembly and the Chairperson of the Senate Committee on Rules shall serve as nonvoting, ex officio members of the governing committee, and each may name a designee to serve in their place.
The governing committee may establish separate classifications of written premiums for the purpose of equitable distribution, but shall not include premiums from automobile risks, commercial agricultural commodities or livestock, or equipment used to cultivate or transport agricultural commodities or livestock.
The program may provide, with the approval of the commissioner, for assessment of all members in amounts sufficient to operate the facility, and may establish maximum limits of liability to be placed through the program, reasonable underwriting standards for determining insurability of a risk, and commission to be paid to the licensed producer designated by the applicant.
Notwithstanding subdivision (c) of Section 10095, the facility shall, pursuant to regulations adopted by the commissioner, provide for a method whereby insurers who voluntarily write basic property insurance on risks located in areas designated at the beginning of the policy period as brush hazard areas by the Insurance Services Office (ISO) or designated at the beginning of the policy period as high or very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection, or very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection pursuant to Section 51178 of the Government Code will, to that extent, be proportionately relieved of the liability to participate in a plan adopted pursuant to this chapter. The facility shall, pursuant to regulations adopted by the commissioner, provide for a method whereby insurers who voluntarily write basic property insurance or business owners package insurance on risks located in areas designated as inner-city areas by the commissioner will, to that extent, be proportionately relieved of the liability to participate in a plan adopted pursuant to this chapter. This chapter does not preclude adoption of a plan or plans to allow proportionate credit for voluntary writings in other areas or for other classes of insurance.
The facility shall prepare and submit a report to the Governor, the commissioner, and the committees of the Senate and the Assembly having jurisdiction over insurance, identifying the credit for voluntary writings submitted by licensees in the high and very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection, and the very high fire hazard severity zones as determined and mapped by the Department of Forestry and Fire Protection pursuant to Section 51178 of the Government Code, in order to determine whether or not the designations are sufficient to effectuate the purposes of this section.
The facility shall prepare and submit the report required by this subdivision three times, with the first report due on or before July 1, 2023, the second report due on or before July 1, 2025, and the third report due on or before July 1, 2027.
Within 90 days following the effective date of this section, the association shall file a new or amended rate application with the commissioner consistent with paragraph (1) of subdivision (c) of Section 10091.
Within 30 days following the effective date of this chapter, the association shall submit to the commissioner, for the commissioner’s review, a proposed plan of operation, consistent with this chapter, creating an association consisting of all insurers licensed to write and engaged in writing in this state, on a direct basis, basic property insurance or any component of basic property insurance in homeowners or other dwelling multiperil policies. An insurer described in this subdivision shall be a member of the association and shall remain a member as a condition of its authority to transact those kinds of insurance in this state.
The proposed plan shall authorize the association to assume and cede reinsurance on risks written by insurers in conformity with the program.
Under the plan, an insurer shall participate in the writings, expenses, profits, and losses of the association in the proportion that its premiums written during the second preceding calendar year bear to the aggregate premiums written by all insurers in the program, excluding that portion of the premiums written attributable to the operation of the association. Premiums written on a policy of basic residential earthquake insurance issued by the California Earthquake Authority pursuant to Section 10089.6 shall be attributed to the insurer that writes the underlying policy of residential property insurance.
The plan shall provide for administration by a governing committee under rules to be adopted by the governing committee with the approval of the commissioner. Voting on administrative questions of the association and facility shall be weighted in accordance with each insurer’s premiums written during the second preceding calendar year as disclosed in the reports filed by the insurer with the commissioner.
The plan shall provide for a plan to encourage persons to secure basic property insurance through normal channels from an admitted insurer or a licensed surplus line broker by informing those persons what steps they must take in order to secure the insurance through normal channels.
The plan shall be subject to the approval of the commissioner and shall go into effect upon the tentative approval of the commissioner. The commissioner may, at any time, withdraw tentative approval or the commissioner may, at any time after giving final approval, revoke that approval if the commissioner feels it is necessary to carry out the purposes of the chapter. The withdrawal or revocation of that approval shall not affect the validity of any policies executed before the date of the withdrawal. If the commissioner disapproves or withdraws or revokes their approval to all or any part of the plan of operation, the association shall, within 30 days, submit for review an appropriately revised plan or part of a revised plan, and, if the association fails to do so, or if the revised plan is unacceptable, the commissioner shall promulgate a plan of operation or part of a plan as the commissioner may deem necessary to carry out this chapter.
The association may, on its own initiative or at the request of the commissioner, amend the plan of operation, subject to approval by the commissioner, who shall have supervision of the inspection bureau, the facility, and the association. The commissioner, or any person designated by the commissioner, shall have the power of visitation of and examination into the operation and free access to all the books, records, files, papers, and documents that relate to operation of the facility and association, and may summon, qualify, and examine as witnesses all persons having knowledge of those operations, including officers, agents, or employees thereof.
An insurer member of the plan shall provide to an applicant who is denied coverage, or a policyholder whose policy is canceled or not renewed, the internet website address and statewide toll-free telephone number for the plan established pursuant to Section 10095.5 for the purpose of obtaining information and assistance in obtaining basic property insurance.
To reduce the association’s concentration and number of policies, and to encourage maximum use of the normal insurance market consistent with subdivision (c) of Section 10090, the association shall develop and implement a clearinghouse program on or before July 1, 2021, to help reduce the number of existing FAIR Plan policies and provide the opportunity for admitted insurers to offer homeowners’ insurance policies to FAIR Plan policyholders. An insurer that participates in the clearinghouse program shall sign an agreement with the association that sets forth the terms and conditions for the insurer to offer homeowners insurance through the policy’s listed agent or broker of record, if any. The clearinghouse program may include a provision to include nonadmitted insurers if admitted insurers have the first option.
To reduce the association’s concentration and number of commercial policies, and to encourage maximum use of the normal insurance market consistent with subdivision (c) of Section 10090, the association shall develop and implement a commercial insurance policy clearinghouse program on or before July 1, 2024, to help reduce the number of existing FAIR Plan commercial policies and provide the opportunity for admitted insurers to offer commercial insurance policies to FAIR Plan policyholders. An insurer that participates in the commercial policy clearinghouse program shall sign an agreement with the association that sets forth the terms and conditions for the insurer to offer commercial insurance through the policy’s listed agent or broker of record, if any. The commercial policy clearinghouse program may include a provision to include nonadmitted insurers if admitted insurers have the first option.
With respect to the clearinghouse programs referenced in subdivisions (i) and (j), the association shall comply with the Insurance Information and Privacy Protection Act (Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1) and regulations on the Privacy of Nonpublic Personal Information (Subchapter 5.9 (commencing with Section 2689.1) of Chapter 5 of Title 10 of the California Code of Regulations).
The association shall provide all policyholders with notice of each of the following:
The manner in which the association shall share policyholders’ personal information to facilitate offers of private insurance through the clearinghouse programs.
A method to opt out of the sharing of policyholders’ personal information in connection with the clearinghouse programs.
The association shall establish and maintain an Internet Web site and a statewide toll-free telephone number through which a person may receive information and assistance in applying for insurance through the plan. The association shall cause the toll-free telephone number to be published in all general distribution telephone directories in the state and shall include the toll-free telephone number and Internet Web site address on all communications with an applicant or insured.
An insurance agent or broker transacting basic property insurance shall assist a person seeking his or her help in obtaining basic property insurance coverage by any one of the following methods:
Making an application for insurance through the plan by submitting an application at the person’s request.
Providing the person with the California FAIR Plan’s Internet Web site address and the toll-free telephone number.
Making an application for insurance, at the person’s request, and placing that person with or through an insurer that offers, or a surplus line broker that procures, basic property insurance coverage.
The commissioner shall establish the California Home Insurance Finder on the department’s Internet Web site. The purpose of the finder is to connect homeowners in need of insurance assistance to an insurance agent or broker to assist in finding residential property insurance.
The department shall annually survey licensed insurance agents, licensed insurance brokers, and admitted insurers in California regarding inclusion on the finder.
On or before July 1, 2020, and at least annually thereafter, the department shall update the finder with the names, addresses, phone numbers, and Internet Web site links, if the licensee has an Internet Web site address, of the licensed insurance agents and brokers and admitted insurers for inclusion in the finder. The information shall be aggregated by ZIP Code within which the insurance agent, broker, or insurer maintains an office or sells policies, as well as by the languages in which the insurance agent, broker, or insurer may transact insurance.
The department shall use social media and other appropriate tools to make consumers aware of the California Home Insurance Finder. The department shall develop materials in the most common languages used in the state to facilitate access to the finder for non-English-speaking consumers.
On and after July 1, 2020, an insurer shall provide to an applicant who is denied coverage, or to a policyholder whose policy is canceled or not renewed, information regarding the department’s California Home Insurance Finder. This disclosure may be provided jointly with the disclosure required by subdivision (h) of Section 10095.
On or before April 1, 2026, the association shall create an automatic payment system and accept automatic payments for premiums from policyholders.
A policy shall not be canceled or nonrenewed solely because the policyholder is not enrolled in automatic payments.
If a policyholder fails to timely pay any outstanding installment premium, the policyholder shall have a period to pay the outstanding installment premium, in accordance with Section 677.4.
Any applicant or affected insurer shall have the right of appeal from any act or decision of either the facility or the association to the governing committee. A decision of the committee may be appealed to the commissioner within 30 days after such decision. Upon such appeal the commissioner may make any order to implement the purposes of the chapter and the plan.
All orders or decisions of the commissioner made pursuant to this chapter shall be subject to judicial review.
There shall be no liability on the part of, and no cause of action of any nature shall arise against the insurers, the inspection bureau, the facility, the association, the governing committee, their agents or employees, or the commissioner or his authorized representatives, with respect to any inspections required to be undertaken by this chapter or for any acts or omissions in connection therewith, or for any statements made in any reports and communications concerning the insurability of the property, or in the findings required by the provisions of this chapter, or at the hearings conducted in connection therewith. The reports and communications of the inspection bureau, the facility, the association, and the records of the governing committee shall not be considered public documents.
Acceptance of risks assigned under this chapter and performance of any act required by this chapter is a condition of the right to continue to hold a certificate of authority to transact insurance business in this state. All insurers, on and after the effective date of this chapter, by continuing to hold a certificate of authority to transact insurance business shall be deemed to have consented to the responsibilities imposed by this chapter.
In addition to any powers conferred upon him by this or any other law, the commissioner is authorized to do all things necessary to enable the State of California and any insurer participating in any program approved by the commissioner to fully participate in any federal program of reinsurance which may be hereafter enacted for purposes similar to the purposes of this chapter.
The commissioner may require such reports from insurers concerning risks insured under any program approved pursuant to this chapter as he shall deem necessary to effect the purposes of this chapter.
The facility, subject to the approval of the Insurance Commissioner, may provide for the equitable distribution of risks provided for in this chapter by means of assignment to individual members of such facility or by a pool or association of insurers participating in such facility.
Rates for the FAIR Plan shall not be excessive, inadequate, or unfairly discriminatory, and shall be actuarially sound so that premiums are adequate to cover expected losses, expenses and taxes, and shall reflect investment income of the plan. If the plan returns premiums to members annually, the rates shall not include any component relating to surplus enhancements.
If the FAIR Plan policy of a property owner would be subject to a brush surcharge solely because of an adjacent property owner’s failure to comply with applicable laws, ordinances, and regulations regarding brush clearance requirements, the surcharge shall instead be imposed on the policy of the adjacent property owner if the adjacent property is also insured through the FAIR Plan.
Rates for a policy of earthquake property insurance issued by the association shall be established based on the best available scientific information for assessing the risk of earthquake loss. Factors that the association shall consider in adopting rates include, but are not limited to, the following:
Location of the insured property and its proximity to earthquake faults and to other geological factors affecting the risk of earthquake.
The soil type upon which the insured dwelling is built.
Construction type of the insured dwelling.
The presence of earthquake hazard reduction factors as defined in Section 10089.2.
Notwithstanding Section 10097, all information considered by the association in establishing rates shall be public records.
The classification system established by the association for policies of earthquake property insurance shall not be adjusted or tempered in any manner to provide rates lower than are justified for classifications presenting a high risk of loss, or higher than are justified for classifications presenting a low risk of loss.
If granted prior approval from the commissioner, the association may do all of the following:
Request the California Infrastructure and Economic Development Bank to issue bonds from time to time to finance all or any portion of the costs of claims or to increase liquidity and claims-paying capacity, pursuant to Section 63049.75 of the Government Code.
Enter into loan agreements with the California Infrastructure and Economic Development Bank, pursuant to Section 63049.75 of the Government Code.
Enter into line of credit agreements with one or more entities for the purpose of financing the costs of claims or to increase liquidity and claims-paying capacity and to refund lines of credit previously incurred for that purpose.
Secure those loan agreements, line of credit agreements, or agreements described in paragraph (5) by a pledge of, and the grant of a lien and security interest in, collateral, which may include premiums, revenues, receivables, assessments, and any other assets of the association. That pledge, lien, and security interest is subject to Division 9 (commencing with Section 9101) of the Commercial Code.
Enter into any other agreement or take any other action necessary or convenient to the execution and delivery of bonds, loan agreements, or line of credit agreements.
If the bonds, loan agreements, or lines of credit described in subdivision (a) have received the prior approval of the commissioner as provided in subdivision (a), and if the association is otherwise unable to timely and fully meet its repayment obligation, the association shall assess members in the amounts and at the times necessary to timely pay in full all obligations of the association with respect to those bonds, loan agreements, lines of credit, and all obligations of the association under agreements entered into pursuant to paragraph (5) of subdivision (a).
The FAIR Plan shall not act pursuant to this subdivision without the prior review and approval of the commissioner.
The association may include the terms of paragraph (2) in an agreement relating to bonds, lines of credit, or other agreements entered into pursuant to paragraph (5) of subdivision (a).
CHAPTER 10. California Residential Property Insurance Disclosure [10101. - 10107.]
A policy of residential property insurance shall not be issued or renewed in this state by an insurer unless the named insured is provided a copy of the California Residential Property Insurance Disclosure pursuant to Section 10102 and a copy of the California Residential Property Insurance Bill of Rights described in Section 10103.5.
On or after July 1, 2020, a tenant’s policy, a renter’s policy, or a policy insuring individually owned condominium units, when those policies do not provide dwelling structure coverage, shall not be issued or renewed in this state by an insurer unless the named insured is provided a copy of the California Residential Property Insurance Bill of Rights described in Section 10103.5.
The disclosure required by Section 10101 shall be in no less than 10-point type and shall be provided prior to or concurrent with, the application for a policy of residential property insurance. In the event that an application is made by telephone, an insurer that mails a copy of the disclosure within three business days shall be in compliance with this section. For policies issued on or after July 1, 1993, the agent or insurer shall obtain the applicant’s signature acknowledging receipt of the disclosure form within 60 days of the date of the application. When the insurer or agent establishes delivery of the disclosure form by obtaining the signature of the applicant or insured, or when an insurer or agent provides the applicant with the disclosure form and the applicant does not return a signed acknowledgment of receipt within 60 days of the date it was provided, there shall be a conclusive presumption that the insurer or agent has complied with the disclosure requirement of this chapter. The insurer or agent shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was provided to the applicant or insured. A signature shall not be required at the time of renewal.
If the disclosure is mailed to the named insured or applicant, it shall be mailed to the mailing address shown on the policy of residential property insurance or to the address requested by the applicant. First-class mail shall be deemed adequate for proof of mailing. The insurer shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was mailed to the applicant or insured.
The disclosure shall contain the following language:
The agent or insurer shall indicate on the disclosure form which coverages the applicant or insured has selected or purchased.
The disclosure statement may contain additional provisions not conflicting with, annulling, or detracting from the foregoing.
Following the issuance of the policy of residential property insurance, the insurer shall provide the disclosure statement to the insured on an every-other-year basis at the time of renewal. The disclosure required by this section may be transmitted with the material required by Section 10086.1.
A policy of residential property insurance shall not be initially issued as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer’s dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage.
A policy of residential property insurance shall not be renewed as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer’s dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage.
Coverage provided for building code upgrades by a policy of residential property insurance shall be applicable to building codes, ordinances, standards, or laws only to the extent that those codes, ordinances, standards, or laws do not impose stricter standards on the property on the basis of the level of insurance coverage applicable to the property.
The disclosure required by Section 10101 shall also be provided to the mortgagor in the event that a policy is forced placed by an insurer at the request of a mortgagee. In those cases, neither the insurer nor the mortgagee shall be required to obtain a signature from the mortgagor. A disclosure shall not be required to be provided with respect to blanket policies issued to a mortgagee, and designed to provide interim coverage for losses occurring before the mortgagee has knowledge of the lapse of the policy and before placement of a policy on behalf of the mortgagor.
A disclosure required by Section 10101 that is provided on and after January 1, 2020, shall include any fire safety-related discounts offered by the insurer.
A policy of residential property insurance shall not be issued or renewed in this state unless it provides the following information on the declarations page of the policy:
The limits of liability for the structure.
The following statement regarding the valuation of the structure:
“The limit of liability for this structure (Coverage A) is based on an estimate of the cost to rebuild your home, including an approximate cost for labor and materials in your area, and specific information that you have provided about your home.”
Limits of liability for personal property.
Deductibles.
For a residential property insurance policy that provides replacement cost coverage, a statement that the policy provides building code upgrade coverage for the increased costs of repairing or replacing damage to the insured dwelling caused by a covered loss because of building ordinances or laws regulating the repair or replacement. Building code upgrade coverage is provided based on the increased costs associated with building ordinances or laws in effect at the time of loss or rebuilding, up to policy limits for this coverage. The policy may denote restrictions, if any, on coverage for compliance with applicable building codes that take effect after the date of loss, but before the issuance of required building permits.
If the policy includes building code upgrade coverage, it shall do both of the following:
State it includes building code upgrade coverage on the declaration page in no less than 10-point type, state any applicable limits on the amount of coverage, and, if the policy contains other terms, conditions, or restrictions for coverage, disclose on the declarations page that those terms, conditions, or restrictions are identified on a separate disclosure form attached to the declarations page.
If the building code upgrade coverage is subject to any terms, limits, conditions, or restrictions, state the terms, limits, conditions, or restrictions on a separate disclosure form attached to the declarations page. The separate disclosure form shall be printed in no less than 10-point type.
An open policy of residential property insurance that provides replacement cost coverage shall not be issued or renewed unless it provides additional building code upgrade coverage of no less than 10 percent of the dwelling coverage policy limits. The building code upgrade coverage required by this subdivision shall be additional coverage, and use of this coverage shall not reduce or deplete the dwelling coverage policy limits for the insured property. This subdivision does not prohibit an insurer from offering building code upgrade coverage of greater than 10 percent of the dwelling coverage policy limits, in addition to providing the minimum coverage of 10 percent of the dwelling coverage policy limits.
The provisions of paragraphs (1), (2), and (5) of subdivision (a), subdivision (b), and subdivision (c) are not required for policies purchased by tenants or unit owners that do not cover the structure of the premises.
The requirements of paragraph (5) of subdivision (a), subdivision (b), and subdivision (c) do not apply to a policy of residential property insurance that provides actual cash value coverage and does not provide replacement cost coverage or building code upgrade coverage.
The requirements of subdivision (c) do not apply to a policy of residential property insurance that is an apartment policy, a tenant’s policy, a renter’s policy, a mobilehome policy, or a policy insuring individually owned condominium units, if the policy of residential property insurance does not provide dwelling structure coverage. The requirements of subdivision (c) also do not apply to a policy covering all or part of a commercial or farm operation, including a policy covering a structure or dwelling unit on commercial or farm property, regardless of whether the structure or dwelling unit is owner occupied or rented for individual residential purposes.
A policy of residential property insurance that does not provide building code upgrade coverage shall include on the declarations page of the policy in no less than 10-point type the following statement: “THIS POLICY DOES NOT INCLUDE BUILDING CODE UPGRADE COVERAGE.”
The amendments to this section made by the act adding this subdivision shall be operative for any policy issued or renewed on or after July 1, 2021, except that an insurer that files a complete rate application, including, without limitation, a form change application or rule filing, by no later than April 1, 2021, in order to comply with the provisions of this act, shall begin issuing and renewing policies in compliance with this section within 75 days following the commissioner’s prior approval of that complete rate application, including, without limitation, a form change application or rule filing.
On and after July 1, 2020, upon an offer of a policy of residential property insurance, a disclosure shall be provided to the applicant that states policies offering extended replacement cost coverage of at least 50 percent may be available for that property and that includes the internet website address of the department’s Homeowners Coverage Comparison Tool, pursuant to the following conditions:
If an insurer does not offer at least 50 percent above the residential dwelling coverage limit to the applicant, the insurer shall provide the disclosure.
If an insurer, utilizing an agent or broker, does not offer an applicant at least 50 percent above the residential dwelling coverage limit to the applicant, the insurer, agent, or broker shall provide the disclosure.
If an agent or broker provides quotes to a consumer from multiple insurers, but none of the offers include coverage at least 50 percent above the residential dwelling coverage limit, the agent or broker shall provide the disclosure.
If an insurer offers at least 50 percent above the residential dwelling coverage limit to the applicant, the insurer is not required to make a disclosure pursuant to subdivision (a).
If an agent or broker provides quotes to a consumer from multiple insurers, and at least one of the insurers offers 50 percent above the residential dwelling coverage limit, the insurer, agent, or broker is not required to make a disclosure pursuant to subdivision (a).
An insurer that offers policies of residential property insurance shall notify the department on or before February 1 of each year of the amount of extended replacement cost coverage offered by the insurer for each policy or product it sells in California if the amount is different than what was reported in the previous year. The department shall use this information to annually update the Homeowners Coverage Comparison Tool on the department’s internet website.
An insurer that provides replacement cost coverage in accordance with Section 10102, except an insurer that satisfies the requirements of subdivision (b), shall, on an every other year basis, at the time an offer to renew a policy of residential property insurance is made to the policyholder, provide an estimate of the cost necessary to rebuild or replace the insured structure that complies with Sections 2695.180 to 2695.183, inclusive, of Article 1.3 of Subchapter 7.5 of Chapter 5 of Title 10 of the California Code of Regulations, as those sections provided on January 1, 2018.
An insurer that satisfies either of the following is not subject to subdivision (a):
The policyholder has requested, within the two years prior to the offer to renew the policy, and the insurer has provided, coverage limits greater than the previous limits that the policyholder had selected.
The insurer has, in connection with its annual offer to renew the policy, done both of the following:
Offers, on an every other year basis, the policyholder the right to have a new estimate of the replacement cost for the insured dwelling, that is compliant with Sections 2695.180 to 2695.183, inclusive, of Article 1.3 of Subchapter 7.5 of Chapter 5 of Title 10 of the California Code of Regulations, as those sections provided on January 1, 2018, provided the policyholder provides the necessary, requested information.
Offered the renewal of the policy and the dwelling coverage limit in the renewal offer is based on an inflation factor that reflects the cost of construction in the policyholder’s geographic area. This paragraph applies whether or not the policyholder has elected to accept that coverage limit.
This section shall not be deemed to limit or preclude an insurer and insured from agreeing to provide coverage for a policy limit that is greater or lesser than the estimate of replacement value provided in accordance with subdivision (a).
This section is not intended to change existing law with respect to the duty of the policyholder or applicant to select the coverage limits for a policy of residential property insurance.
This section shall become operative on July 1, 2019.
Every California Residential Property Insurance Disclosure shall be accompanied by a California Residential Property Insurance Bill of Rights. If the insurer provides the insured with an electronic copy of a policy, the bill of rights may also be transmitted electronically.
The California Residential Property Insurance Bill of Rights shall be plainly prepared in no less than 10-point type. The Bill of Rights shall contain the following:
The bill of rights shall be distributed by all insurers licensed to sell residential property insurance in this state.
If the insurer under a personal lines residential property insurance policy reports claims history or loss experience of insureds under those policies to an insurance-support organization, the insurer shall include the following disclosure in the California Residential Property Insurance Bill of Rights:
“This insurer reports claim information to one or more claims information databases. The claim information is used to furnish loss history reports to insurers. If you are interested in obtaining a report from a claims information database, you may do so by contacting:
(Insert the name, toll-free telephone number, and, if applicable, internet website address of each claims information database to which the insurer reports the information covered by this section)”
This section shall become operative on July 1, 2020.
If an insurer issues a new residential property insurance policy on or after July 1, 2021, that does not provide coverage for the peril of fire, the insurer shall, on or before the date of issuance of the policy, obtain a signed acknowledgment from the applicant or insured stating that the newly issued policy does not provide coverage for the peril of fire. If the applicant or insured does not sign the required acknowledgment on or before the issuance of the policy, the insurer shall obtain the signed acknowledgment from the applicant or insured within 60 days of the date of issuance of the policy. For purposes of this subdivision, a new or newly issued policy does not include renewal of an existing policy, including a renewal that contains different terms than the preceding policy periods.
If an insurer issues or renews a residential property insurance policy on or after July 1, 2021, that does not provide coverage for the peril of fire, the insurer shall prominently disclose both of the following on the declarations page of the policy:
The following statement in bold, uppercase letters in no less than 12-point type:
THIS POLICY DOES NOT COVER THE PERIL OF FIRE. THERE ARE OTHER RESOURCES FOR FINDING FIRE COVERAGE, INCLUDING USING THE CALIFORNIA DEPARTMENT OF INSURANCE’S HOME INSURANCE FINDER OR PURCHASING COVERAGE FROM THE CALIFORNIA FAIR PLAN ASSOCIATION.
In the event of a covered loss relating to a state of emergency, as defined in Section 8558 of the Government Code, an insured under a residential property insurance policy shall be permitted to combine payments for claims for losses up to the policy limits for the primary dwelling and other structures, for any of the covered expenses reasonably necessary to rebuild or replace the damaged or destroyed dwelling, if the policy limits for coverage to rebuild or replace the primary dwelling are insufficient. Any claims payments for losses pursuant to this subdivision for which replacement cost coverage is applicable shall be for the full replacement value of the loss without requiring actual replacement of the other structures. Claims payments for other structures in excess of the amount applied towards the necessary cost to rebuild or replace the damaged or destroyed dwelling shall be paid according to the terms of the policy.
In the event of a covered total loss of a primary dwelling under a residential property insurance policy resulting from a state of emergency, as defined in Section 8558 of the Government Code, if the residence was furnished at the time of the loss, the insurer shall offer a payment under the contents (personal property) coverage in an amount no less than 60 percent of the policy limit applicable to the personal property covered under the policy, up to a maximum of three hundred fifty thousand dollars ($350,000), without requiring the insured to file an itemized claim.
After receiving the payment described in paragraph (1), the insured may recover additional amounts up to the policy limit for contents coverage by filing a claim pursuant to the terms of the policy for the loss of contents that exceeds the value of the payment provided pursuant to paragraph (1).
When an insured files a claim relating to a state of emergency, as defined in Section 8558 of the Government Code, the insurer shall notify the insured of the option to receive payment for loss of contents pursuant to paragraph (1) and of the insured’s option to subsequently file a full itemized claim pursuant to paragraph (2).
This subdivision does not affect payment under the policy for scheduled personal property.
As a condition of receiving the advance payment made pursuant this subdivision, an insurer may require the insured sign an attestation form. The attesting form may request that the insured acknowledge the residence was furnished and that the insured reasonably believes the personal property damaged or destroyed had a value that equates or exceeded the amount of the advance payment. The attestation form shall not contain any misleading or inaccurate information. The commissioner may issue a bulletin or promulgate a regulation that describes the parameters of an attestation form.
This section does not prohibit an insurer from restricting payment in cases of suspected fraud.
On and after July 1, 2026, all policy forms issued or renewed by an insurer shall comply with this section in its entirety, including the changes made to this section by the act that added this paragraph.
As used in this chapter, “policy of residential property insurance” shall have the same meaning as defined in Section 10087, except that it shall not include a tenant’s policy, a policy covering individually owned mobilehomes and their contents, a renter’s policy, or a policy insuring individually owned condominium units, when those policies do not provide dwelling structure coverage. If a policy insuring an individually owned condominium or an individually owned mobilehome does provide dwelling structure coverage, an insurer is required to provide the named insured with a copy of the documents described in subdivision (a) of Section 10101.
As used in this chapter, “insurer” has the same meaning as defined in Section 10091.
Nothing in this chapter is intended to expand, contract, modify, or otherwise affect the coverage provided under any policy of residential property insurance issued and in effect prior to July 1, 1993. The provisions of this chapter shall apply to those policies upon the first renewal of those policies following January 1, 1994.
The Insurance Commissioner may modify a disclosure statement as contained in Section 10102, 10103, or 10103.5 only upon request of an insurer. The modification shall only be for the purpose of adding new or clarifying existing language describing any form of dwelling coverage offered by an insurer. The commissioner’s authority to modify the disclosure statement shall be limited solely to determining the clarity and accuracy of the information provided in the disclosure to ensure that the disclosure accurately reflects a new or existing product. It is the intent of the Legislature that the disclosure form be kept as brief as clarity and accuracy permit. Any modification to the disclosure statement shall be approved in writing by the commissioner.
Except as provided in subdivisions (e) and (i) of Section 10102, this chapter shall apply to all policies newly issued on or after July 1, 1993, and to all policies renewed after January 1, 1994.
CHAPTER 11. Small Business Guide to Commercial Insurance [10108. - 10108.1.]
The commissioner shall develop a pamphlet which provides information to small business owners and others on the key features of, and suggested ways of, purchasing commercial property insurance. The commissioner may develop this pamphlet with the assistance of an advisory panel consisting of persons representing small business owners, insurers, consumer organizations, and other persons deemed necessary by the commissioner.
The pamphlet shall be completed by July 1, 1995, and to the extent feasible, copies shall be made available to persons operating small businesses, business groups, chambers of commerce, and other persons and groups.
The pamphlet shall provide information on the key features of commercial property insurance and recommend steps for purchasing this insurance. The pamphlet shall include, but not be limited to, providing information on the following:
Various types of commercial insurance.
Limits of liability in policies, including that for the following:
Structures.
Personal property.
Inventory.
Business interruption.
Deductibles.
As used in this chapter, “policy of commercial property insurance” has the same meaning as defined in Section 675.5.
As used in this chapter, “insurer” has the same meaning as defined in Section 10091.
PART 2. LIFE AND DISABILITY INSURANCE [10110. - 11549.]
CHAPTER 1. The Contract [10110. - 10198.10.]
ARTICLE 1. General Provisions [10110. - 10127.20.]
Every person has an insurable interest in the life and health of:
Himself.
Any person on whom he depends wholly or in part for education or support.
Any person under a legal obligation to him for the payment of money or respecting property or services, of which death or illness might delay or prevent the performance.
Any person upon whose life any estate or interest vested in him depends.
An insurable interest, with reference to life and disability insurance, is an interest based upon a reasonable expectation of pecuniary advantage through the continued life, health, or bodily safety of another person and consequent loss by reason of that person’s death or disability or a substantial interest engendered by love and affection in the case of individuals closely related by blood or law.
An individual has an unlimited insurable interest in his or her own life, health, and bodily safety and may lawfully take out a policy of insurance on his or her own life, health, or bodily safety and have the policy made payable to whomsoever he or she pleases, regardless of whether the beneficiary designated has an insurable interest.
Except as provided in Section 10110.4, an employer has an insurable interest, as referred to in subdivision (a), in the life or physical or mental ability of any of its directors, officers, or employees or the directors, officers, or employees of any of its subsidiaries or any other person whose death or physical or mental disability might cause financial loss to the employer; or, pursuant to any contractual arrangement with any shareholder concerning the reacquisition of shares owned by the shareholder at the time of his or her death or disability, on the life or physical or mental ability of that shareholder for the purpose of carrying out the contractual arrangement; or, pursuant to any contract obligating the employer as part of compensation arrangements or pursuant to a contract obligating the employer as guarantor or surety, on the life of the principal obligor. The trustee of an employer or trustee of a pension, welfare benefit plan, or trust established by an employer providing life, health, disability, retirement, or similar benefits to employees and retired employees of the employer or its affiliates and acting in a fiduciary capacity with respect to those employees, retired employees, or their dependents or beneficiaries has an insurable interest in the lives of employees and retired employees for whom those benefits are to be provided. The employer shall obtain the written consent of the individual being insured.
Trusts and special purpose entities that are used to apply for and initiate the issuance of policies of insurance for investors, where one or more beneficiaries of those trusts or special purpose entities do not have an insurable interest in the life of the insured, violate the insurable interest laws and the prohibition against wagering on life.
Any device, scheme, or artifice designed to give the appearance of an insurable interest where there is no legitimate insurable interest violates the insurable interest laws.
An insurable interest shall be required to exist at the time the contract of life or disability insurance becomes effective, but need not exist at the time the loss occurs.
Any contract of life or disability insurance procured or caused to be procured upon another individual is void unless the person applying for the insurance has an insurable interest in the individual insured at the time of the application.
This section shall not be interpreted to define all instances in which an insurable interest exists.
An insurer shall be entitled to rely upon all statements, declarations, and representations made by an applicant for insurance relative to the insurable interest that the applicant has in the insured, and no insurer shall incur any legal liability except as set forth in the policy, by virtue of any untrue statements, declarations, or representations so relied upon in good faith by the insurer.
An insurer may not issue an individual life insurance policy to an applicant that insures the life of the applicant’s spouse unless the applicant’s spouse has signed the policy application or has otherwise been notified in advance of the issuance of the policy.
This section shall apply to policies of individual life insurance with face amounts exceeding fifty thousand dollars ($50,000) that are issued on or after July 1, 2004.
Except as allowed in subdivision (c), an insurer may not issue or deliver a corporate-owned life insurance policy.
“Corporate-owned life insurance policy” means a life insurance policy that is purchased by a California employer, that designates the employer as the beneficiary of the policy, and that insures the life of a California resident who is a current or former employee of the employer.
This section does not apply to a policy insuring the life of a current or former exempt employee. An exempt employee is an administrative, executive, or professional employee who is exempt under Section 515 of the Labor Code and the regulations adopted pursuant thereto.
Except as provided in subdivision (f), it is a violation of public policy for a California employer to purchase or hold a corporate-owned life insurance policy.
A corporate-owned life insurance policy purchased on or after the effective date of this section is void.
Except as provided in subdivision (f), a corporate-owned life insurance policy purchased prior to the effective date of this section shall become void on the next premium payment date on or after the date five years from the effective date of this section, but no later than January 1, 2010.
A corporate-owned life insurance policy purchased prior to the effective date of this section that insures the life of a current or former nonexempt employee shall continue in force after the effective date of this section provided that no further premium payments are made after the effective date of this section. However, an employer who has purchased and holds such a corporate-owned life insurance policy shall disclose in writing to the current or former nonexempt employee whose life is insured by the policy, within 90 days of the effective date of this section, all of the following information:
The existence of the corporate-owned life insurance policy on the life of the nonexempt employee.
The identity of the insurer under the policy.
The benefit amount under the policy, unless the full amount of the benefit is used to defray the costs of nonexempt employee benefits.
How benefits paid under the policy would be used.
The name of the beneficiary under the policy.
For a former employee, the disclosure requirements shall be deemed satisfied if the employer mails the required information to the former employee’s last known address.
A policy or endorsement issued by an admitted life and disability insurer may contain a provision for a waiver of premium payments in the event of involuntary unemployment of the insured. Insurers issuing policies or endorsements containing that provision shall establish any additional reserves and file any additional financial reports that the commissioner may require.
A contract or supplemental contract issued by an admitted life and disability insurer may contain a provision for a waiver of surrender charge benefit for a life insurance or annuity contract in the event of voluntary or involuntary unemployment of the owner, insured, or annuitant, as applicable. Insurers issuing contracts or supplemental contracts containing that provision shall establish any additional reserves and file any additional financial reports that the commissioner may require.
If a policy, contract, certificate, or agreement offered, issued, delivered, or renewed, whether or not in California, that provides or funds life insurance or disability insurance coverage for any California resident contains a provision that reserves discretionary authority to the insurer, or an agent of the insurer, to determine eligibility for benefits or coverage, to interpret the terms of the policy, contract, certificate, or agreement, or to provide standards of interpretation or review that are inconsistent with the laws of this state, that provision is void and unenforceable.
For purposes of this section, “renewed” means continued in force on or after the policy’s anniversary date.
For purposes of this section, the term “discretionary authority” means a policy provision that has the effect of conferring discretion on an insurer or other claim administrator to determine entitlement to benefits or interpret policy language that, in turn, could lead to a deferential standard of review by any reviewing court.
Nothing in this section prohibits an insurer from including a provision in a contract that informs an insured that as part of its routine operations the insurer applies the terms of its contracts for making decisions, including making determinations regarding eligibility, receipt of benefits and claims, or explaining policies, procedures, and processes, so long as the provision could not give rise to a deferential standard of review by any reviewing court.
This section applies to both group and individual products.
The commissioner may adopt regulations reasonably necessary to implement the provisions of this section.
This section is self-executing. If a life insurance or disability insurance policy, contract, certificate, or agreement contains a provision rendered void and unenforceable by this section, the parties to the policy, contract, certificate, or agreement and the courts shall treat that provision as void and unenforceable.
This section, except for subdivision (i), applies to a disability insurance policy that provides coverage for hospital, medical, or surgical benefits, excluding a specialized health insurance policy and a policy that provides excepted benefits as described in Sections 2722 (42 U.S.C. Sec. 300gg-21) and 2791 (42 U.S.C. Sec. 300gg-91) of the federal Public Health Service Act, subject to Section 10198.61.
Notwithstanding any other law, a disability insurance policy shall cover the costs for COVID-19 diagnostic and screening testing and health care services related to the diagnostic and screening testing approved or granted emergency use authorization by the federal Food and Drug Administration for COVID-19, regardless of whether the services are provided by an in-network or out-of-network provider. Coverage required by this section shall not be subject to copayment, coinsurance, deductible, or any other form of cost sharing. Services related to COVID-19 diagnostic and screening testing include, but are not limited to, hospital or health care provider office visits for the purposes of receiving testing, products related to testing, the administration of testing, and items and services furnished to an insured as part of testing. Services related to COVID-19 diagnostic and screening testing do not include bonus payments for the use of specialized equipment or expedited processing.
To the extent a health care provider would have been entitled to receive cost sharing but for this section, the insurer shall reimburse the health care provider the amount of that lost cost sharing.
A disability insurance policy shall not impose prior authorization or any other utilization management requirements on COVID-19 diagnostic and screening testing.
With respect to an insured, a health insurer shall reimburse the provider of the testing according to either of the following:
If the health insurer has a specifically negotiated rate for COVID-19 diagnostic and screening testing with such provider in effect before the public health emergency declared under Section 319 of the Public Health Service Act (42 U.S.C. Sec. 247d), such negotiated rate shall apply throughout the period of such declaration.
If the health insurer does not have a specifically negotiated rate for COVID-19 diagnostic and screening testing with such provider, the insurer may negotiate a rate with such provider.
For an out-of-network provider with whom an insurer does not have a specifically negotiated rate for COVID-19 diagnostic and screening testing and health care services related to testing, an insurer shall reimburse the provider for all testing items or services in an amount that is reasonable, as determined in comparison to prevailing market rates for testing items or services in the geographic region where the item or service is rendered. An out-of-network provider shall accept this payment as payment in full, shall not seek additional remuneration from an insured for services related to testing, and shall not report adverse information to a consumer credit reporting agency or commence civil action against the insured.
Beginning six months after the federal public health emergency expires, an insurer shall no longer be required to cover the cost sharing for COVID-19 diagnostic and screening testing and health care services related to testing when delivered by an out-of-network provider, except as otherwise required by law. All other requirements of this subdivision shall remain in effect after the federal public health emergency expires.
An evidence-based item or service that had in effect on January 1, 2025, a rating of “A” or “B” in the recommendations of the United States Preventive Services Task Force or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code.
An immunization that as of January 1, 2025, had in effect a recommendation from the Advisory Committee on Immunization Practices of the federal Centers for Disease Control and Prevention or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code, regardless of whether the immunization is recommended for routine use.
A disability insurance policy subject to this subdivision shall not impose any cost-sharing requirements, including a copayment, coinsurance, or deductible, for any item, service, or immunization described in paragraph (1), regardless of whether such service is delivered by an in-network or out-of-network provider.
A disability insurance policy shall not impose cost sharing for any items or services that are necessary for the furnishing of an item, service, or immunization described in paragraph (1), including, but not limited to, provider office visits and vaccine administration, regardless of whether the service is delivered by an in-network or out-of-network provider.
With respect to an insured, a health insurer shall reimburse the provider of the immunization according to either of the following:
If the health insurer has a negotiated rate with such provider in effect before the public health emergency declared under Section 319 of the Public Health Service Act (42 U.S.C. Sec. 247d), such negotiated rate shall apply throughout the period of such declaration.
If the health insurer does not have a negotiated rate with such provider, the insurer may negotiate a rate with such provider.
For an out-of-network provider with whom a disability insurer does not have a negotiated rate for an item, service, or immunization described in paragraph (1), an insurer shall reimburse the provider for all such items or services, including any items or services that are necessary for the furnishing of an item, service, or immunization described in paragraph (1), in an amount that is reasonable, as determined in comparison to prevailing market rates for such items or services in the geographic region in which the item or service is rendered. An out-of-network provider shall accept this payment as payment in full, shall not seek additional remuneration from an insured, and shall not report adverse information to a consumer credit reporting agency or commence civil action against the insured for items, services, and immunizations described in paragraph (1), including any items or services that are necessary for the furnishing of an item, service, or immunization described in paragraph (1).
Beginning six months after the federal public health emergency expires, an insurer shall no longer be required to cover the cost sharing for any item, service, or immunization described in paragraph (1) and to cover any items or services that are necessary for the furnishing of the items, services, or immunizations described in paragraph (1) when delivered by an out-of-network provider, except as otherwise required by law. All other requirements of this section shall remain in effect after the federal public health emergency expires.
A disability insurer subject to this subdivision shall not impose prior authorization or any other utilization management requirements on any item, service, or immunization described in paragraph (1) or to items or services that are necessary for the furnishing of the items, services, or immunizations described in subparagraph (B) of paragraph (5).
The commissioner may issue guidance to insurers regarding compliance with this section. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The department shall consult with the Department of Managed Health Care in issuing the guidance specified in this subdivision.
This section, excluding subdivision (i), shall apply retroactively beginning from the Governor’s declared State of Emergency related to the SARS-CoV-2 (COVID-19) pandemic on March 4, 2020.
For purposes of this section:
“Diagnostic testing” means all of the following:
Testing intended to identify current or past infection and performed when a person has signs or symptoms consistent with COVID-19, or when a person is asymptomatic but has recent known or suspected exposure to SARS-CoV-2.
Testing a person with symptoms consistent with COVID-19.
Testing a person as a result of contact tracing efforts.
Testing a person who indicates that they were exposed to someone with a confirmed or suspected case of COVID-19.
Testing a person after an individualized clinical assessment by a licensed health care provider.
“Screening testing” means tests that are intended to identify people with COVID-19 who are asymptomatic and do not have known, suspected, or reported exposure to SARS-CoV-2. Screening testing helps to identify unknown cases so that measures can be taken to prevent further transmission. Screening testing includes all of the following:
Workers in a workplace setting.
Pupils, faculty, and staff in a school setting.
A person before or after travel.
At home for someone who does not have symptoms associated with COVID-19 and does not have a known exposure to someone with COVID-19.
This section does not relieve an insurer from continuing to cover testing as required by federal law and guidance.
The department shall hold insurers accountable for timely access to services required under this section and coverage requirements established under federal law, regulations, or guidelines.
This subdivision applies to a disability insurance policy issued, amended, or renewed on or after the operative date of this subdivision that covers hospital, medical, surgical, or prescription drug benefits, excluding a specialized health insurance policy that provides coverage only for dental or vision benefits, with respect to therapeutics for COVID-19 covered under the policy, which shall include therapeutics approved or granted emergency use authorization by the federal Food and Drug Administration for treatment of COVID-19 when prescribed or furnished by a licensed health care provider acting within their scope of practice and the standard of care.
A disability insurer shall reimburse a provider for the therapeutics described in paragraph (1) at the specifically negotiated rate for those therapeutics, if the insurer and provider have negotiated a rate. If the insurer does not have a negotiated rate with a provider, the insurer may negotiate a rate with the provider.
For an out-of-network provider with whom a disability insurer does not have a negotiated rate for the therapeutics described in paragraph (1), a disability insurer shall reimburse the provider for the therapeutics in an amount that is reasonable, as determined in comparison to prevailing market rates for the therapeutics in the geographic region in which the therapeutic was delivered. An out-of-network provider shall accept this payment as payment in full, shall not seek additional remuneration from an insured, and shall not report adverse information to a consumer credit reporting agency or commence civil action against the insured for therapeutics described in this subdivision.
A disability insurer shall cover COVID-19 therapeutics without cost sharing, regardless of whether the therapeutics are provided by an in-network or out-of-network provider, and without utilization management. If a provider would have been entitled to receive cost sharing but for this section, the disability insurer shall reimburse the provider for the amount of that lost cost sharing. A provider shall accept this payment as payment in full, shall not seek additional remuneration from an insured, and shall not report adverse information to a consumer credit reporting agency or commence civil action against the insured for therapeutics pursuant to this subdivision.
Beginning six months after the federal public health emergency expires, a disability insurer shall no longer be required to cover the cost sharing for COVID-19 therapeutics delivered by an out-of-network provider, unless otherwise required by law. All other requirements of this subdivision shall remain in effect after the federal public health emergency expires.
This section applies to a disability insurance policy that provides coverage for hospital, medical, surgical, or prescription drug benefits, excluding a specialized health insurance policy that provides coverage only for dental or vision benefits.
A disability insurance policy shall cover, without cost sharing and without prior authorization or other utilization management requirements, the costs of the following health care services to prevent or mitigate a disease when the Governor of the State of California has declared a public health emergency due to that disease:
An item or service that, as of January 1, 2025, had in effect a rating of “A” or “B” in the recommendations of the United States Preventive Services Task Force, or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code.
An immunization that, as of January 1, 2025, had in effect a recommendation of the Advisory Committee on Immunization Practices of the federal Centers for Disease Control and Prevention, or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code.
A health care service or product related to diagnostic and screening testing for the disease that is approved or granted emergency use authorization by the federal Food and Drug Administration, or is recommended by the State Department of Public Health or the federal Centers for Disease Control and Prevention.
Therapeutics approved or granted emergency use authorization by the federal Food and Drug Administration for the disease.
The items, services, and immunizations described in subparagraphs (A) and (B) of paragraph (1) that were in effect as of January 1, 2025, shall be covered upon enactment of the act that amended this section.
Any modification or supplement to the recommendations described in subparagraphs (A) or (B) of paragraph (1) that is adopted pursuant to Section 120164 of the Health and Safety Code shall be covered no later than 15 business days after the date on which the State Department of Public Health publishes the updated schedule pursuant to Section 120164 of the Health and Safety Code.
The item, service, or immunization covered pursuant to paragraph (1) shall be covered no later than 15 business days after the date on which the United States Preventive Services Task Force, the American Academy of Pediatrics, the American College of Obstetricians and Gynecologists, the American Academy of Family Physicians or the State Department of Public Health makes a recommendation relating to the item, service, or immunization.
A life or disability insurance policy other than health insurance, as defined in Section 106, issued, amended, renewed, or delivered on or after January 1, 2020, shall not do any of the following based solely and without any additional actuarial risks upon the status of a person as a living organ donor:
Refuse to insure, or refuse to continue to insure, the person under a life or disability insurance policy.
Limit the amount, extent, or kind of coverage available to the person under a life or disability insurance policy.
Charge the person a different rate for the same coverage under a life or disability insurance policy.
Otherwise discriminate in the offering, issuance, cancellation, amount of coverage, price, or any other condition of a life or disability insurance policy for the person.
With respect to any health condition other than being a living organ donor, a person who is a living organ donor shall be subject to the same standards of sound actuarial principles or actual or reasonably anticipated experience as persons who are not living organ donors.
For purposes of this section, “living organ donor” means an individual who has donated all or part of an organ and is not deceased.
Notwithstanding any other law, except as provided in Section 10144.56, on and after January 1, 2028, a health insurer or its delegate shall subscribe to and use the most recent version of the Council for Affordable Quality Healthcare (CAQH) credentialing form, and shall comply with the CAQH credentialing processes.
A health insurer or its delegate shall only request additional information from a provider to clarify and confirm information that is provided on the CAQH credentialing form, including verification of information not specifically disclosed on the provider’s application. The provider shall respond to the request within 10 business days. A health insurer or its delegate shall minimize the number of requests for additional information from providers. A provider shall submit their credentialing form and maintain their credentialing information in the CAQH database in a manner consistent with CAQH standards.
In life or disability insurance, the only measure of liability and damage is the sum or sums payable in the manner and at the times as provided in the policy to the person entitled thereto.
Under a policy of disability insurance other than health insurance, as defined in Section 106, including a policy of disability income insurance, as defined in subdivision (c) of Section 799.01, payment of benefits to the insured shall be made within 30 calendar days after the insurer has received all information needed to determine liability for a claim. However, the 30-calendar-day period shall not include any time during which the insurer is doing any of the following:
Awaiting a response for relevant medical information from a health care provider.
Awaiting a response from the claimant to a request for additional relevant information.
Investigating possible fraud that has been reported to the department’s Fraud Division in compliance with subdivision (a) of Section 1872.4.
If the insurer has not received all information needed to determine liability for a claim within 30 calendar days after receipt of the claim, the insurer shall notify the insured in writing and include a written list of all information it reasonably needs to determine liability for the claim. In that event, the 30-calendar-day period set out in subdivision (a) shall commence when the insured has provided to the insurer all information in that notification. If no notice is sent by the insurer within 30 calendar days after the claim is filed by the insured, interest shall begin to accrue on the payment of benefits on the 31st calendar day after receipt of the claim, at the rate of 10 percent per year.
When the insurer has received all information needed to determine liability for a claim, and the insurer determines that liability exists and fails to make payment of benefits to the insured within 30 calendar days after the insurer has received that information, any delayed payment shall bear interest, beginning the 31st calendar day, at the rate of 10 percent per year. Liability shall, in all cases, be determined by the insurer within 30 calendar days of receiving all information set out in the insurer’s written notification to the insured.
Nothing in this section is intended to restrict any other remedies available to an insured by statute or any other law.
An insurer shall not be liable for payments claimed under an individual or group policy of life insurance if the duty to make those payments depends upon a factual determination of whether the death of the insured was an accident or a suicide and that fact cannot be established without an autopsy and the autopsy is prohibited under Section 27491.43 of the Government Code. Insurers refusing or delaying payments in those circumstances in good faith shall not be liable for exemplary or punitive damages.
An insurer shall not deny or refuse to accept an application for life insurance, or refuse to insure, refuse to renew, cancel, restrict, or otherwise terminate a policy of life insurance, or charge a different rate for the same life insurance coverage, based solely upon the applicant’s or insured’s past or future lawful travel destinations.
Nothing in this section shall prohibit an insurer from excluding or limiting coverage under a life insurance policy, or refusing to offer life insurance, based upon lawful travel, or from charging a different rate for that coverage, when that action is based upon sound actuarial principles or is related to actual and reasonably expected experience.
Subject to Section 2459 of the Probate Code, in respect to life or disability insurance, or annuity contracts (except as provided in Sections 2500 to 2507, inclusive, of the Probate Code and Section 3500 of the Probate Code and Chapter 4 (commencing with Section 3600) of Part 8 of Division 4 of the Probate Code), heretofore or hereafter issued to or upon the life of any person not of a full 18 years of age for the benefit of such minor or for the benefit of the father, mother, spouse, child, brother, or sister, of such minor, or issued to such minor, subject to written consent of a parent or guardian, upon the life of any person in whom such minor has an insurable interest for the benefit of himself or herself or such minor’s father, mother, spouse, child, brother or sister, such minor shall not, by reason only of such minority, be deemed incompetent to contract for such insurance or annuity, or for the surrender thereof, or to exercise all contractual rights thereunder, or, subject to approval of a parent or guardian, to give a valid discharge for any benefit accruing or for any money payable thereunder; provided, that all such contracts made by a minor under 16 years of age, as determined by the nearest birthday, shall have the written consent of a parent or guardian, and that the exercise of all contractual rights under such contracts, or the surrender thereof, or the giving of a valid discharge for any benefit accruing or money payable thereunder, in the case of a minor under 16 years of age, as determined by the nearest birthday, shall have the written consent of a parent or guardian.
All such contracts made by a minor not of a full 18 years of age which may result in any personal liability for assessment shall have the written assumption of any such liability by a parent or guardian in consideration of the issuance of the contract. Such assumption shall be in a form approved by the commissioner, reasonably designed to inform the parent or guardian of the liability thus assumed.
Such assumption of liability may be made a part of and included with any written consent of such parent or guardian required under other provisions of this section and it may be provided therein that such assumption shall cover only up to the anniversary date of the policy nearest to the member’s birthday at which he or she attains 18 years of age.
An individual or group health insurance policy shall not establish either of the following:
Lifetime limits on the dollar value of any covered benefits for an insured, whether provided in network or out of network.
Annual limits on the dollar value of any covered benefits for an insured, whether provided in network or out of network.
Subdivision (a) does not prevent a group health insurance policy from placing annual or lifetime per-insured limits on specific covered benefits that are not essential health benefits, as defined under Section 10112.27, to the extent that those limits are otherwise permitted under state law.
This section does not apply to a specialized health insurance policy that does not cover an essential health benefit, as defined under Section 10112.27, or a Medicare supplement policy.
A group or individual nongrandfathered health insurance policy shall, at a minimum, provide coverage for and shall not impose any cost-sharing requirements for any of the following:
Evidence-based items or services that had in effect on January 1, 2025, a rating of “A” or “B” in the recommendations of the United States Preventive Services Task Force or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code.
Immunizations that had in effect on January 1, 2025, a recommendation from the Advisory Committee on Immunization Practices of the federal Centers for Disease Control and Prevention or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code with respect to the individual involved.
With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided in the comprehensive guidelines, as periodically updated, supported by the United States Health Resources and Services Administration as of January 1, 2025, or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code.
With respect to women, those additional preventive care and screenings not described in paragraph (1) as provided for in comprehensive guidelines supported by the United States Health Resources and Services Administration as of January 1, 2025, or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code.
For the purposes of this section:
The recommendations of the United States Preventive Services Task Force as of January 1, 2025, or any modification or supplement to that recommendation adopted pursuant to Section 120164 of the Health and Safety Code regarding breast cancer screening, mammography, and prevention shall be considered the most current other than those issued in or around November 2009.
A health insurance policy issued, amended, or renewed on or after January 1, 2025, shall not impose any cost-sharing requirements for any items or services that are integral to the provision of an item or service that is required by this section, regardless of whether or not the integral item or service is billed separately from an item or service that is required by this section.
For the purposes of this section, a health insurance policy shall not impose cost sharing for office visits associated with the preventive care services described in this section if the preventive care service is not billed separately, or is not tracked as an individual encounter separately, from the office visit and the primary purpose of the office visit is the delivery of the preventive care service.
This section does not prohibit a health insurance policy from providing coverage for preventive items or services in addition to those required by subdivision (a).
A health insurer shall provide coverage pursuant to subdivision (a) for policy years that begin on or after the date that is one year after the date the recommendation or guideline is issued.
A health insurer that is required to provide coverage for any items and services specified in a recommendation or guideline described in subdivision (a) on the first day of a policy year shall provide coverage through the last day of the policy year, even if the recommendation or guideline changes or is no longer described in subdivision (a) during the policy year.
Notwithstanding paragraph (1) and consistent with the authority granted to the State Department of Public Health pursuant to Section 120164 of the Health and Safety Code, if any item or service associated with any recommendation or guideline specified in subdivision (a) is subject to a safety recall or is otherwise determined to pose a significant safety concern by a federal agency authorized to regulate the item or service during a policy year, a health insurer is not required to cover the item or service through the last day of the policy year.
A health insurance policy issued, amended, or renewed on or after January 1, 2025, shall cover items and services pursuant to this section in accordance with any applicable requirement of this part, including, but not limited to, Section 10123.18 on cervical cancer screening, Section 10123.1933 on prophylaxis of HIV infection, Section 10123.207 on colorectal cancer screening, and Section 10123.208 on home test kits for sexually transmitted diseases.
This section does not apply to a specialized health insurance policy that does not cover an essential health benefit, as defined in Section 10112.27. This section shall only apply to a health savings account-eligible health insurance policy to the extent it does not fail to be treated as a high deductible health insurance policy under Section 223 of Title 26 of the United States Code.
The department shall coordinate with the Department of Managed Health Care if it adopts regulations to implement this section.
The commissioner may exercise the authority provided by this code and the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340), Chapter 4.5 (commencing with Section 11400), and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code) to implement and enforce this section and all sections related to preventive services, including those referenced herein. If the commissioner assesses a civil penalty for a violation, any hearing that is requested by the insurer may be conducted by an administrative law judge of the Administrative Hearing Bureau of the department under the formal procedure of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. A civil penalty shall not exceed five thousand dollars ($5,000) for each violation, or, if a violation was willful, shall not exceed ten thousand dollars ($10,000) for each violation. This subdivision does not impair or restrict the commissioner’s authority pursuant to another provision of this code or the Administrative Procedure Act.
A health insurer that issues, sells, renews, or offers health insurance policies for health care coverage in this state, including a grandfathered health plan, but not including specialized health insurance policies that provide only dental or vision services, shall provide an annual rebate to each insured under that coverage, on a pro rata basis, if the ratio of the amount of premium revenue expended by the health insurer on the costs for reimbursement for clinical services provided to insureds under that coverage and for activities that improve health care quality to the total amount of premium revenue, excluding federal and state taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors, and reinsurance, is less than the following:
With respect to a health insurer offering coverage in the large group market, 85 percent.
With respect to a health insurer offering coverage in the small group market or in the individual market, 80 percent.
A health insurer that issues, sells, renews, or offers health insurance policies for health care coverage in this state, including a grandfathered health plan, shall comply with the following minimum medical loss ratios:
With respect to a health insurer offering coverage in the large group market, 85 percent.
With respect to a health insurer offering coverage in the small group market or in the individual market, 80 percent.
The amount by which the percentage described in paragraph (1) or (2) of subdivision (a) exceeds the ratio described in paragraph (1) or (2) of subdivision (a).
The total amount of premium revenue, excluding federal and state taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors, and reinsurance.
The commissioner may adopt regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) that are necessary to implement the medical loss ratio as described under Section 2718 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-18), and any federal rules or regulations issued under that section.
The requirements of this section shall be implemented as described in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-91) and the requirements of Section 2718 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-18) and any rules or regulations issued under those sections as in effect on January 1, 2017.
This section does not apply to a health care service plan contract or insurance policy issued, sold, renewed, or offered for health care services or coverage provided in the Medi-Cal program (Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code).
A health insurer that issues, sells, renews, or offers a policy covering dental services shall file a report with the department, by July 31 of each year, which shall be known as the MLR annual report. The MLR annual report shall be organized by market and product type and contains the same information required in the 2013 federal Medical Loss Ratio (MLR) Annual Reporting Form (CMS-10418). The department shall post a health insurer’s MLR annual report on its Internet Web site within 45 days after receiving the report.
The MLR reporting year shall be for the calendar year during which dental coverage is provided by the plan. As applicable, all terms used in the MLR annual report shall have the same meaning as used in the federal Public Health Service Act (42 U.S.C. Sec. 300gg-18) and Part 158 (commencing with Section 158.101) of Title 45 of the Code of Federal Regulations.
If the commissioner decides to conduct an examination, as described in Section 730, because the commissioner finds it necessary to verify the health insurer’s representations in the MLR annual report, the department shall provide the health insurer with a notification 30 days before the commencement of the examination.
The health insurer shall have 30 days from the date of notification to electronically submit to the department all requested records, books, and papers specified in subdivision (a) of Section 733. The commissioner may extend the time for a health insurer to comply with this subdivision upon a finding of good cause.
The department shall make available to the public all of the data provided to the department pursuant to this section.
This section does not apply to an insurance policy issued, sold, renewed, or offered for health care services or coverage provided in the Medi-Cal program (Chapter 7 (commencing with Section 14000) and Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code), the Medi-Cal Access Program (Chapter 2 (commencing with Section 15810) of Part 3.3 of Division 9 of the Welfare and Institutions Code), or the California Major Risk Medical Insurance Program (Chapter 4 (commencing with Section 15870) of Part 3.3 of Division 9 of the Welfare and Institutions Code), to the extent consistent with the federal Patient Protection and Affordable Care Act (Public Law 111-148).
This section does not apply to disability insurance for covered benefits in the single specialized area of dental-only health care that pays benefits on a fixed benefit, cash payment only basis.
The department may issue guidance to health insurers of specialized health insurance policies subject to this section regarding compliance with this section. The guidance shall not be subject to the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), and shall be effective only until the department adopts regulations pursuant to that act. The department shall consult with the Department of Managed Health Care in issuing the guidance specified in this section.
An individual or small group health insurance policy issued, amended, or renewed on or after January 1, 2017, shall include, at a minimum, coverage for essential health benefits pursuant to the federal Patient Protection and Affordable Care Act (PPACA) and as outlined in this section. This section shall exclusively govern the benefits a health insurer must cover as essential health benefits. For purposes of this section, “essential health benefits” means all of the following:
Health benefits within the categories identified in Section 1302(b) of PPACA: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, including behavioral health treatment, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services, including oral and vision care.
The health benefits covered by the Kaiser Foundation Health Plan Small Group HMO 30 plan (federal health product identification number 40513CA035) as this plan was offered during the first quarter of 2014, as follows, regardless of whether the benefits are specifically referenced in the plan contract or evidence of coverage for that plan:
Medically necessary basic health care services, as defined in subdivision (b) of Section 1345 of the Health and Safety Code and Section 1300.67 of Title 28 of the California Code of Regulations.
The health benefits mandated to be covered by the plan pursuant to statutes enacted before December 31, 2011, as described in the following sections of the Health and Safety Code: Sections 1367.002, 1367.06, and 1367.35 (preventive services for children); Section 1367.25 (prescription drug coverage for contraceptives); Section 1367.45 (AIDS vaccine); Section 1367.46 (HIV testing); Section 1367.51 (diabetes); Section 1367.54 (alpha-fetoprotein testing); Section 1367.6 (breast cancer screening); Section 1367.61 (prosthetics for laryngectomy); Section 1367.62 (maternity hospital stay); Section 1367.63 (reconstructive surgery); Section 1367.635 (mastectomies); Section 1367.64 (prostate cancer); Section 1367.65 (mammography); Section 1367.66 (cervical cancer); Section 1367.665 (cancer screening tests); Section 1367.67 (osteoporosis); Section 1367.68 (surgical procedures for jaw bones); Section 1367.71 (anesthesia for dental); Section 1367.9 (conditions attributable to diethylstilbestrol); Section 1368.2 (hospice care); Section 1370.6 (cancer clinical trials); Section 1371.5 (emergency response ambulance or ambulance transport services); subdivision (b) of Section 1373 (sterilization operations or procedures); Section 1373.4 (inpatient hospital and ambulatory maternity); Section 1374.56 (phenylketonuria); Section 1374.17 (organ transplants for HIV); Section 1374.72 (mental health parity); and Section 1374.73 (autism/behavioral health treatment).
Any other benefits mandated to be covered by the plan pursuant to statutes enacted before December 31, 2011, as described in those statutes.
The health benefits covered by the plan that are not otherwise required to be covered under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code, to the extent otherwise required pursuant to Sections 1367.18, 1367.21, 1367.215, 1367.22, 1367.24, and 1367.25 of the Health and Safety Code, and Section 1300.67.24 of Title 28 of the California Code of Regulations.
Any other health benefits covered by the plan that are not otherwise required to be covered under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code.
If there are any conflicts or omissions in the plan identified in subparagraph (A) as compared with the requirements for health benefits under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code that were enacted before December 31, 2011, the requirements of Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code shall control, except as otherwise specified in this section.
Notwithstanding subparagraph (B) or any other provision of this section, the home health services benefits covered under the plan identified in subparagraph (A) shall not be in conflict with Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code.
For purposes of this section, the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (Public Law 110-343) shall apply to a policy subject to this section. Coverage of mental health and substance use disorder services pursuant to this paragraph, along with any scope and duration limits imposed on the benefits, shall be in compliance with the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (Public Law 110-343), and all rules, regulations, and guidance issued pursuant to Section 2726 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-26).
Commencing January 1, 2027, if the United States Department of Health and Human Services approves a new essential health benefits benchmark plan for the State of California pursuant to submissions to the department made on behalf of the state in 2025 for this purpose, the benchmark plan described in subparagraph (A) shall additionally include all of the following benefits:
Services to evaluate, diagnose, and treat infertility that include all of the following:
Artificial insemination.
(II) Three attempts to retrieve gametes.
(III) Three attempts to create embryos.
(IV) Three rounds of pretransfer testing.
Cryopreservation of gametes and embryos.
(VI) Two years of storage for cryopreserved embryos.
(VII) Unlimited storage for cryopreserved gametes.
(VIII) Unlimited embryo transfers.
(IX) Two vials of donor sperm.
Ten donor eggs.
(XI) Surrogacy coverage for the services described above.
(XII) Health testing of the surrogate for each attempted round of covered services.
All of the following durable medical equipment:
With respect to habilitative services, in addition to any habilitative services and devices identified in paragraph (2), coverage shall also be provided as required by federal rules, regulations, or guidance issued pursuant to Section 1302(b) of PPACA. Habilitative services and devices shall be covered under the same terms and conditions applied to rehabilitative services and devices under the policy. Limits on habilitative and rehabilitative services and devices shall not be combined.
With respect to pediatric vision care, the same health benefits for pediatric vision care covered under the Federal Employees Dental and Vision Insurance Program vision plan with the largest national enrollment as of the first quarter of 2014. The pediatric vision care services covered pursuant to this paragraph shall be in addition to, and shall not replace, any vision services covered under the plan identified in paragraph (2).
With respect to pediatric oral care, the same health benefits for pediatric oral care covered under the dental benefit received by children under the Medi-Cal program as of 2014, including the provision of medically necessary orthodontic care provided pursuant to the federal Children’s Health Insurance Program Reauthorization Act of 2009. The pediatric oral care benefits covered pursuant to this paragraph shall be in addition to, and shall not replace, any dental or orthodontic services covered under the plan identified in paragraph (2).
Treatment limitations imposed on health benefits described in this section shall be no greater than the treatment limitations imposed by the corresponding plans identified in subdivision (a), subject to the requirements set forth in paragraph (2) of subdivision (a).
Except as provided in subdivision (d), this section does not permit a health insurer to make substitutions for the benefits required to be covered under this section, regardless of whether those substitutions are actuarially equivalent.
To the extent permitted under Section 1302 of PPACA and any rules, regulations, or guidance issued pursuant to that section, and to the extent that substitution would not create an obligation for the state to defray costs for any individual, an insurer may substitute its prescription drug formulary for the formulary provided under the plan identified in subdivision (a) if the coverage for prescription drugs complies with the sections referenced in clauses (ii) and (iv) of subparagraph (A) of paragraph (2) of subdivision (a) that apply to prescription drugs.
A health insurer, or its agent, producer, or representative, shall not issue, deliver, renew, offer, market, represent, or sell any product, policy, or discount arrangement as compliant with the essential health benefits requirement in federal law, unless it meets all of the requirements of this section. This subdivision shall be enforced in the same manner as Section 790.03, including through the means specified in Sections 790.035 and 790.05.
This section applies regardless of whether the policy is offered inside or outside the California Health Benefit Exchange created by Section 100500 of the Government Code.
This section does not exempt a health insurer or a health insurance policy from meeting other applicable requirements of law.
This section does not prohibit a policy from covering additional benefits, including, but not limited to, spiritual care services that are tax deductible under Section 213 of the Internal Revenue Code.
Subdivision (a) does not apply to any of the following:
A policy that provides excepted benefits as described in Sections 2722 and 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-21; 42 U.S.C. Sec. 300gg-91).
A policy that qualifies as a grandfathered health plan under Section 1251 of PPACA or any binding rules, regulations, or guidance issued pursuant to that section.
This section shall not be implemented in a manner that conflicts with a requirement of PPACA.
An essential health benefit is required to be provided under this section only to the extent that federal law does not require the state to defray the costs of the benefit.
This section does not obligate the state to incur costs for the coverage of benefits that are not essential health benefits as defined in this section.
An insurer is not required to cover, under this section, changes to health benefits that are the result of statutes enacted on or after December 31, 2011.
On or before January 1, 2027, the commissioner may issue guidance to health insurers regarding compliance with this section. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
The commissioner may promulgate regulations subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) to implement this section. This subdivision shall not be construed to impair or restrict the commissioner’s rulemaking authority pursuant to another provision of this code or the Administrative Procedure Act.
The commissioner shall consult with the Department of Managed Health Care in issuing guidance and in adopting regulations pursuant to paragraphs (1) and (2) for the purpose of implementing this section.
This section does not impose on health insurance policies the cost sharing or network limitations of the plans identified in subdivision (a) except to the extent otherwise required to comply with this code, including this section, and as otherwise applicable to all health insurance policies offered to individuals and small groups.
For purposes of this section, the following definitions apply:
“Habilitative services” means health care services and devices that help a person keep, learn, or improve skills and functioning for daily living. Examples include therapy for a child who is not walking or talking at the expected age. These services may include physical and occupational therapy, speech-language pathology, and other services for people with disabilities in a variety of inpatient or outpatient settings, or both. Habilitative services shall be covered under the same terms and conditions applied to rehabilitative services under the policy.
“Health benefits,” unless otherwise required to be defined pursuant to federal rules, regulations, or guidance issued pursuant to Section 1302(b) of PPACA, means health care items or services for the diagnosis, cure, mitigation, treatment, or prevention of illness, injury, disease, or a health condition, including a behavioral health condition.
“Health benefits” does not mean any cost-sharing requirements such as copayments, coinsurance, or deductibles.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
“Small group health insurance policy” means a group health insurance policy issued to a small employer, as defined in subdivision (q) of Section 10753.
This section shall apply to nongrandfathered individual and group health insurance policies that provide coverage for essential health benefits, as defined in Section 10112.27, and that are issued, amended, or renewed on or after January 1, 2015.
For nongrandfathered health insurance policies in the individual or small group markets, a health insurance policy, except a specialized health insurance policy, that is issued, amended, or renewed on or after January 1, 2015, shall provide for a limit on annual out-of-pocket expenses for all covered benefits that meet the definition of essential health benefits in Section 10112.27, including out-of-network emergency care.
For nongrandfathered health insurance policies in the large group market, a health insurance policy, except a specialized health insurance policy, that is issued, amended, or renewed on or after January 1, 2015, shall provide for a limit on annual out-of-pocket expenses for covered benefits, including out-of-network emergency care. This limit shall apply only to essential health benefits, as defined in Section 10112.27, that are covered under the policy to the extent that this provision does not conflict with federal law or guidance on out-of-pocket maximums for nongrandfathered health insurance policies in the large group market.
For family coverage, an individual within a family shall not have a maximum out-of-pocket limit that is greater than the maximum out-of-pocket limit for individual coverage for that product.
Nothing in this section shall be construed to affect the reduction in cost sharing for eligible insureds described in Section 1402 of PPACA and any subsequent rules, regulations, or guidance issued under that section.
If an essential health benefit is offered or provided by a specialized health insurance policy, the total annual out-of-pocket maximum for all covered essential benefits shall not exceed the limit in subdivision (b). This section shall not apply to a specialized health insurance policy that does not offer an essential health benefit as defined in Section 10112.27.
The maximum out-of-pocket limit shall apply to any copayment, coinsurance, deductible, and any other form of cost sharing for all covered benefits that meet the definition of essential health benefits, as defined in Section 10112.27.
Except as provided in paragraph (2), if a health insurance policy for family coverage includes a deductible, an individual within a family shall not have a deductible that is greater than the deductible limit for individual coverage for that product.
Except as provided in paragraph (2), for a large group market health insurance policy for family coverage that is issued, amended, or renewed on or after January 1, 2017, includes a deductible, an individual within a family shall not have a deductible that is greater than the deductible limit for individual coverage for that product.
If a health insurance policy for family coverage includes a deductible and is a high deductible health plan under the definition set forth in Section 223(c)(2) of Title 26 of the United States Code, the policy shall include a deductible for each individual covered by the policy that is equal to either the amount set forth in Section 223(c)(2)(A)(i)(II) of Title 26 of the United States Code or the deductible for individual coverage under the policy, whichever is greater.
If a large group market health insurance policy for family coverage that is issued, amended, or renewed on or after January 1, 2017, includes a deductible and is a high deductible health plan under the definition set forth in Section 223(c)(2) of Title 26 of the United States Code, the policy shall include a deductible for each individual covered by the policy that is equal to either the amount set forth in Section 223(c)(2)(A)(i)(II) of Title 26 of the United States Code or the deductible for individual coverage under the policy, whichever is greater.
For nongrandfathered health insurance policies in the group market, “policy year” has the meaning set forth in Section 144.103 of Title 45 of the Code of Federal Regulations. For nongrandfathered health insurance policies sold in the individual market, “policy year” means the calendar year.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
A large group health insurance policy issued, amended, or renewed on or after July 1, 2022, shall cover medically necessary basic health care services.
“Basic health care services” means all the following:
Physician services, including consultation and referral.
Hospital inpatient services and ambulatory care services.
Diagnostic laboratory and diagnostic and therapeutic radiologic services.
Home health services.
Preventive health services.
Emergency health care services, including ambulance and ambulance transport services and out-of-area coverage. “Basic health care services” includes ambulance and ambulance transport services provided through the “911” emergency response system.
Hospice care that is, at a minimum, equivalent to hospice care provided by the federal Medicare Program pursuant to Title XVIII of the Social Security Act (42 U.S.C. Sec. 1395 et seq.) and implementing regulations adopted for hospice care under Title XVIII of the Social Security Act in Part 418 of Chapter IV of Title 42 of the Code of Federal Regulations, except Subparts A, B, G, and H, and any amendments or successor provisions.
“Out-of-area coverage” means coverage while an insured is anywhere outside the service area of the applicable network, and shall also include coverage for urgently needed services to prevent serious deterioration of an insured’s health resulting from unforeseen illness or injury for which treatment cannot be delayed until the insured returns to the service area.
This section does not prohibit a large group health insurance policy from covering additional benefits.
The commissioner may adopt regulations pursuant to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) to implement this section. Prior to adopting regulations, the commissioner shall consult with the Department of Managed Health Care to ensure consistency, to the extent practical, with Section 1300.67 of Title 28 of the California Code of Regulations.
If Section 10112.27 is no longer in effect, this section and any regulations implementing this section shall apply to an individual, group, or blanket disability insurance policy that covers hospital, medical, or surgical benefits, except as provided in subdivision (g).
If the condition described in paragraph (1) occurs, the department shall post notice on its internet website that this section applies to an individual, group, or blanket disability insurance policy that covers hospital, medical, or surgical benefits, and shall provide written notice to the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.
This section does not apply to a specialized health insurance policy that covers only dental or vision benefits.
With respect to large group health insurance, an insurer and its officials, employees, agents, and representatives shall not, directly or indirectly, employ marketing practices or benefit designs that will have the effect of discouraging the enrollment of individuals with significant health needs or discriminating based on an individual’s race, color, national origin, present or predicted disability, age, sex, gender identity, sexual orientation, expected length of life, degree of medical dependency, quality of life, or other health conditions.
An insurer that violates this section shall be liable for an administrative penalty of not more than two thousand five hundred dollars ($2,500) for the first violation, and not more than five thousand dollars ($5,000) for each subsequent violation.
An insurer that violates this section with a frequency that indicates a general business practice or commits a knowing violation of this section shall be liable for an administrative penalty of not less than fifteen thousand dollars ($15,000), and not more than one hundred thousand dollars ($100,000) for each violation.
This section does not apply to a grandfathered large group health insurance policy or a specialized health insurance policy that covers only dental or vision benefits.
For a small employer health insurance policy offered, sold, or renewed on or after January 1, 2014, the deductible under the policy shall not exceed:
Two thousand dollars ($2,000) in the case of a policy covering a single individual.
Four thousand dollars ($4,000) in the case of any other policy.
The dollar amounts in this section shall be indexed consistent with Section 1302(c)(4) of PPACA and any federal rules or guidance pursuant to that section.
The limitation in this subdivision shall be applied in a manner that does not affect the actuarial value of any small employer health insurance policy.
For small group products at the bronze level of coverage, as defined in Section 10112.295, the department may permit insurers to offer a higher deductible in order to meet the actuarial value requirement of the bronze level. In making this determination, the department shall consider affordability of cost sharing for insureds and shall also consider whether insureds may be deterred from seeking appropriate care because of higher cost sharing.
Nothing in this section shall be construed to allow a policy to have a deductible that applies to preventive services as defined in PPACA.
This section shall not apply to multiple employer welfare arrangements regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 that provide health care benefits to their members and that comply with small group health reforms unless otherwise required by federal law or guidance.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
For a health insurance policy issued, amended, or renewed on or after July 1, 2022, in the individual or group market, a health insurer shall monitor an insured’s accrual toward their annual deductible, if any, for covered benefits, as set forth in this section and any regulations promulgated by the department.
A health insurer shall provide an insured with their accrual balance toward their annual deductible for every month in which benefits were used and until the accrual balance equals the full deductible amount.
A health insurer subject to this section shall establish and maintain a system that allows an insured to request their most up-to-date accrual balance toward their annual deductible from their health insurer at any time.
If the health insurance policy includes more than one annual deductible for an insured, then this section applies to each deductible.
For a health insurance policy issued, amended, or renewed on or after July 1, 2022, in the individual or group market, an insurer shall monitor an insured’s accrual balance toward their annual out-of-pocket maximum, if any, for covered benefits, as set forth in this section and any regulations promulgated by the department.
A health insurer shall provide an insured with their accrual balance toward their annual out-of-pocket maximum for every month in which benefits were used and until the accrual balance equals the full out-of-pocket maximum.
A health insurer subject to this section shall establish and maintain a system that allows an insured to request their most up-to-date accrual balance toward their annual out-of-pocket maximum from their health insurer at any time.
Accrual updates shall be mailed to an insured unless the insured has elected to opt out of mailed notice and elected to receive the accrual update electronically as allowed according to Section 38.6, or unless the insured has previously opted out of mailed notices.
A health insurer shall notify insureds of their rights pursuant to this section, including, but not limited to, how to request information and how to opt out of mailed notices and elect to instead receive their accrual update electronically, in the manner set forth by the department. The department may issue guidance regarding implementation of, and compliance with, this subdivision. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 1340) of Part 1 of Division 3 of Title 2 of the Government Code), until January 1, 2027. The department shall consult with stakeholders in developing guidance pursuant to this subdivision.
If a health insurer delegates claims payment functions to a contracted entity, including, but not limited to, a medical group or independent practice association, the delegated entity shall comply with the requirements of this section. A health insurer shall specify by contract the delegated entity’s responsibilities and shall monitor the delegated entity to ensure compliance with this section. Notwithstanding delegation pursuant to this subdivision, the health insurer shall remain responsible for compliance with this section.
Levels of coverage for the nongrandfathered individual market are defined as follows:
Bronze level: A health insurance policy in the bronze level shall provide a level of coverage that is actuarially equivalent to 60 percent of the full actuarial value of the benefits provided under the policy.
Silver level: A health insurance policy in the silver level shall provide a level of coverage that is actuarially equivalent to 70 percent of the full actuarial value of the benefits provided under the policy.
Gold level: A health insurance policy in the gold level shall provide a level of coverage that is actuarially equivalent to 80 percent of the full actuarial value of the benefits provided under the policy.
Platinum level: A health insurance policy in the platinum level shall provide a level of coverage that is actuarially equivalent to 90 percent of the full actuarial value of the benefits provided under the policy.
Actuarial value for nongrandfathered individual health insurance policies shall be determined in accordance with the following:
Actuarial value shall not vary by more than plus or minus 2 percent.
Actuarial value shall be determined on the basis of essential health benefits as defined in Section 10112.27 and as provided to a standard, nonelderly population. For this purpose, a standard population shall not include those receiving coverage through the Medi-Cal or Medicare programs.
The department may use the actuarial value methodology developed consistent with Section 1302(d) of PPACA.
The actuarial value for pediatric dental benefits, whether offered by a major medical policy or a specialized health insurance policy, shall be consistent with federal law and guidance applicable to the policy type.
The department, in consultation with the Department of Managed Health Care and the Exchange, shall consider whether to exercise state-level flexibility with respect to the actuarial value calculator in order to take into account the unique characteristics of the California health care coverage market, including the prevalence of health insurance policies, total cost of care paid for by the health insurer, price of care, patterns of service utilization, and relevant demographic factors.
The individual purchasing the policy has not yet attained 30 years of age before the beginning of the plan year.
The individual has a certificate of exemption from Section 5000(A) of the Internal Revenue Code because the individual is not offered affordable coverage or because the individual faces hardship.
This section shall apply to a policy of health insurance, as defined in subdivision (b) of Section 106, that covers any essential health benefit as defined in Section 10112.27. This section shall not apply to a specialized health insurance policy that does not cover any of the essential health benefits.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
Notwithstanding paragraph (1) of subdivision (b) of Section 10112.295 and paragraph (1) of subdivision (b) of Section 10112.297, the actuarial value for a nongrandfathered bronze level health insurance policy that either covers and pays for at least one major service, other than preventive services, before the deductible or meets the requirements to be a high deductible health plan, as defined in Section 223(c)(2) of Title 26 of the United States Code, may range from plus 5 percent to minus 2 percent.
Levels of coverage for the nongrandfathered small group market are defined as follows:
Bronze level: A health insurance policy in the bronze level shall provide a level of coverage that is actuarially equivalent to 60 percent of the full actuarial value of the benefits provided under the policy.
Silver level: A health insurance policy in the silver level shall provide a level of coverage that is actuarially equivalent to 70 percent of the full actuarial value of the benefits provided under the policy.
Gold level: A health insurance policy in the gold level shall provide a level of coverage that is actuarially equivalent to 80 percent of the full actuarial value of the benefits provided under the policy.
Platinum level: A health insurance policy in the platinum level shall provide a level of coverage that is actuarially equivalent to 90 percent of the full actuarial value of the benefits provided under the policy.
Actuarial value for nongrandfathered small employer health insurance policies shall be determined in accordance with the following:
Actuarial value shall not vary by more than plus or minus 2 percent.
Actuarial value shall be determined on the basis of essential health benefits as defined in paragraph (1) of subdivision (a) of Section 10112.27 and as provided to a standard, nonelderly population. For this purpose, a standard population shall not include those receiving coverage through the Medi-Cal or Medicare programs.
The department may use the actuarial value methodology developed consistent with Section 1302(d) of PPACA.
The actuarial value for pediatric dental benefits, whether offered by a major medical policy or a specialized health insurance policy, shall be consistent with federal law and guidance applicable to the policy type.
The department, in consultation with the Department of Managed Health Care and the Exchange, shall consider whether to exercise state-level flexibility with respect to the actuarial value calculator in order to take into account the unique characteristics of the California health care coverage market, including the prevalence of health insurance policies, total cost of care paid for by the health insurer, price of care, patterns of service utilization, and relevant demographic factors.
Employer contributions toward health reimbursement accounts and health savings accounts shall count toward the actuarial value of the product in the manner specified in federal rules and guidance.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
For purposes of this section, the following definitions shall apply:
“Exchange” means the California Health Benefit Exchange established in Title 22 (commencing with Section 100500) of the Government Code.
“Federal act” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any amendments to, or regulations or guidance issued under, those acts.
“Qualified health plan” has the same meaning as that term is defined in Section 1301 of the federal act.
“Small employer” has the same meaning as that term is defined in Section 10753.
Health insurers participating in the individual market of the Exchange shall fairly and affirmatively offer, market, and sell in the individual market of the Exchange at least one product within each of the five levels of coverage contained in subsections (d) and (e) of Section 1302 of the federal act. Health insurers participating in the Small Business Health Options Program (SHOP Program) of the Exchange, established pursuant to subdivision (m) of Section 100504 of the Government Code, shall fairly and affirmatively offer, market, and sell in the SHOP Program at least one product within each of the four levels of coverage contained in subsection (d) of Section 1302 of the federal act.
The board established under Section 100500 of the Government Code may require insurers to sell additional products within each of the levels of coverage identified in paragraph (1).
This subdivision shall not apply to an insurer that solely offers supplemental coverage in the Exchange under paragraph (10) of subdivision (a) of Section 100504 of the Government Code.
Fairly and affirmatively offer, market, and sell all products made available to individuals in the Exchange to individuals purchasing coverage outside the Exchange.
Fairly and affirmatively offer, market, and sell all products made available to small employers in the Exchange to small employers purchasing coverage outside the Exchange.
Commencing January 1, 2014, a health insurer that does not participate in the Exchange shall, with respect to individual or small employer policies that cover hospital, medical, or surgical expenses, offer at least one standardized product that has been designated by the Exchange in each of the four levels of coverage contained in subsection (d) of Section 1302 of the federal act. This subdivision shall only apply if the board of the Exchange exercises its authority under subdivision (c) of Section 100504 of the Government Code. Nothing in this subdivision shall require an insurer that does not participate in the Exchange to offer standardized products in the small employer market if the insurer only sells products in the individual market. Nothing in this subdivision shall require an insurer that does not participate in the Exchange to offer standardized products in the individual market if the insurer only sells products in the small employer market. This subdivision shall not be construed to prohibit the insurer from offering other products provided that it complies with subdivision (d).
This section shall become operative only if Section 11 of the act that added this section becomes inoperative pursuant to subdivision (g) of that Section 11.
A small employer health benefit plan in effect on December 31, 2013, and still in effect as of the effective date of this section, that does not qualify as a grandfathered health plan under Section 1251 of PPACA may be renewed until January 1, 2015, and may continue to be in force until December 31, 2015, subject to applicable federal law, and any other requirements imposed by this part.
A small employer health benefit plan described in paragraph (1) may continue to be in force after December 31, 2015, if the plan is amended to comply with all of the provisions listed in subdivision (e) by January 1, 2016, and complies with all other applicable provisions of law.
If an insurer offers for renewal a small employer health benefit plan pursuant to paragraph (1) of subdivision (a), the insurer shall provide notice to the group contractholder regarding the option to renew coverage pursuant to subdivision (a) using the relevant notice attached to the guidance entitled “Insurance Standards Bulletin Series – Extension of Transition Policy through October 1, 2016,” issued by the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services on March 5, 2014.
An insurer shall include the following notice with the notice issued pursuant to paragraph (1):
“New health care coverage options are available in California. You currently have health care coverage that is not required to comply with many new laws. A new health benefit plan may be more affordable and/or offer more comprehensive benefits. New plans may also have limits on deductibles and out-of-pocket costs, while your existing plan may have no such limits.
You have the option to remain with your current coverage for one more year or switch to new coverage that complies with the new laws. Covered California, the state’s new health insurance marketplace, offers small employers health insurance from a number of companies through its Small Business Health Options Program (SHOP). Federal tax credits are available through the SHOP to those small employers that qualify. Talk to Covered California (1-877-453-9198), your plan representative, or your insurance agent to discuss your options.”
An insurer shall include with the notices issued pursuant to paragraphs (1) and (2), the premium, cost sharing, and benefits associated with the plan’s standard benefit designs approved consistent with subdivision (c) of Section 100504 of the Government Code for the geographic region of the small employer.
An insurer that offers for renewal a small employer health benefit plan pursuant to paragraph (1) of subdivision (a) shall offer renewal to all employers whose health benefit plan with that insurer was in effect on December 31, 2013.
Paragraph (1) of subdivision (b) of, and subdivisions (c), (g), and (k) of, Section 10753.05.
Section 10753.14.
Section 10112.27.
Section 10112.285.
Section 10112.28.
Section 10112.29.
Section 10112.297.
A small employer health benefit plan described in paragraph (1) of subdivision (a) shall be subject to Sections 10714 and 10715, and shall continue to be subject to Chapter 8.01 (commencing with Section 10753), except as provided in subdivision (c), and to all otherwise applicable provisions of this part.
No later than January 1, 2016, a small employer health benefit plan described in paragraph (1) of subdivision (a) may be amended to comply with all of the following:
Paragraph (1) of subdivision (b) of, and subdivisions (c), (g), and (k) of, Section 10753.05.
Section 10753.14.
Section 10112.27.
Section 10112.28.
Section 10112.29.
Section 10112.297.
This section shall be implemented only to the extent permitted by PPACA.
For purposes of this section, the following definitions shall apply:
“Health benefit plan” has the same meaning as defined in subdivision (j) of Section 10753.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
“Small employer health benefit plan” means a group health benefit plan issued to a small employer, as defined in Section 10753.
An insurer providing individual coverage in the Exchange shall cooperate with requests from the Exchange to collaborate in the development of, and participate in the implementation of, the Medi-Cal program’s premium and cost-sharing payments under Sections 14102 and 14148.65 of the Welfare and Institutions Code for eligible Exchange insureds.
An insurer providing individual coverage in the Exchange shall not charge, bill, ask, or require an insured receiving benefits under Section 14102 or 14148.65 of the Welfare and Institutions Code to make any premium or cost-sharing payments for any services that are subject to premium or cost-sharing payments by the State Department of Health Care Services under Section 14102 or 14148.65 of the Welfare and Institutions Code.
For purposes of this section, “Exchange” means the California Health Benefit Exchange established pursuant to Title 22 (commencing with Section 100500) of the Government Code.
The commissioner shall, in coordination with the Director of the Department of Managed Health Care, review the Internet portal developed by the United States Secretary of Health and Human Services under subdivision (a) of Section 1103 of the federal Patient Protection and Affordable Care Act (P.L. 111-148) and paragraph (5) of subdivision (c) of Section 1311 of that act, and any enhancements to that portal expected to be implemented by the secretary on or before January 1, 2015. The review shall examine whether the Internet portal provides sufficient information regarding all health benefit products offered by health care service plans and health insurers in the individual and small employer markets in California to facilitate fair and affirmative marketing of all individual and small employer products, particularly outside the California Health Benefit Exchange created under Title 22 (commencing with Section 100500) of the Government Code. If the commissioner and the Director of the Department of Managed Health Care jointly determine that the Internet portal does not adequately achieve those purposes, they shall jointly develop and maintain an electronic clearinghouse to achieve those purposes. In performing this function, the commissioner and the Director of the Department of Managed Health Care shall routinely monitor individual and small employer benefit filings with, and complaints submitted by individuals and small employers to, their respective departments, and shall use any other available means to maintain the clearinghouse.
Notwithstanding any other provision of law, every policy or certificate of health insurance marketed, issued, or delivered to a resident of this state, regardless of the situs of the contract or master group policyholder, shall be subject to all provisions of this code.
Paragraph (1) shall not apply to a policy or certificate of health insurance that is issued outside of California to an employer whose principal place of business and majority of employees are located outside of California.
Notwithstanding subparagraph (A), no policy or certificate of health insurance marketed, issued, or delivered to a resident of this state shall discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex.
Nothing in subparagraph (A) of paragraph (2) shall be construed to limit the applicability of any other provision of this code to any policy or certificate of health insurance that is issued outside of California to an employer whose principal place of business and majority of employees are located outside of California.
Notwithstanding any other provision of law, every policy or certificate of group health insurance marketed, issued, or delivered to a resident of this state, regardless of the situs of the contract or master group policyholder, shall be subject to Section 10121.7.
Consistent with federal law, a sponsor of a prescription drug plan authorized by the federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173) shall hold a valid license as a life and disability insurer issued by the department or as a health care service plan issued by the Department of Managed Health Care.
An entity that is licensed as a life and disability insurer and that operates a prescription drug plan shall be subject to the provisions of this code, unless preempted by federal law.
A group or individual health insurance policy issued, amended, or renewed on or after January 1, 2014, that provides or covers any benefits with respect to services in an emergency department of a hospital shall cover emergency services as follows:
Without the need for any prior authorization determination.
Whether the health care provider furnishing the services is a participating provider with respect to those services.
In a manner so that, if the services are provided to an insured:
By a nonparticipating health care provider with or without prior authorization; or
The services will be provided without imposing any requirement under the policy for prior authorization of services or any limitation on coverage where the provider of services does not have a contractual relationship with the insurer for the providing of services that is more restrictive than the requirements or limitations that apply to emergency department services received from providers who do have such a contractual relationship with the insurer; and
If the services are provided to an insured out-of-network, the cost-sharing requirement, expressed as a copayment amount or coinsurance rate, is the same requirement that would apply if the services were provided in-network.
For the purposes of this section, the term “emergency services” means, with respect to an emergency medical condition:
A medical screening examination that is within the capability of the emergency department of a hospital, including ancillary services routinely available to the emergency department to evaluate that emergency medical condition.
Within the capabilities of the staff and facilities available at the hospital, further medical examination and treatment as are required under Section 1867(e)(3) of the federal Social Security Act (42 U.S.C. 1395dd(e)(3)) to stabilize the patient.
If a health insurer sends payment for services provided directly to the insured and not to the provider, the insurer shall send notice to the insured and the provider who provided the services that the insurer has sent payment to the insured.
The notice sent to the insured pursuant to subdivision (a) shall include all of the following:
The date the notice was sent and the name and address of the provider who billed for the service.
A statement that if the insured has paid the full bill for the service, including both their cost-sharing and the insurer share of cost obligation, the actions described to collect the insurer obligated payment in paragraph (3) do not apply, and that this check is for reimbursement of the consumer for paying the insurer share of cost obligation.
Information about action that may be taken if the insured does not send the insurer’s obligated payment to the provider, including all of the following:
That an unpaid bill may be sent to collections and the insured may be subject to collections.
That the provider or debt collector may pursue litigation against the insured to collect the bill.
That the unpaid insurer share of cost obligation may be reported to a credit reporting agency as medical debt if the provider does not receive the payment within 60 days of the notice, or within one year after initial billing for the service, whichever is later.
The required notice sent to the provider pursuant to subdivision (a) shall include the date that the notice to the insured was sent and the amount sent to the insured to reimburse the provider.
If the provider does not receive the payment from the insured within 60 days of the notice to the insured, or within one year after initial billing for the service, whichever is later, the insurer’s share of cost in possession of the insured that has not been paid to the provider may be reported to a credit reporting agency as medical debt and shall not be considered medical debt for purposes of Sections 1785.13, 1785.20.6, 1785.27, and 1786.18 of the Civil Code if both of the following are true:
This section does not apply if the direct payment for services provided to the insured is a reimbursement from the insurer because the insured paid the insurer’s share of cost obligation.
Except as provided in subdivision (c), a health insurance policy issued, amended, or renewed on or after July 1, 2017, that provides benefits through contracts with providers at alternative rates of payment pursuant to Section 10133, shall provide that if an insured receives covered services from a contracting health facility at which, or as a result of which, the insured receives services provided by a noncontracting individual health professional, the insured shall pay no more than the same cost sharing that the insured would pay for the same covered services received from a contracting individual health professional. This amount shall be referred to as the “in-network cost-sharing amount.”
Except as provided in subdivision (c), an insured shall not owe the noncontracting individual health professional more than the in-network cost-sharing amount for services subject to this section. At the time of payment by the insurer to the noncontracting individual health professional, the insurer shall inform the insured and the noncontracting individual health professional of the in-network cost-sharing amount owed by the insured.
A noncontracting individual health professional shall not bill or collect any amount from the insured for services subject to this section except the in-network cost-sharing amount. Any communication from the noncontracting individual health professional to the insured prior to the receipt of information about the in-network cost-sharing amount pursuant to paragraph (2) shall include a notice in 12-point bold type stating that the communication is not a bill and informing the insured that the insured shall not pay until they are informed by their insurer of any applicable cost sharing.
If the noncontracting individual health professional has received more than the in-network cost-sharing amount from the insured for services subject to this section, the noncontracting individual health professional shall refund any overpayment to the insured within 30 calendar days after receiving payment from the insured.
If the noncontracting individual health professional does not refund any overpayment to the insured within 30 calendar days after being informed of the insured’s in-network cost-sharing amount, interest shall accrue at the rate of 15 percent per annum beginning with the date payment was received from the insured.
A noncontracting individual health professional shall automatically include in their refund to the insured all interest that has accrued pursuant to this section without requiring the insured to submit a request for the interest amount.
Except for services subject to subdivision (c), the following shall apply:
Any cost sharing paid by the insured for the services subject to this section shall count toward the limit on annual out-of-pocket expenses established under Section 10112.28.
Cost sharing arising from services subject to this section shall be counted toward any deductible in the same manner as cost sharing would be attributed to a contracting individual health professional.
The cost sharing paid by the insured pursuant to this section shall satisfy the insured’s obligation to pay cost sharing for the health service and shall constitute “applicable cost sharing owed by the insured.”
For services subject to this section, if an insured has an insurance contract that includes coverage for out-of-network benefits, a noncontracting individual health professional may bill or collect from the insured the out-of-network cost sharing, if applicable, only when the insured consents in writing and that written consent demonstrates satisfaction of all the following criteria:
The consent shall advise the insured that they may elect to seek care from a contracted provider or may contact the insured’s insurer in order to arrange to receive the health service from a contracted provider for lower out-of-pocket costs.
The consent and estimate shall be provided to the insured in the language spoken by the insured, if the language is a Medi-Cal threshold language, as defined in subdivision (d) of Section 128552 of the Health and Safety Code.
The consent shall also advise the insured that any costs incurred as a result of the insured’s use of the out-of-network benefit shall be in addition to in-network cost-sharing amounts and may not count toward the annual out-of-pocket maximum on in-network benefits or a deductible, if any, for in-network benefits.
A noncontracting individual health professional who fails to comply with provisions of this subdivision has not obtained written consent for purposes of this section. Under those circumstances, subdivisions (a) and (b) shall apply and subdivision (c) shall not apply.
A noncontracting individual health professional may advance to collections only the in-network cost-sharing amount, as determined by the insurer pursuant to subdivision (a) or the out-of-network cost-sharing amount owed pursuant to subdivision (c), that the insured has failed to pay.
The noncontracting individual health professional, or any entity acting on their behalf, including any assignee of the debt, shall not do either of the following:
Report adverse information to a consumer credit reporting agency.
Commence civil action against the insured for a minimum of 150 days after the initial billing regarding amounts owed by the insured under subdivision (a) or (c).
With respect to an insured, a noncontracting individual health professional, or any entity acting on their behalf, including any assignee of the debt, shall not use wage garnishments or liens on primary residences as a means of collecting unpaid bills under this section.
“Contracting health facility” means a health facility that is contracted with the insured’s health insurer to provide services under the insured’s policy. A contracting health care facility includes, but is not limited to, the following providers:
A licensed hospital.
An ambulatory surgery or other outpatient setting, as described in subdivision (a), (d), (e), (g), or (h) of Section 1248.1 of the Health and Safety Code.
A laboratory.
A radiology or imaging center.
“Cost sharing” includes any copayment, coinsurance, or deductible, or any other form of cost sharing paid by the insured other than premium or share of premium.
“Individual health professional” means a physician and surgeon or other professional who is licensed by the state to deliver or furnish health care services. For this purpose, an “individual health professional” shall not include a dentist, licensed pursuant to the Dental Practice Act (Chapter 4 (commencing with Section 1600) of Division 2 of the Business and Professions Code).
“In-network cost-sharing amount” means an amount no more than the same cost sharing the insured would pay for the same covered service received from a contracting health professional. The in-network cost-sharing amount with respect to an insured with coinsurance shall be based on the amount paid by the insurer pursuant to paragraph (1) of subdivision (a) of Section 10112.82.
“Noncontracting individual health professional” means a physician and surgeon or other professional who is licensed by the state to deliver or furnish health care services and who is not contracted with the insured’s health insurance product. For this purpose, a “noncontracting individual health professional” shall not include a dentist, licensed pursuant to the Dental Practice Act (Chapter 4 (commencing with Section 1600) of Division 2 of the Business and Professions Code). Application of this definition is not precluded by a noncontracting individual health professional’s affiliation with a group.
This section shall not be construed to require an insurer to cover services not required by law or by the terms and conditions of the health insurance policy.
If a health insurer delegates payment functions to a contracted entity, including, but not limited to, a medical group or independent practice association, the delegated entity shall comply with this section.
This section shall not apply to emergency services and care, as defined in Section 1317.1 of the Health and Safety Code.
By September 1, 2017, the commissioner shall establish an independent dispute resolution process for the purpose of processing and resolving a claim dispute between a health insurer and a noncontracting individual health professional for services subject to subdivision (a) of Section 10112.8.
Prior to initiating the independent dispute resolution process, the parties shall complete the insurer’s internal process.
If either the noncontracting individual health professional or the insurer appeals a claim to the department’s independent dispute resolution process, the other party shall participate in the appeal process as described in this section.
The commissioner shall establish uniform written procedures for the submission, receipt, processing, and resolution of claim payment disputes pursuant to this section and any other guidelines for implementing this section. These procedures shall include a process for each party to submit into evidence information that will be kept confidential from the other party, in order to preserve the confidentiality of the source contract.
The commissioner shall establish reasonable and necessary fees for the purpose of administering this section, to be paid by both parties.
In establishing the independent dispute resolution process, the commissioner shall permit the bundling of claims submitted to the same insurer or the same delegated entity for the same or similar services by the same noncontracting individual health professional.
The commissioner shall permit a physician group, independent practice association, or other entity authorized to act on behalf of a noncontracting individual health professional to initiate and participate in the independent dispute resolution process.
In deciding the dispute, the independent organization shall conduct a de novo review and base its decision regarding the appropriate reimbursement on the information and documents timely submitted into evidence by the parties to the dispute.
The independent organization shall assign reviewers to each case based on their relevant education, background, and medical claims payment and clinical experience.
Contracts entered into pursuant to the authority in this subdivision shall be exempt from Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, Section 19130 of the Government Code, and Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of the Government Code and shall be exempt from the review or approval of any division of the Department of General Services.
The decision obtained through the commissioner’s independent dispute resolution process shall be binding on both parties. The insurer shall implement the decision obtained through the independent dispute resolution process. If dissatisfied, either party may pursue any right, remedy, or penalty established under any other applicable law.
If a health insurer delegates payment functions to a contracted entity, including, but not limited to, a medical group or independent practice association, then the delegated entity shall comply with this section.
This section shall not apply to emergency services and care, as defined in Section 1317.1 of the Health and Safety Code.
The definitions in subdivision (f) of Section 10112.8 shall apply for purposes of this section.
This section shall not be construed to alter a health insurer’s obligations pursuant to Section 10123.13.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner may implement, interpret, or make specific this section by issuing guidance, without taking regulatory action, until the time regulations are adopted.
By January 1, 2019, the commissioner shall provide a report to the Governor, the President pro Tempore of the Senate, the Speaker of the Assembly, and the Senate and Assembly Committees on Health of the data and information provided in the independent dispute resolution process in a manner and format specified by the Legislature.
For services rendered subject to Section 10112.8, effective July 1, 2017, unless otherwise agreed to by the noncontracting individual health professional and the insurer, the insurer shall reimburse the greater of the average contracted rate or 125 percent of the amount Medicare reimburses on a fee-for-service basis for the same or similar services in the general geographic region in which the services were rendered. For the purposes of this section, “average contracted rate” means the average of the contracted commercial rates paid by the health insurer for the same or similar services in the geographic region. This subdivision does not apply to subdivision (c) of Section 10112.8 or subdivision (b) of this section.
By July 1, 2017, each health insurer shall provide to the commissioner all of the following:
Data listing its average contracted rates for the insurer for services most frequently subject to Section 10112.8 in each geographic region in which the services are rendered for the calendar year 2015.
Its methodology for determining the average contracted rate for the insurer for services subject to Section 10112.8. The methodology to determine an average contracted rate shall ensure that the insurer includes the highest and lowest contracted rates for the calendar year 2015.
The policies and procedures used to determine the average contracted rates under this subdivision.
For each calendar year after the health insurer’s initial submission of the average contracted rate as specified in subparagraph (A) and until the standardized methodology under paragraph (3) is specified, a health insurer shall adjust the rate initially established pursuant to this subdivision by the Consumer Price Index for Medical Care Services, as published by the United States Bureau of Labor Statistics.
By January 1, 2019, the commissioner shall specify a methodology that insurers shall use to determine the average contracted rates for services most frequently subject to Section 10112.8. This methodology shall take into account, at a minimum, information from the independent dispute resolution process, the specialty of the individual health professional, and the geographic region in which the services are rendered. The methodology to determine an average contracted rate shall ensure that the insurer includes the highest and lowest contracted rates.
Insurers shall provide to the commissioner the policies and procedures used to determine the average contracted rates in compliance with subparagraph (A).
The average contracted rate data submitted pursuant to this section shall be confidential and not subject to disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code).
In developing the standardized methodology under this subdivision, the commissioner shall consult with interested parties throughout the process of developing the standards, including the Department of Managed Health Care, representatives of health plans, insurers, health care providers, hospitals, consumer advocates, and other stakeholders it deems appropriate. The commissioner shall hold the first stakeholder meeting no later than July 1, 2017.
A health insurer shall include in its reports submitted to the commissioner pursuant to Section 10133.5 and regulations adopted pursuant to that section, in a manner specified by the department, the number of payments made to noncontracting individual health professionals for services at a contracting health facility and subject to Section 10112.8, as well as other data sufficient to determine the proportion of noncontracting individual health professionals to contracting individual health professionals at contracting health facilities, as defined in subdivision (f) of Section 10112.8. The commissioner shall include a summary of this information in its January 1, 2019, report required pursuant to subdivision (j) of Section 10112.81 and its findings regarding the impact of the act that added this section on health insurer contracting and network adequacy.
A health insurer that provides services subject to Section 10112.8 shall meet the network adequacy requirements set forth in this chapter, including, but not limited to, Section 10133.5 of this code and Sections 2240.1 and 2240.7 of Title 10 of the California Code of Regulations, including, but not limited to, inpatient hospital services and specialist physician services, and if necessary, the commissioner may adopt additional regulations related to those services. This section shall not be construed to limit the commissioner’s authority under this chapter.
For the purposes of this section, for average contracted rates for individual and small group coverage, geographic region shall be the geographic regions listed in subparagraph (A) of paragraph (2) of subdivision (a) of Section 10753.14. For purposes of this section for Medicare fee-for-service reimbursement, geographic regions shall be the geographic regions specified for physician reimbursement for Medicare fee-for-service by the United States Department of Health and Human Services.
A health insurer shall authorize and permit assignment of the insured’s right, if any, to any reimbursement for health care services covered under the health insurance policy to a noncontracting individual health professional who furnishes the health care services rendered subject to Section 10112.8. Lack of assignment pursuant to this paragraph shall not be construed to limit the applicability of this section, Section 10112.8, or Section 10112.81.
A noncontracting individual health professional or health insurer who disputes the claim reimbursement under this section shall utilize the independent dispute resolution process described in Section 10112.81.
If nonemergency services are provided by a noncontracting individual health professional consistent with subdivision (c) of Section 10112.8 to an insured who has voluntarily chosen to use the insured’s out-of-network benefit for services covered by an insurer that includes coverage for out-of-network benefits, unless otherwise agreed to by the insurer and the noncontracting individual health professional, the amount paid by the insurer shall be the amount set forth in the insured’s policy. This payment is not subject to the independent dispute resolution process described in Section 10112.81.
If a health insurer delegates the responsibility for payment of claims to a contracted entity, including, but not limited to, a medical group or independent practice association, then the entity to which that responsibility is delegated shall comply with the requirements of this section.
A payment made by the health insurer to the noncontracting health care professional for nonemergency services as required by Section 10112.8 and this section, in addition to the applicable cost sharing owed by the insured, shall constitute payment in full for nonemergency services rendered unless either party uses the dispute resolution process or other lawful means pursuant to Section 10112.81.
Notwithstanding any other law, the amounts paid by an insurer for services under this section shall not constitute the prevailing or customary charges, the usual fees to the general public, or other charges for other payers for an individual health professional.
This subdivision shall not preclude the use of the independent dispute resolution process pursuant to Section 10112.81.
This section shall not apply to emergency services and care, as defined in Section 1317.1 of the Health and Safety Code.
The definitions in subdivision (f) of Section 10112.8 shall apply for purposes of this section.
This section shall not be construed to alter a health insurer’s obligations pursuant to Section 10123.13.
Notwithstanding Section 10273.4, an insurer, except an insurer issuing a specialized health insurance policy, issuing a policy or certificate of health insurance, as defined in subdivision (b) of Section 106, shall not market, offer, amend, issue, or renew a large group plan contract that provides a minimum value of less than 60 percent.
This section shall not apply to limited wraparound coverage, that is consistent with Section 146.145(b) of Title 45 of the Code of Federal Regulations. This section also shall not apply to a policy that provides coverage of Medicare services pursuant to contracts with the United States government.
This section shall not apply to a grandfathered health insurance policy that provides basic health care services, as defined in subdivision (b) of Section 1345 of the Health and Safety Code, without annual or lifetime limits for any of the basic health care services.
For purposes of this section, a plan shall provide a minimum value of at least 60 percent, as described in Section 36B(c)(2)(C) of the federal Internal Revenue Code and any regulations or guidance adopted under that section.
This section shall not apply to an insurer that is subject to the disclosure requirements described in Section 10198.61.
For purposes of this section, the following definitions apply:
“Large group” means a group that is not a “small employer,” as defined in Section 10753.
“Plan year” has the meaning set forth in Section 144.103 of Title 45 of the Code of Federal Regulations.
A health insurer shall provide an insured who has been displaced or whose health otherwise may be affected by a state of emergency, as declared by the Governor pursuant to Section 8625 of the Government Code, or a health emergency, as declared by the State Public Health Officer pursuant to Section 101080 of the Health and Safety Code, access to medically necessary health care services.
Within 48 hours of a declaration by the Governor of a state of emergency or a declaration by the State Public Health Officer of a health emergency that displaces, or has the immediate potential to displace, insureds or health care providers, or that otherwise affects, or may affect, health care providers or the health of insureds, a health insurer operating in the county or counties included in the declaration shall file with the department a notification describing whether the insurer has experienced or expects to experience any disruption to the operation of the insurer, explaining how the insurer is communicating with potentially impacted insureds, and summarizing the actions the insurer has taken or is in the process of taking to ensure that the health care needs of insureds are met. The department may require the insurer to take actions, including, but not limited to, the following:
Shorten time limits for health insurers to approve prior authorization, precertification, or referrals, and extend the time that prior authorizations, precertifications, and referrals remain valid.
Extend filing deadlines for claims.
Suspend prescription refill limitations and allow an impacted insured to refill their prescriptions at an out-of-network pharmacy.
Authorize an insured to replace medical equipment or supplies.
Allow an insured to access an appropriate out-of-network provider if an in-network provider is unavailable due to the state of emergency or if the insured is out of the area due to displacement.
Have a toll-free telephone number that an affected insured may call for answers to questions, including questions about the loss of health insurance identification cards, access to prescription refills, or how to access health care.
This section shall not be construed to limit the Governor’s authority under the California Emergency Services Act (Chapter 7 (commencing with Section 8550) of Division 1 of Title 2 of the Government Code), or the commissioner’s authority under any provision of this part.
The commissioner may issue guidance to insurers regarding compliance with this section during the first three years following the declaration of emergency, or until the emergency is terminated, whichever occurs first. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
Every policy of life, disability, or life and disability insurance issued or delivered within this State on or after the first day of January, 1936, by any insurer doing such business within this State shall contain and be deemed to constitute the entire contract between the parties and nothing shall be incorporated therein by reference to any constitution, by-laws, rules, application or other writings, of either of the parties thereto or of any other person, unless the same are indorsed upon or attached to the policy; and all statements purporting to be made by the insured shall, in the absence of fraud, be representations and not warranties. Any waiver of the provisions of this section shall be void.
The following provisions shall apply to this act:
“Advertisement” means any written, electronic, or printed communication or any communication by means of recorded telephone messages or transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, published, disseminated, circulated, or placed before the public, directly or indirectly, for the purpose of creating an interest in or inducing a person to purchase or sell, assign, devise, bequest, or transfer the death benefit or ownership of a life insurance policy or an interest in a life insurance policy pursuant to a life settlement contract.
“Broker” means a person who, on behalf of an owner, and for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and providers. A broker represents only the owner and owes a fiduciary duty to the owner to act according to the owner’s instructions, and in the best interest of the owner, notwithstanding the manner in which the broker is compensated. A broker does not include an attorney, certified public accountant, or financial planner retained in the type of practice customarily performed in his or her professional capacity to represent the owner whose compensation is not paid directly or indirectly by the provider or any other person, except the owner.
“Business of life settlements” means an activity involved in, but not limited to, offering to enter into, soliciting, negotiating, procuring, effectuating, monitoring, or tracking of life settlement contracts.
“Commissioner” means the Insurance Commissioner.
“Financing entity” means an underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a life settlement contract, as to which both of the following apply:
It is an entity whose principal activity related to the transaction is providing funds to effect the life settlement contract or purchase of one or more policies.
It is an entity that has an agreement in writing with one or more providers to finance the acquisition of life settlement contracts.
“Financing transaction” means a transaction in which a licensed provider obtains financing from a financing entity, including, without limitation, any secured or unsecured financing, any securitization transaction, or any securities offering which either is registered or exempt from registration under federal and state securities law.
“Fraudulent life settlement act” includes all of the following:
Acts or omissions committed by any person that, for the purpose of depriving another of property or for pecuniary gain, commits or permits its employees or its agents to engage in acts, including, but not limited to, the following:
Presenting, causing to be presented, or preparing with knowledge and belief that it will be presented to or by a provider, premium finance lender, broker, insurer, insurance producer, or any other person, false material information, or concealing material information, as part of, in support of, or concerning a fact material to one or more of the following:
An application for the issuance of a life settlement contract or insurance policy.
The underwriting of a life settlement contract or insurance policy.
A claim for payment or benefit pursuant to a life settlement contract or insurance policy.
Premiums paid on an insurance policy.
Payments and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or insurance policy.
The reinstatement or conversion of an insurance policy.
The solicitation, offer to enter into, or effectuation of, a life settlement contract or insurance policy.
The issuance of written evidence of life settlement contracts or insurance.
Any application for, or the existence of or any payments related to, a loan secured directly or indirectly by any interest in a life insurance policy.
Entering into stranger-originated life insurance (STOLI).
Employing any device, scheme, or artifice to defraud in the business of life settlements.
Any of the following that any person does, or permits his or her employees or agents to do, in the furtherance of a fraud, or to prevent the detection of a fraud:
Remove, conceal, alter, destroy, or sequester from the commissioner the assets or records of a licensee or other person engaged in the business of life settlements.
Misrepresent or conceal the financial condition of a licensee, financing entity, insurer, or other person.
Transact the business of life settlements in violation of laws requiring a license, certificate of authority, or other legal authority for the transaction of the business of life settlements.
File with the commissioner or the chief insurance regulatory official of another jurisdiction a document containing false information or otherwise concealing information about a material fact from the commissioner.
Engage in embezzlement, theft, misappropriation, or conversion of moneys, funds, premiums, credits, or other property of a provider, insurer, insured, owner, insurance policyowner, or any other person engaged in the business of life settlements or insurance.
Enter into, broker, or otherwise deal in a life settlement contract, the subject of which is a life insurance policy that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information requested concerning any fact material to the policy, where the owner or the owner’s agent intended to defraud the policy’s issuer.
Attempt to commit, assist, aid, or abet in the commission of, or conspiracy to commit the acts or omissions specified in this subdivision.
Misrepresent the state of residence of an owner to be a state or jurisdiction that does not have a law substantially similar to this act for the purpose of evading or avoiding the provisions of this act.
“Insured” means the person covered under the policy being considered for sale in a life settlement contract.
“Life expectancy” means the arithmetic mean of the number of months the insured under the life insurance policy to be settled can be expected to live considering medical records and appropriate experiential data.
“Life insurance producer” means any person licensed in this state as a resident or nonresident insurance agent who has received qualification or authority for life insurance coverage or a life line of coverage pursuant to Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
“Life settlement contract” means a written agreement solicited, negotiated, or entered into in this state between a provider and an owner, establishing the terms under which compensation or any thing of value will be paid, which compensation or thing of value is less than the expected death benefit of the insurance policy or certificate, in return for the owner’s assignment, transfer, sale, devise, or bequest of the death benefit or any portion of an insurance policy or certificate of insurance for compensation, provided, however, that the minimum value for a life settlement contract shall be greater than a cash surrender value or accelerated death benefit available at the time of an application for a life settlement contract. “Life settlement contract” also includes the transfer for compensation or value of ownership or beneficial interest in a trust or other entity that owns such policy if the trust or other entity was formed or availed of for the principal purpose of acquiring one or more life insurance contracts, which life insurance contract is owned by a person residing in this state.
A “life settlement contract” includes a premium finance loan made for a policy on or before the date of issuance of the policy where one or more of the following conditions apply:
The loan proceeds are not used solely to pay premiums for the policy and any costs or expenses incurred by the lender or the borrower in connection with the financing.
The owner receives on the date of the premium finance loan a guarantee of the future life settlement value of the policy.
The owner agrees on the date of the premium finance loan to sell the policy or any portion of the policy’s death benefit on any date following the issuance of the policy, not including an agreement to sell the policy in the event of a default, provided that the default is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this act.
“Life settlement contract” does not include any of the following:
A policy loan by a life insurance company pursuant to the terms of the life insurance policy or accelerated death provisions contained in the life insurance policy, whether issued with the original policy or as a rider.
A premium finance loan, as defined herein, or any loan made by a bank or other licensed financial institution, provided that neither default on the loan nor the transfer of the policy in connection with the default is pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this act.
A collateral assignment of a life insurance policy by an owner.
A loan made by a lender that does not violate Article 5.8 (commencing with Section 778) of Chapter 1 of Part 2, provided the loan is not described in paragraph (1), and is not otherwise within the definition of life settlement contract.
An agreement where all of the parties satisfy one of the following conditions:
They are closely related to the insured by blood or law.
They have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured.
They are trusts established primarily for the benefit of those parties.
Any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or by a trust established by the employer of life insurance on the life of the employee.
A bona fide business succession planning arrangement:
Between one or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders.
Between one or more partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners.
Between one or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members.
An agreement entered into by a service recipient, or a trust established by the service recipient, and a service provider, or a trust established by the service provider, who performs significant services for the service recipient’s trade or business.
Any other contract, transaction, or arrangement from the definition of “life settlement contract” that the commissioner determines is not of the type intended to be regulated by this act.
“Net death benefit” means the amount of the life insurance policy or certificate to be settled less any outstanding debts or liens.
“Owner” means the owner of a life insurance policy or a certificate holder under a group policy, with or without a terminal illness, who enters or seeks to enter into a life settlement contract. For the purposes of this article, an owner shall not be limited to an owner of a life insurance policy or a certificate holder under a group policy that insures the life of an individual with a terminal illness or condition except where specifically addressed. The term “owner” does not include any of the following:
A financing entity.
A special purpose entity.
A related provider trust.
“Patient identifying information” means an insured’s address, telephone number, facsimile number, electronic mail address, photograph or likeness, employer, employment status, social security number, or any other information that is likely to lead to the identification of the insured.
“Person” means any natural person or legal entity, including, but not limited to, a partnership, limited liability company, association, trust, or corporation.
“Policy” means an individual or group policy, group certificate, contract, or arrangement of life insurance owned by a resident of this state, regardless of whether delivered or issued for delivery in this state.
“Premium finance loan” is a loan made primarily for the purpose of making premium payments on a life insurance policy, which loan is secured by an interest in such life insurance policy.
“Provider” means a person, other than an owner, who enters into or effectuates a life settlement contract with an owner. A provider does not include any of the following:
Any bank, savings bank, savings and loan association, or credit union.
A licensed lending institution or creditor or secured party pursuant to a premium finance loan agreement which takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan.
The insurer of a life insurance policy or rider to the extent of providing accelerated death benefits or riders or cash surrender value.
A purchaser.
Any authorized or eligible insurer that provides stop loss coverage to a provider, purchaser, financing entity, special purpose entity, or related provider trust.
A financing entity.
A related provider trust.
A broker.
An accredited investor or qualified institutional buyer as defined respectively in Regulation D, Rule 501 or Rule 144A of the federal Securities Act of 1933, as amended, who purchases a life settlement policy from a provider.
“Purchaser” means a person who pays compensation or anything of value as consideration for a beneficial interest in a trust which is vested with, or for the assignment, transfer, or sale of, an ownership or other interest in a life insurance policy or a certificate issued pursuant to a group life insurance policy which has been the subject of a life settlement contract.
“Related provider trust” means a titling trust or other trust established by a licensed provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction. In order to qualify as a related provider trust, the trust must have a written agreement with the licensed provider under which the licensed provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the Department of Insurance as if those records and files were maintained directly by the licensed provider.
“Settled policy” means a life insurance policy or certificate that has been acquired by a provider pursuant to a life settlement contract.
“Special purpose entity” means a corporation, partnership, trust, limited liability company, or other legal entity whose securities pay a fixed rate of return commensurate with established asset-backed capital markets, or has been formed solely to provide either directly or indirectly access to institutional capital markets:
For a financing entity or provider.
In connection with a transaction in which the securities in the special purpose entity are acquired by the owner or by a “qualified institutional buyer” as defined in Rule 144 promulgated under the federal Securities Act of 1933, as amended.
“Stranger-originated life insurance” or “STOLI” is an act, practice, or arrangement to initiate the issuance of a life insurance policy in this state for the benefit of a third-party investor who, at the time of policy origination, has no insurable interest, under the laws of this state, in the life of the insured. STOLI practices include, but are not limited to, cases in which life insurance is purchased with resources or guarantees from or through a person or entity, that, at the time of policy inception, could not lawfully initiate the policy himself, herself, or itself, and where, at the time of inception, there is an arrangement or agreement, to directly or indirectly transfer the ownership of the policy or the policy benefits to a third party. Trusts that are created to give the appearance of insurable interest and that are used to initiate policies for investors violate insurable interest laws and the prohibition against wagering on life. STOLI arrangements do not include lawful life settlement contracts as permitted by the act that added this section or those practices set forth in paragraph (2) of subdivision (k), provided that they are not for the purpose of evading regulation under this act.
“Terminally ill” means having an illness or sickness that can reasonably be expected to result in death in 24 months or less.
“This act” shall refer to the act in the 2009–10 Regular Session that added Sections 10113.1 to 10113.35, inclusive, and as it may from time to time be amended.
Except as provided in subparagraph (B) or (D), a person may not enter into, broker, or solicit life settlements pursuant to Section 10113.1 unless that person has been licensed by the commissioner under this section. The person shall file an application for a license in the form prescribed by the commissioner, and the application shall be accompanied by a fee of one hundred seventy-one dollars ($171). The annual license renewal fee shall be one hundred seventy-one dollars ($171). The applicant shall provide any information the commissioner may require. The commissioner may issue a license, or deny the application if, in the commissioner’s discretion, it is determined that it is contrary to the interests of the public to issue a license to the applicant. The reasons for a denial shall be set forth in writing.
An individual acting as a broker under this section shall complete at least 15 hours of continuing education related to life settlements and life settlement transactions, as required and approved by the commissioner, prior to operating as a broker. This requirement shall not apply to a life insurance producer who qualifies under subparagraph (D).
A person licensed as an attorney, certified public accountant, or financial planner accredited by a nationally recognized accreditation agency, who is retained to represent the owner, and whose compensation is not paid directly or indirectly by the provider or purchaser, may negotiate a life settlement contract on behalf of the owner without having to obtain a license as a broker.
A person licensed to act as a viatical settlement broker or provider as of December 31, 2009, shall be deemed qualified for licensure as a life settlement broker or provider, and shall be subject to all the provisions of this article as if the person were originally licensed as a life settlement broker or provider.
A life insurance producer who has been duly licensed as a life agent for at least one year or as a licensed nonresident producer in this state for one year shall be deemed to meet the licensing requirements of this section and shall be permitted to operate as a broker.
Not later than 10 days from the first day of operating as a broker, the life insurance producer shall notify the commissioner that the life insurance producer is acting as a broker, on a form prescribed by the commissioner, and shall pay a fee of eighty-five dollars ($85).
The fee shall be paid by the life insurance producer for each license term the producer intends to operate as a broker. The fee shall be calculated pursuant to Section 1750. The notification to the commissioner shall include an acknowledgment by the life insurance producer that the life insurance producer will operate as a broker in accordance with this act.
The insurer that issued the policy that is the subject of a life settlement contract shall not be responsible for any act or omission of a broker or provider arising out of, or in connection with, the life settlement transaction, unless the insurer receives compensation for the replacement of the life settlement contract for the provider or broker.
Except as provided in subparagraphs (A) and (B), whenever it appears to the commissioner that it is contrary to the interests of the public for a person licensed pursuant to this section to continue to transact life settlements business, the commissioner or their designee shall issue a notice to the licensee stating the reasons therefor. If, after a hearing, the commissioner concludes that it is contrary to the interests of the public for the licensee to continue to transact life settlements business, the commissioner may revoke the person’s license, or issue an order suspending the license for a period as determined by the commissioner. Any hearing conducted pursuant to this paragraph shall be in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearing may be conducted by administrative law judges chosen pursuant to Section 11502 or appointed by the commissioner, and the commissioner shall have the powers granted therein.
The commissioner may, without hearing, suspend or revoke the license of a broker, as defined in subdivision (b) of Section 10113.1, if the broker has done one or more of the following:
Been convicted of a felony.
Been convicted of a misdemeanor specified by this code or by other laws regulating insurance.
Had a previously issued professional, occupational, or vocational license suspended or revoked for cause by a licensing authority within the preceding five years of the commissioner’s action on grounds that would preclude the granting of a license by the commissioner under this section.
A judgment, plea, or verdict of guilty, or a plea of nolo contendere is deemed to be a conviction within the meaning of subparagraph (A). If the commissioner issues an order based on a plea that does not at any time result in a judgment of conviction, the commissioner shall vacate the order upon petition by the broker.
Each licensee shall owe and pay in advance to the commissioner an annual renewal fee in an amount to be determined by the commissioner pursuant to paragraph (1) of subdivision (b). This fee shall be for each license year, as defined by Section 1629.
Any licensee that intends to discontinue transacting life settlements in this state shall so notify the commissioner, and shall surrender its license.
A life settlements licensee shall file with the department a copy of all life settlement forms used in this state. A licensee may not use any life settlement form in this state unless it has been provided in advance to the commissioner. The commissioner may disapprove a life settlement form if, in the commissioner’s discretion, the form, or provisions contained therein, are contrary to the interests of the public, or otherwise misleading or unfair to the consumer. In the case of disapproval, the licensee may, within 15 days of notice of the disapproval, request a hearing before the commissioner or the commissioner’s designee, and the hearing shall be held within 30 days of the request.
Life settlements licensees shall be required to provide any applicant for a life settlement contract, at the time of application for the life settlement contract, all of the following disclosures in writing and signed by the owner, in at least 12-point type:
That entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate of a group policy to be forfeited by the owner and that assistance should be sought from a professional financial adviser.
That a change in ownership of the settled policy could limit the insured’s ability to purchase insurance in the future on the insured’s life because there is a limit to how much coverage insurers will issue on one life.
That the owner has a right to rescind a life settlement contract within 30 days of the date it is executed by all parties and the owner has received all required disclosures, or 15 days from receipt by the owner of the proceeds of the settlement, whichever is sooner. Rescission, if exercised by the owner, is effective only if both notice of rescission is given and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider.
That proceeds will be sent to the owner within three business days after the provider has received the insurer or group administrator’s acknowledgment that ownership of the policy or the interest in the certificate has been transferred and the beneficiary has been designated in accordance with the terms of the life settlement contract.
The date by which the funds will be available to the owner and the transmitter of the funds.
The disclosure document shall include the following language:
“All medical, financial, or personal information solicited or obtained by a provider or broker about an insured, including the insured’s identity or the identity of family members, a spouse, or a significant other may be disclosed as necessary to effect the life settlement contract between the owner and provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years.”
That the insured may be contacted by either the provider or the broker or its authorized representative for the purpose of determining the insured’s health status or to verify the insured’s address. This contact is limited to once every three months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.
Any affiliations or contractual relations between the provider and the broker, and the affiliation, if any, between the provider and the issuer of the policy to be settled.
That a broker represents exclusively the owner, and not the insurer or the provider or any other person, and owes a fiduciary duty to the owner, including a duty to act according to the owner’s instructions and in the best interest of the owner.
The name, business address, and telephone number of the broker.
Prior to the execution of the life settlement contract by all parties, the life settlement provider entering into a life settlement contract with the owner shall provide, in a document signed by the owner, the gross purchase price the life settlement provider is paying for the policy, the amount of the purchase price to be paid to the owner, the amount of the purchase price to be paid to the owner’s life settlement broker, and the name, business address, and telephone number of the life settlement broker. For purposes of this section, “gross purchase price” means the total amount or value paid by the provider for the purchase of one or more life insurance policies, including commissions and fees.
The broker shall provide the owner and the insured with at least all of the following disclosures in writing prior to the signing of the life settlement contract by all parties. The disclosures shall be clearly displayed in the life settlement contract or in a separate document signed by the owner:
The name, business address, and telephone number of the broker.
A full, complete, and accurate description of all of the offers, counteroffers, acceptances, and rejections relating to the proposed life settlement contract.
A disclosure of any affiliations or contractual arrangements between the broker and any person making an offer in connection with the proposed life settlement contract.
All estimates of the life expectancy of the insured that are obtained by the licensee in connection with the life settlement, unless that disclosure would violate any California or federal privacy laws.
The commissioner may consider any failure to provide the disclosures or rights described in this section as a basis for suspending or revoking a broker’s or provider’s license pursuant to paragraph (2) of subdivision (b).
All medical information solicited or obtained by any person soliciting or entering into a life settlement is subject to Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1, concerning confidentiality of medical information.
Except as otherwise allowed or required by law, a provider, broker, insurance company, insurance producer, information bureau, rating agency, or company, or any other person with actual knowledge of an insured’s identity, shall not disclose the identity of an insured or information that there is a reasonable basis to believe that could be used to identify the insured or the insured’s financial or medical information to any other person unless the disclosure is one of the following:
It is necessary to effect a life settlement contract between the owner and a provider and the owner and insured have provided prior written consent to the disclosure.
It is necessary to effectuate the sale of life settlement contracts, or interests therein, as investments, provided the sale is conducted in accordance with applicable state and federal securities law and provided further that the owner and the insured have both provided prior written consent to the disclosure.
It is provided in response to an investigation or examination by the commissioner or any other governmental officer or agency or any other provision of law.
It is a term or condition to the transfer of a policy by one provider to another provider, in which case the receiving provider shall be required to comply with the confidentiality requirements of Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1.
It is necessary to allow the provider or broker or their authorized representatives to make contacts for the purpose of determining health status. For the purposes of this section, the term “authorized representative” shall not include any person who has or may have any financial interest in the settlement contract other than a provider, licensed broker; further, a provider or broker shall require its authorized representative to agree in writing to adhere to the privacy provisions of this act.
It is required to purchase stop loss coverage.
In addition to other questions an insurance carrier may lawfully pose to a life insurance applicant, insurance carriers may inquire in the application for insurance whether the proposed owner intends to pay premiums with the assistance of financing from a lender that will use the policy as collateral to support the financing.
A change of ownership could lead to a stranger owning an interest in the insured’s life.
A change of ownership could in the future limit your ability to purchase insurance on the insured’s life because there is a limit to how much coverage insurers will issue on a life.
You should consult a professional adviser since a change in ownership in satisfaction of the loan may result in tax consequences to the owner, depending on the structure of the loan.”
My loan arrangement for this policy provides funds sufficient to pay for some or all of the premiums, costs, and expenses associated with obtaining and maintaining my life insurance policy, but I have not entered into any agreement by which I am to receive consideration in exchange for procuring this policy.
The borrower has an insurable interest in the insured.”
Life insurers shall provide individual life insurance policyholders with a statement informing them that if they are considering making changes in the status of their policy, they should consult with a licensed insurance or financial adviser. The statement may accompany or be included in notices or mailings otherwise provided to the policyholders.
The commissioner may, whenever the commissioner deems it reasonably necessary to protect the interests of the public, examine the business and affairs of any licensee or applicant for a license. The commissioner shall have the authority to order any licensee or applicant to produce any records, books, files, or other information as is reasonably necessary to ascertain whether or not the licensee or applicant is acting or has acted in violation of the law or otherwise contrary to the interests of the public. The expenses incurred in conducting any examination shall be paid by the licensee or applicant.
The commissioner may investigate the conduct of any licensee, its officers, employees, agents, or any other person involved in the business of the licensee, or any applicant for a license, whenever the commissioner has reason to believe that the licensee or applicant for a license may have acted, or may be acting, in violation of the law, or otherwise contrary to the interests of the public. The commissioner may initiate an investigation on the commissioner’s own initiative, or upon a complaint filed by any other person.
The commissioner may issue orders to licensees whenever the commissioner determines that it is reasonably necessary to ensure or obtain compliance with this section, or Section 10113.3. This authority includes, but is not limited to, orders directing a licensee to cease and desist in any practice that is in violation of this section, or Section 10113.3, or otherwise contrary to the interests of the public. Any licensee to which an order pursuant to this subdivision is issued may, within 15 days of receipt of that order, request a hearing at which the licensee may challenge the order.
The commissioner may, after notice and a hearing at which it is determined that a licensee has violated this section or Section 10113.3 or any order issued pursuant to this section, order the licensee to pay a monetary penalty of up to ten thousand dollars ($10,000), which may be recovered in a civil action. Any hearing conducted pursuant to this subdivision shall be in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearing may be conducted by administrative law judges chosen pursuant to Section 11502 or appointed by the commissioner, and the commissioner shall have the powers granted therein.
Each licensed provider shall file with the commissioner on or before March 1 of each year an annual statement in the form prescribed by the commissioner. The information that the commissioner may require in the annual statement shall include, but not be limited to, the total number, aggregate face amount, and life settlement proceeds of policies settled during the immediately preceding calendar year, together with a breakdown of the information by policy issue year. The annual statement shall also include the names of the insurance companies whose policies have been settled and the brokers that have settled those policies, and that information shall be received in confidence within the meaning of Section 7929.000 of the Government Code and exempt from disclosure pursuant to the Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). The annual statement shall not include individual transaction data regarding the business of life settlements or information that there is a reasonable basis to believe could be used to identify the owner or the insured.
A person who is not a resident of California may not receive or maintain a license unless a written designation of an agent for service of process is filed and maintained with the commissioner. The provisions of Article 3 (commencing with Section 1600) of Chapter 4 of Part 2 of Division 1 shall apply to life settlements licensees as if they were foreign insurers, their license a certificate of authority, and the life settlements a policy, and the commissioner may modify the agreement set forth in Section 1604 accordingly.
A person licensed pursuant to this section shall not engage in any false or misleading advertising, solicitation, or practice. In no case shall a broker or provider, directly or indirectly, market, advertise, solicit, or otherwise promote the purchase of a new policy for the sole purpose of or with a primary emphasis on settling the policy or use the words “free,” “no cost,” or words of similar import in the marketing, advertising, soliciting, or otherwise promoting of the purchase of a policy. The provisions of Article 6 (commencing with Section 780) and Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1 shall apply to life settlements licensees as if they were insurers, their license a certificate of authority or producer’s license, and the life settlements a policy, and the commissioner shall liberally construe these provisions so as to protect the interests of the public.
Any person who enters into a life settlement with a life settlements licensee shall have the absolute right to rescind the settlement within 30 days of the date it is executed by all parties and the owner has received all required disclosures, or 15 days from receipt by the owner of the proceeds of the settlement, whichever is sooner, and any waiver or settlement language contrary to this subdivision shall be void. Rescission, if exercised by the owner, is effective only if both notice of rescission is given and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider.
Records of all consummated transactions and life settlement contracts shall be maintained by the provider for three years after the death of the insured and shall be available to the commissioner for inspection during reasonable business hours.
A violation of this section is a misdemeanor.
A provider entering into a life settlement contract with any owner of a policy, wherein the insured is terminally ill, shall first obtain the following:
If the owner is the insured, a written statement from a licensed attending physician that the owner is of sound mind and under no constraint or undue influence to enter into a settlement contract.
A document in which the insured consents to the release of his or her medical records to a provider, settlement broker, or insurance producer and, if the policy was issued less than two years from the date of application for a settlement contract, to the insurance company that issued the policy.
The insurer shall respond to a request for verification of coverage submitted by a provider, settlement broker, or life insurance producer not later than 30 calendar days of the date the request is received. The request for verification of coverage must be made on a form approved by the commissioner. The insurer shall complete and issue the verification of coverage or indicate in which respects it is unable to respond. In its response, the insurer shall indicate whether, based on the medical evidence and documents provided, the insurer intends to pursue an investigation at this time regarding the validity of the insurance contract.
Before or at the time of execution of the settlement contract, the provider shall obtain a witnessed document in which the owner consents to the settlement contract, represents that the owner has a full and complete understanding of the settlement contract and a full and complete understanding of the benefits of the policy, acknowledges that the owner is entering into the settlement contract freely and voluntarily, and, for persons with a terminal illness or condition, acknowledges that the insured has a terminal illness and that the terminal illness or condition was diagnosed after the policy was issued.
The insurer shall not unreasonably delay effecting change of ownership or beneficiary with any life settlement contract lawfully entered into in this state or with a resident of this state.
If a settlement broker or life insurance producer performs any of these activities required of the provider, the provider is deemed to have fulfilled the requirements of this section.
If a broker performs those verification of coverage activities required of the provider, the provider is deemed to have fulfilled the requirements of this section.
Within 20 days after an owner executes the life settlement contract, the provider shall give written notice to the insurer that issued that insurance policy that the policy has become subject to a life settlement contract. The notice shall be accompanied by the documents required by subdivision (d) of Section 10113.2.
All medical information solicited or obtained by any licensee shall be subject to the applicable provision of state law relating to confidentiality of medical information, if not otherwise provided in this act.
All life settlement contracts entered into in this state shall provide that the owner may rescind the contract on or before 30 days after the date it is executed by all parties thereto, and the owner has received all required disclosures, or 15 days from receipt by the owner of the full payment of the proceeds as specified below, whichever is sooner. Rescission, if exercised by the owner, is effective only if both notice of the rescission is given, and the owner repays all proceeds and any premiums, loans, and loan interest paid on account of the provider within the rescission period. If the insured dies during the rescission period, the contract shall be deemed to have been rescinded subject to repayment by the owner or the owner’s estate of all proceeds and any premiums, loans, and loan interest to the provider.
Within three business days after receipt from the owner of documents to effect the transfer of the insurance policy, the provider shall pay the proceeds of the settlement to an escrow or trust account managed by a trustee or escrow agent in a state or federally chartered financial institution pending acknowledgment of the transfer by the issuer of the policy. The trustee or escrow agent shall be required to transfer the proceeds due to the owner within three business days of acknowledgment of the transfer from the insurer.
Failure to tender the life settlement contract proceeds to the owner by the date disclosed to the owner renders the contract voidable by the owner for lack of consideration until the time the proceeds are tendered to and accepted by the owner. A failure to give written notice of the right of rescission hereunder shall toll the right of rescission until 30 days after the written notice of the right of rescission has been given.
Any fee paid by a provider, party, individual, or an owner to a broker in exchange for services provided to the owner pertaining to a life settlement contract shall be computed as a percentage of the offer obtained, not the face value of the policy. Nothing in this section shall be construed as prohibiting a broker from reducing the broker’s fee below this percentage if the broker so chooses.
No person at any time prior to, or at the time of, the application for, or issuance of, a policy, or during a two-year period commencing with the date of issuance of the policy, shall enter into a life settlement regardless of the date the compensation is to be provided and regardless of the date the assignment, transfer, sale, devise, bequest, or surrender of the policy is to occur.
This prohibition shall not apply if the owner certifies to the provider that the policy was issued upon the owner’s exercise of conversion rights arising out of a group or individual policy, provided the total of the time covered under the conversion policy plus the time covered under the prior policy is at least 24 months. The time covered under a group policy must be calculated without regard to a change in insurance carriers, provided the coverage has been continuous and under the same group sponsorship.
This prohibition shall not apply if the owner submits independent evidence to the provider that one or more of the following conditions have been met within the two-year period:
The owner or insured is terminally ill.
The owner or insured disposes of his or her ownership interests in a closely held corporation, pursuant to the terms of a buyout or other similar agreement in effect at the time the insurance policy was initially issued.
The owner’s spouse dies.
The owner divorces his or her spouse.
The owner retires from full-time employment.
The owner becomes physically or mentally disabled and a physician determines that the disability prevents the owner from maintaining full-time employment.
A final order, judgment, or decree is entered by a court of competent jurisdiction, on the application of a creditor of the owner, adjudicating the owner bankrupt or insolvent, or approving a petition seeking reorganization of the owner or appointing a receiver, trustee, or liquidator to all or a substantial part of the owner’s assets.
Copies of the independent evidence required by paragraph (2) shall be submitted to the insurer when the provider submits a request to the insurer for verification of coverage. The copies shall be accompanied by a letter of attestation from the provider that the copies are true and correct copies of the documents received by the provider. Nothing in this section shall prohibit an insurer from exercising its right to contest the validity of any policy.
If the provider submits to the insurer a copy of independent evidence provided for in subparagraph (A) of paragraph (2) when the provider submits a request to the insurer to effect the transfer of the policy to the provider, the copy shall be deemed to establish that the settlement contract satisfies the requirements of this section.
This prohibition shall apply only to policies issued on or after the effective date of this section.
An insurer shall not:
Engage in any transaction, act, or practice that restricts, limits, or impairs the lawful transfer of ownership, change of beneficiary, or assignment of a policy.
Make any false or misleading statement for the purpose of dissuading an owner or insured from a lawful life settlement contract.
No person providing premium financing shall receive any proceeds, fees, or other consideration from the policy or owner of the policy that are in addition to the amounts required to pay principal, interest, and any reasonable costs or expenses incurred by the lender or borrower in connection with the premium finance agreement, except for the event of a default, unless either the default on the loan or transfer of the policy occurs pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this act.
If there is more than one owner on a single policy, and the owners are residents of different states, the life settlement contract shall be governed by the law of the state in which the owner having the largest percentage ownership resides or, if the owners hold equal ownership, the state of residence of one owner agreed upon in writing by all of the owners. The law of the state of the insured shall govern in the event that equal owners fail to agree in writing upon a state of residence for jurisdictional purposes.
A provider from this state who enters into a life settlement contract with an owner who is a resident of another state that has enacted statutes or adopted regulations governing life settlement contracts shall be governed in the effectuation of that life settlement contract by the statutes and regulations of the owner’s state of residence. If the state in which the owner is a resident has not enacted statutes or regulations governing life settlement contracts, the provider shall give the owner notice that neither state regulates the transaction upon which he or she is entering. For transactions in those states, however, the provider is to maintain all records required if the transactions were executed in the state of residence. The forms used in those states need not be approved by the department.
If there is a conflict in the laws that apply to an owner and a purchaser in any individual transaction, the laws of the state that apply to the owner shall take precedence and the provider shall comply with those laws.
It is a fraudulent life settlement act and a violation of this section for any person to do any of the following, or any of the acts listed in subdivision (g) of Section 10113.1:
Enter into a life settlement contract if a person knows or reasonably should have known that the life insurance policy was obtained by means of a false, deceptive, or misleading application for the policy.
Engage in any transaction, practice, or course of business if a person knows or reasonably should have known that the intent was to avoid the notice requirements of this section.
Engage in any fraudulent act or practice in connection with any transaction relating to any settlement involving an owner who is a resident of this state.
Fail to provide the disclosures or file the required reports with the commissioner as required by this act.
Issue, solicit, or market, the purchase of a new life insurance policy for the purpose of, or with a primary emphasis on, settling the policy.
Enter into a premium finance agreement with any person or agency, or any person affiliated with a person or agency that is prohibited under subdivision (o).
With respect to any settlement contract or insurance policy and a broker, knowingly solicit an offer from, effectuate a life settlement contract with, or make a sale to any provider, financing entity, or related provider trust that is controlling, controlled by, or under common control with a broker, unless the relationship has been fully disclosed to the owner.
With respect to any life settlement contract or insurance policy and a provider, knowingly enter into a life settlement contract with an owner, if, in connection with a life settlement contract, anything of value will be paid to a broker that is controlling, controlled by, or under common control with a provider or the financing entity, or related provider trust that is involved in a settlement contract, unless the relationship has been fully disclosed to the owner.
With respect to a provider, enter into a life settlement contract unless the life settlement promotional, advertising, and marketing materials, as may be prescribed by regulation, have been filed with the commissioner. In no event shall any marketing materials expressly reference that the insurance is “free” for any period of time. The inclusion of any reference in the marketing materials that would cause an owner to reasonably believe that the insurance is free for any period of time shall be considered a violation of this act; or with respect to any life insurance producer, insurance company, broker, or provider make any statement or representation to the applicant or policyholder in connection with the sale or financing of a life insurance policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy.
Life settlement contracts and applications for life settlement contracts, regardless of the form of transmission, shall contain the following statement or a substantially similar statement:
“Any person who knowingly presents false information in an application for insurance or for a life settlement contract may be subject to criminal or civil liability.”
The lack of a statement as required by this subdivision does not constitute a defense in any prosecution for a fraudulent life settlement act.
This act shall not:
Preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine, and prosecute suspected violations of law.
Preempt, supersede, or limit any provision of any state securities law or any rule, order, or notice issued thereunder.
Prevent or prohibit a person from disclosing voluntarily information concerning life settlement fraud to a law enforcement or regulatory agency other than the insurance department.
Limit the powers granted elsewhere by the laws of this state to the commissioner or an insurance fraud unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.
A provider lawfully transacting business in this state prior to the effective date of this act may continue to do so, pending approval or disapproval of that person’s application for a license as long as the application is filed with the commissioner not later than 30 days after publication by the commissioner of an application form and instructions for licensure of providers. If the publication of the application form and instructions is prior to the effective date of this chapter, then the filing of the application shall not be later than 30 days after the effective date of this act. During the time that an application is pending with the commissioner, the applicant may use any form of life settlement contract that has been filed with the commissioner pending approval thereof, provided that the form is otherwise in compliance with the provisions of this act. Any person transacting business in this state under this provision shall be obligated to comply with all other requirements of this act. A person who has lawfully acted as a broker and negotiated life settlement contracts between any owner residing in this state and one or more providers for at least one year immediately prior to the effective date of this act may continue to do so pending approval or disapproval of that person’s application for a license, as long as the application is filed with the commissioner not later than 30 days after publication by the commissioner of an application form and instructions for licensure of brokers. If the publication of the application form and instructions is prior to the effective date of this chapter, then the filing of the application shall not be later than 30 days after the effective date of this act. Any person transacting business in this state under this provision shall be obligated to comply with all other requirements of this act.
The commissioner may adopt rules and regulations reasonably necessary to implement the provisions of this act.
This section shall be prospective only, and nothing in the act adding this section shall be interpreted to interfere with or overrule regulations adopted prior to the effective date of this act by the Insurance Commissioner pursuant to the authority granted at the time those regulations were adopted.
If a group life insurance policy contains a provision that makes a certificate holder’s coverage contestable on the grounds of suicide for a period following commencement of coverage, only the unexpired portion of that period shall be applied to a certificate holder’s individual conversion policy of an equal or lesser amount of coverage.
An individual life insurance policy delivered or issued for delivery in this state shall contain a provision that it is incontestable after it has been in force, during the lifetime of the insured, for a period of not more than two years after its date of issue, except for nonpayment of premiums and except for any of the supplemental benefits described in Section 10271, to the extent that the contestability of those benefits is otherwise set forth in the policy or contract supplemental thereto. An individual life insurance policy, upon reinstatement, may be contested on account of fraud or misrepresentation of facts material to the reinstatement only for the same period following reinstatement, and with the same conditions and exceptions, as the policy provides with respect to contestability after original issuance.
Notwithstanding subdivision (a), if photographic identification is presented during the application process, and if an impostor is substituted for a named insured in any part of the application process, with or without the knowledge of the named insured, then no contract between the insurer and the named insured is formed, and any purported insurance contract is void from its inception.
As used in this subdivision:
“Application process” means any or all of the steps required of a named insured in applying for a certificate under an individual policy of life insurance, including, but not limited to, executing any part of the application form, submitting to medical or physical examination or testing, or providing a sample or specimen of blood, urine, or other bodily substance.
“Impostor” means a person other than the named insured who participates in any manner in the application process for a certificate under an individual life insurance policy and represents himself or herself to be the named insured or represents that a sample or specimen of blood, urine, or other bodily substance is that of the named insured.
“Named insured” means the individual named in an application form for a certificate under an individual life insurance policy as the person whose life is to be insured.
This section shall not be construed to preclude at any time the assertion of defenses based upon policy provisions that exclude or restrict coverage.
This section shall not apply to individual life insurance policies delivered or issued for delivery in this state on or before December 31, 1973.
An insurer that is required to deliver a life insurance policy to the owner of the policy in order to start the period running during which the owner may exercise any statutory right to return a policy for cancellation, shall accomplish the delivery by:
Registered or certified mail.
Personal delivery, with a signed, written receipt of delivery.
First-class mail, with a signed, written receipt of delivery.
Other reasonable means, as determined by the commissioner.
If an insurer does not deliver a policy by the means set forth in subdivision (a), the burden of proof shall be on the insurer to establish that the policy was delivered, in the event of a dispute with the owner of the policy.
Notwithstanding subdivisions (a) and (b), a policy shall be deemed to have been received six months after the date of issuance if premiums have been paid.
An employer or corporate policy owner, or the plan trustee of an employer or corporate policy owner who controls 100 or more policies, shall have the option to request in writing from an insurer the delivery of a sample policy with one or more census pages in a form satisfactory to the employer, corporate policy owner, or plan trustee, as an alternative to the delivery requirements of subdivision (a). However, delivery of the sample policy and census page as provided in this subdivision shall be subject to the provisions of subdivisions (a) and (b). The insurer shall deliver all of the policies listed on the census page to the employer, corporate policy owner, or plan trustee within 30 days of demand for delivery. The delivery of the actual policies shall not institute a new “free look” period.
An increase of premium on an individual life insurance policy that provides for premium changes by the insurer is not effective unless written notice is delivered to the policyholder, or mailed to his or her last known address as shown by the records of the insurer, not less than 20 days prior to the effective date of the increase. If the notice is sent with or contained as part of an ordinary premium or renewal invoice or payment request, the notice of increase shall be prominently displayed and stated separately from the ordinary statement of the amount due.
This section shall not apply to premium increases resulting directly from changes in coverage requested by the policyholder, or when the insurer has previously disclosed, in writing, either at the time the policy was issued or during the life of the contract, a specific date of change of premium, and the new premium amount.
Nothing in this section shall be construed to limit application of any other provision of law, nor shall it be construed to prevent application of any contractual provision affording greater rights to the policyholder.
Whenever a flexible premium life insurance policy is subject to an adverse change in the current scale of nonguaranteed elements, as soon as practicable, but no later than 90 days before the effective date of the adverse change in the current scale of nonguaranteed elements, the insurer shall provide a summary notice and, if the policy is designated as one for which illustrations shall be used, an inforce illustration of current and future benefits and values. The illustration or illustrations shall be based on the insurer’s illustrated scale after the effective date of the adverse change in the current scale of nonguaranteed elements.
The summary notice shall be in no less than 12-point type, and the illustration and summary notice shall contain the following language in boldface type: “IMPORTANT: NOTICE OF CHANGE IN NONGUARANTEED ELEMENTS OF YOUR POLICY.”
The summary notice shall include the information required by paragraphs (1) to (5), inclusive, and the language set forth in paragraphs (6) to (8), inclusive:
The name of each nonguaranteed element in the current scale of nonguaranteed elements that is subject to an adverse change.
The definition of each nonguaranteed element in the current scale of nonguaranteed elements that is subject to an adverse change.
A statement identifying the current rate or charge for each nonguaranteed element and the new rate or charge for each nonguaranteed element, with reference to the current scale of nonguaranteed elements, including the percentage change in the nonguaranteed element that the adverse change represents.
An explanation that the adverse change in the current scale of nonguaranteed elements is based on expectations of the future cost of providing the benefits under the policy, and that the adverse change to the current scale of nonguaranteed elements will reduce the accumulation value and may increase the risk of policy lapse based on continued payment of current premiums.
The date the adverse change to the current scale of nonguaranteed elements will take effect.
“Policy information:
Last policy anniversary date: ____
Next policy anniversary date: ____
Current accumulation value: ____
Current cash surrender value (accumulation value minus any surrender charges and policy loans): ____”
“Your options:
Take no action: This option will reduce the accumulation of your policy. Additional premiums will be required at some point in order to maintain your coverage if not otherwise adequately funded to maintain coverage.
Pay additional premiums: You may choose to pay additional premiums starting now to maintain your policy’s accumulation value and death benefit coverage for the level and period anticipated before the increase.
Reduce the face value of your policy: If your policy is not already at the minimum value specified on your policy, you may choose to reduce the specified amount on your policy to a level that will be supported by the amount and years of the premium payments you would like to pay. Please note that reducing the specified amount may result in a surrender charge.
Surrender your policy: You may choose to surrender your policy for the current cash surrender value. Before you decide to surrender your policy, you should consult your tax, insurance, or financial advisor.
Convert your policy (applicable only if your policy includes a conversion or exchange privilege in the contract): If you wish to maintain life insurance coverage but are unable to pay increased premiums to keep your policy in force, you may choose to convert your flexible premium life insurance policy to a different type of life insurance policy we offer, subject to the terms of conversions listed in your policy, which may better suit your financial needs.”
“We understand that you may have further questions about this change or the options available to you. You may call your agent or our customer service team at [insert customer service toll-free telephone number and hours of operation].”
As used in this section:
This section does not prohibit an insurer from including additional information in the notice that is specific to the policy for which the notice is sent, so long as it meets the requirements of this section.
This section does not apply to a corporate-owned life insurance policy permitted by Section 10110.4 under which all benefits are payable to the corporate policy owner.
This section shall apply to a flexible premium life insurance policy in effect on or after April 1, 2019.
Notwithstanding paragraph (1), the notice requirement of this section shall apply to an adverse change in the current scale of nonguaranteed elements that is scheduled to take effect on or after July 1, 2019.
Notwithstanding paragraph (1), the illustration requirement of this section shall apply to an adverse change in the current scale of nonguaranteed elements that is scheduled to take effect on or after July 1, 2020.
Each life insurance policy issued or delivered in this state shall contain a provision for a grace period of not less than 60 days from the premium due date. The 60-day grace period shall not run concurrently with the period of paid coverage. The provision shall provide that the policy shall remain in force during the grace period.
A notice of pending lapse and termination of a life insurance policy shall not be effective unless mailed by the insurer to the named policy owner, a designee named pursuant to Section 10113.72 for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of termination if termination is for nonpayment of premium.
This subdivision shall not apply to nonrenewal.
Notice shall be given to the policy owner and to the designee by first-class United States mail within 30 days after a premium is due and unpaid. However, notices made to assignees pursuant to this section may be done electronically with the consent of the assignee.
For purposes of this section, a life insurance policy includes, but is not limited to, an individual life insurance policy and a group life insurance policy, except where otherwise provided.
An individual life insurance policy shall not be issued or delivered in this state until the applicant has been given the right to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. The insurer shall provide each applicant with a form to make the designation. That form shall provide the opportunity for the applicant to submit the name, address, and telephone number of at least one person, in addition to the applicant, who is to receive notice of lapse or termination of the policy for nonpayment of premium.
The insurer shall notify the policy owner annually of the right to change the written designation or designate one or more persons. The policy owner may change the designation more often if he or she chooses to do so.
No individual life insurance policy shall lapse or be terminated for nonpayment of premium unless the insurer, at least 30 days prior to the effective date of the lapse or termination, gives notice to the policy owner and to the person or persons designated pursuant to subdivision (a), at the address provided by the policy owner for purposes of receiving notice of lapse or termination. Notice shall be given by first-class United States mail within 30 days after a premium is due and unpaid.
Each health insurer that maintains an Internet Web site shall make a downloadable copy of the comparative benefit matrix prepared pursuant to Section 10127.14 available through a link on its site to the Internet Web sites of the department and the Department of Managed Health Care.
Each health insurer shall send copies of the comparative benefit matrix on an annual basis, or more frequently as the matrix is updated by the department and the Department of Managed Health Care, to solicitors and solicitor firms and employers with whom it contracts. Each health insurer shall require its representatives and the solicitors and soliciting firms with which it contracts, to provide a copy of the comparative benefit matrix to individuals when presenting any benefit package for examination or sale.
This section shall not apply to accident-only, specified disease, hospital indemnity, CHAMPUS supplement, long-term care, Medicare supplement, dental-only, or vision-only insurance policies.
This section shall not apply to vision-only, dental-only, or CHAMPUS supplement insurance, or to hospital indemnity, hospital-only, accident-only, or specified disease insurance that does not pay benefits on a fixed benefit, cash payment only basis.
A change in the premium rate or coverage for an individual health insurance policy shall not become effective unless the insurer has provided a written notice of the change at least 10 days before the start of the annual enrollment period applicable to the policy or 60 days before the effective date of the policy renewal, whichever occurs earlier in the calendar year.
The written notice required pursuant to paragraph (1) shall be provided to the individual policyholder at their last address known to the insurer. The notice shall state in italics and in 12-point type the actual dollar amount of the premium increase and the specific percentage by which the current premium will be increased. The notice shall describe in plain, understandable English any changes in the policy or any changes in benefits, including a reduction in benefits or changes to waivers, exclusions, or conditions, and highlight this information by printing it in italics. The notice shall specify in a minimum of 10-point bold typeface, the reason for a premium rate change or a change in coverage or benefits.
The Department of Insurance has determined that the rate for this product is unreasonable or not justified after reviewing information submitted to it by the insurer.
During the open enrollment period, the policyholder has the option to obtain other coverage from this insurer or another insurer, or to keep this coverage.
The policyholder may want to contact Covered California at www.coveredca.com for help in understanding available options.
Many Californians are eligible for financial assistance from Covered California to help pay for coverage.
The insurer may include in the notification to the policyholder the internet website address at which the insurer’s final justification for implementing an increase that has been determined to be unreasonable by the commissioner may be found pursuant to Section 154.230 of Title 45 of the Code of Federal Regulations.
The notice shall also be provided to the agent of record for the policyholder, if any, so that the agent may assist the purchaser in finding other coverage.
In developing the notification, the department shall take into consideration that this notice is required to be provided to an individual applicant pursuant to subdivision (g) of Section 10181.3.
A notice provided pursuant to this section is a private and confidential communication and, at the time of application, the insurer shall give the applicant the opportunity to designate the address for receipt of the written notice in order to protect the confidentiality of personal or privileged information.
For purposes of this section, the following definitions shall apply:
“Covered California” means the California Health Benefit Exchange established pursuant to Section 100500 of the Government Code.
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and rules, regulations, or guidance issued pursuant to that law.
A health insurer that renews individual grandfathered health benefit plans shall be subject to this section.
An insurer subject to this section shall have written policies, procedures, or underwriting guidelines establishing the criteria and process whereby the insurer makes its decision to provide or to deny coverage to dependents applying for an individual grandfathered health benefit plan and sets the rate for that coverage. These guidelines, policies, or procedures shall ensure that the plan rating and underwriting criteria comply with Sections 10140 and 10291.5 and all other applicable provisions of state and federal law.
On or before the June 1 next following the operative date of this section, and annually thereafter, every insurer shall file with the commissioner a general description of the criteria, policies, procedures, or guidelines that the insurer uses for rating and underwriting decisions related to individual grandfathered health benefit plans, which means automatic declinable health conditions, health conditions that may lead to a coverage decline, height and weight standards, health history, health care utilization, lifestyle, or behavior that might result in a decline for coverage or severely limit the health insurance products for which individuals applying for coverage would be eligible. An insurer may comply with this section by submitting to the department underwriting materials or resource guides provided to agents and brokers, provided that those materials include the information required to be submitted by this section.
Nothing in this section shall authorize public disclosure of company-specific rating and underwriting criteria and practices submitted to the commissioner.
For purposes of this section, the following definitions shall apply:
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
“Grandfathered health benefit plan” has the same meaning as that term is defined in Section 1251 of PPACA.
This section shall become operative on November 1, 2013, or the 91st calendar day following the adjournment of the 2013–14 First Extraordinary Session, whichever date is later.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-4), this section shall become inoperative 12 months after the date of that repeal or amendment.
Before an insurer may pay the proceeds of any contract of life or disability insurance to any undertaker or funeral director, as beneficiary or assignee, for funeral services, it shall require proof satisfactory to it that the services have been rendered. If proof of rendition of services is not furnished within thirty days after demand is made upon an insurer for such payment and in any event within one year from the date of the insured’s death, the insurer shall pay the proceeds of such insurance to any contingent or other beneficiary designated in the policy, and if no contingent or other beneficiary is so designated, to the estate of the insured or to any person, other than to such undertaker or funeral director, equitably entitled to all or any portion of the proceeds by reason of having incurred expense or furnished funeral services for the insured, to the extent of the expense incurred or services furnished.
When a payment is made equal to the full first premium at the time an application for life insurance other than group life insurance is signed by the applicant and either (1) the applicant received at that time a receipt for said payment on a form prepared by the insurer, or (2) in the absence of such a receipt the insurer receives the said payment at its home office, branch office, or the office of one of its general agencies, and in either case the insurer, pursuant to its regular underwriting practices and standards, approves the application for the issuance by it of a policy of life insurance on the plan and for the class of risk and amount of insurance applied for, and the person to be insured dies on or after the date of the application, on or after the date of the medical examination, if any, or on or after any date specially requested in the application for the policy to take effect, whichever is later, but before such policy is issued and delivered, the insurer shall pay such amount as would have been due under the terms of the policy in the same manner and subject to the same rights, conditions and defenses as if such policy had been issued and delivered on the date the application was signed by the applicant. The provisions of this section shall not prohibit an insurer from limiting the maximum amount for which it may be liable prior to actual issuance and delivery of the policy of life insurance either to (1) an amount not less than its established maximum retention, or to (2) fifty thousand dollars ($50,000), if a statement to this effect is included in the application.
No group life insurance policy or disability insurance policy shall be issued or delivered in this State where the premiums or any part thereof is paid or is to be paid in whole or in part by an employer pursuant to the terms of a collective bargaining agreement unless the policy provides that in the event of a cessation of work by the employees covered by the policy as the result of a labor dispute the policy, upon timely payment of the premium, shall continue in effect with respect to all employees insured by the policy on the date of the cessation of work who continue to pay their individual contribution, and who assume and pay the contribution due from the employer, for the period of cessation of work, under the following conditions:
If the policyholder is not a trustee or the trustees of a fund established or maintained in whole or in part by the employer, the policy shall provide that the employee’s individual contribution shall be the rate in the policy, on the date cessation of work occurs, applicable to an individual in the class to which the employee belongs as set forth in the policy. If the policy does not provide for a rate applicable to individuals, the policy shall provide that the employee’s individual contribution shall be an amount equal to the amount determined by dividing (1) the total monthly premium in effect under the policy at the date of cessation of work by (2) the total number of persons insured under the policy at such date.
If the policyholder is a trustee or the trustees of a fund established or maintained in whole or in part by the employer, the employee’s contribution shall be the amount which he and his employer would have been required to contribute to the trust for such employee if (1) the cessation of work had not occurred and (2) the agreement requiring the employer to make contributions to the trust were in full force.
The policy may provide that the continuation of insurance is contingent upon the collection of individual contributions by the union or unions representing the employees for policies referred to in subdivision (a) above, and by the policyholder or the policyholder’s agent with respect to policies referred to in subdivision (b) above.
The policy may provide that the continuation of insurance on each employee is contingent upon timely payment of contributions by the individual and timely payment of the premium by the entity responsible for collecting the individual contributions.
The policy may provide that each individual premium rate shall be increased by any amount up to twenty percent (20%), or any higher percent which may be approved by the commissioner, of that otherwise shown in the policy during the period of cessation of work in order to provide sufficient compensation to the insurer to cover increased administrative costs and increased mortality and morbidity. If the policy does provide for such an increase, this shall have the effect of increasing the employee’s contribution by a like percent.
Nothing in this section shall be deemed to limit any right which the insurer may have in accordance with the terms of the policy to increase or decrease the premium rates before, during or after such cessation of work if, in fact, the insurer would have had the right to increase the premium rate had the cessation of work not occurred. If such a premium rate change is made, it shall be effective, notwithstanding any other provisions of this section, on such date as the insurer shall determine in accordance with the terms of the policy.
The policy may contain such other provisions with respect to such continuation of insurance as the commissioner may approve.
The policy may provide that, if a premium is unpaid at the date of cessation of work and such premium became due prior to such cessation of work, the continuation of insurance is contingent upon payment of such premium prior to the date the next premium becomes due under the terms of the policy.
Nothing herein shall be deemed to require the continuation of any loss of time payments included in any such group disability policy, nor of any other coverages beyond the time that seventy-five percent (75%) of the employees continue such coverage or as to any individual employee beyond the time that he takes full-time employment with another employer; nor shall anything herein be deemed to require continuation of coverage more than six (6) months after the cessation of work.
Nothing in this section shall be construed as modifying or in any way affecting the operation and effect of the provisions of Part 2 of Division 1 of the Unemployment Insurance Code.
Every policy of disability insurance that is issued, amended, delivered, or renewed in this state on or after January 1, 1999, that provides hospital, medical, or surgical expense coverage under an employer-sponsored group plan for an employer subject to COBRA, as defined in subdivision (e), or an employer group for which the disability insurer is required to offer Cal-COBRA coverage, as defined in subdivision (f), including a carrier providing replacement coverage under Section 10128.3, shall further offer the former employee the opportunity to continue benefits as required under subdivision (b), and shall further offer the former spouse of an employee or former employee the opportunity to continue benefits as required under subdivision (c).
If a former employee worked for the employer for at least five years prior to the date of termination of employment and is 60 years of age or older on the date employment ends is entitled to and so elects to continue benefits under COBRA or Cal-COBRA for himself or herself and for any spouse, the employee or spouse may further continue benefits beyond the date coverage under COBRA or Cal-COBRA ends, as set forth in paragraph (2). Except as otherwise specified in this section, continuation coverage shall be under the same benefit terms and conditions as if the continuation coverage under COBRA or Cal-COBRA had remained in force. For the employee or spouse, continuation coverage following the end of COBRA or Cal-COBRA is subject to payment of premiums to the insurer. Individuals ineligible for COBRA or Cal-COBRA or who are eligible but have not elected or exhausted continuation coverage under federal COBRA or Cal-COBRA are not entitled to continuation coverage under this section. Premiums for continuation coverage under this section shall be billed by, and remitted to, the insurer in accordance with subdivision (d). Failure to pay the requisite premiums may result in termination of the continuation coverage in accordance with the applicable provisions in the insurer’s group contract with the employer.
The employer shall notify the former employee or spouse or both, or the former spouse of the employee or former employee, of the availability of the continuation benefits under this section in accordance with Section 2800.2 of the Labor Code. To continue health care coverage pursuant to this section, the individual shall elect to do so by notifying the insurer in writing within 30 calendar days prior to the date continuation coverage under COBRA or Cal-COBRA is scheduled to end. Every disability insurer shall provide to the employer replacing a group benefit plan policy issued by the insurer, or to the employer’s agent or broker representative, within 15 days of any written request, information in possession of the insurer reasonably required to administer the requirements of Section 2800.2 of the Labor Code.
The continuation coverage shall end automatically on the earlier of (A) the date the individual reaches age 65, (B) the date the individual is covered under any group health plan not maintained by the employer or any other insurer or health care service plan, regardless of whether that coverage is less valuable, (C) the date the individual becomes entitled to Medicare under Title XVIII of the Social Security Act, (D) for a spouse, five years from the date on which continuation coverage under COBRA or Cal-COBRA was scheduled to end for the spouse, or (E) the date on which the employer terminates its group contract with the insurer and ceases to provide coverage for any active employees through that insurer, in which case the insurer shall notify the former employee or spouse, or both, of the right to a conversion policy.
For purposes of this section, “COBRA” means Section 4980B of Title 26, Section 1161 and following of Title 29, and Section 300bb of Title 42 of the United States Code, as added by the Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law 99-272), and as amended.
For purposes of this section, “Cal-COBRA” means the continuation coverage that must be offered pursuant to Article 1.7 (commencing with Section 10128.50), or Article 4.5 (commencing with Section 1366.20) of Chapter 2.2 of Division 2 of the Health and Safety Code.
For the purposes of this section, “former spouse” means either an individual who is divorced from an employee or former employee or an individual who was married to an employee or former employee at the time of the death of the employee or former employee.
Every group benefit plan evidence of coverage that is issued, amended, or renewed after January 1, 1999, shall contain a description of the provisions and eligibility requirements for the continuation coverage offered pursuant to this section.
This section does not apply to any individual who is not eligible for its continuation coverage prior to January 1, 2005.
A policy of disability insurance, self-insured employee welfare benefit plan, or nonprofit hospital service plan may not provide an exception for other coverage where the other coverage is entitlement to Medi-Cal benefits under Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14500) of Part 3 of Division 9 of the Welfare and Institutions Code, or medicaid benefits under Subchapter 19 (commencing with Section 1396) of Chapter 7 of Title 42 of the United States Code. Each policy of disability insurance shall be interpreted not to provide an exception for those Medi-Cal or medicaid benefits.
A policy of disability insurance may not provide that the benefits payable thereunder are subject to reduction if the individual insured has entitlement to such Medi-Cal benefits.
A policy of disability insurance, self-insured employee welfare benefit plan, or nonprofit hospital service plan shall not provide an exception for enrollment for benefits because of an applicant’s entitlement to Medi-Cal benefits under Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14500) of Part 3 of Division 9 of the Welfare and Institutions Code, or medicaid benefits under Subchapter 19 (commencing with Section 1396) of Chapter 7 of Title 42 of the United States Code.
No disability insurer contract that covers hospital, medical, or surgical benefits that is issued, amended, renewed, or delivered on and after January 1, 2002, shall contain a provision that prohibits or restricts any health facilities’ compliance with the requirements of Section 1262.5 of the Health and Safety Code.
No health insurance contract in existence or issued, amended, or renewed on or after January 1, 2013, between a health insurer and a provider or a supplier shall prohibit, condition, or in any way restrict the disclosure of claims data related to health care services provided to a policyholder or insured of the insurer or beneficiaries of any self-insured health coverage arrangement administered by the insurer, to a qualified entity, as defined in Section 1395kk(e)(2) of Title 42 of the United States Code. All disclosures of data made under this section shall comply with all applicable state and federal laws for the protection of the privacy and security of the data, including, but not limited to, the federal Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191) and the federal Health Information Technology for Economic and Clinical Health Act, Title XIII of the federal American Recovery and Reinvestment Act of 2009 (Public Law 111-5), and implementing regulations.
For purposes of this section, the following definitions apply:
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152).
“Provider” means a hospital, a skilled nursing facility, a comprehensive outpatient rehabilitation facility, a home health agency, a hospice, a clinic, or a rehabilitation agency.
“Supplier” means a physician and surgeon or other health care practitioner, or an entity that furnishes health care services other than a provider.
A policy of disability insurance delivered or issued for delivery in this state more than 120 days after the effective date of this section, that provides that coverage of a dependent child shall terminate upon attainment of the limiting age for dependent children specified in the policy or contract, shall also provide in substance that attainment of the limiting age shall not operate to terminate the coverage of the child while the child is and continues to be both (a) incapable of self-sustaining employment by reason of an intellectual disability or physical handicap and (b) chiefly dependent upon the insured for support and maintenance, provided proof of the incapacity and dependency is furnished to the insurer by the insured within 31 days of the child’s attainment of the limiting age and subsequently as may be required by the insurer, but not more frequently than annually after the two-year period following the child’s attainment of the limiting age.
Disability policies currently approved by the commissioner that are delivered or issued for delivery more than 120 days after the effective date of this section shall be automatically construed to be in compliance with this section and need not be refiled or reprinted. Disability policies submitted to the commissioner for approval on and after the effective date of this section shall contain provisions in compliance with this section.
On and after the operative date of this section:
No policy of disability insurance which, in addition to covering the insured, also covers members of the insured’s immediate family, may be issued or amended in this state if it contains any disclaimer, waiver, or other limitation of coverage relative to the accident and sickness coverage or insurability of newborn infants of an insured from and after the moment of birth or of any minor child placed with an insured for adoption from and after the moment the child is placed in the physical custody of the insured for adoption.
Each such policy of disability insurance shall contain a provision granting immediate accident and sickness coverage to each newborn infant of, and each minor child placed for adoption with, any insured as required by subdivision (a).
A policy of disability insurance, self-insured care coverage, employee welfare benefit plan, or nonprofit hospital service plan, shall comply with the standards set forth in Chapter 7 (commencing with Section 3750) of Part 1 of Division 9 of the Family Code and Section 14124.94 of the Welfare and Institutions Code.
This section shall apply to a health insurer that covers hospital, medical, or surgical expenses under an individual health benefit plan, as defined in subdivision (a) of Section 10198.6, that is issued, amended, renewed, or delivered on or after January 1, 2007.
At least once each year, a health insurer shall permit an individual who has been covered for at least 18 months under an individual health benefit plan to transfer, without medical underwriting, to any other individual health benefit plan offered by that same health insurer that provides equal or lesser benefits as determined by the insurer.
“Without medical underwriting” means that the health insurer shall not decline to offer coverage to, or deny enrollment of, the individual or impose any preexisting condition exclusion on the individual who transfers to another individual health benefit plan pursuant to this section.
The insurer shall establish, for the purposes of subdivision (b), a ranking of the individual health benefit plans it offers to individual purchasers and post the ranking on its Internet Web site or make the ranking available upon request. The insurer shall update the ranking whenever a new benefit design for individual purchasers is approved.
The insurer shall notify in writing all insureds of the right to transfer to another individual health benefit plan pursuant to this section, at a minimum, when the insurer changes the insured’s premium rate. Posting this information on the insurer’s Internet Web site shall not constitute notice for purposes of this subdivision. The notice shall adequately inform insureds of the transfer rights provided under this section including information on the process to obtain details about the individual health benefit plans available to that insured and advising that the insured may be unable to return to his or her current individual health benefit plan if the insured transfers to another individual health benefit plan.
The requirements of this section shall not apply to the following:
An individual enrolled in the Medi-Cal program pursuant to Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code.
An individual enrolled in the Access for Infants and Mothers Program, pursuant to Part 6.3 (commencing with Section 12695).
An individual enrolled in the Healthy Families Program pursuant to Part 6.2 (commencing with Section 12693).
It is the intent of the Legislature that individuals shall have more choice in their health care coverage when health insurers guarantee the right of an individual to transfer to another product based on the insurer’s own ranking system. The Legislature does not intend for the department to review or verify the insurer’s ranking for actuarial or other purposes.
This section shall become inoperative on January 1, 2014, or the 91st calendar day following the adjournment of the 2013–14 First Extraordinary Session, whichever date is later.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-4), this section shall become operative 12 months after the date of that repeal or amendment.
Every health insurer that offers, issues, or renews health insurance under an individual health benefit plan, as defined in subdivision (a) of Section 10198.6, shall offer to any individual, who was covered by the insurer under an individual health benefit plan that was rescinded, a new individual health benefit plan that provides the most equivalent benefits.
A health insurer that offers, issues, or renews individual health benefit plans inside or outside the California Health Benefit Exchange may also permit an individual, who was covered by the insurer under an individual health benefit plan that was rescinded, to remain covered under that individual health benefit plan, with a revised premium rate that reflects the number of persons remaining on the health benefit plan consistent with Section 10965.9.
If a new individual health benefit plan is issued under subdivision (a), the insurer may revise the premium rate to reflect only the number of persons covered on the new individual health benefit plan consistent with Section 10965.9.
The insurer shall notify in writing all insureds of the right to coverage under an individual health benefit plan pursuant to this section, at a minimum, when the insurer rescinds the individual health benefit plan. The notice shall adequately inform insureds of the right to coverage provided under this section.
The insurer shall provide 60 days for insureds to accept the offered new individual health benefit plan under subdivision (a), and this plan shall be effective as of the effective date of the original health benefit plan and there shall be no lapse in coverage.
This section shall not apply to any individual whose information in the application for coverage and related communications led to the rescission.
This section shall apply notwithstanding subdivision (a) or (d) of Section 10965.3.
This section shall become operative on January 1, 2014, or the 91st calendar day following the adjournment of the 2013–14 First Extraordinary Session, whichever date is later.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-4), this section shall become inoperative 12 months after the date of that repeal or amendment.
Notwithstanding any other provision of law, an agent or broker who assists an applicant in submitting an application to a health insurer has the duty to assist the applicant in providing answers to health questions accurately and completely.
An agent or broker who assists an applicant in submitting an application to a health insurer shall attest on the written application to both of the following:
That to the best of his or her knowledge, the information on the application is complete and accurate.
That he or she explained to the applicant, in easy-to-understand language, the risk to the applicant of providing inaccurate information and that the applicant understood the explanation.
If, in an attestation required by subdivision (b), a declarant willfully states as true any material fact he or she knows to be false, that person shall, in addition to any applicable penalties or remedies available under current law, be subject to a civil penalty of up to ten thousand dollars ($10,000). Any public prosecutor may bring a civil action to impose that civil penalty. These penalties shall be paid to the Insurance Fund.
A health insurance application shall include a statement advising declarants of the civil penalty authorized under this section.
No individual or group policy of health insurance that is issued, amended, renewed, or delivered on or after July 1, 2003, that provides maternity coverage shall contain a copayment or deductible for inpatient hospital maternity services that exceeds the most common amount of the copayment or deductible contained in the policy for inpatient services provided for other covered medical conditions or contain a copayment or deductible for ambulatory care maternity services that exceeds the most common amount of the copayment or deductible contained in the policy for ambulatory care services provided for other covered medical conditions.
No group or blanket policy of health insurance that provides maternity benefits for a person covered continuously from conception shall be issued, amended, delivered, or renewed in this state if it contains any exclusion, reduction, or other limitations as to coverage, deductibles, or coinsurance provisions, as to involuntary complications of pregnancy, unless the provisions apply generally to all benefits paid under the policy.
For purposes of this section, involuntary complications of pregnancy shall include, but not be limited to, puerperal infection, eclampsia, cesarean section delivery, ectopic pregnancy, and toxemia.
This section shall not apply to Medicare supplement, vision-only, or Champus-supplement insurance, or to hospital indemnity, accident-only, and specified disease insurance that does not pay benefits on a fixed benefit, cash payment only basis.
This section shall not permit copayments or deductibles in the Medi-Cal program that are not otherwise authorized under state or federal law.
This section shall become operative on July 1, 2003.
A large group health insurance policy that is issued, amended, or renewed on or after January 1, 2026, shall provide coverage for the diagnosis and treatment of infertility and fertility services, including a maximum of three completed oocyte retrievals with unlimited embryo transfers in accordance with the guidelines of the American Society for Reproductive Medicine (ASRM), using single embryo transfer when recommended and medically appropriate.
A small group health insurance policy that is issued, amended, or renewed on or after January 1, 2026, shall offer coverage for the diagnosis and treatment of infertility and fertility services. This paragraph shall not be construed to require a small group health insurance policy to provide coverage for infertility services.
A health insurer shall include notice of the coverage specified in this section in the insurer’s evidence of coverage.
This section shall not apply to Medicare supplement or specialized health insurance policies.
For purposes of this section, “infertility” means a condition or status characterized by any of the following:
A licensed physician’s findings, based on a patient’s medical, sexual, and reproductive history, age, physical findings, diagnostic testing, or any combination of those factors. This definition shall not prevent testing and diagnosis before the 12-month or 6-month period to establish infertility in paragraph (3).
A person’s inability to reproduce either as an individual or with their partner without medical intervention.
The failure to establish a pregnancy or to carry a pregnancy to live birth after regular, unprotected sexual intercourse. For purposes of this section, “regular, unprotected sexual intercourse” means no more than 12 months of unprotected sexual intercourse for a person under 35 years of age or no more than 6 months of unprotected sexual intercourse for a person 35 years of age or older. Pregnancy resulting in miscarriage does not restart the 12-month or 6-month time period to qualify as having infertility.
The policy may not include any of the following:
This section does not in any way deny or restrict any existing right or benefit to coverage and treatment of infertility or fertility services under an existing law, plan, or policy.
This section applies to every health insurance policy that is issued, amended, or renewed to residents of this state regardless of the situs of the contract.
Consistent with Section 10140, coverage for the treatment of infertility and fertility services shall be provided without discrimination on the basis of age, ancestry, color, disability, domestic partner status, gender, gender expression, gender identity, genetic information, marital status, national origin, race, religion, sex, or sexual orientation. This subdivision shall not be construed to interfere with the clinical judgment of a physician and surgeon.
This section shall not apply to a religious employer, as defined in Section 10123.196.
This section shall not apply to a health care benefit plan or policy entered into with the Board of Administration of the Public Employees’ Retirement System pursuant to the Public Employees’ Medical and Hospital Care Act (Part 5 (commencing with Section 22750) of Division 5 of Title 2 of the Government Code) until July 1, 2027.
Until January 1, 2027, the commissioner may issue guidance regarding compliance with this section, and that guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
The department shall consult with the Department of Managed Health Care and stakeholders in issuing the guidance specified in paragraph (1).
No group or individual policy of disability insurance which covers hospital, medical, or surgical expenses shall be issued, amended, delivered, or renewed in this state on or after January 1, 1981, if it contains any exclusion, reduction, or other limitations, as to coverage, deductibles, or coinsurance provisions applicable solely to conditions attributable to diethylstilbestrol or exposure to diethylstilbestrol.
All policies subject to this section and issued, amended, delivered, or renewed in this state on or after January 1, 1981, shall be construed to be in compliance with this section, and any provision in any such policy which is in conflict with this section shall be of no force or effect.
On and after January 1, 1993, every insurer issuing, amending, or renewing a policy of individual or group disability insurance that covers hospital, medical, or surgical expenses shall offer coverage for screening for blood lead levels for covered children. This section shall not apply to specified accident, specified disease, hospital indemnity, Medicare supplement, or long-term care health insurance policies.
A disability insurance policy or certificate covering hospital, surgical, or medical expenses, that meets the definition of “health benefit plan” in subdivision (a) of Section 10198.6, that is issued, amended, renewed, or delivered on or after January 1, 2000, shall be deemed to cover general anesthesia and associated facility charges for dental procedures rendered in a hospital or surgery center setting, when the clinical status or underlying medical condition of the insured requires dental procedures that ordinarily would not require general anesthesia to be rendered in a hospital or surgery center setting. The disability insurance policy or certificate may require prior authorization of general anesthesia and associated charges required for dental care procedures in the same manner that prior authorization is required for other covered diseases or conditions.
This section shall apply only to general anesthesia and associated facility charges for only the following insureds, and only if the insureds meet the criteria in subdivision (a):
Insureds who are under seven years of age.
Insureds who are developmentally disabled, regardless of age.
Insureds whose health is compromised and for whom general anesthesia is medically necessary, regardless of age.
Nothing in this section shall require insurers to cover any charges for the dental procedure itself, including the professional fee of the dentist. Coverage for anesthesia and associated facility charges pursuant to this section shall be subject to all other terms and conditions of the policy or certificate that apply generally to other benefits.
Nothing in this section shall require insurers to cover anesthesia or related facility charges for dental procedures that ordinarily would require general anesthesia and that do not meet the requirements of subdivision (a), (b), or (c).
A disability insurance policy may include coverage specified in subdivision (a) at any time prior to January 1, 2000.
If a policy of disability insurance issued, issued for delivery, or renewed in this state after the effective date of this section provides in any manner for payment of all or part of the cost of a “sterilization operation or procedure” any exclusion, reduction, or limitation on such a benefit based upon the reason, or reasons, of the covered persons for requesting such sterilization shall be void and of no effect.
All disability policies issued, issued for delivery, or renewed in this state after effective date of this section shall be automatically construed to be in compliance with this section and need not be refiled or reprinted.
As used in this code, “sterilization operations or procedures” shall include and mean any operation or procedure altering the human body which has as its purpose, or one of its purposes, the temporary or permanent prevention of procreation by either a male or a female.
This section shall only apply to a disability insurer that issues a dental insurance policy pursuant to this part.
For purposes of this section, the following terms have the following meanings:
“Coordination of benefits” means the method by which a disability insurer and one or more other disability insurers, health care service plans covering dental services, or specialized health care service plans, covering dental services, pay their respective reimbursements for dental benefits when an insured is covered by multiple disability insurers, or a combination of disability insurers and health care service plans or specialized health care service plans.
“Primary dental benefit plan” means a dental insurance policy issued by a disability insurer regulated pursuant to this part or a health care service plan or specialized health care service plan contract regulated pursuant to Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code that provides an insured or enrollee with primary dental coverage.
“Secondary dental benefit plan” means a dental insurance policy issued by a disability insurer regulated pursuant to this part or a health care service plan or specialized health care service plan contract regulated pursuant to Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code that provides an insured or enrollee with secondary dental coverage.
A disability insurer that issues a dental insurance policy shall declare its coordination of benefits policy prominently in its evidence of coverage or insurance policy with both insured and policyholder.
When a primary dental benefit plan is coordinating its benefits with one or more secondary dental benefit plans, it shall pay the maximum amount required by its policy with the insured or policyholder.
A disability insurer that issues a dental insurance policy, when acting as a secondary dental benefit plan or insurer, shall pay the lesser of either the amount it would have paid in the absence of any other dental benefit coverage, or the insured’s total out-of-pocket cost payable under the primary dental benefit plan for benefits covered under the secondary plan or policy.
Nothing in this section is intended to conflict with or modify the way in which a disability insurer that issues a dental insurance policy determines which dental benefit plan is primary and which is secondary in coordinating benefits with another insurer or plan pursuant to existing state law or regulation.
With respect to a contract between an insurer covering dental services and a dentist to provide covered dental services to insureds, the contract shall not require a dentist to accept an amount set by the insurer as payment for dental care services provided to an insured that are not covered services under the insured’s policy. This subdivision shall only apply to provider contracts issued, amended, or renewed on or after January 1, 2011.
A provider shall not charge more for dental services that are not covered services under a health insurance policy than his or her usual and customary rate for those services. The department shall not be required to enforce this subdivision.
The evidence of coverage and disclosure form, or combined evidence of coverage and disclosure form, for every health insurance policy covering dental services, or specialized health insurance policy covering dental services, that is issued, amended, or renewed on or after July 1, 2011, shall include the following statement:
IMPORTANT: If you opt to receive dental services that are not covered services under this policy, a participating dental provider may charge you his or her usual and customary rate for those services. Prior to providing a patient with dental services that are not a covered benefit, the dentist should provide to the patient a treatment plan that includes each anticipated service to be provided and the estimated cost of each service. If you would like more information about dental coverage options, you may call member services at [insert appropriate telephone number] or your insurance broker. To fully understand your coverage, you may wish to carefully review this evidence of coverage document.
For purposes of this section, “covered services” or “covered dental services” means dental care services for which the insurer is obligated to pay pursuant to an insured’s policy, or for which the insurer would be obligated to pay pursuant to an insured’s policy but for the application of contractual limitations such as deductibles, copayments, coinsurance, waiting periods, annual or lifetime maximums, frequency limitations, or alternative benefit payments.
Notwithstanding any other law, a health insurer, including a specialized health insurer and a health insurer that issues, sells, renews, or offers a contract covering dental services, shall reimburse its contracting health care providers for business expenses to prevent the spread of diseases causing public health emergencies declared on or after January 1, 2022. For purposes of this subdivision, “business expenses” means personal protective equipment, additional supplies, materials, and clinical staff time over and above those expenses usually included in an office visit or other nonfacility service or services if performed during a public health emergency, as defined by law, due to respiratory-transmitted infectious disease and pursuant to subdivision (b).
A health insurer shall reimburse a contracting health care provider pursuant to subdivision (a) for each individual patient encounter, limited to one encounter per day per insured for the duration of the public health emergency.
The department shall ensure a health insurer provides timely reimbursement to its contracting health care providers pursuant to subdivision (a). The department may adopt guidance to implement this section. The guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
For purposes of this section, “contracting health care provider” means a physician and surgeon, dentist, or doctor of podiatric medicine who is licensed by the state to deliver or furnish health care services, who owns or operates a practice, and who is contracted with the insured’s health insurer. The term “contracting health care provider” only applies to a dentist if the insured is covered by a health insurance policy or specialized health insurance policy that includes dental benefits.
This section does not apply to the state of emergency declared by the Governor on March 4, 2020, relating to the coronavirus 2019 (COVID-19) pandemic.
This section shall not apply to a Medi-Cal managed care plan that contracts with the State Department of Health Care Services pursuant to Chapter 7 (commencing with Section 14000) of, Chapter 8 (commencing with Section 14200) of, or Chapter 8.75 (commencing with Section 14591) of, Part 3 of Division 9 of the Welfare and Institutions Code.
A health insurer that issues, sells, renews, or offers a policy covering dental services, including a specialized policy of health insurance covering dental services, or a contracting entity may grant a third party access to a provider network contract, or a provider’s dental services or contractual discounts provided pursuant to a provider network contract if the requirements of subdivisions (b) and (c) are met.
A health insurer that issues, sells, renews, or offers a policy covering dental services may grant a third party access to a provider network contract if, at the time the provider network contract is entered into, and at any time a notice is sent to a health care provider as required pursuant to Section 10133.65, the provider network contract allows a provider to choose not to participate in third-party access to the provider network contract. The third-party access provision of the provider network contract shall be clearly identified. An insurer shall not grant third-party access to the provider network contract of a provider that does not participate in third-party access to the provider network contract.
A contracting entity may grant a third party access to a provider network contract, or a provider’s dental services or contractual discounts provided pursuant to a provider network contract, if all of the following are met:
The provider network contract specifically states that the contracting entity may enter into an agreement with a third party that would allow the third party to obtain the contracting entity’s rights and responsibilities as if the third party were the contracting entity, and when the contracting entity is a health insurer, the provider chose to participate in third-party access at the time the provider network contract was entered into.
If the contracting entity is a health insurer, the third-party access provision of the provider network contract shall clearly identify in the contract and notice to the provider, as required pursuant to Section 10133.65, the following language conspicuously placed on the first page of the document in 12-point underlined type:
This contract grants third-party access to the provider network. The provider network contracting entity has entered into an agreement with other dental insurers or third parties that allows the third party to obtain the contracting entity’s rights and responsibilities as if the third party were the contracting entity. The list of all third parties with access to this provider network can be found at (insert internet website as identified in paragraph (4)). You have the right to choose not to participate in third-party access. To exercise your right to not participate in the third-party access, submit your written or electronic request to the health insurer.
The contracting entity identifies prior to signing the contract, in writing or electronic format to the provider, all third parties in existence as of the date the provider network contract is entered into.
The contracting entity identifies all third parties in existence in a list on its internet website that is updated at least once every 90 days.
The contracting entity requires a third party to identify the source of the discount on all written or electronic remittance advices or explanations of payment under which a discount is taken.
This paragraph does not apply to electronic transactions mandated by the Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191).
A third party’s right to a provider’s discounted rate ceases as of the termination date of the provider network contract.
The contracting entity makes available a copy of the provider network contract relied on in the adjudication of a claim to a participating provider within 30 days of a request from the provider.
A provider is not bound by or required to perform dental treatment or services under a provider network contract granted to a third party in violation of this section.
This section does not apply if any of the following criteria are met:
The provider network contract is for dental services provided to a beneficiary of the federal Medicare Program pursuant to Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.) or the federal Medicaid program pursuant to Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.).
Access to a provider network contract is granted to a health insurer that issues, sells, renews, or offers a policy covering dental services or a contracting entity operating under the same brand licensee program as the contracting entity.
Access to a provider network contract is granted to an affiliate of a contracting entity. A list of the contracting entity’s affiliates shall be made available to a provider in writing or electronic form before access is granted to a third party pursuant to subdivision (b).
The commissioner shall adopt regulations as are necessary to implement and enforce this section in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
As used in this section:
“Contracting entity” means a person or entity that enters into direct contracts with providers for the delivery of dental services in the ordinary course of business, including a health insurer or third-party administrator.
“Dental services” means services for the diagnosis, prevention, treatment, or cure of a dental condition, illness, injury, or disease. “Dental services” does not include services delivered by a provider that are billed as medical expenses under a policy of health insurance.
“Provider” means an individual or entity that provides dental services or supplies, as defined by the policy of health insurance or specialized policy of health insurance, including a dentist or physician, but not a physician organization that leases or rents its network to a third party.
“Provider network contract” means a contract between a contracting entity and a provider entered into on or after January 1, 2020, that specifies the rights and responsibilities of the contracting entity and provides for the delivery and payment of dental services to an insured.
“Third party” means a person or entity that enters into a contract with a contracting entity or with another third party to gain access to the dental services or contractual discounts of a provider network contract. “Third party” does not include an employer or other group for whom the health insurer or contracting entity provides administrative services, including the payment of claims.
For purposes of this section, the following definitions shall apply:
“Dental waiting period provision” means a health insurance policy provision that limits coverage for a specified period of time following an insured’s effective date of coverage.
“Health insurer” means an insurer that issues, sells, renews, or offers a policy of health insurance, as defined in subdivision (b) of Section 106, covering dental services, including a specialized health insurance policy covering dental services, as defined in subdivision (c) of Section 106.
“Preexisting condition provision” means a policy provision that excludes or limits coverage for services, charges, or expenses incurred following an insured’s effective date of coverage for a condition for which dental services, diagnosis, care, or treatment was recommended or received preceding the effective date of coverage.
On and after January 1, 2025, a health insurer shall not issue, sell, renew, or offer a policy that imposes a dental waiting period provision in a large group dental insurance policy or preexisting condition provision upon an insured for any dental insurance policy.
This section does not apply to Medi-Cal dental managed care contracts authorized under Chapter 7 (commencing with Section 14000) and Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code.
To assist a provider in determining if an insured’s dental coverage is regulated by the State of California, the health insurer shall disclose whether the insured’s dental coverage is “State Regulated” through a provider portal, if available, or otherwise upon request, on or after January 1, 2025.
A health insurer shall include the statement “State Regulated” if the insured’s dental coverage is subject to regulation by the department, on an electronic or physical identification card, or both if available, for policies covering dental services issued on or after January 1, 2025.
For purposes of this section, “health insurer” means a health insurer that issues, sells, renews, or offers a policy covering dental services, including a specialized health insurer covering dental services.
No self-insured employee welfare benefit plan, issued or renewed on or after November 23, 1970, which contains coverage for sterilization operations or procedures, shall impose any disclaimer, restriction on, or limitation of, coverage relative to the covered individual’s reason for sterilization. All those plans entered into or renewed on or after November 23, 1970, shall be construed to be in compliance with this section, and any provision in any plan which is in conflict with this section shall be of no force or effect.
Every self-insured employee welfare benefit plan issued or amended on or after July 1, 1972, which provides benefits to the employee’s dependents, shall contain a provision granting immediate accident and sickness coverage, from and after the moment of birth, to each newborn infant of any family covered and to each minor child placed for adoption from and after the moment the child is placed in the physical custody of the covered family for adoption. No plan may be issued or amended if it contains any disclaimer, waiver, or other limitation of coverage relative to the coverage or insurability of newborn infants of or minor children placed for adoption with a family covered as required by this section. Coverage of minor children placed for adoption with a covered family shall be required only after January 1, 1988.
No self-insured employee welfare benefit plan which provides maternity benefits for a person covered continuously from conception shall be issued, amended, delivered, or renewed in this state on or after July 1, 1976, if it contains any exclusion, reduction, or other limitations as to coverage, deductibles, or coinsurance provisions as to involuntary complications of pregnancy, unless those provisions apply generally to all benefits paid under the plan. If a fixed amount is specified in the plan for surgery, the fixed amounts for surgical procedures involving involuntary complications of pregnancy shall be commensurate with other fixed amounts payable for procedures of comparable difficulty and severity. In a case where a fixed amount is payable for maternity benefits, involuntary complications of pregnancy shall be deemed an illness and entitled to benefits otherwise provided by the plan. Where the plan contains a maternity deductible, the maternity deductible shall apply only to expenses resulting from normal delivery and cesarean section delivery. However, expenses for cesarean section delivery in excess of the deductible shall be treated as expenses for any other illness under the plan. This subdivision shall apply to all self-insured employee welfare benefit plans except any plan made subject to an applicable collective bargaining agreement in effect before July 1, 1976.
For purposes of this subdivision, involuntary complications of pregnancy shall include, but not be limited to, puerperal infection, eclampsia, cesarean section delivery, ectopic pregnancy, and toxemia.
All plans subject to this subdivision and issued, amended, delivered, or renewed in this state on or after July 1, 1976, shall be construed to be in compliance with this section, and any provision in any plan which is in conflict with this section shall be of no force or effect.
Every self-insured employee welfare benefit plan issued or amended on or after January 1, 1987, which provides benefits to the employee’s dependents, shall offer a choice to all employees of coverage for comprehensive preventive health care for children.
For purposes of this section, benefits for the comprehensive preventive care of children shall be consistent with the Guidelines for Health Supervision of Children and Youth, as adopted by the American Academy of Pediatrics in May 1982, and provide for the following:
Physician service for routine physical examinations.
Immunizations.
Laboratory services in connection with routine physical examinations.
As used in this section, “self-insured employee welfare benefit plan” means any plan or program of benefits provided by an employer or an employee organization, or both, for the purpose of providing hospital, medical, surgical, nursing, or dental services, or indemnification for the costs incurred for those services, to the employer’s employees or their dependents.
When spouses are both employed as employees, and both have enrolled themselves and their eligible family members under a group policy of disability insurance provided by their respective employers, and each spouse is covered as an employee under the terms of the same master policy, each spouse may claim on his or her behalf, or on behalf of his or her enrolled dependents, the combined maximum contractual benefits to which an employee is entitled under the terms of the master policy, not to exceed in the aggregate 100 percent of the charge for the covered expense or service.
When spouses are both employed as employees, and both have enrolled themselves and their eligible family members under a self-insured employee welfare benefit plan provided by their respective employers, and each spouse is covered as an employee under the terms of the same master contract, each spouse may claim on his or her behalf, or on behalf of his or her enrolled dependents, the combined maximum contractual benefits to which an employee is entitled under the terms of the master contract, not to exceed in the aggregate 100 percent of the charge for the covered expense or service.
This section shall apply to every group disability insurance policy and self-insured employee welfare benefit plan which is entered into, issued, delivered, amended, or renewed in this state on or after January 1, 1978.
No policy of group disability insurance or self-insured employee welfare benefit plan which provides hospital, medical, or surgical expense benefits for employees, insureds, or policyholders and their dependents shall exclude a dependent child from eligibility or benefits solely because the dependent child does not reside with the employee, insured, or policyholder.
Each policy of group disability insurance or self-insured employee welfare benefit plan which provides hospital, medical, or surgical expense benefits for employees, insureds, or policyholders and their dependents shall enroll, upon application by the employer or group administrator, a dependent child of the noncustodial parent when that parent is the employee, insured, or policyholder at any time either the parent or the person having custody of the child as defined in Section 3751.5 of the Family Code, or the local child support agency makes an application for enrollment to the employer or group administrator when a court order for medical support exists. In the case of children who are eligible for medicaid, the State Department of Health Services may also make that application.
A policy of group health insurance that provides hospital, medical, or surgical expense benefits shall provide equal coverage to employers or guaranteed associations, as defined in Section 10700, for the registered domestic partner of an employee, insured, or policyholder to the same extent, and subject to the same terms and conditions, as provided to a spouse of the employee, insured, or policyholder, and shall inform employers and guaranteed associations of this coverage. A policy shall not offer or provide coverage for a registered domestic partner that is not equal to the coverage provided to the spouse of an employee, insured, or policyholder, and shall not discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex. The prohibitions and requirements imposed by this section are in addition to any other prohibitions and requirements imposed by law.
If an employer or guaranteed association has purchased coverage for spouses and registered domestic partners pursuant to subdivision (a), a health insurer that provides hospital, medical, or surgical expense benefits for employees, insureds, or policyholders and their spouses shall enroll, upon application by the employer or group administrator, a registered domestic partner of the employee, insured, or policyholder in accordance with the terms and conditions of the group contract that apply generally to all spouses under the policy, including coordination of benefits.
For purposes of this section, the term “domestic partner” shall have the same meaning as that term is used in Section 297 of the Family Code.
A policy of group health insurance may require that the employee, insured, or policyholder verify the status of the domestic partnership by providing to the insurer a copy of a valid Declaration of Domestic Partnership filed with the Secretary of State pursuant to Section 298 of the Family Code or an equivalent document issued by a local agency of this state, another state, or a local agency of another state under which the partnership was created. The policy may also require that the employee, insured, or policyholder notify the insurer upon the termination of the domestic partnership.
Notwithstanding paragraph (1), a policy may require the information described in that paragraph only if it also requests from the employee, insured, or policyholder whose spouse is provided coverage, verification of marital status and notification of dissolution of the marriage.
Nothing in this section shall be construed to expand the requirements of Section 4980B of Title 26 of the United States Code, Section 1161, and following, of Title 29 of the United States Code, or Section 300bb-1, and following, of Title 42 of the United States Code, as added by the Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law 99-272), and as those provisions may be later amended.
A group health insurance policy subject to this section that is issued, amended, delivered, or renewed in this state on or after January 2, 2005, shall be deemed to provide coverage for registered domestic partners that is equal to the coverage provided to a spouse of an employee, insured, or policyholder.
If a policy of group disability insurance issued or issued for delivery or amended in this state after the effective date of this section provides in any manner for coverage for an employee and one or more covered persons dependent upon such employee and provides for an extension of coverage for any period following a termination of employment of the employee, the policy shall provide that such extension of coverage shall apply to dependents upon the same terms and conditions precedent as applied to the covered employee, for the same period of time, subject to payment of premiums, if any, as required by the terms of the policy and subject to any applicable collective bargaining agreement.
All such group disability policies issued or issued for delivery or amended in this state after the effective date of this section shall be automatically construed to be in compliance with this section and need not be refiled or reprinted.
On and after the effective date of this section, every policy of disability insurance which covers hospital, medical, or surgical expenses on a group basis shall offer coverage to physically handicapped individual members of the group under the same terms and conditions as are normally offered to individual members of the group without physical handicap. The availability of such coverage shall be communicated to group policyholders and to prospective group policyholders during negotiations. Group policies shall not be required to cover hospital, medical, or surgical expenses arising as a direct result of an individual member’s physical handicap.
If a policy of group disability insurance issued, delivered, amended, or renewed in this state on or after the effective date of this section provides in any manner for coverage for an employee and a covered spouse dependent upon such employee, the policy shall not provide for coverage under conditions less favorable for employees than coverage provided for covered spouses dependent upon the employees.
No self-insured employee welfare benefit plan, issued or renewed on or after the effective date of this section, which provides coverage for an employee and one or more covered persons dependent upon such employee and provides for an extension of coverage for any period following a termination of employment of the employee, shall fail to provide that such extension of coverage shall apply to dependents upon the same terms and conditions precedent as applied to the covered employee, for the same period of time, subject to payment of premiums, if any, as required by the terms of the policy and subject to any limitations or conditions set forth in any applicable collective-bargaining agreement. All such plans entered into or renewed on or after the effective date of this section shall be construed to be in compliance with this section, and any provision in any such plan which is in conflict with this section shall be of no force or effect.
A plan contract which provides benefits that accrue after a certain time of confinement in a health care facility shall specify what constitutes a day of confinement or the number of consecutive hours of confinement which are requisite to the commencement of benefits.
As used in subdivisions (a) and (b), “self-insured employee welfare benefit plan” has the same meaning as that specified in subdivision (d) of Section 10121.
On and after the effective date of this section, every self-insured employee welfare benefit plan which provides coverage for hospital, medical, or surgical expenses shall offer coverage to physically handicapped persons for such expenses incurred, under such terms and conditions as are normally provided by the self-insured welfare benefit plan and a member without physical handicap. Every self-insured welfare benefit plan shall communicate the availability of such coverage to all members and prospective members. The self-insured welfare benefit plan shall not be required to cover hospital, medical, or surgical expenses arising as a direct result of a physically disabled person’s handicap.
No self-insured employee welfare benefit plan shall refuse to enroll any person or accept any person as a subscriber or renew any person as a subscriber after appropriate application on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring. No plan shall require a higher rate or charge, or offer or provide different terms, conditions, or benefits, on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring than is at the time required of any other individual in an otherwise identical classification, nor shall any plan make or require any rebate, discrimination, or discount upon the amount to be paid or the service to be rendered under the plan because the person carries those traits.
No self-insured employee welfare benefit plan shall seek information about a person’s genetic characteristics for any nontherapeutic purpose.
No discrimination shall be made in the fees or commissions of a solicitor or solicitor firm for an enrollment or a subscription or the renewal of an enrollment or subscription of any person on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring.
“Genetic characteristics” as used in this section means either of the following:
Any scientifically or medically identifiable gene or chromosome, or combination or alteration thereof, that is known to be a cause of a disease or disorder in a person or his or her offspring, or that is determined to be associated with a statistically increased risk of development of a disease or disorder, and that is presently not associated with any symptoms of any disease or disorder.
Inherited characteristics that may derive from the individual or family member, that are known to be a cause of a disease or disorder in a person or his or her offspring, or that are determined to be associated with a statistically increased risk of development of a disease or disorder, and that are presently not associated with any symptoms of any disease or disorder.
In addition to any other remedy permitted by law, the commissioner shall have the administrative authority to assess penalties specified in this section against self-insured employee welfare benefit plans engaged in the business of health insurance for violations of Section 10123.3.
Any plan that violates Section 10123.3 is liable for administrative penalties of not more than two thousand five hundred dollars ($2,500) for the first violation and not more than five thousand dollars ($5,000) for each subsequent violation.
Any plan that violates Section 10123.3 with a frequency that indicates a general business practice or commits a knowing violation of that section, is liable for administrative penalties of not less than fifteen thousand dollars ($15,000) and not more than one hundred thousand dollars ($100,000) for each violation.
An act or omission that is inadvertent and that results in incorrect rates being charged to more than one subscriber shall be a single violation for the purpose of this section.
This section shall apply to the disclosure of genetic test results contained in an applicant or enrollee’s medical records by a self-insured welfare benefit plan.
Any person who negligently discloses results of a test for a genetic characteristic to any third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), shall be assessed a civil penalty in an amount not to exceed one thousand dollars ($1,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully discloses the results of a test for a genetic characteristic to any third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), shall be assessed a civil penalty in an amount not less than one thousand dollars ($1,000) and no more than five thousand dollars ($5,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully or negligently discloses the results of a test for a genetic characteristic to a third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), that results in economic, bodily, or emotional harm to the subject of the test, is guilty of a misdemeanor punishable by a fine not to exceed ten thousand dollars ($10,000).
In addition to the penalties listed in subdivisions (b) and (c), any person who commits any act described in subdivision (b) or (c) shall be liable to the subject for all actual damages, including damages for economic, bodily, or emotional harm which is proximately caused by the act.
Each disclosure made in violation of this section is a separate and actionable offense.
The applicant’s “written authorization,” as used in this section, shall satisfy the following requirements:
Is written in plain language.
Is dated and signed by the individual or a person authorized to act on behalf of the individual.
Specifies the types of persons authorized to disclose information about the individual.
Specifies the nature of the information authorized to be disclosed.
States the name or functions of the persons or entities authorized to receive the information.
Specifies the purposes for which the information is collected.
Specifies the length of time the authorization shall remain valid.
Advises the person signing the authorization of the right to receive a copy of the authorization. Written authorization is required for each separate disclosure of the test results, and the authorization shall set forth the person or entity to whom the disclosure would be made.
This section shall not apply to disclosures required by the Department of Health Services necessary to monitor compliance with Chapter 1 (commencing with Section 124975) of Part 5 of Division 106 of the Health and Safety Code, nor to disclosures required by the Department of Managed Health Care necessary to administer and enforce compliance with Section 1374.7 of the Health and Safety Code.
On or before July 1, 1999, for purposes of public disclosure, every disability insurer that covers hospital, medical, or surgical expenses, and authorizes insureds to select providers who have contracted with the insurer for alternative rates of payment as described in Section 10133, and the disability insurer or any of its contracting providers or provider groups utilize economic profiling related to services provided to insureds, shall file with the department a description of any policies and procedures related to economic profiling utilized by the insurer and any of its contracting providers and provider groups. The filing shall describe how these policies and procedures are used in utilization review, peer review, incentive and penalty programs, and in provider retention and termination decisions. The filing shall also indicate in what manner, if any, the economic profiling system being used takes into consideration risk adjustments that reflect case mix, type and severity of patient illness, age of patients, and other policyholder characteristics that may account for higher or lower than expected costs or utilization of services. Any changes to the policies and procedures shall be filed expeditiously with the commissioner. Nothing in this section shall be construed to restrict or impair the department, in its discretion, from utilizing the information filed pursuant to this section for purposes of ensuring compliance with this chapter.
The commissioner shall make each disability insurer filing available to the public upon request. The commissioner shall not publicly disclose any information submitted pursuant to this section that is determined by the commissioner to be confidential pursuant to state law.
Each disability insurer that uses economic profiling shall, upon request, provide a copy of economic profiling information related to a contracting provider or provider group to the profiled provider or group. In addition, each disability insurer shall require as a condition of contract that its contracting provider groups that maintain economic profiles of individual providers who may be selected by insureds shall, upon request, provide a copy of individual economic profiling information to individual providers who are profiled. The economic profiling information provided pursuant to this section shall be provided upon request until 60 days after the date upon which the contract between the insurer and the individual provider or provider group terminates, or until 60 days after the date the contract between the provider group and the individual provider terminates, whichever is applicable.
For the purposes of this section, “economic profiling” shall mean any evaluation of a particular physician, provider, or provider group based in whole or in part on the economic costs or utilization of services associated with medical care provided or authorized by the physician, provider, or provider group.
A health insurance policy issued, amended, or renewed on or after January 1, 2025, shall provide coverage for the prophylaxis, diagnosis, and treatment of Pediatric Autoimmune Neuropsychiatric Disorder Associated with Streptococcal Infections (PANDAS) and Pediatric Acute-onset Neuropsychiatric Syndrome (PANS) that is prescribed or ordered by the treating physician and surgeon and is medically necessary, as defined by current nationally recognized clinical practice guidelines by expert treating physicians published in peer-reviewed medical literature. Treatment for PANDAS and PANS that shall be covered includes antibiotics, medication and behavioral therapies to manage neuropsychiatric symptoms, immunomodulating medicines, plasma exchange, and intravenous immunoglobulin therapy.
Coverage for PANDAS and PANS shall not be subject to a copayment, coinsurance, deductible, or other cost sharing that is greater than that applied to other benefits provided by the policy.
A required authorization for PANDAS and PANS prophylaxis, diagnosis, or treatment shall be provided in a timely manner that is appropriate for the severity of an insured’s condition pursuant to Section 10133.54.
A health insurer shall not deny or delay coverage for PANDAS or PANS therapies because the insured previously received treatment, including the same or similar treatment, for PANDAS or PANS, or because the insured was diagnosed with or received treatment for their condition under a different diagnostic name, including autoimmune encephalopathy.
A health insurer shall not limit coverage of immunomodulating therapies for PANDAS or PANS in a manner that is inconsistent with the treatment recommendations pursuant to subdivision (d), and shall not require a trial of therapies that treat only neuropsychiatric symptoms before authorizing coverage of immunomodulating therapies pursuant to this section.
Coverage for PANDAS and PANS shall adhere to the treatment recommendations delineated in current clinical practice guidelines published in peer-reviewed medical literature or put forth by organizations composed of expert treating clinicians.
For billing and diagnostic purposes, PANDAS and PANS shall be coded as autoimmune encephalitis until the American Medical Association and the federal Centers for Medicare and Medicaid Services create and assign a specific code or codes for PANDAS and PANS. After the creation of that code or codes, PANDAS and PANS may be coded as autoimmune encephalitis, PANDAS, or PANS. If PANDAS or PANS is known by a different common name in the future, it may be coded under that name and this section shall apply to that disorder or syndrome.
This section does not apply to a specialized health insurance policy that covers dental or vision benefits or a Medicare supplement policy.
If a self-insured employee welfare benefit plan issued, amended, or renewed in this state on or after the effective date of this section provides in any manner for coverage for an employee and a covered spouse dependent upon such employee, the plan shall not provide for coverage under conditions less favorable for employees than coverage provided for covered spouses dependent upon the employees.
As used in this section, “self-insured employee welfare benefit plan” has the same meaning as that specified in subdivision (b) of Section 10121.
On or after January 1, 1993, every insurer issuing group disability insurance that covers hospital, medical, or surgical expenses shall provide benefits for the comprehensive preventive care of children 16 years of age or younger under those terms and conditions as may be agreed upon between the group policyholder and the insurer. Every insurer shall communicate the availability of these benefits to all group policyholders and to all prospective group policyholders with whom they are negotiating.
For purposes of this section, benefits for the comprehensive preventive care of children shall comply with both of the following:
Be consistent with both of the following:
The most recent Recommendations for Preventive Pediatric Health Care, as adopted by the American Academy of Pediatrics.
The Recommended Childhood Immunization Schedule/United States, jointly adopted as of January 1, 2025, by the American Academy of Pediatrics, the Advisory Committee on Immunization Practices, and the American Academy of Family Physicians. Immunizations subject to this subparagraph may be modified or supplemented by the State Department of Public Health pursuant to Section 120164.
Provide for the following:
Periodic health evaluations.
Immunizations.
Laboratory services in connection with periodic health evaluations.
Screening for blood lead levels in children who are at risk for lead poisoning, as determined by a health care provider in accordance with the applicable California regulations.
For purposes of this section, a health care provider is any of the following:
A physician assistant licensed to practice pursuant to Article 3 (commencing with Section 3513) of Chapter 7.7 of Division 2 of the Business and Professions Code.
A health insurance policy issued, amended, or renewed on or after January 1, 2022, that provides coverage for pediatric services and preventive care, as required by this chapter, including Sections 10112.2 and 10112.27, shall additionally include coverage for adverse childhood experiences screenings. This section does not prohibit a health insurer from applying cost-sharing requirements as authorized by law.
For purposes of this section, “adverse childhood experiences,” or “ACEs,” means an event, series of events, or set of circumstances that is experienced by an individual as physically or emotionally harmful or threatening and that has lasting adverse effects on the individual’s functioning and physical, social, emotional, or spiritual well-being.
The department may adopt guidance to health insurers to implement this section. The guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The departmental guidance shall apply the rules and regulations for screening for trauma as set forth in the Medi-Cal program as the minimum ACEs coverage requirements for health insurers. This section does not prohibit a health insurer from exceeding the Medi-Cal program’s rules and regulations for trauma screening.
On or after January 1, 1993, every insurer issuing group disability insurance that covers hospital, medical, or surgical expenses shall offer benefits for the comprehensive preventive care of children 17 and 18 years of age under those terms and conditions as may be agreed upon between the group policyholder and the insurer. Every insurer shall communicate the availability of these benefits to all group policyholders and to all prospective group policyholders with whom they are negotiating.
For purposes of this section, benefits for the comprehensive preventive care of children shall comply with both of the following:
Be consistent with both of the following:
The most recent Recommendations for Preventive Pediatric Health Care, as adopted by the American Academy of Pediatrics.
The Recommended Childhood Immunization Schedule/United States, jointly adopted as of January 1, 2025, by the American Academy of Pediatrics, the Advisory Committee on Immunization Practices, and the American Academy of Family Physicians. Immunizations subject to this subparagraph may be modified or supplemented by the State Department of Public Health pursuant to Section 120164.
Provide for the following:
Periodic health evaluations.
Immunizations.
Laboratory services in connection with periodic health evaluations.
Screening for blood lead levels in children who are at risk for lead poisoning, as determined by a health care provider in accordance with the applicable California regulations.
For purposes of this section, a health care provider is any of the following:
A physician assistant licensed to practice pursuant to Article 3 (commencing with Section 3513) of Chapter 7.7 of Division 2 of the Business and Professions Code.
On and after January 1, 1990, every insurer issuing group disability insurance which covers hospital, medical, or surgical expenses shall offer coverage for the treatment of alcoholism under such terms and conditions as may be agreed upon between the group policyholder and the insurer. Every insurer shall communicate the availability of such coverage to all group policyholders and to all prospective group policyholders with whom they are negotiating.
If the group subscriber or policyholder agrees to such coverage or to coverage for treatment of chemical dependency, or nicotine use, the treatment may take place in facilities licensed to provide alcoholism or chemical dependency services under Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code.
Treatment for nicotine use may be subject to separate deductibles, copayments, and overall cost limitations as determined by the policy.
Commencing January 1, 2019, a health insurer shall not issue, amend, sell, renew, or offer a policy of short-term limited duration health insurance in this state.
For purposes of this section, “short-term limited duration health insurance” means health insurance coverage provided pursuant to a health insurance policy that has an expiration date specified in the policy that is less than 12 months after the original effective date of the coverage.
The maximum amount a health insurer may require an insured to pay at the point of sale for a covered prescription drug is the lesser of the following:
The applicable cost-sharing amount for the prescription drug.
The retail price.
A health insurer shall not require a pharmacist or pharmacy to charge or collect from an insured a cost-sharing amount that exceeds the total retail price for the prescription drug.
The payment rendered shall constitute the applicable cost sharing and shall apply to the deductible, if any, and also to the maximum out-of-pocket limit in the same manner as if the insured had purchased the prescription drug by paying the cost-sharing amount.
On or before July 1, 1997, every disability insurer that covers hospital, medical, or surgical expenses, as described in subdivision (b), shall file with the department a written policy, which is not subject to approval or disapproval by the department, describing the manner in which the insurer determines if a second medical opinion is medically necessary and appropriate. Notice of the policy and information regarding the manner in which an insured may receive a second medical opinion shall be provided to all insureds in the insurer’s evidence of coverage. The written policy shall describe the manner in which requests for a second medical opinion are reviewed by the insurer.
This section shall only apply to disability insurers covering hospital, medical, or surgical expenses that contract with providers for alternative rates pursuant to Section 10133 or 11512 and that limit payments under those policies to services secured by insureds from providers charging alternative rates pursuant to the contracts.
Nothing in this section shall require the disability insurer to cover services or provide benefits that are not otherwise covered under the terms and conditions of the plan contract, nor to provide services through providers who are not under contract with the plan.
When requested by an insured or contracting health professional who is treating an insured, a disability insurer that covers hospital, medical, or surgical expenses shall authorize a second opinion by an appropriately qualified health care professional. Reasons for a second opinion to be provided or authorized shall include, but are not limited to, the following:
If the insured questions the reasonableness or necessity of recommended surgical procedures.
If the insured questions a diagnosis or plan of care for a condition that threatens loss of life, loss of limb, loss of bodily function, or substantial impairment, including, but not limited to, a serious chronic condition.
If clinical indications are not clear or are complex and confusing, a diagnosis is in doubt due to conflicting test results, or the treating health professional is unable to diagnose the condition and the insured requests an additional diagnosis.
If the treatment plan in progress is not improving the medical condition of the insured within an appropriate period of time given the diagnosis and plan of care, and the insured requests a second opinion regarding the diagnosis or continuance of the treatment.
If the insured has attempted to follow the plan of care or consulted with the initial provider concerning serious concerns about the diagnosis or plan of care.
For purposes of this section, an appropriately qualified health care professional is a primary care physician or a specialist who is acting within his or her scope of practice and who possesses a clinical background, including training and expertise, related to the particular illness, disease, condition or conditions associated with the request for a second opinion.
If an insured or participating health professional who is treating an insured requests a second opinion pursuant to this section, an authorization or denial shall be provided in an expeditious manner. When the insured’s condition is such that the insured faces an imminent and serious threat to his or her health, including, but not limited to, the potential loss of life, limb, or other major bodily function, or lack of timeliness that would be detrimental to the insured’s life or health or could jeopardize the insured’s ability to regain maximum function, the second opinion shall be rendered in a timely fashion appropriate to the nature of the insured’s condition, not to exceed 72 hours after the insurer’s receipt of the request, whenever possible. Each insurer shall file with the Department of Insurance timelines for responding to requests for second opinions for cases involving emergency needs, urgent care, and other requests by July 1, 2000, and within 30 days of any amendment to the timelines. The timelines shall be made available to the public upon request.
If an insurer approves a request by an insured for a second opinion, the insured shall be responsible only for the costs of applicable copayments that the insurer requires for similar referrals.
If the insured is requesting a second opinion about care from his or her primary care physician, the second opinion shall be provided by an appropriately qualified health care professional of the insured’s choice who is contracted with the insurer.
If the insured is requesting a second opinion about care from a specialist, the second opinion shall be provided by any provider of the same or equivalent specialty, of the insured’s choice, within the insurer’s provider network, if the insurance contract limits second opinions to within a network.
The insurer may limit second opinions to its network of providers if the insurance contract limits the benefit to within a network of providers and there is a participating provider who meets the standard specified in subdivision (b). If there is no participating provider who meets this standard, then the insurer shall authorize a second opinion by an appropriately qualified health professional outside of the insurer’s provider network. In approving a second opinion either inside or outside of the insurer’s provider network, the insurer shall take into account the ability of the insured to travel to the provider.
The insurer shall require the second opinion health professional to provide the insured and the initial health professional with a consultation report, including any recommended procedures or tests that the second opinion health professional believes appropriate. Nothing in this section shall be construed to prevent the insurer from authorizing, based on its independent determination, additional medical opinions concerning the medical condition of an insured.
If the insurer denies a request by an insured for a second opinion, it shall notify the insured in writing of the reasons for the denial and shall inform the insured of the right to dispute the denial, and the procedures for exercising that right.
If the insurance contract limits health care services to within a network of providers, in order for coverage to be in force, the insured shall obtain services only from a provider who is participating in, or under contract with, the insurer pursuant to the specific insurance contract under which the insured is entitled to health care service benefits.
This section shall not apply to any policy or contract of disability insurance that covers hospital, medical, or surgical expenses and that does not limit second opinions, subject to all other terms and conditions of the contract.
This section shall not apply to accident-only, specified disease, or hospital indemnity health insurance policies.
On or after January 1, 1986, an insurer issuing group health insurance shall offer coverage for orthotic and prosthetic devices and services under the terms and conditions that may be agreed upon between the group policyholder and the insurer. An insurer shall communicate the availability of that coverage to all group policyholders and to all prospective group policyholders with whom the insurer is negotiating. Coverage for prosthetic devices shall include original and replacement devices, as prescribed by a physician and surgeon or doctor of podiatric medicine acting within the scope of his or her license. Coverage for orthotic devices shall provide for coverage if the device, including original and replacement devices, is prescribed by a physician and surgeon or doctor of podiatric medicine acting within the scope of his or her license, or is ordered by a licensed health care provider acting within the scope of his or her license. An insurer shall have the right to conduct a utilization review to determine medical necessity before authorizing these services.
Notwithstanding subdivision (a), on and after July 1, 2007, the amount of the benefit for orthotic and prosthetic devices and services shall be no less than the annual and lifetime benefit maximums applicable to all benefits in the policy. A copayment, coinsurance, deductible, and maximum out-of-pocket amount applied to the benefit for orthotic and prosthetic devices and services shall be no more than the most common amounts contained in the policy.
This section shall not apply to Medicare supplement, vision-only, dental-only, or CHAMPUS supplement insurance, or to hospital indemnity, hospital-only, accident-only, or specified disease insurance that does not pay benefits on a fixed benefit, cash payment only basis.
Every policy of disability insurance that provides coverage for hospital, medical, or surgical expenses, that is issued, amended, delivered, or renewed on or after January 1, 2000, shall provide coverage for screening for, diagnosis of, and treatment for, breast cancer.
No policy of disability insurance that provides coverage for hospital, medical, or surgical expenses shall deny enrollment or coverage to an individual solely due to a family history of breast cancer, or who has had one or more diagnostic procedures for breast disease but has not developed or been diagnosed with breast cancer.
Every policy of disability insurance shall cover screening and diagnosis of breast cancer, consistent with generally accepted medical practice and scientific evidence, upon the referral of the insured’s participating physician.
Treatment for breast cancer under this section shall include coverage for prosthetic devices or reconstructive surgery to restore and achieve symmetry for the patient incident to a mastectomy. Coverage for prosthetic devices and reconstructive surgery shall be subject to the deductible and coinsurance conditions applied to the mastectomy and all other terms and conditions applicable to other benefits.
As used in this section, “mastectomy” means the removal of all or part of the breast for medically necessary reasons, as determined by a licensed physician and surgeon. Partial removal of a breast includes, but is not limited to, lumpectomy, which includes surgical removal of the tumor with clear margins.
As used in this section, “prosthetic devices” means the provision of initial and subsequent devices pursuant to an order of the patient’s physician and surgeon.
For purposes of this section, disability insurance does not include accident only, credit, disability income, specified disease and hospital confinement indemnity, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement, long-term care insurance, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers’ compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
An individual or group policy of disability insurance or self-insured employee welfare benefit plan shall be deemed to provide coverage for mammography for screening or diagnostic purposes upon the referral of a participating nurse practitioner, participating certified nurse-midwife, participating physician assistant, or participating physician, providing care to the patient and operating within the scope of practice provided under existing law.
This section does not prevent the application of copayment or deductible provisions in a policy, nor does this section require that a policy be extended to cover any other procedures under an individual or a group policy. This section does not authorize a policyholder to receive the services required to be covered by this section if those services are furnished by a nonparticipating provider, unless the policyholder is referred to that provider by a participating physician, nurse practitioner, or certified nurse-midwife providing care.
This section shall not apply to specialized health insurance, Medicare supplement insurance, CHAMPUS supplement insurance, or TRI-CARE supplement insurance, or to hospital indemnity, accident-only, or specified disease insurance.
Every policy of disability insurance which provides for the surgical procedure known as a laryngectomy and which is issued, amended, delivered, or renewed in this state on or after January 1, 1993, shall include coverage for prosthetic devices to restore a method of speaking for the patient incident to the laryngectomy.
Coverage for prosthetic devices shall be subject to the deductible and coinsurance conditions applied to the laryngectomy, and all other terms and conditions applicable to other benefits. As used in this section, “laryngectomy” means the removal of the larynx for medically necessary reasons, as determined by a licensed physician and surgeon.
Any provision in any policy issued, amended, delivered, or renewed in this state on or after January 1, 1993, which is in conflict with this section shall be of no force or effect.
As used in this section, “prosthetic devices” means and includes the provision of initial and subsequent prosthetic devices, including installation accessories, pursuant to an order of the patient’s physician and surgeon. “Prosthetic devices” does not include electronic voice producing machines.
On or after January 1, 1995, every policy of disability insurance that covers hospital, medical, or surgical expenses and is issued, amended, delivered, or renewed in this state shall include obstetrician-gynecologists as eligible primary care physicians provided they meet the insurer’s written eligibility criteria for all specialists seeking primary care physician status.
For purposes of this section, the term “primary care physician” means a physician, as defined in Section 14254 of the Welfare and Institutions Code, who has the responsibility for providing initial and primary care to patients, for maintaining the continuity of patient care, and for initiating referral for specialist care. This means providing care for the majority of health care problems, including, but not limited to, preventive services, acute and chronic conditions, and psychosocial issues.
Every individual or group policy of disability insurance that covers hospital, medical, or surgical benefits that is issued, amended, or renewed on or after January 1, 1999, shall be deemed to provide coverage for the screening and diagnosis of prostate cancer, including, but not limited to, prostate-specific antigen testing and digital rectal examinations, when medically necessary and consistent with good professional practice.
Nothing in this section shall be construed to require an individual or group policy to cover the surgical and other procedures known as radical prostatectomy, external beam radiation therapy, radiation seed implants, and combined hormonal therapy, or to prevent application of deductible or copayment provisions contained in the policy, nor shall this section be construed to require that coverage under an individual or group policy be extended to any other procedures.
This section shall not apply to specified accident, specified disease, hospital indemnity, Medicare supplement, or long-term care health insurance policies.
The Legislature finds and declares that the unique, private, and personal relationship between women patients and their obstetricians and gynecologists warrants direct access to obstetrical and gynecological physician services.
Each policy of disability insurance that covers hospital, medical, or surgical expenses, and that is issued, amended, delivered, or renewed in this state, shall allow a policyholder the option to seek obstetrical and gynecological physician services directly from an obstetrician and gynecologist or directly from a participating family physician and surgeon designated by the plan as providing obstetrical and gynecological services.
In implementing this section, a disability insurer may establish reasonable requirements governing utilization protocols and the use of obstetricians and gynecologists or family physicians and surgeons, as provided for in subdivision (b), if those requirements are consistent with the intent of this section, are customarily applied to other physicians and surgeons, including primary care physicians and surgeons, to whom the policyholder has direct access, and are no more restrictive for the provision of obstetrical and gynecological physician services. A policyholder shall not be required to obtain prior approval from another physician, another provider, or the insurer prior to obtaining direct access to obstetrical and gynecological physician services, but the insurer may establish reasonable requirements for the participating obstetrician and gynecologist or the family physician and surgeon, as provided in subdivision (b), to communicate with the policyholder’s primary care physician regarding the policyholder’s condition, treatment, and any need for followup care.
This section does not diminish the requirements of Section 10123.83.
For purposes of this section, the definitions in subdivision (a) of Section 2290.5 of the Business and Professions Code apply.
It is the intent of the Legislature to recognize the practice of telehealth as a legitimate means by which an individual may receive health care services from a health care provider without in-person contact with the health care provider.
A health insurer shall not require that in-person contact occur between a health care provider and a patient before payment is made for the services appropriately provided through telehealth, subject to the terms and conditions of the contract entered into between the policyholder or contractholder and the insurer, and between the insurer and its participating providers or provider groups, and pursuant to Section 10123.855.
A health insurer shall not limit the type of setting where services are provided for the patient or by the health care provider before payment is made for the covered services appropriately provided by telehealth, subject to the terms and conditions of the contract between the policyholder or contractholder and the insurer, and between the insurer and its participating providers or provider groups, and pursuant to Section 10123.855.
Notwithstanding any other law, this section does not authorize a health insurer to require the use of telehealth if the health care provider has determined that it is not appropriate.
A contract between a health insurer and a health care provider for an alternative rate of payment pursuant to Section 10133 shall specify that the health insurer shall reimburse the treating or consulting health care provider for the diagnosis, consultation, or treatment of an insured or policyholder appropriately delivered through telehealth services on the same basis and to the same extent that the health insurer is responsible for reimbursement for the same service through in-person diagnosis, consultation, or treatment.
This section does not limit the ability of a health insurer and a health care provider to negotiate the rate of reimbursement for a health care service provided pursuant to a contract subject to this section. Services that are the same, as determined by the provider’s description of the service on the claim, shall be reimbursed at the same rate whether provided in person or through telehealth. When negotiating a rate of reimbursement for telehealth services for which no in-person equivalent exists, a health insurer and the provider shall ensure the rate is consistent with subdivision (a) of Section 10123.137.
A policy of health insurance that provides benefits through contracts with providers at alternative rates of payment shall specify that the health insurer shall provide coverage for health care services appropriately delivered through telehealth services on the same basis and to the same extent that the health insurer is responsible for coverage for the same service through in-person diagnosis, consultation, or treatment. Coverage shall not be limited only to services delivered by select third-party corporate telehealth providers.
This section does not require a health insurer to deliver health care services through telehealth services.
This section does not require a health insurer to cover telehealth services provided by an out-of-network provider, unless coverage is required under other provisions of law.
A health insurer may offer a policy containing a copayment or coinsurance requirement for a health care service delivered through telehealth services, provided that the copayment or coinsurance does not exceed the copayment or coinsurance applicable if the same services were delivered through in-person diagnosis, consultation, or treatment. This subdivision does not require cost sharing for services provided through telehealth.
Services provided through telehealth and covered pursuant to this chapter shall be subject to the same deductible and annual or lifetime dollar maximum as equivalent services that are not provided through telehealth.
The definitions in subdivision (a) of Section 2290.5 of the Business and Professions Code apply to this section.
The provisions of this section are severable. If any provision of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
If a health insurer offers a service via telehealth to an insured through a third-party corporate telehealth provider, all of the following conditions shall be met:
The health insurer shall disclose to the insured in any promotion or coordination of the service both of the following:
The availability of receiving the service on an in-person basis or via telehealth, if available, from the insured’s primary care provider, treating specialist, or from another contracting individual health professional, a contracting clinic, or a contracting health facility consistent with the service and existing timeliness and geographic access standards in Section 10133.5 and regulations promulgated thereunder.
If the insured has coverage for out-of-network benefits, a reminder of the availability of receiving the service either via telehealth or on an in-person basis using the insured’s out-of-network benefits, and the cost sharing obligation for out-of-network benefits compared to in-network benefits and balance billing protections for services received from contracted providers.
After being notified pursuant to paragraph (1), the insured chooses to receive the service via telehealth through a third-party corporate telehealth provider.
The insured consents to the service consistent with Section 2290.5 of the Business and Professions Code.
If the insured is currently receiving specialty telehealth services for a mental or behavioral health condition, the insured is given the option of continuing to receive that service with the contracting individual health professional, a contracting clinic, or a contracting health facility.
For purposes of this section, the following definitions shall apply:
“Contracting individual health professional” means a physician and surgeon or other professional who is licensed by the state to deliver or furnish health care services, including mental or behavioral health services, and who is contracted with the insured’s health insurer. A “contracting individual health professional” shall not include a dentist licensed pursuant to the Dental Practice Act (Chapter 4 (commencing with Section 1600) of Division 2 of the Business and Professions Code). Application of this definition is not precluded by a contracting individual health professional’s affiliation with a group.
“Contracting clinic” means a clinic, as defined in Section 1200 of the Health and Safety Code, that is contracted with the insured’s health insurer.
“Contracting health facility” mean a health facility, as defined in Section 1250 of the Health and Safety Code, that is contracted with the insured’s health insurer.
“Third-party corporate telehealth provider” means a corporation directly contracted with a health insurer that provides health care services exclusively through a telehealth technology platform and has no physical location at which a patient can receive services.
If services are provided to an insured through a third-party corporate telehealth provider, a health insurer shall comply with all of the following:
A health insurer shall include in its reports submitted to the department pursuant to Section 10133.5 and regulations adopted pursuant to that section, in a manner specified by the commissioner, all of the following for each product type:
For each enrollee that has accessed services for a third-party corporate telehealth provider, enrollee demographic data, including gender and age, and any other information as determined by the department.
The commissioner shall investigate and take enforcement action, as appropriate, against a health insurer that fails to comply with these requirements and shall periodically evaluate contracts between health insurers and third-party corporate telehealth providers to determine if any audit, evaluation, or enforcement actions should be undertaken by the commissioner.
This section shall not apply when an insured seeks services directly from a third-party corporate telehealth provider.
A health insurer that issues, sells, renews, or offers a policy covering dental services, including a specialized health insurance policy covering dental services that offers a service via telehealth to an insured through a third-party corporate telehealth provider shall report to the department, in a manner specified by the department, all of the following for each product type:
The total number of services delivered via telehealth by a third-party corporate telehealth provider.
For each third-party corporate telehealth provider with which it contracts, the percentage of the third-party telehealth provider’s contracted providers available to the insurer’s insured that are also network providers.
For each third-party corporate telehealth provider with which it contracts, the types of telehealth services utilized by insureds, including information on the gender and age of the insured, and any other information as determined by the department.
A health insurer that issues, sells, renews, or offers a policy covering dental services, including a specialized health care policy covering dental services that offers a service via telehealth to an insured through a third-party corporate telehealth provider, shall disclose to the insured the impact of third-party telehealth visits on the insured’s benefit limitations, including frequency limitations and the insured’s annual maximum.
Section 10123.856 shall not apply to specialized health insurance policies covering dental services.
For the purposes of this section, “third-party corporate telehealth provider” means a corporation that provides dental services exclusively through a telehealth technology platform and has no physical location at which a patient can receive services, and is directly contracted with a health insurer that issues, sells, renews, or offers a policy, including a specialized health insurance policy, that covers dental services.
Every policy of disability insurance covering hospital, surgical, or medical expenses that is issued, amended, renewed, or delivered on or after January 1, 1999, that provides coverage for surgical procedures known as mastectomies and lymph node dissections, shall do all of the following:
Allow the length of a hospital stay associated with those procedures to be determined by the attending physician and surgeon in consultation with the patient, postsurgery, consistent with sound clinical principles and processes. No disability insurer shall require a treating physician and surgeon to receive prior approval in determining the length of hospital stay following those procedures.
Cover prosthetic devices or reconstructive surgery, including devices or surgery to restore and achieve symmetry for the patient incident to the mastectomy. Coverage for prosthetic devices and reconstructive surgery shall be subject to the deductible and coinsurance conditions applicable to other benefits.
Cover all complications from a mastectomy, including lymphedema.
As used in this section, all of the following definitions apply:
“Coverage for prosthetic devices or reconstructive surgery” means any initial and subsequent reconstructive surgeries or prosthetic devices, and followup care deemed necessary by the attending physician and surgeon.
“Prosthetic devices” means and includes the provision of initial and subsequent prosthetic devices pursuant to an order of the patient’s physician and surgeon.
“Mastectomy” means the removal of all or part of the breast for medically necessary reasons, as determined by a licensed physician and surgeon. Partial removal of a breast includes, but is not limited to, lumpectomy, which includes surgical removal of the tumor with clear margins.
“To restore and achieve symmetry” means that, in addition to coverage of prosthetic devices and reconstructive surgery for the diseased breast on which the mastectomy was performed, prosthetic devices and reconstructive surgery for a healthy breast is also covered if, in the opinion of the attending physician and surgeon, this surgery is necessary to achieve normal symmetrical appearance.
No individual, other than a licensed physician and surgeon competent to evaluate the specific clinical issues involved in the care requested, may deny requests for authorization of health care services pursuant to this section.
No insurer shall do any of the following in providing the coverage described in subdivision (a):
On or after July 1, 1999, every insurer shall include notice of the coverage required by this section in the insurer’s evidence of coverage or certificate of insurance.
Nothing in this section shall be construed to limit retrospective utilization review and quality assurance activities by the insurer.
This section shall only apply to health benefit plans, as defined in subdivision (a) of Section 10198.6, except that for accident only, specified disease, or hospital indemnity insurance, coverage for benefits under this section shall apply to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy. Nothing in this section shall be construed as imposing a new benefit mandate on accident only, specified disease, or hospital indemnity insurance.
A health insurance policy that provides outpatient prescription drug benefits and is issued, amended, or renewed on or after the operative date of this section shall include coverage for United States Food and Drug Administration-approved treatments used to treat menopausal symptoms, as medically necessary, including, but not limited to, all of the following:
Hormone therapy, including combination estrogen and hormone medicines, combination estrogen and progestin medicines, estrogen-only and progestin-only medicines, vaginal estrogen, and topical hormone therapy. This does not include glucagon-like peptide-1 or glucagon-like peptide-1 receptor agonists used solely for weight loss.
Low-dose antidepressants.
Anticonvulsants.
Medications to prevent or treat osteoporosis.
Nonhormonal medications for vasomotor-related symptoms.
A health insurance policy that is issued, amended, or renewed on or after January 1, 2027, shall include a program to ensure insured individuals have access to current menopause information and covered items and services.
For the program to satisfy subdivision (b), the insurer shall do all of the following:
Provide, no later than July 1, 2027, and biannually thereafter, all contracted providers delivering primary care with information about current clinical care recommendations for menopause care, including hormone therapy, from the Menopause Society or other nationally recognized professional association. The insurer shall encourage providers delivering primary care to review the information.
Establish and maintain a policy to reimburse providers for provision of services related to menopause care, including services integrated with primary care and obstetrician-gynecologist services. The policy shall identify the Current Procedural Terminology (CPT) codes for services commonly used to evaluate, diagnose, and treat symptoms resulting from menopause.
Establish and maintain a policy to provide insured individuals who may experience menopause and who are 40 years of age and older with an annual menopause assessment during primary care and obstetrician-gynecologist appointments. Insured individuals may opt out of receiving the assessments. The policy shall include a copy of the assessment tool and information on how it was developed or chosen.
Provide insured individuals who may experience menopause and who are 40 years of age and older with a notice that includes a definition of menopause and that lists the covered items and services used to evaluate and treat symptoms resulting from menopause. The first notice shall be sent within 60 days of the insured individual’s 40th birthday and shall be sent biannually thereafter. Insured individuals may opt out of receiving the notices. The notice shall include a description of at least all of the following types of federal Food and Drug Administration-approved items and services:
Hormone therapy in the full range of formulations and methods of administration.
Low-dose antidepressants.
Anticonvulsants.
Medications to prevent or treat osteoporosis.
Nonhormonal medications for vasomotor-related symptoms.
Establish and maintain a policy to contract with providers delivering primary care, including advanced practice providers such as licensed nurse practitioners and certified nurse-midwives, who hold a certification or credential in menopause care from a nationally recognized organization, such as the Menopause Society or other similar organization. The policy shall state what steps the insurer will take to incentivize providers to receive and maintain the certification or credential.
The health insurer shall file with the commissioner within six months of the operative date of this statute the policies and notices specified in subdivision (c). The insurer shall also disclose the policies to network providers, provider groups, and delegated entities that may be impacted by the policies and notices and shall attest to that disclosure to the commissioner.
Coverage for the treatment options pursuant to this section shall be provided without discrimination on the basis of gender expression or identity.
This section does not apply to accident-only, specified disease, hospital indemnity, Medicare supplement, dental-only, or vision-only insurance policies, except to the extent they provide coverage for the treatment of symptoms resulting from menopause.
For purposes of this section, “menopause” includes perimenopause, menopause, and postmenopause.
A health insurer shall base a medical necessity determination or the utilization review criteria that the insurer, and an entity acting on the insurer’s behalf, applies to determine the medical necessity of health care services and benefits for the treatment of symptoms resulting from menopause on current generally accepted standards of menopause care.
Beginning January 1, 2027, when conducting utilization review of all covered health care services and benefits for the treatment of symptoms resulting from menopause, a health insurer shall apply criteria and guidelines developed by the Menopause Society or another nationally recognized professional association, as specified by the commissioner.
In conducting utilization review involving patient care decisions that are within the scope of the sources specified in subdivision (b), a health insurer shall not apply different, additional, conflicting, or more restrictive utilization review criteria than the criteria and guidelines set forth in those sources. This subdivision does not prohibit an insurer from applying utilization review criteria to health care services and benefits for menopause care that meet either of the following criteria:
Are outside the scope of the criteria and guidelines set forth in the sources specified in subdivision (b), if the utilization review criteria were developed in accordance with subdivision (a).
Relate to advancements in technology or types of care that are not covered in the most recent versions of the sources specified in subdivision (b), if the utilization review criteria were developed in accordance with subdivision (a).
If a health insurer purchases or licenses utilization review criteria pursuant to paragraph (1) or (2) of subdivision (c), the insurer shall verify and document before use that the criteria were developed in accordance with subdivision (a).
A health insurer shall not adopt, impose, or enforce terms in its policies or provider agreements, in writing or in operation, that undermine, alter, or conflict with this section.
For purposes of this section, the following definitions apply:
“Generally accepted standards of menopause care” means standards of care and clinical practice that are generally recognized by health care providers practicing in relevant clinical specialties, including gynecology, endocrinology, and family practice. Valid, evidence-based sources establishing generally accepted standards of menopause care include peer reviewed scientific studies and medical literature, clinical practice guidelines and recommendations of nonprofit health care provider professional associations, specialty societies, and federal government agencies, and drug labeling approved by the United States Food and Drug Administration.
“Menopause” includes perimenopause, menopause, and postmenopause.
“Utilization review” means either of the following:
Prospectively, retrospectively, or concurrently reviewing and approving, modifying, delaying, or denying, based in whole or in part on medical necessity, requests by health care providers, insured individuals, or their authorized representatives for coverage of health care services prior to, retrospectively, or concurrent with the provision of health care services to insured individuals.
Evaluating the medical necessity, appropriateness, or efficacy of health care services, benefits, or procedures, under any circumstances, to determine if a health care service or benefit subject to a medical necessity coverage requirement in a health insurance policy is covered as medically necessary for an insured individual.
“Utilization review criteria” means criteria, standards, protocols, or guidelines used by a health insurer to conduct utilization review.
This section applies to all health care services and benefits for the treatment of symptoms resulting from menopause covered by a health insurance policy, including prescription drugs.
This section applies to a health insurer that conducts utilization review and an entity or contracting provider that performs utilization review or utilization management functions on an insurer’s behalf.
This section does not apply to accident-only, specified disease, hospital indemnity, Medicare supplement, dental-only, or vision-only insurance policies, except to the extent they provide coverage for the treatment of symptoms resulting from menopause.
If the commissioner determines that a health insurer has violated this section, the commissioner may, after appropriate notice and opportunity for hearing in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), by order, assess a civil penalty not to exceed five thousand dollars ($5,000) for each violation, or, if a violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement, interpret, or make specific this section and Section 10123.861 through guidance or similar instructions, without taking regulatory action, until the department adopts regulations pursuant to the Administrative Procedure Act. The department shall consult with the Department of Managed Health Care and interested stakeholders in developing guidance.
The provision of medically necessary pasteurized donor human milk obtained from a tissue bank licensed pursuant to Chapter 4.1 (commencing with Section 1635) of Division 2 of the Health and Safety Code is a basic health care service, as described in Sections 10112.27 and 10112.281 and any regulations adopted thereunder.
Commencing no later than July 1, 2012, an individual health insurance policy shall provide coverage for maternity services for all insureds covered under the policy.
For purposes of this section, “maternity services” include prenatal care, ambulatory care maternity services, involuntary complications of pregnancy, neonatal care, and inpatient hospital maternity care, including labor and delivery and postpartum care. This definition of “maternity services” shall remain in effect until the time as federal regulations and guidance issued pursuant to the federal Patient Protection and Affordable Care Act (Public Law 111-148) define the scope of benefits to be provided under the maternity benefit requirement of that act, after which time the definition of that term under the federal act and associated regulations and guidance shall apply for purposes of this section.
This section shall not apply to specialized health insurance, Medicare supplement insurance, CHAMPUS supplement insurance, or TRI-CARE supplement insurance, or to hospital indemnity, accident-only, or specified disease insurance.
Commencing no later than July 1, 2012, a group health insurance policy shall provide coverage for maternity services for all insureds covered under the policy.
For purposes of this section, “maternity services” include prenatal care, ambulatory care maternity services, involuntary complications of pregnancy, neonatal care, and inpatient hospital maternity care, including labor and delivery and postpartum care. This definition of “maternity services” shall remain in effect until the time as federal regulations and guidance issued pursuant to the federal Patient Protection and Affordable Care Act (Public Law 111-148) define the scope of benefits to be provided under the maternity benefit requirement of that act, after which time the definition of that term under the federal act and associated regulations and guidance shall apply for purposes of this section.
This section shall not apply to specialized health insurance, Medicare supplement insurance, CHAMPUS supplement insurance, or TRI-CARE supplement insurance, or to hospital indemnity, accident-only, or specified disease insurance.
A health insurer shall develop a maternal mental health program designed to promote quality and cost-effective outcomes. The program shall consist of at least one maternal mental health screening to be conducted during pregnancy, at least one additional screening to be conducted during the first six weeks of the postpartum period, and additional postpartum screenings, if determined to be medically necessary and clinically appropriate in the judgment of the treating provider. The program shall be developed consistent with sound clinical principles and processes, and shall include quality measures to encourage screening, diagnosis, treatment, and referral. The program guidelines and criteria shall be provided to relevant medical providers, including all contracting obstetric providers. As part of the maternal mental health program, a health insurer is encouraged to improve screening, treatment, and referral to maternal mental health services, include coverage for doulas, incentivize training opportunities for contracting obstetric providers, and educate insureds about the program.
For the purposes of this section:
“Contracting obstetric provider” means an individual who is certified or licensed pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code, or an initiative act referred to in that division, and who is contracted with the insured’s health insurer to provide services under the insured’s health insurance policy.
“Maternal mental health” means a mental health condition that occurs during pregnancy or during the postpartum period and includes, but is not limited to, postpartum depression.
This section does not apply to specialized health insurers, except behavioral health-only insurers that provide coverage for professional mental health services.
On or before January 1, 2025, a health insurer shall develop a maternal and infant health equity program that addresses racial health disparities in maternal and infant health outcomes through the use of doulas. This may be achieved by integrating the program into existing maternal mental health programs, including those encouraging the coverage of doula care, or by expanding existing doula programs.
A contract between a health insurer and a health care provider issued, amended, or renewed on or after January 1, 2025, shall authorize a provider to separately bill for devices, implants, or professional services, or a combination thereof, associated with immediate postpartum contraception if the birth takes place in a general acute care hospital or licensed birth center. The provider contract shall not consider those devices, implants, or services to be part of a payment for a general obstetric procedure.
For purposes of this section, “immediate postpartum contraception” means the postpartum insertion of intrauterine devices or contraceptive implants performed before the insured is discharged from the general acute care hospital or licensed birth center and includes the devices or implants themselves.
This section does not affect an insured’s right to directly access women’s health care services, including contraceptive services, and informed consent.
No individual or group policy of disability insurance that provides coverage for hospital, medical, and surgical benefits that is issued, amended, renewed, or delivered on or after the effective date of the act adding this section, that provides maternity coverage, shall do any of the following:
Restrict benefits for inpatient hospital care to a time period less than 48 hours following a normal vaginal delivery and less than 96 hours following a delivery by caesarean section. However, coverage for inpatient hospital care may be for a time period less than 48 or 96 hours if both of the following conditions are met:
The decision to discharge the mother and newborn before the 48- or 96-hour time period is made by the treating physicians in consultation with the mother.
The policy covers a postdischarge followup visit for the mother and newborn within 48 hours of discharge, when prescribed by the treating physician. The visit shall be provided by a licensed health care provider whose scope of practice includes postpartum care and newborn care. The visit shall include, at a minimum, parent education, assistance and training in breast or bottle feeding, and the performance of any necessary maternal or neonatal physical assessments. The treating physician shall disclose to the mother the availability of a postdischarge visit, including an in-home visit, physician office visit, or a visit to a facility under contract with the insurer. The treating physician, in consultation with the mother, shall determine whether the postdischarge visit shall occur at home, the contracted facility, or the treating physician’s office after assessment of certain factors. These factors shall include, but not be limited to, the transportation needs of the family, and environmental and social risks.
Reduce or limit the reimbursement of the attending provider for providing care to an individual insured in accordance with the coverage requirements.
Provide monetary or other incentives to an attending provider to induce the provider to provide care to an individual insured in a manner inconsistent with the coverage requirements.
Deny a mother or her newborn eligibility, or continued eligibility, to enroll or to renew coverage solely to avoid the coverage requirements.
Provide monetary payments or rebates to a mother to encourage her to accept less than the minimum coverage requirements.
Restrict inpatient benefits for the second day of hospital care in a manner that is less than favorable to the mother or her newborn than those provided during the preceding portion of the hospital stay.
Require the treating physician to obtain authorization from the insurer prior to prescribing any services covered by this section.
Every individual or group policy of disability insurance that provides coverage for hospital, medical, and surgical benefits shall include notice of the coverage specified in subdivision (a) in the insurer’s evidence of coverage or certificate of insurance for evidences of coverage or certificates of insurance issued on or after January 1, 1998.
Every insurer that issues a policy of disability insurance under paragraph (1) shall provide additional written notice to all females between the ages of 10 and 50 who are covered under those policies of the coverage under subdivision (a) within 60 days of the effective date of this act. The insurer shall provide additional written notice of the coverage specified in subdivision (a) during the course of prenatal care if both of the following conditions are met:
The insurer previously notified policyholders that hospital stays for delivery would be inconsistent with the requirement in subparagraph (A) of paragraph (1) of subdivision (a).
The insurer received notice, whether by receipt of a claim, a request for preauthorization for pregnancy-related services, or other actual notice that the insured is pregnant.
Nothing in this section shall be construed to prohibit an insurer from negotiating the level and type of reimbursement with a provider for care provided in accordance with this section.
Every policy of health insurance covering hospital, medical, or surgical expenses that is issued, amended, renewed, or delivered in this state on or after July 1, 1999, shall cover reconstructive surgery, as defined in subdivision (c), that is necessary to achieve the purposes specified in subparagraph (A) or (B) of paragraph (1) of subdivision (c). Nothing in this section shall be construed to require a policy to provide coverage for cosmetic surgery, as defined in subdivision (d). This section shall only apply to health benefit plans, as defined in subdivision (a) of Section 10198.6, except that for accident only, specified disease, or hospital indemnity insurance, coverage for benefits under this section shall apply to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy. Nothing in this section shall be construed as imposing a new benefit mandate on accident only, specified disease, or hospital indemnity insurance.
No individual, other than a licensed physician competent to evaluate the specific clinical issues involved in the care requested, may deny initial requests for authorization of coverage for treatment pursuant to this section. For a treatment authorization request submitted by a podiatrist or an oral and maxillofacial surgeon, the request may be reviewed by a similarly licensed individual, competent to evaluate the specific clinical issues involved in the care requested.
“Reconstructive surgery” means surgery performed to correct or repair abnormal structures of the body caused by congenital defects, developmental abnormalities, trauma, infection, tumors, or disease to do either of the following:
To improve function.
To create a normal appearance, to the extent possible.
As of July 1, 2010, “reconstructive surgery” shall include medically necessary dental or orthodontic services that are an integral part of reconstructive surgery, as defined in paragraph (1), for cleft palate procedures.
For purposes of this section, “cleft palate” means a condition that may include cleft palate, cleft lip, or other craniofacial anomalies associated with cleft palate.
Nothing in this section shall be construed to require an insurer to provide coverage for cosmetic surgery. “Cosmetic surgery” means surgery that is performed to alter or reshape normal structures of the body in order to improve the patient’s appearance.
In interpreting the definition of reconstructive surgery, an insurer may utilize prior authorization and utilization review that may include, but need not be limited to, any of the following:
Denial of the proposed surgery if there is another more appropriate surgical procedure that will be approved for the enrollee.
Denial of the proposed surgery or surgeries if the procedure or procedures, in accordance with the standard of care as practiced by physicians specializing in reconstructive surgery, offer only a minimal improvement in the appearance of the enrollee.
Denial of payment for procedures performed without prior authorization.
On and after July 1, 2000, every policy of disability insurance issued, amended, delivered, or renewed in this state that provides coverage for hospital, medical, or surgical expenses shall provide coverage for the testing and treatment of phenylketonuria (PKU) under the terms and conditions of the policy.
Coverage for treatment of phenylketonuria (PKU) shall include those formulas and special food products that are part of a diet prescribed by a licensed physician and managed by a health care professional in consultation with a physician who specializes in the treatment of metabolic disease and who participates in or is authorized by the insurer, provided that the diet is deemed medically necessary to avert the development of serious physical or mental disabilities or to promote normal development or function as a consequence of phenylketonuria (PKU).
Coverage pursuant to this section is not required except to the extent that the cost of necessary formulas and special food products exceeds the cost of a normal diet.
For purposes of this section, the following definitions shall apply:
“Formula” means an enteral product or enteral products for use at home that are prescribed by a physician or nurse practitioner, or ordered by a registered dietician upon referral by a health care provider authorized to prescribe dietary treatments, as medically necessary for the treatment of phenylketonuria (PKU).
“Special food product” means a food product that is both of the following:
Prescribed by a physician or nurse practitioner for the treatment of phenylketonuria (PKU) and is consistent with the recommendations and best practices of qualified health professionals with expertise germane to, and experience in the treatment and care of, phenylketonuria (PKU). It does not include a food that is naturally low in protein, but may include a food product that is specially formulated to have less than one gram of protein per serving.
Used in place of normal food products, such as grocery store foods, used by the general population.
This section shall not apply to vision-only, dental-only, accident-only, specified disease, hospital indemnity, Medicare supplement, long-term care, or disability income insurance, except that for accident only, specified disease, or hospital indemnity coverage, coverage for benefits under this section shall apply to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy or contract. Nothing in this section shall be construed as imposing a new benefit mandate on accident only, specified disease, or hospital indemnity insurance.
On and after January 1, 1980, every group policy of disability insurance which covers hospital, medical, or surgical expenses on a group basis, and which offers maternity coverage in such groups, shall also offer coverage for prenatal diagnosis of genetic disorders of the fetus by means of diagnostic procedures in cases of high-risk pregnancy. Such coverage shall be offered under such terms and conditions as may be agreed upon between the insurer and the group policyholder. Every group policy of disability insurance shall communicate the availability of such coverage to all group policyholders and to all groups with whom they are negotiating.
On or after January 1, 2009, every insurer that issues, amends, or renews an individual or group policy of health insurance that covers hospital, medical, or surgical expenses shall provide coverage for human immunodeficiency virus (HIV) testing, regardless of whether the testing is related to a primary diagnosis.
It shall remain within the sole discretion of the health insurer as to the provider of the testing with which it chooses to contract. Reimbursement shall be provided according to the respective principles and policies of the health insurer.
Every disability insurer transacting business in this state shall, on or after January 1, 1979, make available and offer to include in every group disability policy providing hospital, medical or surgical expense benefits payable on an expense incurred basis, to be delivered or issued for delivery in this state, benefits for home health care as set forth in this section provided by a licensed home health agency subject to the right of the group policyholder to reject the benefits or to select any alternative level of benefits as may be offered by the insurer.
In rural areas where there are no licensed health agencies or in which the supply of home health agency services does not meet the needs of the community, the services of visiting nurses, if available, may be substituted for the services of the home health agency, subject to the terms and conditions set forth in subdivision (c).
Every self-insured employee welfare benefit plan containing hospital, medical, or surgical expense benefits or service benefits delivered on or after January 1, 1979, shall make available and offer to include benefits for home health care as set forth in this section provided by a licensed home health agency subject to the right of the employer or the employee organization to reject the benefits or accept any alternative level of benefits as may be offered by the self-insured welfare benefit plan.
In rural areas where there are no licensed health agencies or in which the supply of home health agency services does not meet the needs of the community, the services of visiting nurses, if available, may be substituted for the services of the home health agency, subject to the terms and conditions set forth in subdivision (c).
As used in this section:
“Home health care” means the continued care and treatment of an insured person who is under the direct care and supervision of a physician but only if (i) continued hospitalization would have been required if home health care were not provided, (ii) the home health treatment plan is established and approved by a physician within 14 days after an inpatient hospital confinement has ended and such treatment plan is for the same or related condition for which the insured person was hospitalized, and (iii) home health care commences within 14 days after the hospital confinement has ended. “Home health services” consist of, but shall not be limited to, the following: (i) part-time or intermittent skilled nursing services provided by a registered nurse or licensed vocational nurse; (ii) part-time or intermitent home health aide services which provide supportive services in the home under the supervision of a registered nurse or a physical, speech or occupational therapist; (iii) physical, occupational or speech therapy; and (iv) medical supplies, drugs and medicines prescribed by a physician and related pharmaceutical services, and laboratory services to the extent such charges or costs would have been covered under the policy if the insured person had remained in the hospital.
“Home health agency” means a public or private agency or organization licensed by the State Department of Health Services in accordance with the provisions of Chapter 8 (commencing with Section 1725) of Division 2 of the Health and Safety Code.
The policy may contain a limitation on the number of home health visits for which benefits are payable, but the number of such visits shall not be less than 100 in any calendar year or in any continuous 12-month period for each person covered under the policy. Except for a home health aide, each visit by a representative of a home health agency shall be considered as one home health visit. A visit of four hours or less by a home health aide shall be considered as one home health visit.
Home health care benefits may be subject to an annual deductible of not more than fifty dollars ($50) for each person covered under a policy, and may be subject to a coinsurance provision which provides coverage of not less than 80 percent of the reasonable charges for such services.
Nothing in this section shall preclude an insurer or plan offering other health care benefits provided in the home.
No insurer shall deny a claim under a group disability policy for hospital, medical, surgical, dental, or optometric services for the sole reason that the individual served was confined in a city or county jail as a prisoner, or was a juvenile detained in any facility if such individual is otherwise entitled to benefits under such group disability policy and incurs expense for the services so provided during confinement. This provision shall apply to any group disability policy entered into or renewed on or after July 1, 1980, whether or not such policy contains any provision terminating benefits under such policy upon an individual’s confinement in a city or county jail or juvenile detention facility.
No self-insured employee welfare benefit plan shall deny a claim under a plan for hospital, medical, surgical, dental, or optometric services for the reason that the individual served was confined in a city or county jail as a prisoner, or was a juvenile detained in any facility, if such individual is otherwise entitled to benefits under such plan and incurs expense for the services so provided during confinement. This provision shall apply to any self-insured employee welfare benefit plan entered into or renewed on or after July 1, 1980, whether or not such plan contains any provision terminating benefits under such plan upon an individual’s confinement in a city or county jail or juvenile detention facility.
Every health insurer, including those insurers that contract for alternative rates of payment pursuant to Section 10133, and every self-insured employee welfare benefit plan that will affect the choice of physician, hospital, or other health care providers shall include within its disclosure form and within its evidence or certificate of coverage a statement clearly describing how participation in the policy or plan may affect the choice of physician, hospital, or other health care providers, and describing the nature and extent of the financial liability that is, or that may be, incurred by the insured, enrollee, or covered dependents if care is furnished by a provider that does not have a contract with the insurer or plan to provide service at alternative rates of payment pursuant to Section 10133. The form shall clearly inform prospective insureds or plan enrollees that participation in the policy or plan will affect the person’s choice in this regard by placing the following statement in a conspicuous place on all material required to be given to prospective insureds or plan enrollees including promotional and descriptive material, disclosure forms, and certificates and evidences of coverage:PLEASE READ THE FOLLOWING INFORMATION SO YOU WILL KNOW FROM WHOM OR WHAT GROUP OF PROVIDERS HEALTH CARE MAY BE OBTAINED
It is not the intent of this section to require that the names of individual health care providers be enumerated to prospective insureds or enrollees.
If a health insurer providing coverage for hospital, medical, or surgical expenses provides a list of facilities to patients or contracting providers, the insurer shall include within the provider listing a notification that insureds or enrollees may contact the insurer in order to obtain a list of the facilities with which the health insurer is contracting for subacute care and/or transitional inpatient care.
Every insurer issuing group or individual policies of health insurance that cover hospital, medical, or surgical expenses, including those telehealth services covered by the insurer as defined in subdivision (a) of Section 2290.5 of the Business and Professions Code, shall reimburse a complete claim or portion thereof, whether in state or out of state, for those expenses as soon as practicable, but no later than 30 calendar days after receipt of the claim by the insurer, unless the insurer is contesting or denying the claim or a portion thereof, in which case the claimant shall be notified, in writing, that the claim is contested or denied, within 30 calendar days after receipt of the claim by the insurer. The notice that a claim is being contested or denied shall identify the portion of the claim that is contested or denied and the specific reasons including for each reason the factual and legal basis known at that time by the insurer for contesting or denying the claim. If the reason is based solely on facts or solely on law, the insurer is required to provide only the factual or the legal basis for its reason for contesting or denying the claim. The insurer shall provide a copy of the notice to each insured who received services pursuant to the claim that was contested or denied and to the insured’s health care provider that provided the services at issue. The notice shall advise the provider who submitted the claim on behalf of the insured or pursuant to a contract for alternative rates of payment and the insured that either may seek review by the department of a claim that the insurer contested or denied, and the notice shall include the address, internet website address, and telephone number of the unit within the department that performs this review function. The notice to the provider may be included on either the explanation of benefits or remittance advice and shall also contain a statement advising the provider of its right to enter into the dispute resolution process described in Section 10123.137. The notice to the insured may also be included on the explanation of benefits.
If an uncontested claim is not reimbursed by delivery to the claimant’s address of record within 30 calendar days after receipt, interest shall accrue at the rate of 15 percent per annum beginning with the first calendar day after the 30-calendar-day period. An insurer shall automatically include in its payment of the claim all interest that has accrued pursuant to this section without requiring the claimant to submit a request for the interest amount. An insurer failing to comply with this requirement shall pay the claimant a fee of the greater of an additional fifteen dollars ($15) or 10 percent of the accrued interest.
For purposes of this section, a claim, or portion thereof, is reasonably contested when the insurer has not received a completed claim and all information necessary to determine payer liability for the claim, or has not been granted reasonable access to information concerning provider services. Information necessary to determine liability for the claims includes, but is not limited to, reports of investigations concerning fraud and misrepresentation, and necessary consents, releases, and assignments, a claim on appeal, or other information necessary for the insurer to determine the medical necessity for the health care services provided to the claimant. An insurer may not contest a complete claim that is consistent with an approved prior authorization request if the prior authorization approval has been provided in the appropriate field on the claim.
If an insurer has received all of the information necessary to determine payer liability for a contested claim and has not reimbursed a claim determined to be payable within 30 calendar days of receipt of that information, interest shall accrue and be payable at a rate of 15 percent per annum beginning with the first calendar day after the 30-calendar-day period.
The obligation of the insurer to comply with this section shall not be deemed to be waived when the insurer requires its contracting entities to pay claims for covered services.
The department may issue guidance and regulations relating to this section. The guidance and regulations shall not be subject to the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) until December 31, 2027.
After January 1, 2028, the department may issue regulations relating to this section subject to the rulemaking provisions of the Administrative Procedure Act ((Chapter 3.5 commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) until December 31, 2030.
This section shall become operative on January 1, 2026.
An insurer shall pay a provider for duplicating all information it requests in connection with a contested claim, and for patient records, as follows:
Except as provided in paragraph (2), the insurer shall pay the provider for copying twenty-five cents ($0.25) per page, or fifty cents ($0.50) per page for records that are copied from microfilm.
The insurer shall pay the provider all reasonable costs, not exceeding actual costs, incurred by the provider in providing the insurer copies of X-rays, or tracings derived from electrocardiography, electroencephalography, or electromyography.
No insurer subject to this section shall request information that is not reasonably necessary to determine liability for payment of a claim.
The obligation of the insurer to comply with this section shall not be deemed to be waived when the insurer requires its contracting entities to pay claims for covered services.
This section shall not apply to contractual arrangements between an insurer and its agent, an insurer and a provider, or a provider and its agent for the costs associated with the provision of duplication services.
Every disability insurer that covers hospital, medical, or surgical expenses and that reviews and approves the medical necessity or appropriateness of requests by providers prior to, or concurrently with, the provision of health care services to insureds, shall prominently indicate on each insured’s identification card whether a separate telephone number must be called to verify eligibility for benefits and coverage.
A written notice shall accompany the initial mailing of the insured’s identification card modified pursuant to subdivision (a). The notice shall indicate that the insured’s identification card includes a telephone number that may be used to verify eligibility for benefits and coverage. The notice shall also inform the insured that review and approval of a health care service based on medical necessity or appropriateness does not constitute eligibility for benefits and coverage pursuant to the policy or contract.
Every disability insurer, or an entity with which it contracts for services that include utilization review or utilization management functions, that covers hospital, medical, or surgical expenses and that prospectively, retrospectively, or concurrently reviews and approves, modifies, delays, or denies, based in whole or in part on medical necessity, requests by providers prior to, retrospectively, or concurrent with the provision of health care services to insureds, or that delegates these functions to medical groups or independent practice associations or to other contracting providers, shall comply with this section.
A disability insurer that is subject to this section, or any entity with which an insurer contracts for services that include utilization review or utilization management functions, shall have written policies and procedures establishing the process by which the insurer prospectively, retrospectively, or concurrently reviews and approves, modifies, delays, or denies, based in whole or in part on medical necessity, requests by providers of health care services for insureds. These policies and procedures shall ensure that decisions based on the medical necessity of proposed health care services are consistent with criteria or guidelines that are supported by clinical principles and processes. These criteria and guidelines shall be developed pursuant to subdivision (f). These policies and procedures, and a description of the process by which an insurer, or an entity with which an insurer contracts for services that include utilization review or utilization management functions, reviews and approves, modifies, delays, or denies requests by providers prior to, retrospectively, or concurrent with the provision of health care services to insureds, shall be filed with the commissioner, and shall be disclosed by the insurer to insureds and providers upon request, and by the insurer to the public upon request.
If the number of insureds covered under health benefit plans in this state that are issued by an insurer subject to this section constitute at least 50 percent of the number of insureds covered under health benefit plans issued nationwide by that insurer, the insurer shall employ or designate a medical director who holds an unrestricted license to practice medicine in this state issued pursuant to Section 2050 of the Business and Professions Code or the Osteopathic Initiative Act, or the insurer may employ a clinical director licensed in California whose scope of practice under California law includes the right to independently perform all those services covered by the insurer. The medical director or clinical director shall ensure that the process by which the insurer reviews and approves, modifies, delays, or denies, based in whole or in part on medical necessity, requests by providers prior to, retrospectively, or concurrent with the provision of health care services to insureds, complies with the requirements of this section. Nothing in this subdivision shall be construed as restricting the existing authority of the Medical Board of California.
If an insurer subject to this section, or individuals under contract to the insurer to review requests by providers, approve the provider’s request pursuant to subdivision (b), the decision shall be communicated to the provider pursuant to subdivision (h).
An individual, other than a licensed physician or a licensed health care professional who is competent to evaluate the specific clinical issues involved in the health care services requested by the provider, may not deny or modify requests for authorization of health care services for an insured for reasons of medical necessity. The decision of the physician or other health care provider shall be communicated to the provider and the insured pursuant to subdivision (h).
An insurer shall disclose, or provide for the disclosure, to the commissioner and to network providers, the process the insurer, its contracting provider groups, or any entity with which it contracts for services that include utilization review or utilization management functions, uses to authorize, delay, modify, or deny health care services under the benefits provided by the insurance contract, including coverage for subacute care, transitional inpatient care, or care provided in skilled nursing facilities. An insurer shall also disclose those processes to policyholders or persons designated by a policyholder, or to any other person or organization, upon request.
The criteria or guidelines used by an insurer, or an entity with which an insurer contracts for utilization review or utilization management functions, to determine whether to authorize, modify, delay, or deny health care services, shall comply with all of the following:
Be developed with involvement from actively practicing health care providers.
Be consistent with sound clinical principles and processes.
Be evaluated, and updated if necessary, at least annually.
If used as the basis of a decision to modify, delay, or deny services in a specified case under review, be disclosed to the provider and the policyholder in that specified case.
Be available to the public upon request. An insurer shall only be required to disclose the criteria or guidelines for the specific procedures or conditions requested. An insurer may charge reasonable fees to cover administrative expenses related to disclosing criteria or guidelines pursuant to this paragraph that are limited to copying and postage costs. The insurer may also make the criteria or guidelines available through electronic communication means.
The disclosure required by subparagraph (E) of paragraph (2) shall be accompanied by the following notice: “The materials provided to you are guidelines used by this insurer to authorize, modify, or deny health care benefits for persons with similar illnesses or conditions. Specific care and treatment may vary depending on individual need and the benefits covered under your insurance contract.”
If an insurer subject to this section requests medical information from providers in order to determine whether to approve, modify, or deny requests for authorization, the insurer shall request only the information reasonably necessary to make the determination.
In determining whether to approve, modify, or deny requests by providers prior to, retrospectively, or concurrent with the provision of health care services to insureds, based in whole or in part on medical necessity, every insurer subject to this section shall meet the following requirements:
Decisions to approve, modify, or deny, based on medical necessity, requests by providers prior to, or concurrent with, the provision of health care services to insureds that do not meet the requirements for the time period for review required by paragraph (2), shall be made in a timely fashion appropriate for the nature of the insured’s condition, not to exceed five business days from the insurer’s receipt of the information reasonably necessary and requested by the insurer to make the determination. In cases where the review is retrospective, the decision shall be communicated to the individual who received services, or to the individual’s designee, within 30 days of the receipt of information that is reasonably necessary to make this determination, and shall be communicated to the provider in a manner that is consistent with current law. For purposes of this section, retrospective reviews shall be for care rendered on or after January 1, 2000.
When the insured’s condition is such that the insured faces an imminent and serious threat to the insured’s health, including, but not limited to, the potential loss of life, limb, or other major bodily function, or the normal timeframe for the decisionmaking process, as described in paragraph (1), would be detrimental to the insured’s life or health or could jeopardize the insured’s ability to regain maximum function, decisions to approve, modify, or deny requests by providers prior to, or concurrent with, the provision of health care services to insureds shall be made in a timely fashion, appropriate for the nature of the insured’s condition, but not to exceed 72 hours or, if shorter, the period of time required under Section 2719 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-19) and any subsequent rules or regulations issued thereunder, after the insurer’s receipt of the information reasonably necessary and requested by the insurer to make the determination.
Decisions to approve, modify, or deny requests by providers for authorization prior to, or concurrent with, the provision of health care services to insureds shall be communicated to the requesting provider within 24 hours of the decision. Except for concurrent review decisions pertaining to care that is underway, which shall be communicated to the insured’s treating provider within 24 hours, decisions resulting in denial, delay, or modification of all or part of the requested health care service shall be communicated to the insured in writing within two business days of the decision. In the case of concurrent review, care shall not be discontinued until the insured’s treating provider has been notified of the insurer’s decision and a care plan has been agreed upon by the treating provider that is appropriate for the medical needs of that patient.
Communications regarding decisions to approve requests by providers prior to, retrospectively, or concurrent with the provision of health care services to insureds shall specify the specific health care service approved. Responses regarding decisions to deny, delay, or modify health care services requested by providers prior to, retrospectively, or concurrent with the provision of health care services to insureds shall be communicated to insureds in writing, and to providers initially by telephone or facsimile, except with regard to decisions rendered retrospectively, and then in writing, and shall include a clear and concise explanation of the reasons for the insurer’s decision, a description of the criteria or guidelines used, and the clinical reasons for the decisions regarding medical necessity. Any written communication to a physician or other health care provider of a denial, delay, or modification or a request shall include the name and telephone number of the health care professional responsible for the denial, delay, or modification. The telephone number provided shall be a direct number or an extension, to allow the physician or health care provider easily to contact the professional responsible for the denial, delay, or modification. Responses shall also include information as to how the provider or the insured may file an appeal with the insurer or seek department review under the unfair practices provisions of Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1 and the regulations adopted thereunder.
If the insurer cannot make a decision to approve, modify, or deny the request for authorization within the timeframes specified in paragraph (1) or (2) because the insurer is not in receipt of all of the information reasonably necessary and requested, or because the insurer requires consultation by an expert reviewer, or because the insurer has asked that an additional examination or test be performed upon the insured, provided that the examination or test is reasonable and consistent with good medical practice, the insurer shall, immediately upon the expiration of the timeframe specified in paragraph (1) or (2), or as soon as the insurer becomes aware that it will not meet the timeframe, whichever occurs first, notify the provider and the insured, in writing, that the insurer cannot make a decision to approve, modify, or deny the request for authorization within the required timeframe, and specify the information requested but not received, or the expert reviewer to be consulted, or the additional examinations or tests required. The insurer shall also notify the provider and enrollee of the anticipated date on which a decision may be rendered. Upon receipt of all information reasonably necessary and requested by the insurer, the insurer shall approve, modify, or deny the request for authorization within the timeframes specified in paragraph (1) or (2), whichever applies.
If the commissioner determines that an insurer has failed to meet any of the timeframes in this section, or has failed to meet any other requirement of this section, the commissioner may assess, by order, administrative penalties for each failure. A proceeding for the issuance of an order assessing administrative penalties shall be subject to appropriate notice to, and an opportunity for a hearing with regard to, the person affected. The administrative penalties shall not be deemed an exclusive remedy for the commissioner. These penalties shall be paid to the Insurance Fund.
Every insurer subject to this section shall maintain telephone access for providers to request authorization for health care services.
A disability insurer, including a specialized health insurer that uses an artificial intelligence, algorithm, or other software tool for the purpose of utilization review or utilization management functions, based in whole or in part on medical necessity, or that contracts with or otherwise works through an entity that uses an artificial intelligence, algorithm, or other software tool for the purpose of utilization review or utilization management functions, based in whole or in part on medical necessity, shall comply with this section and shall ensure all of the following:
The artificial intelligence, algorithm, or other software tool bases its determination on the following information, as applicable:
An insured’s medical or other clinical history.
Individual clinical circumstances as presented by the requesting provider.
Other relevant clinical information contained in the insured’s medical or other clinical record.
The artificial intelligence, algorithm, or other software tool does not base its determination solely on a group dataset.
The artificial intelligence, algorithm, or other software tool’s criteria and guidelines complies with this chapter and applicable state and federal law.
The artificial intelligence, algorithm, or other software tool does not supplant health care provider decisionmaking.
The use of the artificial intelligence, algorithm, or other software tool does not discriminate, directly or indirectly, against insureds in violation of state or federal law.
The artificial intelligence, algorithm, or other software tool is fairly and equitably applied, including in accordance with any applicable regulations and guidance issued by the federal Department of Health and Human Services.
The artificial intelligence, algorithm, or other software tool is open to inspection for audit or compliance reviews by the department pursuant to applicable state and federal law.
Disclosures pertaining to the use and oversight of the artificial intelligence, algorithm, or other software tool are contained in the written policies and procedures, as required by subdivision (b).
The artificial intelligence, algorithm, or other software tool’s performance, use, and outcomes are periodically reviewed and revised to maximize accuracy and reliability.
Patient data is not used beyond its intended and stated purpose, consistent with the Confidentiality of Medical Information Act (Part 2.6 (commencing with Section 56) of Division 1 of the Civil Code) and the federal Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191), as applicable.
The artificial intelligence, algorithm, or other software tool does not directly or indirectly cause harm to the insured.
Notwithstanding paragraph (1), the artificial intelligence, algorithm, or other software tool shall not deny, delay, or modify health care services based, in whole or in part, on medical necessity. A determination of medical necessity shall be made only by a licensed physician or licensed health care professional competent to evaluate the specific clinical issues involved in the health care services requested by the provider, as provided in subdivision (e), by reviewing and considering the requesting provider’s recommendation, the insured’s medical or other clinical history, as applicable, and individual clinical circumstances.
For purposes of this subdivision, “artificial intelligence” means an engineered or machine-based system that varies in its level of autonomy and that can, for explicit or implicit objectives, infer from the input it receives how to generate outputs that can influence physical or virtual environments.
This subdivision shall apply to utilization review or utilization management functions that prospectively, retrospectively, or concurrently review requests for covered health care services.
A disability insurer subject to this subdivision shall comply with applicable federal rules and guidance issued by the federal Department of Health and Human Services regarding the use of artificial intelligence, algorithm, or other software tools. The department may issue guidance to implement this paragraph within one year of the adoption of federal rules or the issuance of guidance by the federal Department of Health and Human Services regarding the use of artificial intelligence, algorithm, or other software tools. Such guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
For purposes of implementing this subdivision, the department may enter into exclusive or nonexclusive contracts, or amend existing contracts, on a bid or negotiated basis. Contracts entered into or amended pursuant to this subdivision shall be exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, Section 19130 of the Government Code, and Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, and shall be exempt from the review or approval of any division of the Department of General Services.
Nothing in this section shall cause a disability insurer to be defined as a health care provider for purposes of any provision of law, including, but not limited to, Section 6146 of the Business and Professions Code, Sections 3333.1 and 3333.2 of the Civil Code, and Sections 340.5, 364, 425.13, 667.7, and 1295 of the Code of Civil Procedure.
Each contract between a health insurer and a provider shall contain provisions requiring a fast, fair, and cost-effective dispute resolution mechanism under which providers may submit disputes to the insurer, and requiring the insurer to inform its providers, upon contracting with the insurer, or upon change to these provisions, of the procedures for processing and resolving disputes, including the location and telephone number where information regarding disputes may be submitted.
An insurer shall also ensure that a dispute resolution mechanism is accessible to noncontracting providers for the purpose of resolving billing and claims disputes.
Disputes are to be submitted to the insurer in writing and shall include provider name, provider tax identification number, patient name, insurer’s identification information, dates of service, description of dispute, and, if applicable, billed and paid amounts. The insurer shall resolve each provider dispute consistent with applicable law and issue a written determination within 45 working days after the date of receipt of the provider dispute.
On and after July 1, 2007, an insurer shall annually submit a report to the department regarding its dispute resolution mechanism. The report shall be public information and include, at a minimum, information on the number of providers that utilized the dispute resolution mechanism and a summary of the disposition of those disputes. To the extent the commissioner requires detailed information disclosing emerging or established patterns of provider disputes or corrective action by the insurer, the commissioner may maintain the confidentiality of any information found to be proprietary, upon written request of the insurer. In no event shall the commissioner find the required minimum information described in this subdivision to be proprietary.
If an insurer has an affiliated or subsidiary company that is licensed as a health care service plan under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code, the insurer may use the same procedures relating to the provider dispute resolution process established by the affiliated or subsidiary entity pursuant to subdivision (h) of Section 1367 of the Health and Safety Code.
On and after January 1, 1990, every self-insured employee welfare benefit plan containing hospital, medical, or surgical expense benefits or service benefits may provide coverage for the treatment of alcoholism, chemical dependency, or nicotine use under such terms and conditions as may be agreed upon between the self-insured welfare benefit plan and the member, where the treatment may take place in facilities licensed to provide alcoholism or chemical dependency services under Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code.
Treatment for nicotine use may be subject to separate deductibles, copayments, and overall cost limitations as determined by the plan.
Every policy of expense incurred hospital, medical, or surgical insurance issued, amended, or renewed on or after January 1, 1991, on a group basis, except for policies that only provide coverage for specified diseases or other limited benefit coverage, shall offer coverage as an option for special footwear needed by persons who suffer from foot disfigurement under the terms and conditions agreed upon between the group contract holder and the insurer.
As used in this section, foot disfigurement shall include, but not be limited to, disfigurement from cerebral palsy, arthritis, polio, spina bifida, and diabetes, and foot disfigurement caused by accident or developmental disability.
Whenever an insurer issuing group or individual policies of disability insurance which covers hospital, medical, or surgical expenses determines that in reimbursing a claim for provider services an institutional or professional provider has been overpaid, and then notifies the provider in writing through a separate notice identifying the overpayment and the amount of the overpayment, the provider shall reimburse the insurer within 30 working days of receipt by the provider of the notice of overpayment unless the overpayment or portion thereof is contested by the provider in which case the insurer shall be notified, in writing, within 30 working days. The notice that an overpayment is being contested shall identify the portion of the overpayment that is contested and the specific reasons for contesting the overpayment.
If the provider does not make reimbursement for an uncontested overpayment within 30 working days after receipt, interest shall accrue at the rate of 10 percent per annum beginning with the first calendar day after the 30-working-day period.
A prorated cost-sharing payment, or any portion thereof, made to a pharmacist for the dispensing of a partial fill pursuant to Section 4052.10 of the Business and Professions Code shall not be considered to be an overpayment pursuant to this section.
This subdivision shall only apply to a health insurance policy covering dental services or a specialized health insurance policy covering dental services.
The insurer’s notice of overpayment shall inform the provider how to access the insurer’s dispute resolution mechanism offered pursuant to subdivision (a) of Section 10123.137. The notice shall include the name and address to which the dispute should be submitted and a statement that Section 10123.145 of the Insurance Code requires a provider to reimburse the insurer for an overpayment within 30 working days of receipt by the provider of the notice of overpayment unless the provider contests the overpayment within 30 working days. The notice shall also include information clearly identifying the claim, the name of the patient, the date of service, and a clear explanation of the basis upon which the insurer believes the amount paid on the claim was in excess of the amount due, including interest and penalties on the claim. The notice shall also include a statement that if the provider does not make reimbursement of an uncontested overpayment within 30 working days after receipt of the notice, interest shall accrue at a rate of 10 percent per annum.
The following definitions shall apply for purposes of this section:
“Affirmative consent” means a dental provider’s express consent to opt in or opt out of receiving fee-based payment. Affirmative consent requires a dental provider’s signature. The terms of the affirmative consent shall be clear and readily understandable.
Affirmative consent may be given through email.
A provider accessing funds does not constitute affirmative consent to receive a fee-based payment.
“Contracted vendor” means a third party facilitating payment processing on behalf of the health insurer.
“Dental provider” means an individual or group of individuals licensed under Chapter 4 (commencing with Section 1600) of Division 2 of the Business and Professions Code.
“Fee-based payment” refers to any payment type that requires the dental provider to incur a fee from the health insurer or its contracted vendor to access payment from a plan or its contracted vendor.
“Health insurer” has the same meaning as defined in paragraph (2) of subdivision (a) of Section 10120.41.
“Signature” includes an electronic or digital signature if the form of the signature is recognized as a valid signature under applicable federal or state law, including, but not limited to, checking a box indicating affirmative consent.
A health insurer that provides payment directly, or through a contracted vendor, to a dental provider shall have a non-fee-based default method of payment.
The health insurer shall remit or associate with each payment the claims and claim details associated with payment.
Upon receipt of the dental provider’s affirmative consent, the health insurer or its contracted vendor subsequently may issue payments to the dental provider using a fee-based payment method.
The health insurer also shall notify the dental provider if its contracted vendor is sharing a part of the profit, fee arrangement, or board composition with the health insurer.
A health insurer or its contracted vendor that obtains a dental provider’s affirmative consent to opt in or opt out of a fee-based payment method shall apply the decision to include both of the following:
The dental provider’s entire practice.
To all products or services covered by the health insurer pursuant to a contract with the dental provider, including network provider contracts, as described in Section 10120.4.
This section does not apply if a health insurer has a direct contract with a provider that allows the provider to choose payment methods, including a non-fee-based payment method for services rendered.
This section shall become operative on April 1, 2026, and apply to all health insurance policies issued, amended, or renewed on or after that date.
Every insurer issuing group or individual policies of health insurance that cover hospital, medical, or surgical expenses, including those telehealth services covered by the insurer as defined in subdivision (a) of Section 2290.5 of the Business and Professions Code, shall reimburse a complete claim or portion thereof, whether in state or out of state, as soon as practicable, but no later than 30 calendar days after receipt of the complete claim by the insurer. However, an insurer may contest or deny a claim, or portion thereof, by notifying the claimant, in writing, that the claim is contested or denied, within 30 calendar days after receipt of the claim by the insurer. The notice that a claim, or portion thereof, is contested shall identify the portion of the claim that is contested, by procedure or revenue code, and the specific information needed from the provider to reconsider the claim. The notice that a claim, or portion thereof, is denied shall identify the portion of the claim that is denied, by procedure or revenue code, and the specific reasons for the denial, including the factual and legal basis known at that time by the insurer for each reason. If the reason is based solely on facts or solely on law, the insurer is required to provide only the factual or legal basis for its reason to deny the claim. The insurer shall provide a copy of the notice required by this subdivision to each insured who received services pursuant to the claim that was contested or denied and to the insured’s health care provider that provided the services at issue. The notice required by this subdivision shall include a statement advising the provider who submitted the claim on behalf of the insured or pursuant to a contract for alternative rates of payment and the insured that either may seek review by the department of a claim that was contested or denied by the insurer and the address, internet website address, and telephone number of the unit within the department that performs this review function. The notice to the provider may be included on either the explanation of benefits or remittance advice and shall also contain a statement advising the provider of its right to enter into the dispute resolution process described in Section 10123.137. An insurer may delay payment of an uncontested portion of a complete claim for reconsideration of a contested portion of that claim so long as the insurer pays those charges specified in subdivision (b).
If a complete claim or portion thereof that is neither contested nor denied is not reimbursed by delivery to the claimant’s address of record within the 30 calendar days after receipt, the insurer shall pay the greater of fifteen dollars ($15) per year or a rate of 15 percent per annum beginning with the first calendar day after the 30-calendar-day period. An insurer shall automatically include the fifteen dollars ($15) per year or interest due in the payment made to the claimant, without requiring a request therefor. An insurer failing to comply with this requirement shall pay the claimant the greater of an additional fifteen dollars ($15) or a fee of 10 percent of the accrued interest.
For the purposes of this section, a claim or portion thereof, is reasonably contested if the insurer has not received the completed claim. A paper claim from an institutional provider shall be deemed complete upon submission of a legible emergency department report and a completed UB 92 or other format adopted by the National Uniform Billing Committee, and reasonable relevant information requested by the insurer within 30 calendar days of receipt of the claim. An electronic claim from an institutional provider shall be deemed complete upon submission of an electronic equivalent to the UB 92 or other format adopted by the National Uniform Billing Committee, and reasonable relevant information requested by the insurer within 30 calendar days of receipt of the claim. However, if the insurer requests a copy of the emergency department report within the 30 calendar days after receipt of the electronic claim from the institutional provider, the insurer may also request additional reasonable relevant information within 30 calendar days of receipt of the emergency department report, at which time the claim shall be deemed complete. A claim from a professional provider shall be deemed complete upon submission of a completed HCFA 1500 or its electronic equivalent or other format adopted by the National Uniform Billing Committee, and reasonable relevant information requested by the insurer within 30 calendar days of receipt of the claim. The provider shall provide the insurer reasonable relevant information within 10 working days of receipt of a written request that is clear and specific regarding the information sought. If, as a result of reviewing the reasonable relevant information, the insurer requires further information, the insurer shall have an additional 15 calendar days after receipt of the reasonable relevant information to request the further information, notwithstanding any time limit to the contrary in this section, at which time the claim shall be deemed complete.
This section shall not apply to claims about which there is evidence of fraud and misrepresentation, to eligibility determinations, or in instances where the plan has not been granted reasonable access to information under the provider’s control. An insurer shall specify, in a written notice to the provider within 30 calendar days of receipt of the claim, which, if any, of these exceptions applies to a claim.
If a claim or portion thereof is contested on the basis that the insurer has not received information reasonably necessary to determine payer liability for the claim or portion thereof, then the insurer shall have 30 calendar days after receipt of this additional information to complete reconsideration of the claim. If a claim, or portion thereof, undergoing reconsideration is not reimbursed by delivery to the claimant’s address of record within the 30 calendar days after receipt of the additional information, the insurer shall pay interest at the rate of 15 percent per annum beginning with the first calendar day after the 30-calendar-day period. An insurer shall automatically include interest due in the payment made to the claimant, without requiring a request therefor.
An insurer shall not delay payment on a claim from a physician or other provider to await the submission of a claim from a hospital or other provider, without citing specific rationale as to why the delay was necessary and providing a monthly update regarding the status of the claim and the insurer’s actions to resolve the claim, to the provider that submitted the claim.
An insurer shall not request or require that a provider waive its rights pursuant to this section.
This section shall apply only to claims for services rendered to a patient who was provided emergency services and care as defined in Section 1317.1 of the Health and Safety Code in the United States on or after September 1, 1999.
This section shall not be construed to affect the rights or obligations of any person pursuant to Section 10123.13.
This section shall not be construed to affect a written agreement, if any, of a provider to submit bills within a specified time period.
The department may issue guidance and regulations relating to this section. The guidance and regulations shall not be subject to the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) until December 31, 2027.
After January 1, 2028, the department may issue regulations relating to this section subject to the rulemaking provisions of the Administrative Procedure Act ((Chapter 3.5 commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) until December 31, 2030.
This section shall become operative on January 1, 2026.
Every group policy of disability insurance which covers hospital, medical, and surgical expenses on a group basis, and which offers coverage for disorders of the brain shall also offer coverage in the same manner for the treatment of the following biologically based severe mental disorders: schizophrenia, schizo-affective disorder, bipolar disorders and delusional depressions, and pervasive developmental disorder. Coverage for these mental disorders shall be subject to the same terms and conditions applied to the treatment of other disorders of the brain; however, an insurer may reserve the right to confirm diagnoses and to review the appropriateness of specific treatment plans as necessary to ensure that coverage under this section is provided for only those diagnostic and treatment services which are medically necessary.
Nothing in this section shall be construed to affect the scope of licensure of any health care professional nor to impair rights to reimbursement guaranteed health care providers pursuant to Section 10176.
Except for a preexisting condition, every disability insurer issuing policies of individual or group disability insurance in this state that offers group or individual coverage for long-term care facility services or home-based care shall not exclude persons covered by the plan from receiving these benefits, if they are diagnosed as having any significant destruction of brain tissue with resultant loss of brain function, including, but not limited to, progressive, degenerative, and dementing illnesses, including, but not limited to, Alzheimer’s disease, from the coverage offered for long-term care facility services or home-based care.
For purposes of this section, where a particular disease can be determined only with an autopsy, “diagnosed” means clinical diagnosis not dependent on pathological confirmation, but employing nationally accepted criteria.
Except for a preexisting condition, every self-insured employee welfare benefit plan in this state that offers group coverage for long-term care facility services or home-based care shall not exclude persons covered by the plan from receiving these benefits, if they are diagnosed as having any significant destruction of brain tissue with resultant loss of brain function, including, but not limited to, progressive, degenerative, and dementing illnesses, including, but not limited to, Alzheimer’s disease, from the coverage offered for long-term care facility services or home-based care.
For purposes of this section, where a particular disease can be determined only with an autopsy, “diagnosed” means clinical diagnosis not dependent on pathological confirmation, but employing nationally accepted criteria.
A disability insurance policy issued, amended, or renewed on or after January 1, 2024, and that provides coverage for hospital, medical, or surgical benefits shall provide coverage, upon the referral of a patient’s physician and surgeon, a nurse practitioner, or a certified nurse-midwife, providing care to the patient and operating within the scope of practice otherwise permitted for the licensee, for an annual cervical cancer screening test.
The coverage for an annual cervical cancer screening test provided pursuant to this section shall include the conventional Pap test, a human papillomavirus screening test that is approved by the United States Food and Drug Administration (FDA) and the option of any cervical cancer screening test approved by the FDA, upon the referral of the patient’s health care provider.
This subdivision does not require an individual or group policy to cover treatment or surgery for cervical cancer or to prevent application of deductible or copayment provisions contained in the policy or certificate, and does not require that coverage under an individual or group policy be extended to any other procedures.
A disability insurance policy issued, amended, or renewed on or after January 1, 2024, that provides coverage for hospital, medical, or surgical benefits shall provide coverage for the human papillomavirus vaccine for insureds for whom the vaccine is approved by the FDA. The policy shall not impose a deductible, coinsurance, copayment, or any other cost-sharing requirement on the coverage provided pursuant to this subdivision.
This section shall not apply to vision-only, dental-only, accident-only, specified disease, hospital indemnity, Medicare supplement, CHAMPUS supplement, long-term care, or disability income insurance. For accident-only, hospital indemnity, or specified disease insurance, coverage for benefits under this section shall apply only to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy or certificate. This section does not impose a new benefit mandate on accident-only, hospital indemnity, or specified disease insurance.
Every group policy of disability insurance that covers hospital, medical, or surgical expenses, and that provides maternity benefits, that is issued, amended, renewed, or delivered on or after January 1, 1999, and every individual policy of disability insurance that covers hospital, medical, or surgical expenses, and that provides maternity benefits, that is of a type and form first offered for sale on or after January 1, 1999, shall provide coverage for participation in the California Prenatal Screening Program, which is a statewide prenatal testing program administered by the State Department of Public Health, pursuant to Section 124977 of the Health and Safety Code. Notwithstanding any other law, a disability insurer that provides coverage for maternity benefits shall not require participation in the statewide prenatal testing program administered by the State Department of Public Health as a prerequisite to eligibility for, or receipt of, any other service.
Coverage required under this section shall not be subject to copayment, coinsurance, deductible, or any other form of cost sharing.
Reimbursement for services covered pursuant to this section shall be paid at the amount set pursuant to Section 124977 of the Health and Safety Code and regulations adopted thereunder.
Every policy of disability insurance that covers hospital, medical, or surgical expenses and is issued, amended, delivered, or renewed in this state and certificate of group disability insurance issued, amended, delivered, or renewed in this state pursuant to a master group policy issued, amended, delivered, or renewed in another state on or after January 1, 1994, shall be deemed to include coverage for services related to diagnosis, treatment, and appropriate management of osteoporosis. The services may include, but need not be limited to, all Food and Drug Administration approved technologies, including bone mass measurement technologies as deemed medically appropriate.
This section shall not apply to specified accident, specified disease, hospital indemnity, Medicare supplement, or long-term care health insurance policies.
Any disability insurance policy that includes terms that require binding arbitration to settle disputes and that restrict, or provide for a waiver of, the right to a jury trial shall include, in clear and understandable language, a disclosure that meets all of the following conditions:
The disclosure shall clearly state whether the plan uses binding arbitration to settle disputes, including specifically whether the plan uses binding arbitration to settle claims of medical malpractice.
The disclosure shall appear as a separate article in the agreement issued to the employer group or individual subscriber and shall be prominently displayed on the enrollment form signed by each subscriber or enrollee.
In any disability insurance policy, the disclosure required by this section shall be displayed immediately before the signature line provided for the representative of the group contracting with a disability insurer and immediately before the signature line provided for the individual enrolling in the policy.
Any disability insurance policy that includes a term that requires the parties to submit to binding arbitration in case of a medical malpractice claim or dispute shall, for those cases or disputes for which the total amount of damages claimed is fifty thousand dollars ($50,000) or less, provide for selection by the parties of a single neutral arbitrator who shall have no jurisdiction to award more than fifty thousand dollars ($50,000). If the parties are unable to agree on the selection of a single neutral arbitrator, the method provided in Section 1281.6 of the Code of Civil Procedure shall be utilized.
The provision shall not be subject to waiver by the policy.
Notwithstanding any other law, on and after January 1, 2013, a health insurer that provides coverage for prescription drugs shall utilize and accept only the prior authorization form developed pursuant to subdivision (c), or an electronic prior authorization process described in subdivision (e), when requiring prior authorization for prescription drugs.
If a health insurer, contracted physician group, or utilization review organization fails to notify a prescribing provider of its coverage determination within 72 hours for nonurgent requests, or within 24 hours if exigent circumstances exist, upon receipt of a completed prior authorization or step therapy exception request, the prior authorization or step therapy exception request shall be deemed approved for the duration of the prescription, including refills.
If a request for prior authorization or a step therapy exception is incomplete or clinically relevant material information necessary to make a coverage determination is not included, the insurer, contracted physician group, or utilization review organization shall notify the prescribing provider within 72 hours of receipt, or within 24 hours of receipt if exigent circumstances exist, what additional or clinically relevant material information is needed to approve or deny the prior authorization or step therapy exception request, or to appeal the denial thereof. Once the requested information is received, the applicable time period to approve or deny a prior authorization or step therapy exception request, or to appeal, shall begin to elapse. If a coverage determination or request for additional or clinically relevant material information by an insurer, contracted physician group, or utilization review organization is not received by the prescribing provider within the time allotted, the prior authorization or step therapy exception request, or appeal of a denial thereof, shall be deemed approved for the duration of the prescription, including refills. In the event of a denial, the insurer, contracted physician group, or utilization review organization shall inform the prescribing provider and insured of the external appeal process under subdivision (h) of this section, which shall also apply to a denial of a prior authorization or step therapy exception request.
A health insurer, contracted physician group, utilization review organization, or external independent review organization shall approve a step therapy exception request, or internal or external appeal of a denial thereof, if any of the criteria in subdivision (c) of Section 10123.201 are satisfied.
On or before January 1, 2017, the department and the Department of Managed Health Care shall jointly develop a uniform prior authorization form. Notwithstanding any other law, on and after July 1, 2017, or six months after the form is completed pursuant to this section, whichever is later, every prescribing provider shall use that uniform prior authorization form, or an electronic prior authorization process described in subdivision (e), to request prior authorization for coverage of prescription drugs and every health insurer shall accept that form or electronic process as sufficient to request prior authorization for prescription drugs.
The prior authorization form developed pursuant to subdivision (c) shall meet the following criteria:
The department and the Department of Managed Health Care shall develop the form with input from interested parties from at least one public meeting.
The department and the Department of Managed Health Care, in development of the standardized form, shall take into consideration the following:
Existing prior authorization forms established by the federal Centers for Medicare and Medicaid Services and the State Department of Health Care Services.
National standards pertaining to electronic prior authorization.
A prescribing provider may use an electronic prior authorization system utilizing the standardized form described in subdivision (c) or an electronic process developed specifically for transmitting prior authorization information that meets the National Council for Prescription Drug Programs’ SCRIPT standard for electronic prior authorization transactions.
Subdivision (a) does not apply if any of the following occurs:
A contracted physician group is delegated the financial risk for the pharmacy or medical drug benefit by a health insurer.
A contracted physician group uses its own internal prior authorization process rather than the health insurer’s prior authorization process for the health insurer’s insureds.
A contracted physician group is delegated a utilization management function by the health insurer concerning any prescription drug, regardless of the delegation of financial risk.
For prescription drugs, prior authorization requirements described in subdivisions (c) and (e) apply regardless of how that benefit is classified under the terms of the health insurer’s group or individual policy.
A health insurer shall maintain a process for an external exception request review that complies with subdivision (c) of Section 156.122 of Title 45 of the Code of Federal Regulations. The external appeal process for exception requests shall also apply to a denial of a prior authorization or step therapy exception request. An independent review organization’s reversal of a health insurer’s denial of a request for an exception, prior authorization, or a step therapy exception shall be binding on the insurer and shall apply for the duration of the prescription, including refills. An insurer shall notify the insured and prescribing provider of the independent review organization’s coverage determination, or request for additional or clinically relevant material information necessary to make a coverage determination, within the time limits required by paragraph (2) of subdivision (b). This subdivision shall not affect or limit an insured’s eligibility for independent medical review under Section 10169 or to file an internal appeal with the insurer.
For an individual, small group, or large group health insurance policy, a health insurer that provides coverage for prescription drugs shall comply with subdivision (c) of Section 156.122 of Title 45 of the Code of Federal Regulations.
For purposes of this section:
“Prescribing provider” shall include a provider authorized to write a prescription, pursuant to subdivision (a) of Section 4040 of the Business and Professions Code, to treat a medical condition of an insured.
“Exigent circumstances” exist when an insured is suffering from a health condition that may seriously jeopardize the insured’s life, health, or ability to regain maximum function or when an insured is undergoing a current course of treatment using a nonformulary drug.
“Completed prior authorization request” means a completed uniform prior authorization form developed pursuant to subdivision (c), or a completed request submitted using an electronic prior authorization system described in subdivision (e), or, for contracted physician groups described in subdivision (f), the process used by the contracted physician group.
“Step therapy exception” means a decision to override a generally applicable step therapy protocol in favor of coverage of the prescription drug prescribed by a health care provider for an individual insured.
A health insurer that provides prescription drug benefits and maintains one or more drug formularies shall do all of the following:
Post the formulary or formularies for each product offered by the insurer on the insurer’s Internet Web site in a manner that is accessible and searchable by potential insureds, insureds, providers, the general public, the department, and federal agencies as required by federal law or regulations.
Update the formularies posted pursuant to paragraph (1) with any change to those formularies on a monthly basis.
No later than six months after the date that a standard formulary template is developed under subdivision (b), use that template to display the formulary or formularies for each product offered by the insurer.
By January 1, 2017, the department and the Department of Managed Health Care shall jointly, and with input from interested parties from at least one public meeting, develop a standard formulary template for purposes of paragraph (3) of subdivision (a). In developing the template, the department and Department of Managed Health Care shall take into consideration existing requirements for reporting of formulary information established by the federal Centers for Medicare and Medicaid Services. To the extent feasible, in developing the template, the department and the Department of Managed Health Care shall evaluate a way to include on the template, in addition to the information required to be included under paragraph (2), cost-sharing information for drugs subject to coinsurance.
The standard formulary template shall include a notification that the presence of a drug on the insurer’s formulary does not guarantee that an insured will be prescribed that drug by his or her prescribing provider for a particular medical condition. As applied to a particular formulary for a product offered by an insurer, the standard formulary template shall do all of the following:
Include information on cost-sharing tiers and utilization controls, including prior authorization or step therapy requirements, for each drug covered by the product.
Indicate any drugs on the formulary that are preferred over other drugs on the formulary.
Include information to educate insureds about the differences between drugs administered or provided under a health insurer’s medical benefit and drugs prescribed under a health insurer’s prescription drug benefit and about how to obtain coverage information about drugs that are not covered under the health insurer’s prescription drug benefit.
Include information to educate insureds that health insurers that provide prescription drug benefits are required to have a method for insureds to obtain prescription drugs not listed in the health insurer’s drug formulary if the drugs are deemed to be medically necessary by a clinician pursuant to Section 1367.24 of the Health and Safety Code, as required by clause (iv) of subparagraph (A) of paragraph (2) of subdivision (a) of Section 10112.27.
Include information on which medications are covered, including both generic and brand name.
Include information on what tier of the health insurer’s drug formulary each medication is in.
The commissioner may adopt regulations as may be necessary to carry out the purposes of this section. In adopting regulations, the commissioner shall comply with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
For purposes of this section, “formulary” means the complete list of drugs preferred for use and eligible for coverage under a health insurance product and includes the drugs covered under the pharmacy benefit of the product.
The Legislature hereby finds and declares all of the following:
The federal Patient Protection and Affordable Care Act, its implementing regulations and guidance, and related state law prohibit discrimination based on a person’s expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions, including benefit designs that have the effect of discouraging the enrollment of individuals with significant health needs.
The Legislature intends to build on the existing state and federal law to ensure that health coverage benefit designs do not have an unreasonable discriminatory impact on chronically ill individuals, and to ensure affordability of outpatient prescription drugs.
Assignment of all or most prescription medications that treat a specific medical condition to the highest cost tiers of a formulary may effectively discourage enrollment by chronically ill individuals, and may result in lower adherence to a prescription drug treatment regimen.
A nongrandfathered policy of health insurance that is offered, amended, or renewed on or after January 1, 2017, shall comply with this section. The cost-sharing limits established by this section apply only to outpatient prescription drugs covered by the policy that constitute essential health benefits, as defined by Section 10112.27.
A policy of health insurance that provides coverage for outpatient prescription drugs shall cover medically necessary prescription drugs, including nonformulary drugs determined to be medically necessary consistent with this part.
Copayments, coinsurance, and other cost sharing for outpatient prescription drugs shall be reasonable so as to allow access to medically necessary outpatient prescription drugs.
Consistent with federal law and guidance, the formulary or formularies for outpatient prescription drugs maintained by the health insurer shall not discourage the enrollment of individuals with health conditions and shall not reduce the generosity of the benefit for insureds with a particular condition in a manner that is not based on a clinical indication or reasonable medical management practices. Section 1342.7 of the Health and Safety Code and any regulations adopted pursuant to that section shall be interpreted in a manner that is consistent with this section.
For combination antiretroviral drug treatments that are medically necessary for the treatment of AIDS/HIV, a policy of health insurance shall cover a single-tablet drug regimen that is as effective as a multitablet regimen unless, consistent with clinical guidelines and peer-reviewed scientific and medical literature, the multitablet regimen is clinically equally or more effective and more likely to result in adherence to a drug regimen.
Any limitation or utilization management shall be consistent with and based on clinical guidelines and peer-reviewed scientific and medical literature.
This section shall not be construed to require a health insurer to impose cost sharing.
This section shall not be construed to require cost sharing for prescription drugs that state or federal law otherwise requires to be provided without cost sharing.
A prescription drug benefit shall provide that if the pharmacy’s retail price for a prescription drug is less than the applicable copayment or coinsurance amount, the insured shall not be required to pay more than the retail price. The payment rendered shall constitute the applicable cost sharing and shall apply to the deductible, if any, and also to the maximum out-of-pocket limit in the same manner as if the enrollee had purchased the prescription medication by paying the cost-sharing amount.
A policy of health insurance shall ensure that the placement of prescription drugs on formulary tiers is based on clinically indicated, reasonable medical management practices.
In the provision of outpatient prescription drug coverage, a health insurer may utilize formulary, prior authorization, step therapy, or other reasonable medical management practices consistent with this part.
With respect to an individual or group policy of health insurance subject to Section 10112.28, the copayment, coinsurance, or any other form of cost sharing for a covered outpatient prescription drug for an individual prescription for a supply of up to 30 days shall not exceed two hundred fifty dollars ($250), except as provided in paragraphs (2) and (3).
With respect to products with actuarial value at or equivalent to the bronze level, cost sharing for a covered outpatient prescription drug for an individual prescription for a supply of up to 30 days shall not exceed five hundred dollars ($500), except as provided in paragraph (3).
For a policy of health insurance that is a “high deductible health plan” under the definition set forth in Section 223(c)(2) of Title 26 of the United States Code, paragraphs (1) and (2) of this subdivision shall apply only once an insured’s deductible has been satisfied for the year.
For a nongrandfathered individual or small group policy of health insurance, the annual deductible for outpatient drugs, if any, shall not exceed twice the amount specified in paragraph (1) or (2), respectively.
For purposes of paragraphs (1) and (2), “any other form of cost sharing” shall not include a deductible.
A copayment or percentage coinsurance shall not exceed 50 percent of the cost to the insurer, as described in Section 1300.67.24 of Title 28 of the California Code of Regulations.
If there is a generic equivalent to a brand name drug, an insurer shall ensure that the insured is subject to the lowest cost sharing that would be applied, whether or not both the generic equivalent and the brand name drug are on the formulary. This paragraph shall not be construed to require both the generic equivalent and the brand name drug to be on the formulary.
If a policy of health insurance offered, sold, or renewed in the nongrandfathered individual or small group market maintains a drug formulary grouped into tiers that includes a fourth tier, a policy of health insurance shall use the following definitions for each tier of the drug formulary:
Tier one shall consist of most generic drugs and low-cost preferred brand name drugs.
Tier two shall consist of nonpreferred generic drugs, preferred brand name drugs, and any other drugs recommended by the health insurer’s pharmacy and therapeutics committee based on safety, efficacy, and cost.
Tier three shall consist of nonpreferred brand name drugs or drugs that are recommended by the health insurer’s pharmacy and therapeutics committee based on safety, efficacy, and cost, or that generally have a preferred and often less costly therapeutic alternative at a lower tier.
Tier four shall consist of drugs that the Food and Drug Administration of the United States Department of Health and Human Services or the manufacturer requires to be distributed through a specialty pharmacy, drugs that require the insured to have special training or clinical monitoring for self-administration, or drugs that cost the health insurer more than six hundred dollars ($600) net of rebates for a one-month supply.
In placing specific drugs on specific tiers, or choosing to place a drug on the formulary, the insurer shall comply with the other provisions of this section and this part.
A policy of health insurance may maintain a drug formulary with fewer than four tiers. A policy of health insurance shall not maintain a drug formulary with more than four tiers.
This section shall not be construed to limit a health insurer from placing any drug in a lower tier.
Notwithstanding Section 10123.201, a health insurer shall not subject antiretroviral drugs that are medically necessary for the prevention of AIDS/HIV, including preexposure prophylaxis or postexposure prophylaxis, to prior authorization or step therapy, except as provided in paragraph (2).
If the United States Food and Drug Administration has approved one or more therapeutic equivalents of a drug, device, or product for the prevention of AIDS/HIV, this section does not require a health insurer to cover all of the therapeutically equivalent versions without prior authorization or step therapy, if at least one therapeutically equivalent version is covered without prior authorization or step therapy.
Notwithstanding any other law, a health insurer shall not prohibit, or permit a contracted pharmacy benefit manager to prohibit, a pharmacist from dispensing preexposure prophylaxis or postexposure prophylaxis.
A health insurer shall cover preexposure prophylaxis and postexposure prophylaxis that has been furnished by a pharmacist, as authorized in Sections 4052.02 and 4052.03 of the Business and Professions Code, including the pharmacist’s services and related testing ordered by the pharmacist. A health insurer shall pay or reimburse, consistent with the requirements of this chapter, for the service performed by a pharmacist at an in-network pharmacy or a pharmacist at an out-of-network pharmacy if the health insurer has an out-of-network pharmacy benefit.
Notwithstanding any other law, a group or individual health insurer offering an outpatient prescription drug benefit shall provide coverage for at least one medication approved by the United States Food and Drug Administration in each of the following categories without prior authorization, step therapy, or utilization review:
Medication for the reversal of opioid overdose, including a naloxone product or another opioid antagonist.
Medication for the detoxification or maintenance treatment of a substance use disorder, including a daily oral buprenorphine product.
A long-acting buprenorphine product.
A long-acting injectable naltrexone product.
This section does not prohibit a health insurer from selecting an AB-rated generic equivalent, biosimilar, as defined in Section 262(i)(2) of Title 42 of the United States Code, or interchangeable biological product, as defined in Section 262(i)(3) of Title 42 of the United States Code, to meet the requirements of subdivision (a).
Every disability insurer that covers hospital, medical, or surgical expenses, and, as part of that coverage, also covers prescription drug benefits, and that issues a card to insureds for claims processing purposes, shall issue to each of its insureds a uniform card containing uniform prescription drug information. The uniform prescription drug information card shall, at a minimum, include the following information:
The name or logo of the benefit administrator or disability insurer issuing the card, which shall be displayed on the front side of the card.
The insured’s identification number, or the policyholder’s identification number when the insured is a dependent who accesses services using the policy holder’s identification number, which shall be displayed on the front side of the card.
A telephone number that pharmacy providers may call for assistance.
Information required by the benefit administrator or disability insurer that is necessary to commence processing the pharmacy claim, except as provided for in paragraph (5).
A disability insurer shall not be required to print any of the following information on an insured’s card:
Any number that is the same for all of its insured, provided that the disability insurer provides this number to the pharmacy on an annual basis.
Any information that may result in fraudulent use of the card.
Any information that is otherwise prohibited from being included on the card.
Beginning July 1, 2002, the new uniform prescription drug information card required by subdivision (a) shall be issued by an insurer to an insured upon enrollment or upon any change in the insured’s coverage that impacts the data content or format of the card.
Nothing in this section requires an insurer to issue a separate card for prescription drug coverage if the insurer issues a card for health care coverage in general and the card is able to accommodate the information required by subdivision (a).
“Card” as used in this section includes other technology that performs substantially the same function as a card.
For purposes of this section, if a disability insurer delegates responsibility for issuing the uniform prescription drug information card to a contractor or agent, then the contract between the disability insurer and its contractor or agent shall require compliance with this section.
A disability insurance policy issued, amended, renewed, or delivered on or after January 1, 2024, except for a grandfathered health plan or a qualifying health plan for a health savings account, shall not impose a deductible, coinsurance, copayment, or any other cost-sharing requirement on vasectomy services or procedures. For a qualifying health plan for a health savings account, an insurer shall establish the plan’s cost sharing for vasectomy services and procedures at the minimum level necessary to preserve the insured’s ability to claim tax-exempt contributions and withdrawals from the insured’s health savings account under Internal Revenue Service laws, regulations, and guidance.
An insurer shall not impose any restrictions or delays, including, but not limited to, prior authorization, on vasectomy services and procedures.
Coverage with respect to an insured under this section shall be identical for an insured’s covered spouse and covered nonspouse dependents.
This section shall not be construed to deny or restrict in any way an existing right or benefit provided under law or by contract.
This section shall not be construed to require an individual or group disability insurance policy to cover experimental or investigational treatments.
Notwithstanding any other provision of this section, a religious employer may request a disability insurance policy without coverage for contraceptive methods that are contrary to the religious employer’s religious tenets. If so requested, a disability insurance policy shall be provided without coverage for vasectomy services and procedures. The exclusion from coverage under this provision shall not apply to vasectomy services or procedures for purposes other than contraception.
An insurer that contracts with a religious employer to provide a disability insurance policy that does not include coverage and benefits for vasectomy services and procedures shall notify, in writing, upon initial enrollment and annually thereafter upon renewal, each enrollee that vasectomy services and procedures are not included in the insured’s disability insurance policy.
For purposes of this section, a “religious employer” is an entity for which each of the following is true:
The inculcation of religious values is the purpose of the entity.
The entity primarily employs persons who share the religious tenets of the entity.
The entity serves primarily persons who share the religious tenets of the entity.
The entity is a nonprofit organization pursuant to Section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended.
This section only applies to disability insurance policies or contracts that are defined as health benefit plans pursuant to subdivision (a) of Section 10198.6, except that for accident only, specified disease, or hospital indemnity coverage, coverage for benefits under this section applies to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy or contract. This section shall not be construed as imposing a new benefit mandate on accident only, specified disease, or hospital indemnity insurance.
For purposes of this section, the following definitions apply:
“Grandfathered health plan” has the meaning set forth in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
A group or individual disability insurance policy issued, delivered, or renewed in this state or certificate of group disability insurance issued, delivered, or renewed in this state pursuant to a master group policy issued, delivered, or renewed in another state that, as a provision of hospital, medical, or surgical services, directly or indirectly covers prescription drugs shall not limit or exclude coverage for a drug on the basis that the drug is prescribed for a use that is different from the use for which that drug has been approved for marketing by the United States Food and Drug Administration (FDA), provided that all of the following conditions have been met:
The drug is approved by the FDA.
The drug is prescribed by a contracting licensed health care professional for the treatment of a life-threatening condition; or
The drug is prescribed by a contracting licensed health care professional for the treatment of a chronic and seriously debilitating condition, the drug is medically necessary to treat that condition, and the drug is on the insurer’s formulary, if any.
The drug has been recognized for treatment of that condition by any of the following:
The American Hospital Formulary Service’s Drug Information.
One of the following compendia, if recognized by the federal Centers for Medicare and Medicaid Services as part of an anticancer chemotherapeutic regimen:
The Elsevier Gold Standard’s Clinical Pharmacology.
The National Comprehensive Cancer Network Drug and Biologics Compendium.
The Thomson Micromedex DrugDex.
Two articles from major peer reviewed medical journals that present data supporting the proposed off-label use or uses as generally safe and effective unless there is clear and convincing contradictory evidence presented in a major peer reviewed medical journal.
A group or individual health insurance policy issued, delivered, or renewed in this state or certificate of group health insurance issued, delivered, or renewed in this state pursuant to a master group policy issued, delivered, or renewed in another state that, as a provision of hospital, medical, or surgical services, directly or indirectly covers prescription drugs shall not limit or exclude coverage for brand name or generic mifepristone solely on the basis that the drug is prescribed for a use that is different from the use for which that drug has been approved for marketing by the FDA or that varies from an approved risk evaluation and mitigation strategy pursuant to Section 355-1 of Title 21 of the United States Code, except if the state deems it necessary to address an imminent health or safety concern regarding brand name or generic mifepristone.
A group or individual health insurance policy issued, delivered, or renewed in this state or certificate of group health insurance issued, delivered, or renewed in this state pursuant to a master group policy issued, delivered, or renewed in another state that, as a provision of hospital, medical, or surgical services, directly or indirectly covers prescription drugs shall include coverage for brand name or generic mifepristone, even if the drug has not been approved by the FDA for abortion if the requirements of paragraph (3) have been met, except if the state deems it necessary to address an imminent health or safety concern regarding brand name or generic mifepristone.
If name brand or generic mifepristone has not been approved by the FDA for abortion, coverage is required pursuant to paragraph (2) if the drug is a recognized medication for abortion by the World Health Organization (WHO) Model List of Essential Medicines, the WHO abortion care guideline, or the National Academies of Science, Engineering, and Medicine Consensus Study Report, or if the state approves its use based on peer-reviewed studies and prior approval of the drug that is no longer in effect.
It shall be the responsibility of the contracting prescriber to submit to the insurer documentation supporting compliance with the requirements of subdivision (a), if requested by the insurer.
Any coverage required by this section shall also include medically necessary services associated with the administration of a drug subject to the conditions of the policy.
For purposes of this section, “life-threatening” means either or both of the following:
Diseases or conditions where the likelihood of death is high unless the course of the disease is interrupted.
Diseases or conditions with potentially fatal outcomes, where the end point of clinical intervention is survival.
For purposes of this section, “chronic and seriously debilitating” means diseases or conditions that require ongoing treatment to maintain remission or prevent deterioration and cause significant long-term morbidity.
The provision of drugs and services when required by this section shall not, in itself, give rise to liability on the part of the insurer.
This section shall not apply to a policy of disability insurance that covers hospital, medical, or surgical expenses that is issued outside of California to an employer whose principal place of business is located outside of California.
This section does not prohibit the use of a formulary, copayment, technology assessment panel, or similar mechanism as a means for appropriately controlling the utilization of a drug that is prescribed for a use that is different from the use for which that drug has been approved for marketing by the FDA.
If an insurer denies coverage pursuant to this section on the basis that its use is experimental or investigational, that decision is subject to review under the Independent Medical Review System of Article 3.5 (commencing with Section 10169).
This section is not applicable to vision-only, dental-only, Medicare or Champus supplement, disability income, long-term care, accident-only, specified disease or hospital confinement indemnity insurance.
An individual or group policy of disability insurance issued, amended, renewed, or delivered on or after January 1, 2000, through December 31, 2015, inclusive, that provides coverage for hospital, medical, or surgical expenses, shall provide coverage for the following, under the same terms and conditions as applicable to all benefits:
A disability insurance policy that provides coverage for outpatient prescription drug benefits shall include coverage for a variety of federal Food and Drug Administration (FDA)-approved prescription contraceptive methods, as designated by the insurer. If an insured’s health care provider determines that none of the methods designated by the disability insurer is medically appropriate for the insured’s medical or personal history, the insurer shall, in the alternative, provide coverage for some other FDA-approved prescription contraceptive method prescribed by the patient’s health care provider.
Coverage with respect to an insured under this subdivision shall be identical for an insured’s covered spouse and covered nonspouse dependents.
A group or individual policy of disability insurance, except for a specialized health insurance policy, that is issued, amended, renewed, or delivered on or after January 1, 2016, shall provide coverage for all of the following services and contraceptive methods for all policyholders and insureds:
Except as provided in clause (ii) and in subparagraphs (B) and (C) of paragraph (2), all FDA-approved, contraceptive drugs, devices, and other products, including all FDA-approved, contraceptive drugs, devices, and products available over the counter, as prescribed by the insured’s provider.
For any policy described in paragraph (1) that is issued, amended, renewed, or delivered on or after January 1, 2024, both of the following conditions shall apply:
A prescription shall not be required to trigger coverage of over-the-counter FDA-approved contraceptive drugs, devices, and products.
(II) Point-of-sale coverage for over-the-counter FDA-approved contraceptive drugs, devices, and products shall be provided at in-network pharmacies without cost sharing or medical management restrictions.
Voluntary tubal ligation and other similar sterilization procedures.
Clinical services related to the provision or use of contraception, including consultations, examinations, procedures, device insertion, ultrasound, anesthesia, patient education, referrals, and counseling.
Followup services related to the drugs, devices, products, and procedures covered under this subdivision, including, but not limited to, management of side effects, counseling for continued adherence, and device removal.
Except for a grandfathered health plan, a disability insurer subject to this subdivision shall not impose a deductible, coinsurance, copayment, or any other cost-sharing requirement on the coverage provided pursuant to this subdivision.
If the FDA has approved one or more therapeutic equivalents, as that term is defined by the FDA, of a contraceptive drug, device, or product, a disability insurer is not required to cover all of those therapeutically equivalent versions in accordance with this subdivision, as long as at least one is covered without cost sharing in accordance with this subdivision. If there is no therapeutically equivalent generic substitute available in the market, an insurer shall provide coverage without cost sharing for the original, brand name contraceptive.
If a covered therapeutic equivalent of a drug, device, or product is deemed medically inadvisable by the insured’s provider, a disability insurer shall defer to the determination and judgment of the provider and provide coverage for the alternative prescribed contraceptive drug, device, product, or service without imposing any cost-sharing requirements. Medical inadvisability may include considerations such as severity of side effects, differences in permanence or reversibility of contraceptives, and ability to adhere to the appropriate use of the drug or item, as determined by the provider. The department may promulgate regulations establishing an easily accessible, transparent, and sufficiently expedient process that is not unduly burdensome, including timeframes, for an insured, an insured’s designee, or an insured’s provider to request coverage of an alternative prescribed contraceptive. A request for coverage under this subparagraph that is submitted by an insured, an insured’s designee, or a provider shall be approved by the disability insurer in compliance with the time limits in Section 10123.191.
Except as otherwise authorized under this section, an insurer shall not infringe upon an insured’s choice of contraceptive drug, device, or product and shall not impose any restrictions or delays on the coverage required under this subdivision, including prior authorization, step therapy, or other utilization control techniques.
Coverage with respect to an insured under this subdivision shall be identical for an insured’s covered spouse and covered nonspouse dependents.
This section shall not be construed to deny or restrict in any way any existing right or benefit provided under law or by contract.
This section shall not be construed to require an individual or group disability insurance policy to cover experimental or investigational treatments.
Notwithstanding any other provision of this section, a religious employer may request a disability insurance policy without coverage for contraceptive methods that are contrary to the religious employer’s religious tenets. If so requested, a disability insurance policy shall be provided without coverage for contraceptive methods. The exclusion from coverage under this provision shall not apply to a contraceptive drug, device, procedure, or other product that is used for purposes other than contraception.
For purposes of this section, a “religious employer” is an entity for which each of the following is true:
The inculcation of religious values is the purpose of the entity.
The entity primarily employs persons who share the religious tenets of the entity.
The entity serves primarily persons who share the religious tenets of the entity.
The entity is a nonprofit organization pursuant to Section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended.
A group or individual policy of disability insurance, except for a specialized health insurance policy, that is issued, amended, renewed, or delivered on or after January 1, 2017, shall cover up to a 12-month supply of FDA-approved, self-administered hormonal contraceptives when dispensed or furnished at one time for an insured by a provider, pharmacist, or at a location licensed or otherwise authorized to dispense drugs or supplies.
This subdivision shall not be construed to require a policy to cover contraceptives provided by an out-of-network provider, pharmacy, or location licensed or otherwise authorized to dispense drugs or supplies, except as may be otherwise authorized by state or federal law or by the insurer’s policies governing out-of-network coverage.
This subdivision shall not be construed to require a provider to prescribe, furnish, or dispense 12 months of self-administered hormonal contraceptives at one time.
An insurer subject to this subdivision shall not impose utilization controls or other forms of medical management limiting the supply of FDA-approved, self-administered hormonal contraceptives that may be dispensed or furnished by a provider or pharmacist, or at a location licensed or otherwise authorized to dispense drugs or supplies to an amount that is less than a 12-month supply, and shall not require an insured to make any formal request for such coverage other than a pharmacy claim.
This section shall not be construed to exclude coverage for contraceptive supplies as prescribed by a provider, acting within the provider’s scope of practice, for reasons other than contraceptive purposes, such as decreasing the risk of ovarian cancer or eliminating symptoms of menopause, or for contraception that is necessary to preserve the life or health of an insured.
This section only applies to disability insurance policies or contracts that are defined as health benefit plans pursuant to subdivision (a) of Section 10198.6, except that for accident only, specified disease, or hospital indemnity coverage, coverage for benefits under this section applies to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy or contract. This section shall not be construed as imposing a new benefit mandate on accident only, specified disease, or hospital indemnity insurance.
For purposes of this section, the following definitions apply:
“Grandfathered health plan” has the meaning set forth in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
With respect to policies of disability insurance issued, amended, or renewed on or after January 1, 2016, “health care provider” means an individual who is certified or licensed to furnish family planning services within their scope of practice pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code, including a pharmacist authorized pursuant to Section 4052 or 4052.3 of the Business and Professions Code, or an initiative act referred to in that division, or Division 2.5 (commencing with Section 1797) of the Health and Safety Code.
For purposes of this section, “over-the-counter FDA-approved contraceptive drugs, devices, and products” and “over-the-counter birth control methods” are limited to those included as essential health benefits pursuant to Section 10112.27.
The requirements of this section shall apply to a group or individual policy or certificate of health insurance or student blanket disability insurance that provides coverage for hospital, medical, or surgical expenses that is issued, amended, renewed, or delivered on or after January 1, 2023. This section does not apply to a specialized health insurance policy. A policy or certificate subject to the requirements of this section shall not impose a deductible, coinsurance, copayment, or other cost-sharing requirement on coverage for all abortion and abortion-related services, including preabortion and followup services.
This section does not deny or restrict in any way the department's authority to ensure an insurer’s compliance with this chapter when the insurer provides coverage for abortion services.
This section does not require an individual or group disability insurance policy to cover an experimental or investigational treatment.
For purposes of this section, “abortion” means any medical treatment intended to induce the termination of a pregnancy except for the purpose of producing a live birth.
For a group or individual policy or certificate of health insurance or student blanket disability insurance that is a high deductible health plan, as defined in Section 223(c)(2) of Title 26 of the United States Code, the cost-sharing limits in paragraph (1) of subdivision (a) shall apply once an insured’s deductible has been satisfied for the benefit year.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner may interpret and implement this section by issuing guidance without taking any further regulatory action. The commissioner shall consult with the Department of Managed Health Care in issuing guidance under this section. The department shall adopt regulations on or before January 1, 2026, in accordance with the requirements of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
A request for an exception to a health insurer’s step therapy process for prescription drugs may be submitted in the same manner as a request for prior authorization for prescription drugs pursuant to Section 10123.191, and shall be treated in the same manner, and shall be responded to by the health insurer in the same manner, as a request for prior authorization for prescription drugs.
The department and the Department of Managed Health Care shall include a provision for step therapy exception requests in the uniform prior authorization form developed pursuant to subdivision (c) of Section 10123.191.
“Step therapy exception” means a decision to override a generally applicable step therapy protocol in favor of coverage of the prescription drug prescribed by a health care provider for an individual insured.
On and after July 1, 2011, in accordance with the requirements of subdivision (b), a health insurer that provides coverage for professional mental health services shall issue an identification card to an insured in order to assist the insured with accessing health benefits coverage information, including, but not limited to, in-network provider access information, and claims processing purposes. The identification card, at a minimum, shall include all of the following information:
The name of the health insurer issuing the identification card.
The insured’s identification number.
A telephone number that insureds or providers may call for assistance with health benefits coverage information, in-network provider access information, and claims processing information, and if assessment services are provided by the health insurer, access to assessment services for the purpose of referral to an appropriate level of care or an appropriate health care provider.
The health insurer’s Internet Web site address.
The identification card required by this section shall be issued by a health insurer to an insured upon commencement of coverage or upon a change in the insured’s coverage that impacts the data content or format of the card.
This section does not require a health insurer to issue a separate identification card for professional mental health coverage if the insurer issues a card for health care coverage in general and the card provides the information required by this section.
If a health insurer, as described in subdivision (a), delegates responsibility for issuing the card to a contractor or agent, the contractor or agent shall be required to comply with this section.
This section does not prohibit a health insurer from meeting the standards of the Workgroup for Electronic Data Interchange (WEDI) or other national uniform standards with respect to identification cards, and a health insurer shall be deemed compliant with this section if the insurer conforms with these standards, as long as the minimum requirements described in subdivision (a) have been met.
For the purposes of this section, “identification card” includes other technology that performs substantially the same function as an identification card.
This section shall not apply to Medicare supplement insurance, employee assistance programs, CHAMPUS supplement insurance, or TRI-CARE supplement insurance, or to hospital indemnity, accident-only, and specified disease insurance. This section shall also not apply to specialized health insurance policies, except behavioral health-only policies.
Notwithstanding paragraph (1), this section shall not apply to a behavioral health-only policy that provides coverage for professional mental health services pursuant to a contract with a health care service plan or insurer if that plan or insurer issues an identification card to its subscribers or insureds pursuant to this section or Section 1367.29 of the Health and Safety Code.
A health insurer that provides coverage for professional mental health services shall establish an Internet Web site. Each Internet Web site shall include, or provide a link to, the following information:
A telephone number that the insured or provider can call, during normal business hours, for assistance obtaining mental health benefits coverage information, including the extent to which benefits have been exhausted, in-network provider access information, and claims processing information.
A link to prescription drug formularies posted pursuant to Section 10123.192, or instructions on how to obtain formulary information.
A detailed summary description of the process by which the insurer reviews and approves, modifies, or denies requests for health care services as described in Section 10123.135.
Lists of providers or instructions on how to obtain a provider list as required by Section 10133.1.
A detailed summary of the health insurer’s grievance process.
A detailed description of how the insured may request continuity of care as described in Section 10133.55.
Information concerning the right, and applicable procedure, of the insured to request an independent medical review pursuant to Section 10169.
Except as otherwise specified, the material described in subdivision (a) shall be updated at least quarterly.
The information described in subdivision (a) may be made available through a secured Internet Web site that is only accessible to the insured.
The material described in subdivision (a) shall also be made available to insureds in hard copy upon request.
This article does not preclude an insurer from including additional information on its Internet Web site for applicants or insureds, including, but not limited to, the cost of procedures or services by health care providers in an insurer’s network.
The department shall include on the department’s Internet Web site, a link to the Internet Web site of each health insurer described in subdivision (a).
This section shall not apply to Medicare supplement insurance, employee assistance programs, CHAMPUS supplement insurance, or TRI-CARE supplement insurance, or to hospital indemnity, accident-only, and specified disease insurance. This section shall also not apply to specialized health insurance policies, except behavioral health-only policies.
This section shall not apply to a health insurer that contracts with a specialized health care service plan, insurer, or other entity to cover professional mental health services for its insureds, provided that the health insurer provides a link on its Internet Web site to an Internet Web site operated by the specialized health care service plan, insurer, or other entity with which it contracts, and that plan, insurer, or other entity complies with this section or Section 1368.016 of the Health and Safety Code.
A health insurer shall provide to insureds a written or electronic notice regarding the benefits of a behavioral health and wellness screening for children and adolescents 8 to 18 years of age.
“Behavioral health and wellness screening” means a screening, test, or assessment to identify indicators or symptoms of behavioral health issues in an individual, including, but not limited to, depression or anxiety.
The notice shall provide information regarding the benefits of behavioral health and wellness screenings for both depression and anxiety.
A health insurer shall provide notice pursuant to this section annually.
This section does not apply to Medi-Cal managed care that contracts with the State Department of Health Care Services entered into pursuant to Chapter 7 (commencing with Section 14000) of, or Chapter 8 (commencing with Section 14200) of, Part 3 of Division 9 of the Welfare and Institutions Code.
A health insurance policy that is issued, amended, delivered, or renewed on or after July 1, 2000, shall be deemed to provide coverage for all generally medically accepted cancer screening tests, subject to all other terms and conditions that would otherwise apply.
A health insurance policy that is issued, amended, delivered, or renewed on or after July 1, 2022, shall not require prior authorization for either of the following:
Biomarker testing for an insured with advanced or metastatic stage 3 or 4 cancer.
Biomarker testing of cancer progression or recurrence in the insured with advanced or metastatic stage 3 or 4 cancer.
For purposes of this section, “biomarker test” means a diagnostic test, such as single or multigene, of the cancer patient’s biospecimen, such as tissue, blood, or other bodily fluids, for DNA or RNA alterations, including phenotypic characteristics of a malignancy, to identify an individual with a subtype of cancer, in order to guide patient treatment.
This section shall not apply to vision-only, dental-only, accident-only, specified disease, hospital indemnity, Medicare supplement, long-term care, or disability income insurance, except that for accident-only, specified disease, or hospital indemnity insurance, coverage for benefits under this section shall apply to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy or contract. This section shall not be construed as imposing a new benefit mandate on accident-only, specified disease, or hospital indemnity insurance.
Notwithstanding subdivision (b), this section does not prohibit a health insurer from requiring prior authorization on biomarker testing that is not for an FDA-approved therapy for advanced or metastatic stage 3 or 4 cancer.
This section does not limit, prohibit, or modify an insured’s rights to biomarker testing as part of an approved clinical trial under Section 10145.4.
A policy of health insurance that covers outpatient prescription drugs shall cover medically necessary drugs. The policy may provide for step therapy and prior authorization consistent with Section 1342.7 of the Health and Safety Code and any regulations adopted pursuant to that section.
Commencing January 1, 2017, an insurer shall maintain a pharmacy and therapeutics committee that shall be responsible for developing, maintaining, and overseeing any drug formulary list. If the insurer delegates responsibility for the formulary to any entity, the obligation of the insurer to comply with this part shall not be waived.
The pharmacy and therapeutics committee board membership shall conform with both of the following:
Represent a sufficient number of clinical specialties to adequately meet the needs of insureds.
Consist of a majority of individuals who are practicing physicians, practicing pharmacists, and other practicing health professionals who are licensed to prescribe drugs.
Members of the board shall abstain from voting on any issue in which the member has a conflict of interest with respect to the issuer or a pharmaceutical manufacturer.
At least 20 percent of the board membership shall not have a conflict of interest with respect to the issuer or any pharmaceutical manufacturer.
The pharmacy and therapeutics committee shall meet at least quarterly and shall maintain written documentation of the rationale for its decisions regarding the development of, or revisions to, the formulary drug list.
The pharmacy and therapeutics committee shall do all of the following:
Develop and document procedures to ensure appropriate drug review and inclusion.
Base clinical decisions on the strength of the scientific evidence and standards of practice, including assessing peer-reviewed medical literature, pharmacoeconomic studies, outcomes research data, and other related information.
Consider the therapeutic advantages of drugs in terms of safety and efficacy when selecting formulary drugs.
Review policies that guide exceptions and other utilization management processes, including drug utilization review, quantity limits, and therapeutic interchange.
Evaluate and analyze treatment protocols and procedures related to the insurer’s formulary at least annually.
Review and approve all clinical prior authorization criteria, step therapy protocols, and quantity limit restrictions applied to each covered drug.
Review new United States Food and Drug Administration-approved drugs and new uses for existing drugs.
Ensure the insurer’s formulary drug list or lists cover a range of drugs across a broad distribution of therapeutic categories and classes and recommended drug treatment regimens that treat all disease states and does not discourage enrollment by any group of insureds.
Ensure the insurer’s formulary drug list or lists provide appropriate access to drugs that are included in broadly accepted treatment guidelines and that are indicative of general best practices at the time.
This subdivision shall be interpreted consistent with federal guidance issued under paragraph (3) of subdivision (a) of Section 156.122 of Title 45 of the Code of Federal Regulations. This subdivision shall apply to the individual, small group, and large group markets.
The required prescription drug is contraindicated or is likely, or expected, to cause an adverse reaction or physical or mental harm to the insured in comparison to the requested prescription drug, based on the known clinical characteristics of the insured and the known characteristics and history of the insured’s prescription drug regimen.
The required prescription drug is expected to be ineffective based on the known clinical characteristics of the insured and the known characteristics and history of the insured’s prescription drug regimen.
The insured has tried the required prescription drug while covered by their current or previous health coverage or Medicaid, and that prescription drug was discontinued due to lack of efficacy or effectiveness, diminished effect, or an adverse reaction. The health insurer may require the submission of documentation demonstrating that the insured tried the required prescription drug before it was discontinued.
The required prescription drug is not clinically appropriate for the insured because the required drug is expected to do any of the following, as determined by the insured’s prescribing provider:
Worsen a comorbid condition.
(II) Decrease the capacity to maintain a reasonable functional ability in performing daily activities.
(III) Pose a significant barrier to adherence to, or compliance with, the insured’s drug regimen or plan of care.
The insured is stable on a prescription drug selected by the insured’s prescribing provider for the medical condition under consideration while covered by their current or previous health coverage or Medicaid.
This section does not prohibit a health care provider from prescribing a prescription drug that is clinically appropriate.
This section does not prohibit an insurer or utilization review organization from requiring an insured to try an AB-rated generic equivalent, biosimilar, as defined in Section 262(i)(2) of Title 42 of the United States Code, or interchangeable biological product, as defined in Section 262(i)(3) of Title 42 of the United States Code, before providing coverage for the equivalent branded prescription drug.
Clause (ii) does not prohibit or supersede a step therapy exception request as described in subparagraph (B) of paragraph (2) of subdivision (c).
A health care provider or prescribing provider may file an internal appeal of a denial of an exception request for coverage of a nonformulary drug, prior authorization request, or step therapy exception request consistent with the health insurer’s current utilization management processes.
An insured or the insured’s designee or guardian may appeal a denial of an exception request for coverage of a nonformulary drug, prior authorization request, or step therapy exception request by filing an internal appeal with the health insurer pursuant to Section 2719 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-19) and any subsequent rules or regulations issued thereunder.
Every health insurer that provides prescription drug benefits shall maintain all of the following information, which shall be made available to the commissioner upon request:
The complete drug formulary or formularies of the insurer, if the insurer maintains a formulary, including a list of the prescription drugs on the formulary of the insurer by major therapeutic category with an indication of whether any drugs are preferred over other drugs.
Records developed by the pharmacy and therapeutics committee of the insurer, or by others responsible for developing, modifying, and overseeing formularies, including medical groups, individual practice associations, and contracting pharmaceutical benefit management companies, used to guide the drugs prescribed for the insureds of the insurer, that fully describe the reasoning behind formulary decisions.
Any insurer arrangements with prescribing providers, medical groups, individual practice associations, pharmacists, contracting pharmaceutical benefit management companies, or other entities that are associated with activities of the insurer to encourage formulary compliance or otherwise manage prescription drug benefits.
If an insurer provides prescription drug benefits, the commissioner shall, as part of its market conduct examination, review the performance of the insurer in providing those benefits, including, but not limited to, a review of the procedures and information maintained pursuant to this section, and describe the performance of the insurer as part of its report issued as part of its market conduct examination.
The commissioner shall not publicly disclose any information reviewed pursuant to this section that is determined by the commissioner to be confidential pursuant to state law.
For purposes of this section, the following definitions shall apply:
“Authorization” means approval by the health insurer to provide payment for the prescription drug.
“Step therapy” means a type of protocol that specifies the sequence in which different prescription drugs for a given medical condition and medically appropriate for a particular patient are to be prescribed.
“Step therapy exception” means a decision to override a generally applicable step therapy protocol in favor of coverage of the prescription drug prescribed by a health care provider for an individual insured.
“Utilization review organization” means an entity that conducts utilization review, other than a health insurer performing its own utilization review.
Nonformulary prescription drugs shall include any drug for which an insured’s copayment or out-of-pocket costs are different than the copayment for a formulary prescription drug, except as otherwise provided by law or regulation.
This section does not affect an insured’s or policyholder’s eligibility to submit a complaint to the department for review or to apply to the department for an independent medical review under Article 3.5 (commencing with Section 10169).
This section does not restrict or impair the application of any other provision of this part.
This section and Section 10123.191 apply to both the health insurer and a utilization review organization that performs utilization review or utilization management functions on the insurer’s behalf. Commencing January 1, 2022, a contract between a health insurer and a utilization review organization that performs utilization review or utilization management functions on the insurer’s behalf shall include terms that require the utilization review organization to comply with this section and Section 10123.191.
A health insurance policy issued, amended, renewed, or delivered on or after January 1, 2017, excluding specialized health insurance policies, shall be prohibited from requiring an insured to receive a referral before receiving coverage or services for reproductive and sexual health care.
This section applies whether or not the patient is a minor.
In implementing this section, a health insurer may establish reasonable provisions governing utilization protocols for obtaining reproductive and sexual health care services, as provided for in subdivision (a), if these provisions are consistent with the intent of this section and are those customarily applied to other health care providers, such as primary care physicians and surgeons, to whom the insured has direct access, and are not more restrictive for reproductive and sexual health care services. An insured shall not be required to obtain prior approval from another physician, another provider, or the insurer before obtaining direct access to reproductive and sexual health care services. An insurer may establish reasonable provisions governing communication with the insured’s primary care physician and surgeon regarding the insured’s condition, treatment, and a need for followup care.
This section shall not apply to a health insurance policy that does not require insureds to obtain a referral from their primary care physician before seeking covered health care services from a specialist.
A health insurer shall not impose utilization protocols related to contraceptive drugs, supplies, and devices beyond those in Section 10123.196.
This section shall not apply to specialized health insurance, Medicare supplement insurance, CHAMPUS supplement insurance, or TRICARE supplement insurance, or to hospital indemnity, accident-only, or specified disease insurance.
Commencing January 1, 2019, an insurer shall prorate an insured’s cost sharing for a partial fill of a prescription dispensed pursuant to Section 4052.10 of the Business and Professions Code. This section shall only apply to oral, solid dosage forms of prescription drugs.
A health insurance policy issued, amended, delivered, or renewed on or after July 1, 2023, that provides prescription drug benefits and maintains one or more drug formularies shall do all of the following:
Upon request of an insured or an insured’s prescribing provider, furnish all of the following information regarding a prescription drug to the insured or the insured’s prescribing health care provider:
The insured’s eligibility for the prescription drug.
The most current formulary or formularies.
Cost-sharing information for the prescription drug and other formulary alternatives, consistent with cost-sharing requirements as set forth in the policy and accurate at the time it is provided, including any variance in cost sharing based on the patient’s preferred dispensing pharmacy, whether retail or mail order, or the health care provider.
Applicable utilization management requirements for the prescription drug and other formulary alternatives.
Respond in real time to a request made pursuant to paragraph (1) through a standard API.
Allow the use of an interoperability element to provide the information required pursuant to paragraph (1).
Ensure that the information provided pursuant to paragraph (1) is current no later than one business day after a change is made and is provided in real time.
Provide the information pursuant to paragraph (1) if the request is made using the drug’s unique billing code and National Drug Code.
A health insurer shall not do any of the following:
Deny or delay a response to a request for the purpose of blocking the release of information pursuant to subdivision (a).
Restrict, prohibit, or otherwise hinder a prescribing provider from communicating or sharing to an insured any of the following:
The information provided pursuant to subdivision (a).
Additional information on any lower cost or clinically appropriate alternative drugs, whether or not they are covered under the insured’s health insurance policy.
Information about the cash price of the drug.
Except as required by law, interfere with, prevent, or materially discourage access, exchange, or use of the information provided pursuant to subdivision (a). “Interfere with, prevent, or materially discourage access, exchange, or use of the information” includes charging fees for access to the information, not responding to a request at the time made consistent with this section, or instituting insured consent requirements.
Penalize a prescribing provider for disclosing the information provided pursuant to subdivision (a). For purposes of this paragraph, “penalize” includes an action intended to punish a provider for disclosing the information set forth in subdivision (a) or intended to discourage a provider from disclosing this information in the future.
Penalize a prescribing provider for prescribing, administering, or ordering a lower cost or clinically appropriate alternative drug. For purposes of this paragraph, “penalize” includes an action intended to punish a provider who has prescribed, administered, or ordered a lower cost or clinically appropriate alternative drug, or intended to discourage a provider from prescribing, administering, or ordering a lower cost or clinically appropriate alternative drug in the future.
For purposes of this section:
“Standard API” means an application interface that is standardized for vendors to conform to in order to access the information pursuant to Section 170.215 of Title 45 of the Code of Federal Regulations.
A health insurance policy issued, amended, or renewed on or after January 1, 2026, that provides prescription drug coverage shall not calculate an insured’s cost sharing at an amount that exceeds the actual rate paid by the insurer for the prescription drug. Cost sharing shall include deductibles and coinsurance.
To the extent that a health insurance policy with a pharmacy benefit manager issued, amended, or renewed on or after January 1, 2026, includes disclosure of the net price paid by the pharmacy benefit manager or group purchasing organization, then an insured’s cost sharing shall not be calculated at an amount that exceeds that net price paid.
Commencing January 1, 2026, if a preexisting contract between a pharmacy benefit manager licensed pursuant to Article 6.1 (commencing with Section 1385.001) of Chapter 2.2 of Division 2 of the Health and Safety Code and a health insurer authorizes spread pricing, as that term is defined by Section 1385.001 of the Health and Safety Code, any subsequent amendment or renewal of that contract shall not authorize spread pricing.
A contract that is executed on or after January 1, 2026, between a pharmacy benefit manager licensed pursuant to Article 6.1 (commencing with Section 1385.001) of Chapter 2.2 of Division 2 of the Health and Safety Code and a health insurer shall not authorize spread pricing, as that term is defined by Section 1385.001 of the Health and Safety Code.
For all covered prescription drugs, including generic drugs, brand name drugs, and specialty drugs dispensed at a plan pharmacy, network pharmacy, or mail order pharmacy for outpatient use, all of the following shall be reported:
The 25 most frequently prescribed drugs.
The 25 most costly drugs by total annual plan spending.
The 25 drugs with the highest year-over-year increase in total annual plan spending.
The department shall compile the information reported pursuant to subdivision (a) into a report for the public and legislators that demonstrates the overall impact of drug costs on health care premiums. The data in the report shall be aggregated and shall not reveal information specific to individual health insurers.
For the purposes of this section, a “specialty drug” is one that exceeds the threshold for a specialty drug under the Medicare Part D program (Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173)).
By January 1 of each year, beginning January 1, 2018, the department shall publish on its Internet Web site the report required pursuant to subdivision (b).
After the report required in subdivision (b) is released, the department shall include the report as part of the public meeting required pursuant to subdivision (b) of Section 10181.45.
Except for the report required pursuant to subdivision (b), the department shall keep confidential all of the information provided to the department pursuant to this section, and the information shall be protected from public disclosure.
Notwithstanding any other law, an individual or group health insurance policy issued, amended, or renewed on or after January 1, 2015, that provides coverage for prescribed, orally administered anticancer medications used to kill or slow the growth of cancerous cells shall comply with all of the following:
Notwithstanding any deductible, the total amount of copayments and coinsurance an insured is required to pay shall not exceed two hundred fifty dollars ($250) for an individual prescription of up to a 30-day supply of a prescribed orally administered anticancer medication covered by the policy.
For a health insurance policy that meets the definition of a “high deductible health plan” set forth in Section 223(c)(2) of Title 26 of the United States Code, paragraph (1) shall only apply once an insured’s deductible has been satisfied for the year.
An orally administered anticancer medication shall be provided consistent with the appropriate standard of care for that medication.
This section shall not apply to a specialized health insurance policy that covers only dental or vision benefits or any coverage under a health insurance policy for the Medicare Program pursuant to Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
Every health insurance policy, except a specialized health insurance policy, that is issued, amended, or renewed on or after January 1, 2022, shall provide coverage without cost sharing for a colorectal cancer screening test assigned either a grade of A or a grade of B by the United States Preventive Services Task Force. The required colonoscopy for a positive result on a test or procedure, other than a colonoscopy, that is a colorectal cancer screening examination or laboratory test identified assigned either a grade of A or a grade of B by the United States Preventive Services Task Force shall also be provided without any cost sharing.
This section does not preclude a health insurer that has a network of providers from imposing cost-sharing requirements for the items or services described in this section that are delivered by an out-of-network provider.
A health insurance policy issued, amended, renewed, or delivered on or after January 1, 2022, excluding specialized health insurance policies, shall provide coverage for home test kits for sexually transmitted diseases (STD), including any laboratory costs of processing the kit, that are deemed medically necessary or appropriate and ordered directly by an in-network clinician, or furnished through a standing order for patient use based on clinical guidelines and individual patient health needs.
For purposes of this section, “home test kit” means a product used for a test recommended by the federal Centers for Disease Control and Prevention guidelines or the United States Preventive Services Task Force that has been CLIA-waived, FDA-cleared or -approved, or developed by a laboratory in accordance with established regulations and quality standards, to allow individuals to self-collect specimens for STDs, including HIV, remotely at a location outside of a clinical setting.
A health insurance policy that is issued, amended, delivered, or renewed on or after July 1, 2024, shall include coverage for medically necessary biomarker testing, subject to utilization review management, pursuant to this section. Biomarker testing shall be covered for the purposes of diagnosis, treatment, appropriate management, or ongoing monitoring of an insured’s disease or condition to guide treatment decisions. Coverage shall include biomarker tests that meet any of the following:
A labeled indication for a test that has been approved or cleared by the United States Food and Drug Administration (FDA) or is an indicated test for an FDA-approved drug.
A national coverage determination made by the federal Centers for Medicare and Medicaid Services.
A local coverage determination made by a Medicare Administrative Contractor for California.
Evidence-based clinical practice guidelines, supported by peer-reviewed literature and peer-reviewed scientific studies published in or accepted for publication by medical journals that meet nationally recognized requirements for scientific manuscripts and that submit most of their published articles for review by experts who are not part of the editorial staff.
Standards set by the National Academy of Medicine.
A health insurer shall use the process described in subdivision (f) of Section 10123.135 to determine whether biomarker testing is medically necessary for purposes of this section.
A health insurance policy that is subject to this section shall ensure that biomarker testing is provided in a manner that limits disruptions in care, including the need for multiple biopsies or biospecimen samples. This section shall not be construed to require coverage of biomarker testing for screening purposes unless otherwise required by this part.
Restricted or denied use of biomarker testing for the purpose of diagnosis, treatment, or ongoing monitoring of any medical condition is subject to grievance and appeal processes under state and federal law, including Section 2719 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-19) and any regulations subsequently adopted thereunder, and the Independent Medical Review System under Article 3.5 (commencing with Section 10169).
For purposes of this section, the following definitions apply:
“Biomarker” means a characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes, or pharmacological responses to a specific therapeutic intervention. A biomarker includes, but is not limited to, gene mutations or protein expression.
“Biomarker testing” means the analysis of an individual’s tissue, blood, or other biospecimen for the presence of a biomarker. Biomarker testing includes, but is not limited to, single-analyte tests, multiplex panel tests, and whole genome sequencing.
This section is subject to the provisions of Section 10123.20 as amended by Chapter 605 of the Statutes of 2021 for an insured with advanced or metastatic stage III or IV cancer.
A health insurer that provides health coverage to the employees of a religious employer that does not include coverage and benefits for both abortion and contraception shall provide, in writing upon initial enrollment and annually thereafter upon renewal, each insured with information regarding both of the following:
Abortion and contraception benefits or services that are not included in the insured’s health insurance policy.
Abortion and contraception benefits or services that may be available at no cost through the California Reproductive Health Equity Program.
For purposes of this section:
“Abortion” has the same meaning as defined in Section 123464 of the Health and Safety Code.
“California Reproductive Health Equity Program” means the program established pursuant to Section 127632 of the Health and Safety Code.
“Contraception” means the services and contraceptive methods described in paragraph (1) of subdivision (b) of Section 10123.196.
“Religious employer” has the same meaning as described in Section 10123.196.
This section does not alter the applicability of any other requirement of this chapter.
A health insurance policy that is issued, amended, or renewed on or after July 1, 2025, excluding a specialized health insurance policy, shall provide coverage for emergency room medical care and followup health care treatment for an insured who is treated following a rape or sexual assault, as defined in Sections 261, 261.6, 263, 263.1, 286, 287, and 288.7 of the Penal Code, without imposing cost sharing, including copayments, coinsurance, or deductibles, for the first nine months after the enrollee initiates treatment.
For the purposes of this section, “followup health care treatment” includes medical or surgical services for the diagnosis, prevention, or treatment of medical conditions arising from an instance of rape or sexual assault.
The waiver of the imposition of cost sharing pursuant to paragraph (1) shall only apply if the enrollee’s treating provider submits all requests for claims payments using accurate diagnosis codes specific to rape or sexual assault.
A health insurer shall not require any of the following to provide coverage under this section:
An insured to file a police report on the rape or sexual assault.
Charges to be brought against an assailant.
An assailant to be convicted of an offense listed in subdivision (a).
For a health insurance policy that meets the definition of a “high deductible health plan” set forth in Section 223(c)(2) of Title 26 of the United States Code, this section shall only apply once an enrollee’s deductible has been satisfied for the year.
“Cost sharing” includes any copayment, coinsurance, or deductible, or any other form of cost sharing paid by the insured other than premium or share of premium.
This section does not apply to specialized health insurance, Medicare supplement insurance, CHAMPUS supplement insurance, or TRI-CARE supplement insurance, or to hospital indemnity, accident-only, or specified disease insurance.
On or after July 1, 1995, every individual or group policy of disability insurance that provides hospital, medical, or surgical coverage entered into, amended, or renewed in this state shall, subject to other terms and conditions as may be agreed upon between the group or individual policyholder and the insurer, provide coverage for the surgical procedure for those covered conditions directly affecting the upper or lower jawbone, or associated bone joints, if each procedure being considered for reimbursement is deemed medically-necessary by the insurer pursuant to the policy’s definition of medical necessity. Nothing in this section shall be construed to require the provision of dental services if dental services are specifically excluded from coverage under the terms and conditions of the contract between the group or individual policyholder and insurer.
A health insurer shall not deny coverage that is otherwise available under the health insurance policy for the costs of solid organ or other tissue transplantation services based upon the insured or policyholder being infected with the human immunodeficiency virus.
Notwithstanding any other provision of law, in the provision of benefits required by this section, a health insurer may utilize case management, managed care, or utilization review, subject to the terms and conditions of the policy and consistent with sound clinical processes and guidelines.
A self-insured employee welfare benefit plan delivered or issued for delivery in this state more than 120 days after the effective date of this section, which provides that coverage of a dependent child of an employee shall terminate upon attainment of the limiting age for dependent children specified in the policy or contract, shall also provide in substance that attainment of the limiting age shall not operate to terminate the coverage of the child while the child is and continues to be both (1) incapable of self-sustaining employment by reason of an intellectual disability or physical handicap and (2) chiefly dependent upon the employee for support and maintenance, provided proof of the incapacity and dependency is furnished to the employer or employee organization providing the plan or program of benefits by the employee within 31 days of the child’s attainment of the limiting age and subsequently as may be required by the employer or employee organization, but not more frequently than annually after the two-year period following the child’s attainment of the limiting age.
As used in this section, “self-insured employee welfare benefit plan” means a plan or program of benefits provided by an employer or an employee organization, or both, for the purpose of providing hospital, medical, surgical, nursing, or dental services, or indemnification for the costs incurred for these services, to the employer’s employees or their dependents.
Each self-insured employee benefit plan issued or renewed on or after the effective date of this section shall provide, where feasible, that benefits for confinement in an extended care facility, as defined in subsection (j) of Section 1395x of Title 42 of the United States Code, may be provided under such terms and conditions as may be agreed upon between the employer and the employee or employee organization.
Nothing in this section shall preclude a self-insured employee benefit plan from providing benefits for confinement in institutions other than extended care facilities as defined in this section.
On and after January 1, 1974, every insurer issuing group disability insurance which covers hospital, medical, or surgical expenses shall offer coverage for expenses incurred as a result of mental or nervous disorders, under the terms and conditions which may be agreed upon between the group policyholder and the insurer. If the terms and conditions include coverage for inpatient care for nervous or mental disorders, the coverage shall extend to treatment provided at all of the following facilities:
A general acute care hospital as defined in subdivision (a) of Section 1250 of the Health and Safety Code.
An acute psychiatric hospital as defined in subdivision (b) of Section 1250 of the Health and Safety Code.
A psychiatric health facility as defined by Section 1250.2 of the Health and Safety Code operating pursuant to licensure by the State Department of Health Care Services.
Nothing in this subdivision prohibits an insurer that negotiates and enters into a contract with a professional or institutional provider for alternative rates of payment pursuant to Section 10133 from restricting or modifying the choice of providers.
Every insurer shall communicate to prospective group policyholders as to the availability of outpatient coverage for the treatment of mental or nervous disorders. Every insurer shall communicate the availability of that coverage to all group policyholders and to all prospective group policyholders with whom they are negotiating. This coverage may include community residential treatment services, as described in former Section 5458 of the Welfare and Institutions Code, that are alternatives to institutional care.
Every insurer issuing disability insurance that covers hospital, medical, or surgical expenses that offers coverage for a service that is within the scope of practice of a duly licensed pharmacist shall pay or reimburse the cost of the service performed by a pharmacist at an in-network pharmacy or a pharmacist at an out-of-network pharmacy if the insurer has an out-of-network pharmacy benefit.
Payment or reimbursement may be made pursuant to this section for a service performed by a duly licensed pharmacist only when all of the following conditions are met:
The service performed is within the lawful scope of practice of the pharmacist.
The coverage otherwise provides reimbursement for identical services performed by other licensed health care providers.
Nothing in this section shall require the insurer to pay a claim to more than one provider for duplicate service or be interpreted to limit physician reimbursement.
A complaint made by an insured that includes potential violations by a pharmacy benefit manager of the terms of Article 6.1 (commencing with Section 1385.001) of Chapter 2.2 of Division 2 of the Health and Safety Code may be considered by the department to be a complaint against the health insurer.
If a health insurer delegates functions to a pharmacy benefit manager, the pharmacy benefits manager shall comply with this code, as applicable. A health insurer shall specify by contract the pharmacy benefits manager’s responsibilities and shall monitor the pharmacy benefit manager to ensure compliance with this code. Notwithstanding delegation pursuant to this subdivision, the health insurer shall remain responsible for compliance with this code.
A contract between a health insurer and a pharmacy benefit manager issued, amended, or renewed on or after January 1, 2027, or the date on which the Department of Managed Health Care has established the pharmacy benefit manager licensure process, whichever is later, shall require the pharmacy benefit manager to be licensed and in good standing with the Department of Managed Health Care. A contract term that violates Article 6.1 (commencing with Section 1385.001) of Chapter 2.2 of Division 2 of the Health and Safety Code shall be void on and after January 1, 2029.
The department may issue guidance regarding implementation of, and compliance with, this section and Sections 10125.2, 10123.2045, and 10123.205. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 1340) of Part 1 of Division 3 of Title 2 of the Government Code), until January 1, 2030. The department shall consult with stakeholders in developing guidance pursuant to this subdivision.
Every policy of group disability insurance issued, amended, or renewed on or after January 1, 1977, which provides hospital, medical, or surgical expense benefits for employees or members and their dependents and which contains provisions granting the employee or member the right to convert the insurance coverage in the event of termination of employment or membership, shall include in such conversion provisions the same conversion rights and conditions to a covered dependent spouse of the employee or member in the event the covered dependent spouse ceases to be a qualified family member by reason of termination of marriage or death of the employee or member. Such conversion rights shall not require a physical examination or a statement of health.
If a disability insurance policy between an insurer that covers hospital, medical, or surgical expenses and a provider requires that the provider accept, as payment from the insurer, the lowest payment rate charged by the provider to any patient or third party, this policy provision shall not be deemed to apply to, or take into consideration, any cash payments made to the provider by individual patients who do not have any private or public form of health care coverage for the service rendered by the provider, as described in subdivision (c) of Section 657 of the Business and Professions Code. This section shall apply to a provider contract that is issued, amended, or renewed on or after the effective date of this section.
Every policy of disability insurance that provides hospital, medical, or surgical coverage under a health benefit plan, defined in subdivision (a) of Section 10198.6, that provides coverage for emergency health care services, that is issued, amended, delivered, or renewed in this state on or after January 1, 1999, shall include coverage for emergency medical transportation services, as defined in subdivision (b). This coverage shall be provided without regard to whether the emergency provider has a contractual arrangement with the insurer or whether there was prior authorization, subject to the terms and conditions of the policy.
For purposes of this section, “emergency medical transportation services” means ambulance services provided through the “911” emergency response system.
A health insurance policy issued, amended, or renewed on or after July 1, 2025, shall establish a process to reimburse for services provided by a community paramedicine program, triage to alternate destination program, or mobile integrated health program.
A health insurance policy issued, amended, or renewed on or after July 1, 2025, shall require an insured who receives covered services from a noncontracting community paramedicine program, triage to alternate destination program, or mobile integrated health program to pay no more than the same cost-sharing amount that the insured would pay for the same covered services received from a contracting community paramedicine program, triage to alternate destination program, or mobile integrated health program.
Notwithstanding any other law, reimbursement rates adopted pursuant to this subdivision shall not exceed the health insurer’s usual and customary charges for services rendered.
For purposes of this section, the following definitions apply:
“Triage to alternate destination program” means a program defined in Section 1819 of the Health and Safety Code.
Notwithstanding Section 10352, a health insurance policy issued, amended, or renewed on or after January 1, 2020, shall provide that if an insured or subscriber receives covered services from a noncontracting air ambulance provider, the insured or subscriber shall pay no more than the same cost sharing that the insured or subscriber would pay for the same covered services received from a contracting air ambulance provider. This amount shall be referred to as the “in-network cost-sharing amount.”
A subscriber or insured shall not owe the noncontracting provider more than the in-network cost-sharing amount for services subject to this section. At the time of payment by the insurer to the noncontracting provider, the insurer shall inform the insured or subscriber and the noncontracting provider of the in-network cost-sharing amount owed by the insured or subscriber.
The following shall apply for purposes of this section:
Any cost sharing paid by the insured or subscriber for the services subject to this section shall count toward the limit on annual out-of-pocket expenses established under Section 10112.28.
Cost sharing arising from services subject to this section shall be counted toward any deductible in the same manner as cost sharing would be attributed to a contracting provider.
The cost sharing paid by the insured or subscriber pursuant to this section shall satisfy the insured’s or subscriber’s obligation to pay cost sharing for the health service.
A noncontracting provider may advance to collections only the in-network cost-sharing amount, as determined by the insurer pursuant to subdivision (a), that the insured or subscriber failed to pay.
A health insurer or a provider may seek relief in any court for the purpose of resolving a payment dispute. A provider is not prohibited from using a health insurer’s existing dispute resolution processes.
Unless otherwise required by this chapter, a health insurance policy issued, amended, or renewed on or after January 1, 2024, shall require an insured who receives covered services from a noncontracting ground ambulance provider to pay no more than the same cost-sharing amount that the insured would pay for the same covered services received from a contracting ground ambulance provider. This amount shall be referred to as the “in-network cost-sharing amount.”
An insured shall not owe the noncontracting ground ambulance provider more than the in-network cost-sharing amount for services subject to this section. At the time of payment by the insurer to the noncontracting provider, the insurer shall inform the insured and the noncontracting provider of the in-network cost-sharing amount owed by the insured and shall disclose whether or not the insured’s coverage is regulated by the department or if the coverage is not state-regulated.
The in-network cost-sharing amount paid by the insured pursuant to this section shall count toward the limit on annual out-of-pocket expenses established under Section 10112.28.
Cost sharing arising pursuant to this section shall count toward any deductible in the same manner as cost sharing would be attributed to a contracting provider.
The in-network cost-sharing amount paid by the insured pursuant to this section shall satisfy the insured’s obligation to pay cost sharing for the health service.
A noncontracting ground ambulance provider shall only advance to collections the in-network cost-sharing amount, as determined by the insurer pursuant to subdivision (a), that the insured failed to pay.
Report adverse information to a consumer credit reporting agency.
Commence civil action against the insured for a minimum of 12 months after the initial billing regarding amounts owed by the insured pursuant to subdivision (a).
The ambulance provider’s training, qualifications, and length of time in practice.
The nature of the services provided.
The fees usually charged by the ambulance provider.
Prevailing ground ambulance provider rates charged in the general geographic areas in which the services were rendered.
Other aspects of the economics of the ambulance provider’s practice that are relevant.
Any unusual circumstances in the case.
The ground ambulance transport is initiated within the boundaries of the local government’s regulatory jurisdiction.
In the case of ground ambulance transports provided on a mutual or automatic aid basis into another jurisdiction, the local government where the noncontracting ground ambulance provider is based.
Notwithstanding any other law, the amounts paid by a health insurer for services under this section shall not constitute the prevailing or customary charges, the usual fees to the general public, or other charges for other payers for an individual ground ambulance provider.
A health insurer or ground ambulance provider may seek relief in any appropriate court for the purpose of resolving a payment dispute. A ground ambulance provider may use a health insurer’s existing dispute resolution process under Section 10123.137.
This section does not affect the balance billing protections for Medi-Cal beneficiaries under Section 14019.4 of the Welfare and Institutions Code.
On and after January 1, 1974, every self-insured employee welfare benefit plan that provides coverage for hospital, medical, or surgical expenses shall offer coverage for expenses incurred as a result of mental or nervous disorders, under the terms and conditions which may be agreed upon between the self-insured welfare benefit plan and the member. If the terms and conditions include coverage for services provided in a general acute care hospital, or an acute psychiatric hospital as defined in Section 1250 of the Health and Safety Code, and do not restrict or modify the choice of providers, the coverage shall extend to care provided by a psychiatric health facility, as defined by Section 1250.2 of the Health and Safety Code, operating pursuant to licensure by the State Department of Health Care Services. Every plan shall communicate to prospective members as to the availability of outpatient coverage for the treatment of mental or nervous disorders. Every self-insured welfare benefit plan shall communicate the availability of this coverage to all members and prospective members. This coverage may include community residential treatment services, as described in former Section 5458 of the Welfare and Institutions Code, that are alternatives to institutional care.
Notwithstanding any other law, a disability insurance policy that provides hospital, medical, surgical, prescription drug, or nursing benefits, except a policy providing only dental or vision benefits, that is issued, amended, renewed, or delivered, on or after January 1, 2024, and that is issued to a bona fide public or private institution of higher learning and provides coverage to its students and their dependents, or to its faculty, staff, administration, and their respective dependents, shall comply with the coverage requirements of Sections 10123.1945 and 10123.196.
No policy of disability insurance providing loss of time benefits shall contain any provision for a reduction of such benefits during a benefit period because of an increase in benefits payable under the Federal Social Security Act, as amended.
No self-insured employee welfare benefit plan providing loss of time benefits shall contain any provision for a reduction of such benefits during a benefit period because of an increase in benefits payable under the Federal Social Security Act, as amended.
This section shall apply to all disability insurance policies issued, delivered, amended, or renewed in this state on or after January 1, 1977, and shall apply to group disability insurance policies and self-insured employee welfare benefit plans which are entered into, amended, or renewed on or after such date or upon the expiration of any applicable collective-bargaining agreement, whichever occurs later.
Any provision contained in a policy of disability insurance or a self-insured employee welfare benefit plan for a reduction of loss of time benefits during a benefit period because of an increase in benefits payable under the federal Social Security Act, as amended, shall be null and void with respect to any such increase which occurs on or after the effective date of this section.
Each policy of disability insurance issued or renewed on or after the effective date of this section, which policy provides benefits that accrue after a certain time of confinement in a health care facility, shall specify what constitutes a day of confinement or the number of consecutive hours of confinement which are requisite to the commencement of benefits.
With respect to renewal of individual policies of disability insurance, insurers shall not be required to issue notification to the insured of the provisions of this section unless notice of policy renewal is delivered to the insured.
Any data submitted by a health insurer to the United States Secretary of Health and Human Services, or his or her designee, for purposes of the risk adjustment program described in Section 1343 of the federal Patient Protection and Affordable Care Act (42 U.S.C. Sec. 18063) shall be concurrently submitted to the department and in the same format. The department shall use the information to monitor federal implementation of risk adjustment in the state and to ensure that insurers are in compliance with federal requirements related to risk adjustment.
On and after January 1, 1985, every insurer issuing group disability insurance which covers hospital, medical, or surgical expenses shall offer coverage for expenses incurred as a result of treatment by holders of certificates under Section 4938 of the Business and Professions Code, under such terms and conditions as may be agreed upon between the group policyholder and the insurer.
An insurer is not required to offer the coverage provided by this section as part of any policy covering employees of a public entity.
Except as provided in subdivisions (b) and (c), no contract that is issued, amended, renewed, or delivered on or after January 1, 1999, between a disability insurer that provides coverage for hospital, medical, or surgical benefits and a health care provider shall contain provisions that prohibit, restrict, or limit the health care provider from advertising.
Nothing in this section shall be construed to prohibit disability insurers from establishing reasonable guidelines in connection with the activities regulated pursuant to this part, including those to prevent advertising that is, in whole or in part, untrue, misleading, deceptive, or otherwise inconsistent with this part or the rules and regulations promulgated thereunder. For advertisements mentioning a provider’s participation in a plan or product line of a disability insurer, nothing in this section shall be construed to prohibit disability insurers from requiring each advertisement to contain a disclaimer to the effect that the provider’s services may be covered for some, but not all, plans or product lines of the disability insurer, or that the disability insurer may cover some, but not all, provider services.
Nothing in this section is intended to prohibit provisions or agreements intended to protect service marks, trademarks, trade secrets, or other confidential information or property. If a health care provider participates in a provider panel or network as a result of a direct contractual agreement with a disability insurer that, in turn, has entered into a direct contractual agreement with another person or entity, pursuant to which insureds and other beneficiaries of that other person or entity may receive covered services from the health care provider, then nothing in this section is intended to prohibit reasonable provisions or agreements in the direct contractual arrangement between the health care provider and the disability insurer that protect the name or trade name of the other person or entity or requires that the health care provider obtain the consent of the disability insurer prior to the use of the name or trade name of the other person or entity in any advertising by the health care provider.
Nothing in this section shall be construed to impair or impede the authority of the commissioner to regulate advertising, disclosure, or solicitation pursuant to this part.
Every application for, certificate of, and policy of credit life or credit disability insurance shall set forth a statement in bold capital letters indicating that any preexisting health condition of the applicant may render the coverage void, if that is the case.
For the purpose of this section, “credit life or credit disability insurance” means insurance on the life or health of any borrower sold by any creditor to provide for the repayment of the amount of a loan or other extension of credit in the event of the debtor’s death or disability as defined in the policy.
Every policy of individual life insurance with a face value of less than ten thousand dollars ($10,000) which is delivered or issued for delivery in this state on and after July 1, 1974, shall have printed thereon or attached thereto a notice stating that, after receipt of the policy by the owner, the policy may be returned by the owner for cancellation by delivering it or mailing it to the insurer or to the agent through whom it was purchased. The period of time set forth by the insurer for return of the policy by the insured shall be clearly stated on the notice and this period shall be not less than 10 days nor more than 30 days. The insured may return the policy to the insurer at any time during the period specified in the notice. This delivery or mailing of the policy by the owner shall void the policy from the beginning, and the parties shall be in the same position as if no policy or contract had been issued. All premiums paid and any policy fee paid for the policy shall be refunded to the owner within 30 days from the date that the insurer is notified that the insured has canceled the policy.
This section applies to all policies issued, amended, or delivered in this state on or after January 1, 2011, and applies to any renewal thereof. All policies subject to this section that are in effect on January 1, 2011, shall be construed to be in compliance with this section, and any provision in such a policy that is in conflict with this section shall be of no force or effect.
This section does not apply to individual life insurance policies issued in connection with a credit transaction or issued under a contractual policy change or conversion privilege provision contained in a policy.
The purpose of this section is to assure truthful and adequate disclosure of all material and relevant information in the advertising of term life insurance which the commissioner, on the basis of an assessment of the total advertisement, determines is directed to individuals 55 years of age or older.
Advertisements for term life insurance directed to individuals 55 years of age or older shall:
Clearly and prominently distinguish basic life insurance benefits from suppplemental benefits such as accidental death benefits.
Prominently disclose any limitations, exceptions, or reductions affecting each benefit.
Prominently disclose any condition affecting the policy or certificate holder’s continued insurability. If term coverage terminates at a stated age, or at the end of any designated period, that fact and the specified age or designated period shall be disclosed.
Prominently disclose any change in benefits resulting from the aging of the insured, policy duration, or any other factor.
Prominently disclose any change in premium resulting from the aging of the insured, policy duration, or any other factor. If the insurer retains any right to modify premiums in the future, that fact shall be disclosed.
If the benefits of the advertised policy or certificate decrease with the insured’s age or with policy or certificate duration, while the premium remains approximately constant, that fact shall, in a print or broadcast advertisement, be disclosed, in the same form and with prominence or visible duration, or both, equal to that given any positive description of benefits or the telephone number or address provided for further information or application, whichever is the most prominent.
A television or radio advertisement for term life insurance directed to individuals 55 years of age or older shall in the spoken text contain the statement “policy (or certificate) benefits and limitations should be carefully examined prior to purchase.”
The commissioner may, by regulation, adopt a term life insurance monetary value index, similar to the Life Insurance Surrender Cost Index of Article 12.5 (commencing with Section 2545) of Subchapter 2 of Chapter 5 of Title 10 of the California Code of Regulations, to be disclosed in all advertisements of term life insurance for individuals 55 years of age or older, and on all policies and certificates of that insurance. In developing a term life insurance monetary value index, the commissioner shall consider actual premiums and policy and certificate benefits and the manner in which they are affected with the passage of time. Any term life insurance monetary value index developed pursuant to this section shall assume an insured’s desire to retain coverage for at least 10 years.
This section does not supersede or repeal any regulation of the commissioner which governs life insurance advertising and such regulation shall continue to be in force in addition to this section.
The commissioner shall adopt regulations that are necessary to carry out this section.
This section applies to the advertisement of individual policies of insurance and any group policies or certificates delivered or issued for delivery in this state, regardless of the situs of the contract.
In addition to any other penalty provided by law or the availability of any administrative procedure, if an insurer, after notice and hearing, is found to have violated this section, or regulations adopted pursuant to this section, or knowingly permits any person to do so, the commissioner, in accordance with the procedures provided in Section 704, may suspend the insurer’s certificate of authority to transact life insurance. Section 704.7 shall apply in any proceeding conducted pursuant to this section.
Every individual life insurance policy and every individual annuity contract that is initially delivered or issued for delivery in this state on and after January 1, 1990, shall have printed on the front of the policy jacket or on the cover page a notice stating that, after receipt of the policy by the owner, the policy may be returned by the owner for cancellation by mail or other delivery method to the insurer or to the agent through whom it was purchased. The period of time set forth by the insurer for return of the policy by the owner shall be clearly stated and this period shall be not less than 10 days nor more than 30 days.
The owner may return the policy to the insurer by mail or other delivery method at any time during the period specified in the notice. In the case of individual nonvariable life insurance policies and individual nonvariable annuity contracts, including modified guaranteed contracts, by delivering or mailing the policy pursuant to this section during the cancellation period, the owner shall void the policy from the beginning, and the parties shall be in the same position as if no policy had been issued. All premiums paid and any policy fee paid for the policy shall be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the owner has canceled the policy. In the case of individual variable annuity contracts and individual variable life insurance policies, return of the policy during the cancellation period shall entitle the owner to a refund of the account value and any policy fee paid for the policy. The account value and policy fee shall be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the owner has canceled the policy.
This section applies to all individual policies issued or delivered in this state on or after January 1, 1990, but does not apply to any policy subject to Section 10127.7. All policies subject to this section which are in effect on January 1, 1990, shall be construed to be in compliance with this section, and any provision in any policy which is in conflict with this section shall be of no force or effect.
This section does not apply to individual life insurance policies issued in connection with a credit transaction or issued under a contractual policy-change or conversion privilege provision contained in a policy.
General references to “policy” or “policies” in this section refer to both life insurance policies and annuity contracts.
This section shall become operative on July 1, 2015.
Every policy of individual life insurance and every individual annuity contract that is initially delivered or issued for delivery to a senior citizen in this state on and after July 1, 2004, shall have printed on the front of the policy jacket or on the cover page a notice stating that, after receipt of the policy by the owner, the policy may be returned by the owner for cancellation by mail or other delivery method to the insurer or agent from whom it was purchased. The period of time set forth by the insurer for return of the policy by the owner shall be clearly stated in the notice and this period shall be not less than 30 days. The owner may return the policy to the insurer by mail or other delivery method at any time during the period specified in the notice. During the 30-day cancellation period, the premium for an individual variable life insurance policy or an individual variable annuity contract may be invested only in fixed-income investments and money-market funds, unless the owner specifically directs that the premium be invested in the mutual funds underlying the variable life insurance policy or variable annuity contract. Return of the policy within the 30-day cancellation period shall have one of the following effects:
In the case of individual variable life insurance policies and individual variable annuity contracts for which the owner has not directed that the premium be invested in the mutual funds underlying the policy during the cancellation period, return of the policy during the cancellation period shall have the effect of voiding the policy from the beginning, and the parties shall be in the same position as if no policy had been issued. All premiums paid and any policy fee paid for the policy shall be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the owner has canceled the policy.
In the case of individual variable life insurance policies and individual variable annuity contracts for which the owner has directed that the premium be invested in the mutual funds underlying the policy during the 30-day cancellation period, cancellation shall entitle the owner to a refund of the account value and any policy fee paid for the policy. The account value shall be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the owner has canceled the policy.
This section applies to all individual life insurance policies and all individual annuity contracts issued or delivered to senior citizens in this state on or after January 1, 2004. All policies subject to this section which are in effect on January 1, 2003, shall be construed to be in compliance with this section, and any provision in any policy which is in conflict with this section shall be of no force or effect.
Every individual nonvariable life insurance policy and every individual nonvariable annuity contract, including modified guaranteed annuity contracts, subject to this section, that is delivered or issued for delivery in this state shall have the following notice printed on the front of the policy jacket or on the cover page in 12-point bold print with one inch of space on all sides, using the exact language in quotation marks below, with whichever one of the three bracketed product descriptions that applies to the product on which the notice appears:
“IMPORTANT!
You have purchased a [life insurance policy], [annuity contract], [modified guaranteed annuity contract], referred to below as a “policy.” Carefully review it for limitations.
This policy may be returned within 30 days from the date you received it for a full refund by returning it to the insurance company or agent who sold you this policy. After 30 days, cancellation may result in a substantial penalty, known as a surrender charge.”
The sentence “After 30 days, cancellation may result in a substantial penalty, known as a surrender charge” may be deleted if the policy does not contain a surrender charge. The phrase “known as a surrender charge” may be deleted if the policy contains a penalty but no surrender charge. If the policy contains both a penalty, or penalties, and a surrender charge, the sentence shall state that cancellation may result in “substantial penalties, including a surrender charge.” Whether a charge constitutes a surrender charge or a penalty shall be determined by the nature of the charge and not the name given to the charge by the insurer. If the surrender charge is called a “withdrawal charge” in the policy, the insurer shall add the following sentence at the end of the notice:
“In this policy the surrender charge is called a ‘withdrawal charge.’”
Every individual variable life insurance policy and every individual variable annuity contract subject to this section, that is delivered or issued for delivery in this state, shall have the following notice printed on the front of the policy jacket or on the cover page in 12-point bold print with one inch of space on all sides, using the exact language in quotation marks below, with whichever one of the two bracketed product descriptions that applies to the product on which the notice appears:
“IMPORTANT!
You have purchased a [variable life insurance policy], [variable annuity contract], referred to below as a “policy.” Carefully review it for limitations.
This policy may be returned within 30 days from the date you received it. During that 30-day period, your money will be placed in a fixed account or money-market fund, unless you direct that the premium be invested in a stock or bond portfolio underlying the policy during the 30-day period. If you do not direct that the premium be invested in a stock or bond portfolio, and if you return the policy within the 30-day period, you will be entitled to a refund of the premium and any policy fee paid. If you direct that the premium be invested in a stock or bond portfolio during the 30-day period, and if you return the policy during that period, you will be entitled to a refund of the policy’s account value on the day the policy is received by the insurance company or agent who sold you this policy, which could be less than the premium you paid for the policy, plus any policy fee paid. A return of the policy after 30 days may result in a substantial penalty, known as a surrender charge.”
The sentence “A return of the policy after 30 days may result in a substantial penalty, known as a surrender charge” may be deleted if the policy does not contain a surrender charge. If the policy contains both a penalty, or penalties, and a surrender charge, the sentence shall state that cancellation may result in “substantial penalties, including a surrender charge.” The phrase “known as a surrender charge” may be deleted if the policy contains a penalty but no surrender charge. Whether or not a charge constitutes a surrender charge or a penalty will be determined by the nature of the charge and not the name given to the charge by the insurer. If the surrender charge is called a “withdrawal charge” in the policy, the insurer shall add the following sentence at the end of the notice:
“In this policy the surrender charge is called a ‘withdrawal charge.’”
If the individual annuity contract is an immediate annuity contract, the following sentence, using the exact language in quotation marks below, in 12-point bold print, shall be added at the end of the right to examine language required by this section and before the one inch of space:
“After the 30-day period has expired, you may not be able to get your purchase payment money back in any manner, or in any manner other than in annuity payments made according to the terms of your contract. The insurance company or agent who sold you this contract can explain if your contract has these restrictions.”
This section does not apply to life insurance policies issued in connection with a credit transaction or issued under a contractual policy-change or conversion privilege provision contained in a policy.
For purposes of this chapter, a senior citizen means an individual who is 60 years of age or older on the date of purchase of the policy.
General references to “policy” or “policies” in this section refer to both life insurance policies and annuity contracts.
This section shall become operative on July 1, 2015.
Every insurer and life agent offering for sale individual life insurance policies or individual annuity contracts that are initially delivered or issued for delivery to senior citizens in this state on and after January 1, 1995, with the use of nonpreprinted illustrations of nonguaranteed values shall disclose on those illustrations or on an attached cover sheet, in bold or underlined capitalized print, or in the form of a contrasting color sticker, bright highlighter pen, or in any manner that makes it more prominent than the surrounding material, with at least one-half inch space on all four sides, the following statement:
“THIS IS AN ILLUSTRATION ONLY. AN ILLUSTRATION IS NOT INTENDED TO PREDICT ACTUAL PERFORMANCE. INTEREST RATES, DIVIDENDS, OR VALUES THAT ARE SET FORTH IN THE ILLUSTRATION ARE NOT GUARANTEED, EXCEPT FOR THOSE ITEMS CLEARLY LABELED AS GUARANTEED.”
All preprinted policy illustrations shall contain this notice in 12-point bold print with at least one-half inch space on all four sides and shall be printed on the illustration form itself or on an attached cover sheet, or in the form of a contrasting color sticker placed on the front of the illustration. All preprinted illustrations containing nonguaranteed values shall show the columns of guaranteed values in bold print. All other columns used in the illustration shall be in standard print. “Values” as used here includes cash value, surrender value, and death benefit.
Whenever an insurer provides an annual statement to a senior citizen policyowner of an individual life insurance policy or an individual annuity contract issued after January 1, 1995, the insurer shall also provide the current accumulation value and the current cash surrender value.
All individual life insurance policies and individual annuity contracts for senior citizens that contain a charge upon surrender, partial surrender, excess withdrawal, or penalties upon surrender shall contain a notice disclosing the location of all of the following: the charge, the charge time period, the charge information, and any associated penalty information. The notice shall be in bold 12-point type on the front of the policy jacket or on the cover page of the policy.
A policy shall have just one cover page. If the notice required by this section and the statutorily required right to examine notice are both on the cover page, as opposed to the front cover of the policy jacket, they shall appear on the same page.
General references to “policy” in this section refer to both life insurance policies and annuity contracts.
This section shall become operative on July 1, 2015.
The department and the Department of Managed Health Care shall compile information required by this section and Section 1363.06 of the Health and Safety Code into two comparative benefit matrices. The first matrix shall compare benefit packages offered pursuant to Section 1373.62 of the Health and Safety Code and Section 10127.15. The second matrix shall compare benefit packages offered pursuant to Sections 1366.35, 1373.6, and 1399.804 of the Health and Safety Code and Sections 10785, 10901.2, and 12682.1.
The comparative benefit matrix shall include:
Benefit information submitted by health care service plans pursuant to Section 1363.06 of the Health and Safety Code and by health insurers pursuant to subdivision (d).
The following statements in at least 12-point type at the top of the matrix:
“This benefit summary is intended to help you compare coverage and benefits and is a summary only. For a more detailed description of coverage, benefits, and limitations, please contact the health care service plan or health insurer.”
“The comparative benefit summary is updated annually, or more often if necessary to be accurate.”
“The most current version of this comparative benefit summary is available on (address of the plan’s or insurer’s site).”
This subparagraph applies only to those health insurers that maintain an Internet Web site.
The telephone number or numbers that may be used by an applicant to contact either the department or the Department of Managed Health Care, as appropriate, for further assistance.
The department and the Department of Managed Health Care shall jointly prepare two standardized templates for use by health care service plans and health insurers in submitting the information required pursuant to subdivision (d) of Section 1363.06 and subdivision (d). The templates shall be exempt from the provisions of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
Health insurers shall submit the following to the department by January 31, 2003, and annually thereafter:
Eligibility requirements.
The full premium cost of each benefit package in the service area in which the individual and eligible dependents work or reside.
When and under what circumstances benefits cease.
The terms under which coverage may be renewed.
Other coverage that may be available if benefits under the described benefit package cease.
The circumstances under which choice in the selection of physicians and providers is permitted.
Lifetime and annual maximums.
Deductibles.
Emergency health coverage.
Ambulance services.
Prescription drug coverage.
Durable medical equipment.
Mental health services.
Residential treatment.
Chemical dependency services.
Home health services.
Custodial care and skilled nursing facilities.
Any other information specified by the department in the template.
Each health insurer shall provide the department with updates to the information required by subdivision (d) at least annually, or more often if necessary to maintain the accuracy of the information.
The department and the Department of Managed Health Care shall make the comparative benefit matrices available on their respective Internet Web sites and to the health care service plans and health insurers for dissemination as required by Section 1373.6 of the Health and Safety Code and Section 12682.1, after confirming the accuracy of the description of the matrices with the health insurers and health care service plans.
As used in this section, “benefit matrix” shall have the same meaning as benefit summary.
This section shall not apply to accident-only, specified disease, hospital indemnity, CHAMPUS supplement, long-term care, Medicare supplement, dental-only, or vision-only insurance policies.
This section shall be inoperative on January 1, 2014.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300g-91), this section shall become operative on the date of that repeal or amendment.
For purposes of this subdivision, “PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
After the termination of the pilot program under Section 10127.15, a health insurer shall continue to provide coverage under the same terms and conditions specified in Section 10127.15 as it existed on January 1, 2007, including the terms of the standard benefit plan and the subscriber payment amount, to each individual who was terminated from the program, pursuant to subdivision (f) of Section 12725 of the Insurance Code during the term of the pilot program and who enrolled or applied to enroll in a standard benefit plan within 63 days of termination. The State Department of Health Care Services shall continue to pay the amount described in Section 10127.15 for each of those individuals. A health insurer shall not be required to offer the coverage described in Section 10127.15 after the termination of the pilot program to individuals not already enrolled in the program.
Notwithstanding paragraph (1) of this subdivision or Section 10127.15 as it existed on January 1, 2007, the following rules shall apply:
A health insurer shall not be obligated to provide coverage to any individual pursuant to this section on or after January 1, 2014.
The State Department of Health Care Services shall not be obligated to provide any payment to any health insurer under this section for (I) health care expenses incurred on or after January 1, 2014, or (II) the standard monthly administrative fee, as defined in Section 10127.15 as it existed on January 1, 2007, for any month after December 2013.
Each health insurer providing coverage pursuant to this section shall, on or before October 1, 2013, send a notice to each individual enrolled in a standard benefit plan that is in at least 12-point type and with, at minimum, the following information:
Notice as to whether or not the plan will terminate as of January 1, 2014.
The availability of individual health coverage, including through Covered California, including at least all of the following:
That, beginning on January 1, 2014, individuals seeking coverage may not be denied coverage based on health status.
(II) That the premium rates for coverage offered by a health care service plan or a health insurer cannot be based on an individual’s health status.
(III) That individuals obtaining coverage through Covered California may, depending upon income, be eligible for premium subsidies and cost-sharing subsidies.
(IV) That individuals seeking coverage must obtain this coverage during an open or special enrollment period, and a description of the open and special enrollment periods that may apply.
As a condition of receiving payment for a reporting period pursuant to this section, a health insurer shall provide the State Department of Health Care Services with a complete, final annual reconciliation report by the earlier of December 31, 2014, or an earlier date as prescribed by Section 10127.15, as it existed on January 1, 2007, for that reporting period. To the extent that it receives a complete, final reconciliation report for a reporting period by the date required pursuant to this subparagraph, the State Department of Health Care Services shall complete reconciliation with the health insurer for that reporting period within 18 months after receiving the report.
If the state fails to expend, pursuant to this section, sufficient funds for the state’s contribution amount to any health insurer, the health insurer may increase the monthly payments that its subscribers are required to pay for any standard benefit plan to the amount that the State Department of Health Care Services would charge without a state subsidy for the same insurance product issued to the same individual within the program.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the State Department of Health Care Services may implement, interpret, or make specific this section by means of all-county letters, plan letters, plan or provider bulletins, or similar instructions, without taking regulatory action.
The Life and Annuity Consumer Protection Fund is hereby created as a special account within the Insurance Fund. Each insurer admitted to transact insurance in this state shall pay a fee to be determined by the commissioner, not to exceed one dollar ($1), for each individual life insurance policy and each individual annuity product that it issues to a resident of this state. If an insurer elects to charge the purchaser of a life insurance policy or annuity product this fee, the fee shall be set forth as a separate charge in the contract schedule or premium notice. Life insurance or annuity forms are not required to be filed again for review as a consequence of this provision. The revenue from this fee shall be deposited into the Life and Annuity Consumer Protection Fund.
Moneys in the Life and Annuity Consumer Protection Fund shall be distributed by the commissioner, upon appropriation by the Legislature, to fund the reasonable costs incurred in regulating entities transacting life insurance and annuity products in this state. Moneys in the fund shall not be used for any other purpose.
Fifty percent of these funds shall be distributed within the department for functions related to individual life insurance and annuity products, including, but not limited to:
Investigating and prosecuting financial abuse by insurance licensees, or persons holding themselves out to be insurance licensees, or any person purporting to be engaged in the business of insurance.
Responding to consumer inquiries and complaints related to life insurance or annuity products.
Disseminating information to insurers, insureds, and others regarding the applicable regulation of life insurance and annuity products, including consumer protection, purchasing and using insurance and annuity products, claim filing, benefit delivery, and dispute resolution.
Regulating and overseeing life insurance and annuity products and advertising for these products directed toward consumers.
Fifty percent of the funds shall be distributed to district attorneys for investigating and prosecuting individual life insurance and annuity product financial abuse cases involving insurance licensees, or persons holding themselves out to be insurance licensees, or any person purporting to be engaged in the business of insurance, and for other projects beneficial to insurance consumers.
The proposed use of the moneys and the anticipated outcome.
A list of all prior relevant cases or projects and a copy of the final accounting for each. If cases or projects are ongoing, the most recent accounting shall be provided.
A detailed budget, including salaries and general expenses, and specifically identifying the cost of purchase or rental of equipment or supplies.
The commissioner may conduct a fiscal audit of the programs administered under this subdivision. This fiscal audit shall be conducted by an internal audit unit of the department. The cost of any fiscal audits shall be paid for from the Life and Annuity Consumer Protection Fund established by this section.
If the commissioner determines that a district attorney is unable or unwilling to investigate or prosecute a relevant financial abuse case, the commissioner may discontinue distribution of funds allocated for that matter and may redistribute those funds to other eligible district attorneys.
If, as of June 30 of any calendar year, the total amount in the Life and Annuity Consumer Protection Fund exceeds five million dollars ($5,000,000), the commissioner shall reduce the amount of the assessment accordingly for the following year to eliminate that excess. An insurer, upon receipt of an invoice, shall transmit payment to the department for deposit in the Life and Annuity Consumer Protection Fund. Any balance remaining in the Life and Annuity Consumer Protection Fund at the end of the fiscal year shall be retained in the account, to be available in the next fiscal year.
The commissioner may develop guidelines for implementing or clarifying these provisions, including guidelines for the allocation, distribution, and potential return of unused funds. The commissioner may, from time to time, issue regulations for implementing or clarifying these provisions.
The commissioner shall provide a consolidated report annually on the department’s Internet Web site, which shall include, but is not limited to, the following information:
The number of opened consumer complaints related to life insurance or annuity products.
The number of opened investigations related to life insurance or annuity products.
The number of investigations related to life insurance or annuity products referred to and reported by prosecuting agencies.
The number of administrative or regulatory cases related to life insurance or annuity products referred to the department’s legal division.
The number of administrative or regulatory enforcement actions taken in cases related to life insurance or annuity products.
Descriptions of efforts by the department to disseminate information to insurers and others regarding the applicable regulation of life insurance and annuity products, including consumer protection, purchasing and using insurance and annuity products, claim filing, benefit delivery, and dispute resolution.
On and after January 1, 2005, a health insurer issuing individual policies of health insurance that ceases to offer individual coverage in this state shall offer coverage to the policyholders who had been covered by those policies at the time of withdrawal under the same terms and conditions as provided in paragraph (3) of subdivision (a), paragraphs (2) to (4), inclusive, of subdivision (b), subdivisions (c) to (e), inclusive, and subdivision (h) of Section 12682.1.
The department may adopt regulations to implement this section.
This section shall not apply when a plan participating in Medi-Cal, Healthy Families, Access for Infants and Mothers, or any other contract between the plan and a government entity no longer contracts with the government entity to provide health coverage in the state, or a specified area of the state, nor shall this section apply when a plan ceases entirely to market, offer, and issue any and all forms of coverage in any part of this state after the effective date of this section.
This section shall be inoperative on January 1, 2014.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-91), this section shall become operative on the date of that repeal or amendment.
For purposes of this subdivision, “PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
Commencing March 1, 2013, and at least annually thereafter, a health insurer, not including a health insurer offering specialized health insurance policies, shall provide to the department, in a form and manner determined by the department in consultation with the Department of Managed Health Care, the number of covered lives, by product type, as of December 31 of the prior year, that receive health care coverage under a health insurance policy that covers individuals and small groups inside and outside of the California Health Benefit Exchange, large groups, administrative services only business lines, and any other business lines. Health insurers shall include the unduplicated enrollment data in specific product types as determined by the department, including, but not limited to, HMO, point-of-service, PPO, grandfathered, and Medi-Cal managed care. Data reported pursuant to this subdivision shall specify the covered persons that are being reported pursuant to subdivision (b).
Commencing March 1, 2020, and at least annually thereafter, information specific to a multiple employer welfare arrangement (MEWA) shall be provided to the department, in a form and manner determined by the department in consultation with the Department of Managed Health Care, as follows:
A health insurer that provides coverage through a MEWA that is not subject to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 shall provide the name of each MEWA and the number of covered persons in each MEWA as of December 31 of the prior year, divided by market segment and product type. Data reported pursuant to this subdivision shall be identified and separately reported under subdivision (a).
A MEWA that is subject to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 shall provide the number of covered persons in the MEWA as of December 31 of the prior year, divided by product type. Compliance with a data call issued pursuant to this section satisfies the requirements of this subdivision.
The department shall publicly report the data provided by each health insurer and MEWA pursuant to this section, including, but not limited to, posting the data on the department’s internet website. The department shall consult with the Department of Managed Health Care to ensure that the data reported is comparable and consistent, does not duplicate existing reporting requirements, and utilizes existing reporting formats. The data for the previous calendar year shall be made available no later than April 15 of each calendar year.
Beginning on July 1, 2023, and annually thereafter, a health insurer offering a qualified health plan through the Exchange shall report to the commissioner the total amount of funds maintained in a segregated account pursuant to subdivision (a) of Section 1303 of the federal Patient Protection and Affordable Care Act (Public Law 111-148). This annual report shall contain the ending balance of the account and the total dollar amount of claims paid during the reporting year.
For purposes of this section:
“Exchange” means the California Health Benefit Exchange established pursuant to Title 22 (commencing with Section 100500) of the Government Code.
“Qualified health plan” has the same meaning as defined in Section 1301 of the federal Patient Protection and Affordable Care Act (Public Law 111-148).
ARTICLE 1.5. Discontinuance of Group Life Insurance and Discontinuance and Replacement of Group Disability Insurance [10128. - 10128.4.]
The provisions of this article shall apply to all policies of group life insurance issued in this state pursuant to the provisions of Sections 10202, 10202.7, 10202.8, 10203 and 10203.7, to all group disability policies issued in this state pursuant to the provisions of Section 10270.5, to any group nonprofit hospital service contract issued in this state pursuant to the provisions of Section 11512.2, and to any self-insured welfare benefit plan issued in this state as defined in Section 10121.
In this article, unless the context otherwise requires:
“Carrier” means the insurance company, nonprofit hospital service corporation, or other entity responsible for the payment of benefits or provision of services under a policy.
“Dependent” shall have the meaning set forth in a policy.
“Discontinuance” shall mean the termination of a policy or the termination of coverage between an entire employer unit under a group disability policy, group nonprofit hospital service contract or self-insured welfare benefit plan, and does not refer to the termination of any agreement between any individual member under a contract and the disability insurer, nonprofit hospital service contract or self-insured welfare benefit plan.
“Employee” means all agents, employees, and members of unions or associations to whom benefits are provided under a policy.
“Extension of benefits” means the continuation of coverage under a particular benefit provided under a policy following discontinuance with respect to an employee or dependent who is totally disabled on the date of discontinuance.
“Policy” means any group insurance policy, group hospital service contract or other plan, contract or policy subject to the provisions of this article.
“Policyholder” means the entity to which a policy or contract specified in Section 10128 is issued.
“Premium” means the consideration payable to the carrier.
“Replacement coverage” means the benefits provided by a succeeding carrier.
“Totally disabled” shall have the meaning set forth in a policy.
Every policy containing a life insurance benefit shall contain a reasonable extension of such benefit upon discontinuance of the policy with respect to employees who become totally disabled while insured under the policy on or after the date this article becomes applicable to such policy and who continue to be totally disabled at the date of discontinuance of the policy. Every policy containing a loss of time benefit, a specific indemnity during hospital confinement, or a hospital, medical, or surgical expense benefit shall contain a reasonable extension of such benefits upon discontinuance of the policy with respect to employees or dependents who become totally disabled while insured under the policy on or after the date this article becomes applicable to such policy and who continue to be totally disabled at the date of discontinuance of the policy.
Every policy containing a life insurance benefit which does not contain a disability benefit provision of any type (e.g. premium waiver extension, extended death benefit in event of total disability, or payment of income for a specified period during total disability), shall be deemed to include a reasonable extension of benefits upon discontinuance of the policy if it provides the totally disabled employee the same rights of conversion to an individual life insurance policy at the time of discontinuance of the policy that such employee would have had if his employment or association membership had terminated on the same date.
The rights of conversion specified above need not be provided with regard to any amount of insurance for which the employee becomes insured under any replacement coverage.
Every policy containing a life insurance benefit which contains a disability benefit provision of any type shall be deemed to include a reasonable extension of benefits upon discontinuance of the policy if it provides:
Such discontinuance does not affect the disability benefit; and
The rights of conversion described in (a) above shall apply to the amount the individual is insured for at the termination of the disability benefit unless the disability benefit is a payment of income for a specified period, in which event the rights of conversion would apply to the amount of life insurance, if any, remaining after the payment of income; and
With respect to any amounts of life insurance provided under the policy to which no disability benefit provision applies, the rights of conversion described in (a) above shall apply.
No extension of life insurance under either a disability benefit or the rights of conversion specified above need be provided with regard to any amount of insurance for which the employee becomes insured under any replacement coverage.
Every policy providing benefits for loss of time or a specific indemnity during hospital confinement, shall be deemed to include a reasonable extension of such benefits upon discontinuance of the policy if such discontinuance does not affect the benefit provided.
Every policy providing hospital, medical or surgical benefits on an expense-incurred or service basis shall be deemed to include a reasonable extension of such benefits upon discontinuance of the policy if it provides benefits for covered expenses directly relating to the condition causing total disability existing at the time premium payments for the employee or dependent cease and incurred during a period of not less than 12 months thereafter, which period shall not be interrupted by discontinuance of the policy.
That extension of benefits may be terminated at such time as the employee or dependent is no longer totally disabled or at such time as a succeeding carrier may elect to provide replacement coverage to that employee or dependent without limitation as to the disabling condition.
The benefits payable during any extension of benefits may be subject to all limitations or restrictions contained in the policy.
Any carrier providing replacement coverage with respect to hospital, medical or surgical benefits on an expense-incurred or service basis within a period of 60 days from the date of discontinuance of a prior policy providing that hospital, medical or surgical benefits shall immediately cover all employees and dependents who were validly covered under the previous policy at the date of discontinuance, including all former employees entitled to continuation coverage under Section 10116.5, who are within the definitions of eligibility under the succeeding carrier’s policy, and who would otherwise be eligible for coverage under the succeeding carrier’s policy, regardless of any provisions of the policy relating to active full-time employment or hospital confinement or pregnancy. However, with respect to employees or dependents who are totally disabled on the date of discontinuance of the prior carrier’s contract or policy and entitled to an extension of benefits pursuant to subdivision (b) of Section 1399.62 of the Health and Safety Code, or pursuant to subdivision (d) of Section 10128.2, the succeeding carrier is not required to provide benefits for services or expenses directly related to any conditions which caused the total disability.
Except as otherwise provided in subdivision (a), until an employee or dependent entitled to coverage under a succeeding carrier’s policy pursuant to subdivision (a) of this section qualifies for full benefits by meeting all effective date requirements of the succeeding carrier’s policy, the level of benefits shall not be lower than the benefits provided under the prior carrier’s policy reduced by the amount of benefits paid by the prior carrier. The employee or dependent shall continue to be covered by the succeeding carrier until the earlier of the following dates:
The date coverage would terminate for an employee or dependent in accordance with the provisions of the succeeding carrier’s policy.
In the case of an employee or dependent who was totally disabled on the date of discontinuance of the prior carrier’s policy and entitled to an extension of benefits pursuant to subdivision (b) of Section 1399.62 of the Health and Safety Code, or subdivision (d) of Section 10128.2, the date the period of extension of benefits terminates, or, if the prior carrier’s policy is not subject to this article, the date to which benefits would have been extended had the prior carrier’s policy been subject to this article.
Except as otherwise provided in this section, and except to the extent that benefits for the condition would have been reduced or excluded under the prior carrier’s policy, no provision in a succeeding carrier’s policy of replacement coverage which would operate to reduce or exclude benefits on the basis that the condition giving rise to benefits preexisted the effective date of the succeeding carrier’s policy shall be applied with respect to those employees, former employees entitled to continuation coverage under Section 10116.5, and dependents validly insured under the prior carrier’s policy on the date of discontinuance.
In a situation where a determination of the prior carrier’s benefit is required by the succeeding carrier, at the succeeding carrier’s request, the prior carrier shall furnish a statement of benefits available or pertinent information, sufficient to permit verification of the benefit determination by the succeeding carrier.
For purposes of subdivision (a), a succeeding carrier’s policy shall not exclude coverage of a dependent child who was covered by the previous carrier solely because the insured does not provide primary support for that dependent child.
The fraudulent failure or refusal of an employee or dependent to disclose a preexisting condition to the succeeding carrier shall not be ascribed to the entire group and shall not alleviate the duty of a succeeding carrier under subdivision (a) to immediately cover all employees, former employees entitled to continuation coverage under Section 10116.5, and dependents who were validly covered under the previous policy on the date of discontinuance. Any denial of benefits on the basis of fraud shall be limited to the employee or dependent who committed the fraud.
Except to the extent that benefits for the condition would have been reduced or excluded under the prior carrier’s contract or policy, no provision in the succeeding carrier’s contract, where an employee changes carriers due to a change in employment or other circumstances, that would operate to reduce or exclude benefits for the following congenital craniofacial anomalies: cleft lip and palate (as defined in ICD-9-CM Diagnosis Code 749, International Classification of Diseases, 9th Revision, Clinical Modification, Volume 1, Second Edition, September, 1980), acrocephalosyndactyly (as defined in ICD-9-CM Diagnosis Code 755.55, cranio only), and other congenital musculoskeletal anomalies (as defined in ICD-9-CM Diagnosis Code 756.0), on the basis that the condition giving rise to benefits preexisted the effective date of the succeeding carrier’s contract, shall be applied to those employees, former employees entitled to continuation coverage under Section 10116.5, and dependents validly covered under the prior carrier’s contract or policy on the date the prior contract or policy terminated when payment or services had been commenced by the previous carrier. That succeeding coverage shall otherwise be subject to all other provisions of the contract between the insured and the succeeding carrier.
This article shall apply to all policies issued, delivered, amended, or renewed in this state after January 1, 1977. A policy subject to the provisions of this article which is issued, delivered, amended as to benefits, or renewed in this state on or after the effective date of amendments to this article made at the 1977–1978 Regular Session of the Legislature shall be construed to be in compliance with the provisions of this article and such amendments to this article.
ARTICLE 1.7. California Cobra Program [10128.50. - 10128.59.]
This article shall be known as the California Continuation Benefits Replacement Act, or “Cal-COBRA.”
It is the intent of the Legislature that continued access to health insurance coverage is provided to employees, and their dependents, of employers with 2 to 19 eligible employees who are not currently offered continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985.
It is the intent of the Legislature that any federal assistance that is or may become available to qualified beneficiaries under this article be effectively and promptly implemented by the department.
The commissioner, in consultation with the Director of the Department of Managed Health Care, may adopt emergency regulations to implement this article in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code by making a finding of emergency and demonstrating the need for immediate action in the event that any federal assistance is or becomes available to qualified beneficiaries under this article. The adoption of these regulations shall be considered by the Office of Administrative Law to be necessary to avoid serious harm to the public peace, health, safety, or general welfare. Any regulations adopted pursuant to this subdivision shall be substantially similar to those adopted by the Director of the Department of Managed Health Care under subdivision (d) of Section 1366.20 of the Health and Safety Code.
“Continuation coverage” means extended coverage under the group benefit plan under which an eligible employee or eligible dependent is currently covered, or, in the case of a termination of the group benefit plan or an employer open enrollment period, extended coverage under the group benefit plan currently offered by the employer.
“Group benefit plan” has the same meaning as “health benefit plan” defined in Section 10700, including group policies of vision-only and dental-only coverage, provided pursuant to Chapter 8 (commencing with Section 10700) to an employer with 2 to 19 eligible employees, as defined in Section 10700.
“Qualified beneficiary” means any individual who, on the day before the qualifying event, is covered under a group benefit plan offered by a disability insurer pursuant to Article 1 (commencing with Section 10700) of Chapter 8, and has a qualifying event, as defined in subdivision (d).
“Qualified beneficiary eligible for premium assistance under ARRA” means a qualified beneficiary, as defined in paragraph (1), who (A) was or is eligible for continuation coverage as a result of the involuntary termination of the covered employee’s employment during the period specified in subparagraph (A) of paragraph (3) of subdivision (a) of Section 3001 of ARRA, (B) elects continuation coverage, and (C) meets the definition of “qualified beneficiary” set forth in paragraph (3) of Section 1167 of Title 29 of the United States Code, as used in subparagraph (E) of paragraph (10) of subdivision (a) of Section 3001 of ARRA or any subsequent rules or regulations issued pursuant to that law.
“ARRA” means Title III of Division B of the federal American Recovery and Reinvestment Act of 2009 or any amendment to that federal law extending federal premium assistance to qualified beneficiaries.
“Qualifying event” means any of the following events that, but for the election of continuation coverage under this article, would result in a loss of coverage under the group benefit plan to a qualified beneficiary:
The loss of dependent status by a dependent enrolled in the group benefit plan.
With respect to a covered dependent only, the covered employee’s entitlement to benefits under Title XVIII of the United States Social Security Act (Medicare).
“Employer” means any employer that meets the definition of “small employer” as set forth in Section 10700 and (1) employed 2 to 19 eligible employees on at least 50 percent of its working days during the preceding calendar year, or, if the employer was not in business during any part of the preceding calendar year, employed 2 to 19 eligible employees on at least 50 percent of its working days during the preceding calendar quarter, (2) has contracted for health care coverage through a group benefit plan offered by a disability insurer, and (3) is not subject to Section 4980B of the United States Internal Revenue Code or Chapter 18 of the Employee Retirement Income Security Act, 29 U.S.C. Section 1161 et seq.
“Core coverage” means coverage for hospital, medical, or surgical benefits provided under the group benefit plan that a qualified beneficiary was receiving immediately prior to the qualifying event, other than noncore coverage.
“Noncore coverage” means coverage for vision and dental care.
The continuation coverage requirements of this article do not apply to the following individuals:
Individuals who are entitled to Medicare benefits or become entitled to Medicare benefits pursuant to Title XVIII of the United States Social Security Act, as amended or superseded. Entitlement to Medicare Part A only constitutes entitlement to benefits under Medicare.
Individuals who have other hospital, medical, or surgical coverage, or who are covered or become covered under another group benefit plan, including a self-insured employee welfare benefit plan, that provides coverage for individuals and that does not impose any exclusion or limitation with respect to any preexisting condition of the individual, other than a preexisting condition limitation or exclusion that does not apply to or is satisfied by the qualified beneficiary pursuant to Sections 10198.6 and 10198.7. A group conversion option under any group benefit plan shall not be considered as an arrangement under which an individual is or becomes covered.
Individuals who are covered, become covered, or are eligible for federal COBRA coverage pursuant to Section 4980B of the United States Internal Revenue Code or Chapter 18 of the Employee Retirement Income Security Act, 29 U.S.C. Section 1161 et seq.
Individuals who are covered, become covered, or are eligible for coverage pursuant to Chapter 6A of the Public Health Service Act, 42 U.S.C. Section 300bb-1 et seq.
Qualified beneficiaries who fail to meet the requirements of subdivision (b) of Section 10128.54 or subdivision (h) of Section 10128.55 regarding notification of a qualifying event or election of continuation coverage within the specified time limits.
Except as provided in Section 3001 of ARRA, qualified beneficiaries who fail to submit the correct premium amount required by subdivision (b) of Section 10128.55 and Section 10128.57, in accordance with the terms and conditions of the policy or contract, or fail to satisfy other terms and conditions of the policy or contract.
Every disability insurer, that provides coverage under a group benefit plan to an employer, including those policies and contracts that provide vision-only and dental-only benefits, as defined in Section 10128.51, shall offer continuation coverage, pursuant to this section, to a qualified beneficiary under the contract upon a qualifying event without evidence of insurability. The qualified beneficiary shall, upon election, be able to continue his or her coverage under the group benefit plan, subject to the contract’s terms and conditions, and subject to the requirements of this section. Except as otherwise provided in this section, continuation coverage shall be provided under the same terms and conditions that apply to similarly situated individuals under the group benefit plan.
Every disability insurer shall also offer the continuation coverage to a qualified beneficiary who (1) elects continuation coverage under a group benefit plan as defined in this article or in Section 1366.21 of the Health and Safety Code, but whose continuation coverage is terminated under the group benefit plan pursuant to subdivision (b) of Section 10128.57, prior to any other termination date specified in Section 10128.57, or (2) who elects coverage through the disability insurer during any employer open enrollment, and the employer has contracted with the disability insurer to provide coverage to the employer’s active employees. This continuation coverage shall be provided only for the balance of the period that the qualified beneficiary would have remained covered under the prior group benefit plan had the employer not terminated the contract with the previous insurer or health care service plan.
Every disability insurer shall offer a qualified beneficiary the ability to elect the same core, noncore, or core and noncore coverage that the qualified beneficiary had immediately prior to the qualifying event.
Any child who is born to a former employee who is a qualified beneficiary who has elected continuation coverage pursuant to this section, or a child who is placed for adoption with a former employee who is a qualified beneficiary who has elected continuation coverage pursuant to this article during the period of continuation coverage provided by this article shall be considered a qualified beneficiary entitled to receive benefits pursuant to this article for the remainder of the period that the former employee is covered pursuant to this article, if the child is enrolled under a group benefit plan as a dependent of that former employee who is a qualified beneficiary within 30 days of the child’s birth or placement for adoption.
An individual who becomes a qualified beneficiary pursuant to this article shall continue to receive coverage pursuant to this article until continuation coverage is terminated at the qualified beneficiary’s election or pursuant to Section 10128.57, whichever comes first, even if the employer that sponsored the group benefit plan that is continued subsequently becomes subject to Section 4980B of the United States Internal Revenue Code of Chapter 18 of the Employee Retirement Income Security Act, 29 U.S.C. Sec. 1161 et seq.
A qualified beneficiary electing coverage pursuant to this section shall be considered part of the group benefit plan and treated as similarly situated employees for contract purposes, unless otherwise specified in this article.
Every insurer’s evidence of coverage for group benefit plans subject to this article, that is issued, amended, or renewed on or after January 1, 1999, shall disclose to covered employees of group benefit plans subject to this article the ability to continue coverage pursuant to this article, as required by this section.
This disclosure shall state that all insureds who are eligible to be qualified beneficiaries, as defined in subdivision (c) of Section 10128.51, shall be required, as a condition of receiving benefits pursuant to this article, to notify, in writing, the insurer, or the employer if the employer contracts to perform the administrative services as provided for in Section 10128.55, of all qualifying events as specified in paragraphs (1), (3), (4), and (5) of subdivision (d) of Section 10128.51 within 60 days of the date of the qualifying event. This disclosure shall inform insureds that failure to make the notification to the insurer, or to the employer when under contract to provide the administrative services, within the required 60 days will disqualify the qualified beneficiary from receiving continuation coverage pursuant to this article. The disclosure shall further state that a qualified beneficiary who wishes to continue coverage under the group benefit plan pursuant to this article must request the continuation in writing and deliver the written request, by first-class mail, or other reliable means of delivery, including personal delivery, express mail, or private courier company, to the disability insurer, or to the employer if the plan has contracted with the employer for administrative services pursuant to subdivision (d) of Section 10128.55, within the 60-day period following the later of (1) the date that the insured’s coverage under the group benefit plan terminated or will terminate by reason of a qualifying event, or (2) the date the insured was sent notice pursuant to subdivision (e) of Section 10128.55 of the ability to continue coverage under the group benefit plan. The disclosure required by this section shall also state that a qualified beneficiary electing continuation shall pay to the disability insurer, in accordance with the terms and conditions of the policy or contract, which shall be set forth in the notice to the qualified beneficiary pursuant to subdivision (d) of Section 10128.55, the amount of the required premium payment, as set forth in Section 10128.56. The disclosure shall further require that the qualified beneficiary’s first premium payment required to establish premium payment be delivered by first-class mail, certified mail, or other reliable means of delivery, including personal delivery, express mail, or private courier company, to the disability insurer, or to the employer if the employer has contracted with the insurer to perform the administrative services pursuant to subdivision (d) of Section 10128.55, within 45 days of the date the qualified beneficiary provided written notice to the insurer or the employer, if the employer has contracted to perform the administrative services, of the election to continue coverage in order for coverage to be continued under this article. This disclosure shall also state that the first premium payment must equal an amount sufficient to pay all required premiums and all premiums due, and that failure to submit the correct premium amount within the 45-day period will disqualify the qualified beneficiary from receiving continuation coverage pursuant to this article.
The disclosure required by this section shall also describe separately how qualified beneficiaries whose continuation coverage terminates under a prior group benefit plan pursuant to Section 10128.57 may continue their coverage for the balance of the period that the qualified beneficiary would have remained covered under the prior group benefit plan, including the requirements for election and payment. The disclosure shall clearly state that continuation coverage shall terminate if the qualified beneficiary fails to comply with the requirements pertaining to enrollment in, and payment of premiums to, the new group benefit plan within 30 days of receiving notice of the termination of the prior group benefit plan.
Prior to August 1, 1998, every insurer shall provide to all covered employees of employers subject to this article written notice containing the disclosures required by this section, or shall provide to all covered employees of employers subject to this article a new or amended evidence of coverage that includes the disclosures required by this section. Any insurer that, in the ordinary course of business, maintains only the addresses of employer group purchasers of benefits, and does not maintain addresses of covered employees, may comply with the notice requirements of this section through the provision of the notices to its employer group purchases of benefits.
Every disclosure form issued, amended, or renewed on and after January 1, 1999, for a group benefit plan subject to this article shall provide a notice that, under state law, an insured may be entitled to continuation of group coverage and that additional information regarding eligibility for this coverage may be found in the evidence of coverage.
Every disclosure form issued, amended, or renewed on and after July 1, 2006, for a group benefit plan subject to this article shall include the following notice:
“Please examine your options carefully before declining this coverage. You should be aware that companies selling individual health insurance typically require a review of your medical history that could result in a higher premium or you could be denied coverage entirely.”
Every group benefit plan contract between a disability insurer and an employer subject to this article that is issued, amended, or renewed on or after July 1, 1998, shall require the employer to notify the insurer in writing of any employee who has had a qualifying event, as defined in paragraph (2) of subdivision (d) of Section 10128.51, within 30 days of the qualifying event. The group contract shall also require the employer to notify the insurer, in writing, within 30 days of the date when the employer becomes subject to Section 4980B of the United States Internal Revenue Code or Chapter 18 of the Employee Retirement Income Security Act, 29 U.S.C. Sec. 1161 et seq.
Every group benefit plan contract between a disability insurer and an employer subject to this article that is issued, amended, or renewed after July 1, 1998, shall require the employer to notify qualified beneficiaries currently receiving continuation coverage, whose continuation coverage will terminate under one group benefit plan prior to the end of the period the qualified beneficiary would have remained covered, as specified in Section 10128.57, of the qualified beneficiary’s ability to continue coverage under a new group benefit plan for the balance of the period the qualified beneficiary would have remained covered under the prior group benefit plan. This notice shall be provided either 30 days prior to the termination or when all enrolled employees are notified, whichever is later.
Every disability insurer shall provide to the employer replacing a group benefit plan policy issued by the insurer, or to the employer’s agent or broker representative, within 15 days of any written request, information in possession of the insurer reasonably required to administer the notification requirements of this subdivision and subdivision (c).
Notwithstanding subdivision (a), the group benefit plan contract between the insurer and the employer shall require the employer to notify the successor plan in writing of the qualified beneficiaries currently receiving continuation coverage so that the successor plan, or contracting employer or administrator, may provide those qualified beneficiaries with the necessary premium information, enrollment forms, and instructions consistent with the disclosure required by subdivision (c) of Section 10128.54 and subdivision (e) of this section to allow the qualified beneficiary to continue coverage. This information shall be sent to all qualified beneficiaries who are enrolled in the group benefit plan and those qualified beneficiaries who have been notified, pursuant to Section 10128.54 of their ability to continue their coverage and may still elect coverage within the specified 60-day period. This information shall be sent to the qualified beneficiary’s last known address, as provided to the employer by the health care service plan or, disability insurer currently providing continuation coverage to the qualified beneficiary. The successor insurer shall not be obligated to provide this information to qualified beneficiaries if the employer or prior insurer or health care service plan fails to comply with this section.
A disability insurer may contract with an employer, or an administrator, to perform the administrative obligations of the plan as required by this article, including required notifications and collecting and forwarding premiums to the insurer. Except for the requirements of subdivisions (a), (b), and (c), this subdivision shall not be construed to permit an insurer to require an employer to perform the administrative obligations of the insurer as required by this article as a condition of the issuance or renewal of coverage.
Every insurer, or employer or administrator that contracts to perform the notice and administrative services pursuant to this section, shall, within 14 days of receiving a notice of a qualifying event, provide to the qualified beneficiary the necessary premium information, enrollment forms, and disclosures consistent with the notice requirements contained in subdivisions (b) and (c) of Section 10128.54 to allow the qualified beneficiary to formally elect continuation coverage. This information shall be sent to the qualified beneficiary’s last known address.
Every insurer, or employer or administrator that contracts to perform the notice and administrative services pursuant to this section, shall, during the 180-day period ending on the date that continuation coverage is terminated pursuant to paragraphs (1), (3), and (5) of subdivision (a) of Section 10128.57, notify a qualified beneficiary who has elected continuation coverage pursuant to this article of the date that his or her coverage will terminate, and shall notify the qualified beneficiary of any conversion coverage available to that qualified beneficiary. This requirement shall not apply when the continuation coverage is terminated because the group contract between the insurer and the employer is being terminated.
An insurer shall provide to a qualified beneficiary who has a qualifying event during the period specified in subparagraph (A) of paragraph (3) of subdivision (a) of Section 3001 of ARRA, a written notice containing information on the availability of premium assistance under ARRA. This notice shall be sent to the qualified beneficiary’s last known address. The notice shall include clear and easily understandable language to inform the qualified beneficiary that changes in federal law provide a new opportunity to elect continuation coverage with a 65-percent premium subsidy and shall include all of the following:
The amount of the premium the person will pay. For qualified beneficiaries who had a qualifying event between September 1, 2008, and May 12, 2009, inclusive, if an insurer is unable to provide the correct premium amount in the notice, the notice may contain the last known premium amount and an opportunity for the qualified beneficiary to request, through a toll-free telephone number, the correct premium that would apply to the beneficiary.
Enrollment forms and any other information required to be included pursuant to subdivision (e) to allow the qualified beneficiary to elect continuation coverage. This information shall not be included in notices sent to qualified beneficiaries currently enrolled in continuation coverage.
A description of the option to enroll in different coverage as provided in subparagraph (B) of paragraph (1) of subdivision (a) of Section 3001 of ARRA. This description shall advise the qualified beneficiary to contact the covered employee’s former employer for prior approval to choose this option.
The eligibility requirements for premium assistance in the amount of 65 percent of the premium under Section 3001 of ARRA.
The duration of premium assistance available under ARRA.
A statement that a qualified beneficiary eligible for premium assistance under ARRA may elect continuation coverage no later than 60 days of the date of the notice.
A statement that a qualified beneficiary eligible for premium assistance under ARRA who rejected or discontinued continuation coverage prior to receiving the notice required by this subdivision has the right to withdraw that rejection and elect continuation coverage with the premium assistance.
A statement that reads as follows:
“IF YOU ARE HAVING ANY DIFFICULTIES READING OR UNDERSTANDING THIS NOTICE, PLEASE CONTACT [name of insurer] at [insert appropriate telephone number].”
With respect to qualified beneficiaries who had a qualifying event between September 1, 2008, and May 12, 2009, inclusive, the notice described in this subdivision shall be provided by the later of May 26, 2009, or seven business days after the date the insurer receives notice of the qualifying event.
With respect to qualified beneficiaries who had or have a qualifying event between May 13, 2009, and the later date specified in subparagraph (A) of paragraph (3) of subdivision (a) of Section 3001 of ARRA, inclusive, the notice described in this subdivision shall be provided within the period of time specified in subdivision (e).
Nothing in this section shall be construed to require an insurer to provide the insurer’s evidence of coverage as a part of the notice required by this subdivision, and nothing in this section shall be construed to require an insurer to amend its existing evidence of coverage to comply with the changes made to this section by the enactment of Assembly Bill 23 of the 2009–10 Regular Session or by the act amending this section during the second year of the 2009–10 Regular Session.
The requirement under this subdivision to provide a written notice to a qualified beneficiary and the requirement under paragraph (1) of subdivision (h) to provide a new opportunity to a qualified beneficiary to elect continuation coverage shall be deemed satisfied if an insurer previously provided a written notice and additional election opportunity under Section 3001 of ARRA to that qualified beneficiary prior to the effective date of the act adding this paragraph.
Notwithstanding any other provision of law, a qualified beneficiary eligible for premium assistance under ARRA may elect continuation coverage no later than 60 days after the date of the notice required by subdivision (g).
For a qualified beneficiary who elects to continue coverage pursuant to this subdivision, the period beginning on the date of the qualifying event and ending on the effective date of the continuation coverage shall be disregarded for purposes of calculating a break in coverage in determining whether a preexisting condition provision applies under subdivision (e) of Section 10198.7 or subdivision (c) of Section 10708.
For a qualified beneficiary who had a qualifying event between September 1, 2008, and February 16, 2009, inclusive, and who elects continuation coverage pursuant to paragraph (1), the continuation coverage shall commence on the first day of the month following the election.
For a qualified beneficiary who had a qualifying event between February 17, 2009, and May 12, 2009, inclusive, and who elects continuation coverage pursuant to paragraph (1), the effective date of the continuation coverage shall be either of the following, at the option of the beneficiary, provided that the beneficiary pays the applicable premiums:
The date of the qualifying event.
The first day of the month following the election.
Notwithstanding any other provision of law, a qualified beneficiary who is eligible for the special election period described in paragraph (17) of subdivision (a) of Section 3001 of ARRA may elect continuation coverage no later than 60 days after the date of the notice required under subdivision (j). For a qualified beneficiary who elects coverage pursuant to this paragraph, the continuation coverage shall be effective as of the first day of the first period of coverage after the date of termination of employment, except, if federal law permits, coverage shall take effect on the first day of the month following the election. However, for purposes of calculating the duration of continuation coverage pursuant to Section 10128.57, the period of that coverage shall be determined as though the qualifying event was a reduction of hours of the employee.
Notwithstanding any other provision of law, a qualified beneficiary who is eligible for any other special election period under ARRA may elect continuation coverage no later than 60 days after the date of the special election notice required under ARRA.
An insurer shall provide a qualified beneficiary eligible for premium assistance under ARRA written notice of the extension of that premium assistance as required under Section 3001 of ARRA.
A health insurer, or an administrator or employer if administrative obligations have been assumed by those entities pursuant to subdivision (d), shall give the qualified beneficiaries described in subparagraph (C) of paragraph (17) of subdivision (a) of Section 3001 of ARRA the written notice required by that paragraph by implementing the following procedures:
The insurer shall, within 14 days of the effective date of the act adding this subdivision, send a notice to employers currently contracting with the insurer for a group benefit plan subject to this article. The notice shall do all of the following:
Advise the employer that employees whose employment is terminated on or after March 2, 2010, who were previously enrolled in any group health care service plan or health insurance policy offered by the employer may be entitled to special health coverage rights, including a subsidy paid by the federal government for a portion of the premium.
Ask the employer to provide the insurer with the name, address, and date of termination of employment for any employee whose employment is terminated on or after March 2, 2010, and who was at any time covered by any health care service plan or health insurance policy offered to their employees on or after September 1, 2008.
Provide employers with a format and instructions for submitting the information to the insurer, or their administrator or employer who has assumed administrative obligations pursuant to subdivision (d), by telephone, fax, electronic mail, or mail.
Within 14 days of receipt of the information specified in paragraph (1) from the employer, the insurer shall send the written notice specified in paragraph (17) of subdivision (a) of Section 3001 of ARRA to those individuals.
If an individual contacts his or her health insurer and indicates that he or she experienced a qualifying event that entitles him or her to the special election period described in paragraph (17) of subdivision (a) of Section 3001 of ARRA or any other special election provision of ARRA, the insurer shall provide the individual with the notice required under paragraph (17) of subdivision (a) of Section 3001 of ARRA or any other applicable provision of ARRA, regardless of whether the insurer receives or received information from the individual’s previous employer regarding that individual pursuant to Section 24100 of the Health and Safety Code. The insurer shall review the individual’s application for coverage under this special election notice to determine if the individual qualifies for the special election period and the premium assistance under ARRA. The insurer shall comply with paragraph (5) if the individual does not qualify for either the special election period or premium assistance under ARRA.
The requirement under this subdivision to provide the written notice described in paragraph (17) of subdivision (a) of Section 3001 of ARRA to a qualified beneficiary and the requirement under paragraph (5) of subdivision (h) to provide a new opportunity to a qualified beneficiary to elect continuation coverage shall be deemed satisfied if a health insurer previously provided the written notice and additional election opportunity described in paragraph (17) of subdivision (a) of Section 3001 of ARRA to that qualified beneficiary prior to the effective date of the act adding this paragraph.
If an individual does not qualify for either a special election period or the subsidy under ARRA, the insurer shall provide a written notice to that individual that shall include information on the right to appeal as set forth in Section 3001 of ARRA.
A health insurer shall provide information on its publicly accessible Internet Web site regarding the premium assistance made available under ARRA and any special election period provided under that law. An insurer may fulfill this requirement by linking or otherwise directing consumers to the information regarding COBRA continuation coverage premium assistance located on the Internet Web site of the United States Department of Labor. The information required by this paragraph shall be located in a section of the insurer’s Internet Web site that is readily accessible to consumers, such as the Web site’s Frequently Asked Questions section.
Notwithstanding any other provision of law, a qualified beneficiary eligible for premium assistance under ARRA may elect to enroll in different coverage subject to the criteria provided under subparagraph (B) of paragraph (1) of subdivision (a) of Section 3001 of ARRA.
A qualified beneficiary enrolled in continuation coverage as of February 17, 2009, who is eligible for premium assistance under ARRA may request application of the premium assistance as of March 1, 2009, or later, consistent with ARRA.
An insurer that receives an election notice from a qualified beneficiary eligible for premium assistance under ARRA, pursuant to subdivision (h), shall be considered a person entitled to reimbursement, as defined in Section 6432(b)(3) of the Internal Revenue Code, as amended by paragraph (12) of subdivision (a) of Section 3001 of ARRA.
For purposes of compliance with ARRA, in the absence of guidance from, or if specifically required for state-only continuation coverage by, the United States Department of Labor, the Internal Revenue Service, or the Centers for Medicare and Medicaid Services, an insurer may request verification of the involuntary termination of a covered employee’s employment from the covered employee’s former employer or the qualified beneficiary seeking premium assistance under ARRA.
An insurer that requests verification pursuant to paragraph (1) directly from a covered employee’s former employer shall do so by providing a written notice to the employer. This written notice shall be sent by mail or facsimile to the covered employee’s former employer within seven business days from the date the insurer receives the qualified beneficiary’s election notice pursuant to subdivision (h). Within 10 calendar days of receipt of written notice required by this paragraph, the former employer shall furnish to the insurer written verification as to whether the covered employee’s employment was involuntarily terminated.
A qualified beneficiary requesting premium assistance under ARRA may furnish to the insurer a written document or other information from the covered employee’s former employer indicating that the covered employee’s employment was involuntarily terminated. This document or information shall be deemed sufficient by the insurer to establish that the covered employee’s employment was involuntarily terminated for purposes of ARRA, unless the insurer makes a reasonable and timely determination that the documents or information provided by the qualified beneficiary are legally insufficient to establish involuntary termination of employment.
If an insurer requests verification pursuant to this subdivision and cannot verify involuntary termination of employment within 14 business days from the date the employer receives the verification request or from the date the insurer receives documentation or other information from the qualified beneficiary pursuant to paragraph (3), the insurer shall either provide continuation coverage with the federal premium assistance to the qualified beneficiary or send the qualified beneficiary a denial letter which shall include notice of his or her right to appeal that determination pursuant to ARRA.
No person shall intentionally delay verification of involuntary termination of employment under this subdivision.
A qualified beneficiary electing continuation coverage shall pay to the disability insurer, on or before the due date of each payment but not more frequently than on a monthly basis, not more than 110 percent of the applicable rate charged for a covered employee or, in the case of dependent coverage, not more than 110 percent of the applicable rate charged to a similarly situated individual under the group benefit plan being continued under the group contract. In the case of a qualified beneficiary who is determined to be disabled pursuant to Title II or Title XVI of the United States Social Security Act, the qualified beneficiary shall be required to pay to the insurer an amount no greater than 150 percent of the group rate after the first 18 months of continuation coverage provided pursuant to this section. In no case shall an insurer charge an employer an additional fee for administering Cal-COBRA other than those incorporated in the risk adjusted employee risk rate as provided for in subdivision (t) of Section 10700.
The continuation coverage provided pursuant to this article shall terminate at the first to occur of the following:
In the case of a qualified beneficiary who is eligible for continuation coverage pursuant to paragraph (2) of subdivision (d) of Section 10128.51, the date 36 months after the date the qualified beneficiary’s benefits under the contract would otherwise have terminated because of a qualifying event.
Except as provided in Section 3001 of ARRA, the end of the period for which premium payments were made, if the qualified beneficiary ceases to make payments or fails to make timely payments of a required premium, in accordance with the terms and conditions of the policy or contract. In the case of nonpayment of premiums, reinstatement shall be governed by the terms and conditions of the policy or contract and by Section 3001 of ARRA, if applicable.
In the case of a qualified beneficiary who is eligible to continuation coverage pursuant to paragraph (1), (3), (4), or (5) of subdivision (d) of Section 10116.51, the date 36 months after the date the qualified beneficiary’s benefits under the contract would otherwise have terminated by reason of a qualifying event.
The requirements of this article no longer apply to the qualified beneficiary pursuant to the provisions of Section 10128.52.
In the case of a qualified beneficiary who is eligible for continuation coverage pursuant to paragraph (2) of subdivision (d) of Section 10128.51, and determined, under Title II or Title XVI of the Social Security Act, to be disabled any time during the first 60 days of continuation coverage, and the spouse or dependent who has elected coverage pursuant to this article, the date 36 months after the date the qualified beneficiary’s benefits under the contract would otherwise have terminated because of a qualifying event. The qualified beneficiary shall notify the insurer, or the employer or administrator that contracts to perform administrative services, of the social security determination within 60 days of the date of the determination letter and prior to the end of the original 36-month continuation coverage period in order to be eligible for coverage pursuant to this subdivision. If the qualified beneficiary is no longer disabled under Title II or Title XVI of the Social Security Act, the benefits provided in this paragraph shall terminate on the later of the date provided by paragraph (1), or the month that begins more than 31 days after the date of the final determination under Title II or Title XVI of the United States Social Security Act that the qualified beneficiary is no longer disabled. A qualified beneficiary eligible for 36 months of continuation coverage as a result of a disability shall notify the insurer, or the employer or administrator that contracts to perform the notice and administrative services, within 30 days of a determination that the qualified beneficiary is no longer disabled.
In the case of a qualified beneficiary who is initially eligible for and elects continuation coverage pursuant to paragraph (2) of subdivision (d) of Section 10128.51, but who has another qualifying event, as described in paragraph (1), (3), (4), or (5) of subdivision (d) of Section 10128.51, within 36 months of the date of the first qualifying event, and has notified the insurer, or employer or administrator under contract to provide administrative services, of the second qualifying event within 60 days of the date of the second qualifying event, the date 36 months after the date of the first qualifying event.
The employer, or any successor employer or purchaser of the employer, ceases to provide any group benefit plan to his or her employees.
The qualified beneficiary moves out of the insurer’s service area, or the qualified beneficiary commits fraud or deception in the use of benefits.
If the group benefits contracts between the insurer and the employer is terminated prior to the date the qualified beneficiary’s continuation coverage would terminate pursuant to this section, coverage under the prior plan shall terminate and the qualified beneficiary may elect continuation coverage under the subsequent group benefit plan, if any, pursuant to the requirements of subdivision (b) of Section 10128.53 and subdivision (c) of Section 10128.54.
The amendments made to this section by Assembly Bill 1401 of the 2001–02 Regular Session shall apply to individuals who begin receiving continuation coverage under this article on or after January 1, 2003.
A disability insurer subject to this article shall not be obligated to provide continuation coverage to a qualified beneficiary pursuant to this article if an insured fails to make the notification required by Section 10128.54, or if the employer of the insured fails to comply with Section 10128.55.
A health insurer that provides coverage under a group benefit plan to an employer shall offer an insured who has exhausted continuation coverage under COBRA the opportunity to continue coverage for up to 36 months from the date the insured’s continuation coverage began if the insured is entitled to less than 36 months of continuation coverage under COBRA. The health insurer shall offer coverage pursuant to terms of this article, including the rate limitations contained in Section 10128.56.
Notification of the coverage available under this section shall be included in the notice of the pending termination of COBRA coverage that is required to be provided to COBRA beneficiaries and that is required to be provided under Section 10128.54.
For purposes of this section, “COBRA” means Section 4980B of Title 26 of the United States Code, Sections 1161 et seq. of Title 29 of the United States Code, and Section 300bb of Title 42 of the United States Code.
This section shall not apply to accident-only, specified disease, hospital indemnity, CHAMPUS supplement, long-term care, Medicare supplement, dental-only, or vision-only insurance policies.
This section shall become operative on September 1, 2003, and shall apply to individuals who begin receiving COBRA coverage on or after January 1, 2003.
ARTICLE 2. Transfer [10129. - 10133.14.]
Sections 10130 and 10131 do not apply to group life policies, to group disability policies, or to individual disability policies providing a benefit for loss of time and which are noncancellable and guaranteed renewable for not less than five years, when any of such group life policies, group disability policies or individual disability policies expressly provide that benefits payable thereunder are not assignable, and in such case the benefits shall be paid only as provided in the policy.
A life or disability policy may pass by transfer, will or succession to any person, whether or not the transferee has an insurable interest. Such transferee may recover upon it whatever the insured might have recovered.
Notice to an insurer of a transfer of a life or disability policy is not necessary to preserve the validity of the policy unless expressly required by the policy.
The beneficiary under a life policy which provides for the payment of its proceeds in periodical installments, may be restrained by its provisions from disposing of or incumbering his interest in any such installment prior to the date when it becomes due and payable by the insurer.
Upon written consent of the insured first obtained with respect to a particular claim, any disability insurer shall pay group insurance benefits contingent upon, or for expenses incurred on account of, hospitalization or medical or surgical aid to the person or persons furnishing the hospitalization or medical or surgical aid, or, on and after January 1, 1994, to the person or persons having paid for the hospitalization or medical or surgical aid, but the amount of any such payment shall not exceed the amount of benefit provided by the policy with respect to the service or billing of the provider of aid, and the amount of the payments pursuant to one or more assignments shall not exceed the amount of expenses incurred on account of the hospitalization or medical or surgical aid. Payments so made shall discharge the insurer’s obligation with respect to the amount so paid.
Nothing in this section shall be construed to authorize an insurer to furnish or directly provide services of hospitals, or psychiatric health facilities, as defined in Section 1250.2 of the Health and Safety Code, or physicians and surgeons, or psychologists or in any manner to direct, participate in, or control the selection of the hospital or health facility or physician and surgeon or psychologist from whom the insured secures services or exercise medical or dental or psychological professional judgment, except that an insurer may negotiate and enter into contracts for alternative rates of payment with institutional providers, and offer the benefit of these alternative rates to insureds who select those providers.
Alternatively, insurers may, by agreement with group policyholders, limit payments under a policy to services secured by insureds from institutional providers, and after July 1, 1983, from professional providers, charging alternative rates pursuant to contract with the insurer.
Pursuant to subdivision (c), when alternate rates of payment to providers are applicable to contracts with group policyholders, the contracts shall include programs for the continuous review of the quality of care, performance of medical or psychological personnel included in the plan, utilization of services and facilities, and costs, by professionally recognized unrelated third parties utilizing in the case of professional providers similarly licensed providers for each medical, psychological, or dental service covered under the plan and utilizing in the case of institutional providers appropriate professional providers. All provisions of the laws of the state relating to immunity from liability and discovery privileges for medical, psychological, and dental peer review shall apply to the licensed providers performing the foregoing activities.
On or after July 1, 1983, the amendments made to this section during the 1982 portion of the 1981–82 Regular Session, shall also be applicable with respect to both professional and institutional providers.
Insurers shall provide group policyholders with a current roster of institutional and professional providers under contract to provide services at alternative rates under their group policy and shall also make such lists available for public inspection during regular business hours at the insurer’s or plan’s principal office within the state.
Commencing July 1, 2016, a health insurer that contracts with providers for alternative rates of payment pursuant to Section 10133 shall publish and maintain provider directory or directories with information on contracting providers that deliver health care services to the insurer’s insureds, including those that accept new patients. A provider directory shall not list or include information on a provider that is not currently under contract with the insurer.
An insurer shall provide the online directory or directories for the specific network offered for each product using a consistent method of network and product naming, numbering, or other classification method that ensures the public, insureds, potential insureds, the department, and other state or federal agencies can easily identify the networks and insurer products in which a provider participates. By July 31, 2017, or 12 months after the date provider directory standards are developed under subdivision (k), whichever occurs later, an insurer shall use the naming, numbering, or classification method developed by the department pursuant to subdivision (k).
An online provider directory or directories shall be available on the insurer’s internet website to the public, potential insureds, insureds, and providers without any restrictions or limitations. The directory or directories shall be accessible without any requirement that an individual seeking the directory information demonstrate coverage with the insurer, indicate interest in obtaining coverage with the insurer, provide a member identification or policy number, provide any other identifying information, or create or access an account.
The online provider directory or directories shall be accessible on the insurer’s public internet website through an identifiable link or tab and in a manner that is accessible and searchable by insureds, potential insureds, the public, and providers. By July 1, 2017, or 12 months after the date provider directory standards are developed under subdivision (k), whichever occurs later, the insurer’s public internet website shall allow provider searches by, at a minimum, name, practice address, city, ZIP Code, California license number, National Provider Identifier number, admitting privileges to an identified hospital, product, tier, provider language or languages, provider group, hospital name, facility name, or clinic name, as appropriate.
The insurer shall update the online provider directory or directories, at least weekly, or more frequently, if required by federal law, when informed of and upon confirmation by the insurer of any of the following:
A contracting provider is no longer accepting new patients for that product, or an individual provider within a provider group is no longer accepting new patients.
A contracted provider is no longer under contract for a particular product.
A provider’s practice location or other information required under subdivision (h) or (i) has changed.
Upon the completion of the investigation described in subdivision (o), a change is necessary based on an insured complaint that a provider was not accepting new patients, was otherwise not available, or whose contact information was listed incorrectly.
Any other information that affects the content or accuracy of the provider directory or directories.
Upon confirmation of any of the following, the insurer shall delete a provider from the directory or directories when:
A provider has retired or otherwise has ceased to practice.
A provider or provider group is no longer under contract with the insurer for any reason.
The contracting provider group has informed the insurer that the provider is no longer associated with the provider group and is no longer under contract with the insurer.
The provider directory or directories shall include both an email address and a telephone number for members of the public and providers to notify the insurer if the provider directory information appears to be inaccurate. This information shall be disclosed prominently in the directory or directories and on the insurer’s internet website.
The provider directory or directories shall include the following disclosures informing insureds that they are entitled to both of the following:
Language interpreter services, at no cost to the insured, including how to obtain interpretation services in accordance with Section 10133.8.
Full and equal access to covered services, including insureds with disabilities as required under the federal Americans with Disabilities Act of 1990 and Section 504 of the Rehabilitation Act of 1973.
The insurer and a specialized mental health insurer shall include all of the following information in the provider directory or directories:
The provider’s name, practice location or locations, and contact information.
Type of practitioner.
National Provider Identifier number.
California license number and type of license.
The area of specialty, including board certification, if any.
The provider’s office email address, if available.
The name of each affiliated provider group currently under contract with the insurer through which the provider sees insureds.
A listing for each of the following providers that are under contract with the insurer:
For physicians and surgeons, the provider group, and admitting privileges, if any, at hospitals contracted with the insurer.
Nurse practitioners, physician assistants, psychologists, acupuncturists, optometrists, podiatrists, chiropractors, licensed clinical social workers, marriage and family therapists, professional clinical counselors, qualified autism service providers, as defined in Section 4999.200 of the Business and Professions Code, nurse midwives, and dentists.
For federally qualified health centers or primary care clinics, the name of the federally qualified health center or clinic.
For a provider described in subparagraph (A) or (B) who is employed by a federally qualified health center or primary care clinic, and to the extent their services may be accessed and are covered through the contract with the insurer, the name of the provider, and the name of the federally qualified health center or clinic.
Facilities, including, but not limited to, general acute care hospitals, skilled nursing facilities, urgent care clinics, ambulatory surgery centers, inpatient hospice, residential care facilities, and inpatient rehabilitation facilities.
Pharmacies, clinical laboratories, imaging centers, and other facilities providing contracted health care services.
The provider directory or directories may note that authorization or referral may be required to access some providers.
Non-English language, if any, spoken by a health care provider or other medical professional as well as non-English language spoken by a qualified medical interpreter, in accordance with Section 10133.8, if any, on the provider’s staff.
Identification of providers who no longer accept new patients for some or all of the insurer’s products.
The network tier to which the provider is assigned, if the provider is not in the lowest tier, as applicable. Nothing in this section shall be construed to require the use of network tiers other than contract and noncontracting tiers.
All other information necessary to conduct a search pursuant to paragraph (2) of subdivision (c).
A vision, dental, or other specialized insurer, except for a specialized mental health insurer, shall include all of the following information for each provider directory or directories used by the insurer for its networks:
The contract between the insurer and a provider shall include a requirement that the provider inform the insurer within five business days when either of the following occurs:
The provider is not accepting new patients.
If the provider had previously not accepted new patients, the provider is currently accepting new patients.
If a provider who is not accepting new patients is contacted by an insured or potential insured seeking to become a new patient, the provider shall direct the insurer or potential insured to both the insurer for additional assistance in finding a provider and to the department to report any inaccuracy with the insurer’s directory or directories.
If an insured or potential insured informs an insurer of a possible inaccuracy in the provider directory or directories, the insurer shall promptly investigate and, if necessary, undertake corrective action within 30 business days to ensure the accuracy of the directory or directories.
On or before December 31, 2016, the department shall develop uniform provider directory standards to permit consistency in accordance with subdivision (b) and paragraph (2) of subdivision (c) and development of a multiplan directory by another entity. Those standards shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), until January 1, 2021. No more than two revisions of those standards shall be exempt from the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) pursuant to this subdivision.
In developing the standards under this subdivision, the department shall seek input from interested parties throughout the process of developing the standards and shall hold at least one public meeting. The department shall take into consideration any requirements for provider directories established by the federal Centers for Medicare and Medicaid Services and the State Department of Health Care Services.
By July 31, 2017, or 12 months after the date provider directory standards are developed under this subdivision, whichever occurs later, an insurer shall use the standards developed by the department for each product offered by the insurer.
For individual providers who are not affiliated with a provider group described in subparagraph (A) or (B) of paragraph (8) of subdivision (h) and providers described in subdivision (i), the insurer shall notify each provider at least once every six months.
For all other providers described in subdivision (h) who are not subject to the requirements of subparagraph (A), the insurer shall notify its contracted providers to ensure that all of the providers are contacted by the insurer at least once annually.
The information the insurer has in its directory or directories regarding the provider or provider group, including a list of networks and products that include the contracted provider or provider group.
A statement that the failure to respond to the notification may result in a delay of payment or reimbursement of a claim pursuant to subdivision (p).
Instructions on how the provider or provider group can update the information in the provider directory or directories using the online interface developed pursuant to subdivision (m).
If the insurer does not receive an affirmative response and confirmation from the provider that the information is current and accurate or, as an alternative, updates any information required to be in the directory or directories pursuant to this section, within 30 business days, the insurer shall take no more than 15 business days to verify whether the provider’s information is correct or requires updates. The insurer shall document the receipt and outcome of each attempt to verify the information. If the insurer is unable to verify whether the provider’s information is correct or requires updates, the insurer shall notify the provider 10 business days in advance of removal that the provider will be removed from the directory or directories. The provider shall be removed from the directory or directories at the next required update of the provider directory or directories after the 10-business day notice period. A provider shall not be removed from the provider directory or directories if they respond before the end of the 10-business day notice period.
General acute care hospitals shall be exempt from the requirements in paragraphs (3) and (4).
An insurer shall establish policies and procedures with regard to the regular updating of its provider directory or directories, including the weekly, quarterly, and annual updates required pursuant to this section, or more frequently, if required by federal law or guidance.
This section does not prohibit an insurer from requiring its provider groups or contracting specialized health insurers to provide information to the insurer that is required by the insurer to satisfy the requirements of this section for each of the providers that contract with the provider group or contracting specialized health insurer. This responsibility shall be specifically documented in a written contract between the insurer and the provider group or contracting specialized health insurer.
If an insurer requires its contracting provider groups or contracting specialized health insurers to provide the insurer with information described in paragraph (1), the insurer shall continue to retain responsibility for ensuring that the requirements of this section are satisfied.
A provider group may terminate a contract with a provider for a pattern or repeated failure of the provider to update the information required to be in the directory or directories pursuant to this section.
A provider group is not subject to the payment delay described in subdivision (p) if all of the following occurs:
A provider does not respond to the provider group’s attempt to verify the provider’s information. As used in this paragraph, “verify” means to contact the provider in writing, electronically, and by telephone to confirm whether the provider’s information is correct or requires updates.
The provider group documents its efforts to verify the provider’s information.
The provider group reports to the insurer that the provider should be deleted from the provider group in the insurer’s provider directory or directories.
Section 10133.65, known as the Health Care Providers’ Bill of Rights, applies to any material change to a provider contract pursuant to this section.
Whenever an insurer receives a report indicating that information listed in its provider directory or directories is inaccurate, the insurer shall promptly investigate the reported inaccuracy and, no later than 30 business days following receipt of the report, either verify the accuracy of the information or update the information in its provider directory or directories, as applicable.
When investigating a report regarding its provider directory or directories, the insurer shall, at a minimum, do the following:
Contact the affected provider no later than five business days following receipt of the report.
Document the receipt and outcome of each report. The documentation shall include the provider’s name, location, and a description of the insurer’s investigation, the outcome of the investigation, and any changes or updates made to its provider directory or directories.
If changes to an insurer’s provider directory or directories are required as a result of the insurer’s investigation, the changes to the online provider directory or directories shall be made no later than the next scheduled weekly update, or the update immediately following that update, or sooner if required by federal law or regulations. For printed provider directories, the change shall be made no later than the next required update, or sooner if required by federal law or regulations.
Notwithstanding Sections 10123.13 and 10123.147, an insurer may delay payment or reimbursement owed to a provider or provider group for any claims payment made to a provider or provider group for up to one calendar month beginning on the first day of the following month, if the provider or provider group fails to respond to the insurer’s attempts to verify the provider’s information as required under subdivision (l). The insurer shall not delay payment unless it has attempted to verify the provider’s or provider group’s information. As used in this subdivision, “verify” means to contact the provider or provider group in writing, electronically, and by telephone to confirm whether the provider’s or provider group’s information is correct or requires updates. An insurer may seek to delay payment or reimbursement owed to a provider or provider group only after the 10-business day notice period described in paragraph (4) of subdivision (l) has lapsed.
An insurer shall notify the provider or provider group 10 days before it seeks to delay payment or reimbursement to a provider or provider group pursuant to this subdivision. If the insurer delays a payment or reimbursement pursuant to this subdivision, the insurer shall reimburse the full amount of any payment or reimbursement subject to delay to the provider or provider group according to either of the following timelines, as applicable:
No later than three business days following the date on which the insurer receives the information required to be submitted by the provider or provider group pursuant to subdivision (l).
At the end of the one-calendar-month delay described in paragraph (1), if the provider or provider group fails to provide the information required to be submitted to the insurer pursuant to subdivision (l).
An insurer may terminate a contract for a pattern or repeated failure of the provider or provider group to alert the insurer to a change in the information required to be in the directory or directories pursuant to this section.
An insurer that delays payment or reimbursement under this subdivision shall document each instance a payment or reimbursement was delayed and report this information to the department in a format described by the department. This information shall be submitted along with the policies and procedures required to be submitted annually to the department pursuant to paragraph (1) of subdivision (m).
In circumstances where the department finds that an insured reasonably relied upon materially inaccurate, incomplete, or misleading information contained in an insurer’s provider directory or directories, the department may require the insurer to provide coverage for all covered health care services provided to the insured and to reimburse the insured for any amount beyond what the insured would have paid, had the services been delivered by an in-network provider under the insured’s health insurance policy. Prior to requiring reimbursement in these circumstances, the department shall conclude that the services received by the insured were covered services under the insured’s health insurance policy. In those circumstances, the fact that the services were rendered or delivered by a noncontracting or out-of-network provider shall not be used as a basis to deny reimbursement to the insured.
Whenever an insurer determines as a result of this section that there has been a 10-percent change in the network for a product in a region, the insurer shall file a statement with the commissioner.
An insurer that contracts with multiple employer welfare agreements regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 shall meet the requirements of this section.
This section shall not be construed to alter a provider’s obligation to provide health care services to an insured pursuant to the provider’s contract with the insurer.
As part of the department’s routine examination of a health insurer pursuant to Section 730, the department shall include a review of the health insurer’s compliance with subdivision (p).
For purposes of this section, “provider group” means a medical group, independent practice association, or other similar group of providers.
When any disability insurer negotiates and enters into a contract with professional or institutional providers to provide services at alternative rates of payment of the type described in Sections 10133 and 11512 of the Insurance Code, the amount of patient copayment shall be calculated exclusively from the negotiated alternative rate for the service rendered. No disability insurer or professional or institutional provider, negotiating and entering into a contract pursuant to this section, shall charge or collect copayment amounts greater than those calculated in accordance with this section.
This section shall become operative on January 1, 1993.
When any self-insured governmental plan, as defined in Section 12671, negotiates and enters into a contract with professional or institutional providers to provide services at alternative rates of payment of the type described in Sections 10133 and 11512 of the Insurance Code, the amount of patient copayment shall be calculated exclusively from the negotiated alternative rate for the service rendered. No self-insured governmental plan or professional or institutional provider, negotiating and entering into a contract pursuant to this section, shall charge or collect copayment amounts greater than those calculated in accordance with this section.
This section shall become operative on January 1, 1993.
For purposes of insurers that contract with providers for alternate rates pursuant to Section 10133, a primary care provider includes a “nonphysician medical practitioner,” which is defined as a physician assistant performing services under the supervision of a primary care physician in compliance with Chapter 7.7 (commencing with Section 3500) of Division 2 of the Business and Professions Code or a nurse practitioner performing services in collaboration with a physician pursuant to Chapter 6 (commencing with Section 2700) of Division 2 of the Business and Professions Code.
This section shall not require a primary care provider to accept the assignment of a number of insureds that would exceed standards of good health care as provided in Section 10133.5.
The commissioner shall, on or before January 1, 2004, promulgate regulations applicable to health insurers which contract with providers for alternative rates pursuant to Section 10133 to ensure that insureds have the opportunity to access needed health care services in a timely manner.
These regulations shall be designed to assure accessibility of provider services in a timely manner to individuals comprising the insured or contracted group, pursuant to benefits covered under the policy or contract. The regulations shall insure:
1. Adequacy of number and locations of institutional facilities and professional providers, and consultants in relationship to the size and location of the insured group and that the services offered are available at reasonable times.
2. Adequacy of number of professional providers, and license classifications of such providers, in relationship to the projected demands for services covered under the group policy or plan. The department shall consider the nature of the specialty in determining the adequacy of professional providers.
3. The policy or contract is not inconsistent with standards of good health care and clinically appropriate care.
4. All contracts including contracts with providers, and other persons furnishing services, or facilities shall be fair and reasonable.
In developing standards under subdivision (a), the department shall also consider requirements under federal law; requirements under other state programs and law, including utilization review; and standards adopted by other states, national accrediting organizations and professional associations. The department shall further consider the accessability to provider services in rural areas.
In designing the regulations the commissioner shall consider the regulations in Title 28, of the California Administrative Code of Regulations, commencing with Section 1300.67.2, which are applicable to Knox-Keene plans, and all other relevant guidelines in an effort to accomplish maximum accessibility within a cost efficient system of indemnification. The department shall consult with the Department of Managed Health Care concerning regulations developed by that department pursuant to Section 1367.03 of the Health and Safety Code and shall seek public input from a wide range of interested parties.
Health insurers that contract for alternative rates of payment with providers shall report annually on complaints received by the insurer regarding timely access to care. The department shall review these complaints and any complaints received by the department regarding timeliness of care and shall make public this information.
The department shall report to the Assembly Committee on Health and the Senate Committee on Insurance of the Legislature on March 1, 2003, and on March 1, 2004, regarding the progress towards the implementation of this section.
Every three years, the commissioner shall review the latest version of the regulations adopted pursuant to subdivision (a) and shall determine if the regulations should be updated to further the intent of this section.
On or before July 1, 2026, the department shall issue instructions to health insurers to report all covered health care services subject to prior authorization, the percentage rate at which they are approved or modified by the health insurer or its delegated entity, and other statistics regarding prior authorization determinations as determined by the department. These instructions shall include a standard reporting template.
On or before December 31, 2026, a health insurer shall report to the department, in accordance with the instructions issued pursuant to subdivision (a), the covered health care services subject to prior authorization, the percentage rate at which they are approved or modified by the health insurer or its delegated entity, data regarding requested or authorized duration, frequency, or level of care of the health care services, and other statistics regarding prior authorization determinations pursuant to subdivision (a). Data regarding modifications shall be reported separately from approvals in accordance with the instructions issued pursuant to subdivision (a).
If a health insurer delegates responsibility for decisions regarding prior authorization requests to another entity, the health insurer shall obtain information required to be reported by this section from each delegated entity and include that information in the health insurer’s report to the department. A health insurer shall require a delegated entity to comply with a request made pursuant to this paragraph.
Utilization of a health care service in a manner inconsistent with current clinical practice guidelines published in peer-reviewed medical literature or United States Food and Drug Administration-approved indications, as applicable.
The potential for fraud, waste, and abuse.
The potential for cost savings from eliminating prior authorization, including out-of-pocket cost savings to the insured.
The potential for improvements in quality of care, health care outcomes, and timely access to care for insureds from eliminating prior authorization.
Other factors deemed appropriate by the department.
Before finalizing the list of covered health care services pursuant to this section, the department shall consult interested stakeholders.
On or before July 1, 2027, the department shall publish the list of covered health care services identified pursuant to paragraph (1). As of the date specified in subparagraph (A) of paragraph (5), a health insurer shall not impose prior authorization on a covered health care service included on the list published by the department pursuant to this paragraph.
The department shall issue instructions to health insurers regarding all of the following:
The date, which shall be no later than January 1, 2028, by which the health insurer and its delegated entities shall cease requiring prior authorization for the covered health care services identified pursuant to this subdivision. When issuing the date by which a health insurer and its delegated entities shall cease requiring prior authorization pursuant to this section, the department shall take into consideration the time necessary for insurers to update their policies.
Requirements for notifying providers of the change in prior authorization requirements.
The process by which a health insurer may petition the department to reinstate the ability of the health insurer to use prior authorization for a particular covered health care service upon a showing of good cause that a lack of prior authorization for the covered health care service has resulted in a demonstrable increase in the cost of care or decrease in the quality of care for the health insurer’s insureds, including fraud, waste, or abuse. The department determination on a petition pursuant to this subparagraph shall be made within 60 days of receipt of all information necessary for the department to issue a decision on the petition. A health insurer shall not reinstate prior authorization for a covered health care service subject to this section until authorized by the department and in accordance with any other law, as applicable.
The department may issue other instructions it deems necessary and appropriate to implement this section.
Notwithstanding subdivision (c), a health insurer may impose prior authorization on any of the following:
A covered health care service that is exempted from prior authorization pursuant to this section constitutes a service authorized by the health insurer for purposes of Section 796.04. A health insurer or its delegated entity shall not deny or reduce the contracted or agreed upon payment, or the applicable rate or reimbursement methodology specified in a policy, for a covered health care service exempted from a prior authorization requirement pursuant to this section unless the provider failed to substantially perform or supply the covered health care service.
Notwithstanding subdivision (c), a health insurer may, in accordance with any other applicable law, reinstate prior authorization for a specific health care provider on a covered health care service for which prior authorization is otherwise prohibited pursuant to subdivision (c) only if the health insurer has determined, based on clear and convincing evidence, that the health care provider has engaged in either of the following:
Fraudulent activity related to the provision or billing of health care services.
Pattern or practice of repeatedly providing care that is clinically inappropriate or inconsistent with generally accepted standards of care, and that results in either potential harm to patients or excessive utilization of health care resources inconsistent with generally accepted standards of care.
The department may contract with a consultant or consultants with expertise in this subject area to assist the department in implementing this section, including developing instructions described in subdivision (a), evaluating the reports received by the department pursuant to subdivision (b), developing and publishing a list pursuant to subdivision (c), developing other implementation instructions, and drafting the report required pursuant to this section.
The department’s contract with a consultant shall include conflict-of-interest provisions to prohibit a person from participating in a report in which the person knows or has reason to know they have a material financial interest, including a person who has a consulting or other agreement with a person or organization that would be affected by the results of the report.
Contracts entered into pursuant to this subdivision are exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, Section 19130 of the Government Code, and Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, and shall be exempt from the review or approval of any division of the Department of General Services.
No later than four years after the date determined by the department for cessation of prior authorization requirements pursuant to subparagraph (A) of paragraph (5) of subdivision (c), the department shall publish a report regarding the impacts of the cessation of prior authorization requirements. A health insurer shall report information and data regarding the impacts of implementing this section, including effects on the volume of covered health care services subjected to prior authorization, statistics on prior authorization requests and determinations, administrative costs, timely access to care, insured health outcomes, and data on reinstatements of prior authorization pursuant to subdivision (f), to be included in this report.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement, interpret, or make specific this section by means of bulletins, methodologies, rules, definitions, policies, forms, information or data requests, or similar instructions, without taking regulatory action, until this section is repealed.
The department shall consult with the Department of Managed Health Care before issuing instructions and the list of covered health care services for which prior authorization is prohibited, pursuant to this section, to ensure consistency to the extent practical.
This section does not apply to a specialized health insurer, except to the extent the insurer provides or administers essential health benefits pursuant to health insurance policies or certificates subject to Section 10112.27.
For purposes of this section:
“Covered health care service” means a health care item, product, drug, supply, procedure, treatment, or service covered by a health insurance policy or certificate.
“Prior authorization” means the process by which utilization review determines the medical necessity or medical appropriateness of otherwise covered health care services prior to or concurrent with the rendering of those health care services. “Prior authorization” also includes an insurer’s or its delegated entity’s requirement that an insured or health care provider notify the health insurer before providing a health care service, including preauthorization, precertification, and prior approval.
This section shall remain in effect only until January 1, 2034, and as of that date is repealed.
A health insurance policy that is issued, renewed, or amended on or after July 1, 2017, that provides benefits through contracts with providers for alternative rates pursuant to Section 10133 shall provide information to an insured regarding the standards for timely access to care adopted pursuant to Section 10133.5 and the information required by this section, including information related to receipt of interpreter services in a timely manner, no less than annually.
A health insurance policy that is issued, renewed, or amended on or after July 1, 2022, that provides benefits through contracts with providers for alternative rates pursuant to Section 10133 shall provide information to an insured regarding the standards for timely access to care required by Section 10133.54, adopted pursuant to Section 10133.5, and the information required by this section, including information related to receipt of interpreter services in a timely manner, no less than annually.
A health insurer that contracts with providers for alternative rates of payment pursuant to Section 10133 shall, at a minimum, provide information regarding appointment wait times for urgent care, nonurgent primary care, nonurgent specialty care, and telephone screening established in Section 10133.54 or pursuant to Section 10133.5 to insureds and contracting providers. The information shall also include notice of the availability of interpreter services at the time of the appointment pursuant to Section 10133.8. A health insurer may indicate that exceptions to appointment wait times may apply if the department has found exceptions to be permissible.
The information required to be provided pursuant to this section shall be provided to an insured with individual coverage upon initial enrollment and annually thereafter upon renewal, and to insureds and group policyholders with group coverage upon initial enrollment and annually thereafter upon renewal. An insurer may include this information with other materials sent to the insured. The information shall also be provided in the following manner:
In a separate section of the evidence of coverage titled “Timely Access to Care.”
At least annually, in or with newsletters, outreach, or other materials that are routinely disseminated to the policy’s insureds.
Commencing January 1, 2018, in a separate section of the provider directory published and maintained by the insurer pursuant to Section 10133.15. The separate section shall be titled “Timely Access to Care.”
On the internet website published and maintained by the insurer, in a manner that allows insureds and prospective insureds to easily locate the information.
Information about a health insurer’s obligation under California law to provide or arrange for timely access to care.
How a contracting provider or insured can contact the health insurer to obtain assistance if a patient is unable to obtain a timely referral to an appropriate provider.
The toll-free telephone number for the Department of Insurance where providers and insureds can file a complaint if they are unable to obtain a timely referral to an appropriate provider.
This section applies to policies of health insurance, as defined by subdivision (b) of Section 106. The requirements of this section apply to all health care services covered by a health insurance policy.
Notwithstanding Section 10133.5, a health insurer shall comply with the timely access requirements in this section, but a specialized health insurance policy as defined in subdivision (c) of Section 106, other than a specialized mental health insurance policy, is exempt from the provisions of this section, except as specified in paragraph (6) and subdivision (c).
A health insurer shall provide or arrange for the provision of covered health care services in a timely manner appropriate for the nature of the insured’s condition, consistent with good professional practice. An insurer shall establish and maintain provider networks, policies, procedures, and quality assurance monitoring systems and processes sufficient to ensure compliance with this clinical appropriateness standard. An insurer that uses a tiered network shall demonstrate compliance with the standards established by this section based on providers available at the lowest cost-sharing tier.
A health insurer shall ensure that all insurer and provider processes necessary to obtain covered health care services, including, but not limited to, prior authorization processes, are completed in a manner that assures the provision of covered health care services to an insured in a timely manner appropriate for the insured’s condition and in compliance with this section.
If it is necessary for a provider or an insured to reschedule an appointment, the appointment shall be promptly rescheduled in a manner that is appropriate for the insured’s health care needs, and ensures continuity of care consistent with good professional practice, and consistent with the objectives of Section 10133.5, the regulations adopted pursuant to Section 10133.5, and this section.
Interpreter services required by Section 10133.8 of this code and Article 12.1 (commencing with Section 2538.1) of Title 10 of the California Code of Regulations shall be coordinated with scheduled appointments for health care services in a manner that ensures the provision of interpreter services at the time of the appointment, consistent with Section 2538.6 of Title 10 of the California Code of Regulations, without imposing delay on the scheduling of the appointment. This subdivision does not modify the requirements established in Sections 10133.8 and 10133.9 of this code and Section 2538.6 of Title 10 of the California Code of Regulations, or approved by the department pursuant to Section 2538.6 of Title 10 of the California Code of Regulations for an insurer’s language assistance program.
In addition to ensuring compliance with the clinical appropriateness standard set forth in paragraph (1), a health insurer shall ensure that its contracted provider network has adequate capacity and availability of licensed health care providers to offer insureds appointments that meet the following timeframes:
Urgent care appointments for services that do not require prior authorization: within 48 hours of the request for appointment, except as provided in subparagraph (H).
Urgent care appointments for services that require prior authorization: within 96 hours of the request for appointment, except as provided in subparagraph (H).
Nonurgent appointments for primary care: within 10 business days of the request for appointment, except as provided in subparagraphs (H) and (I).
Nonurgent appointments with specialist physicians: within 15 business days of the request for appointment, except as provided in subparagraphs (H) and (I).
Nonurgent appointments with a nonphysician mental health care or substance use disorder provider: within 10 business days of the request for appointment, except as provided in subparagraphs (H) and (I).
Commencing July 1, 2022, nonurgent followup appointments with a nonphysician mental health care or substance use disorder provider: within 10 business days of the prior appointment for those undergoing a course of treatment for an ongoing mental health or substance use disorder condition, except as provided in subparagraph (H). This subparagraph does not limit coverage for nonurgent followup appointments with a nonphysician mental health care or substance use disorder provider to once every 10 business days.
Nonurgent appointments for ancillary services for the diagnosis or treatment of injury, illness, or other health condition: within 15 business days of the request for appointment, except as provided in subparagraphs (H) and (I).
The applicable waiting time for a particular appointment may be extended if the referring or treating licensed health care provider, or the health professional providing triage or screening services, as applicable, acting within the scope of their practice and consistent with professionally recognized standards of practice, has determined and noted in the relevant record that a longer waiting time will not have a detrimental impact on the health of the insured.
Preventive care services, as defined in subdivision (e), and periodic follow up care, including standing referrals to specialists for chronic conditions, periodic office visits to monitor and treat pregnancy, cardiac, mental health, or substance use disorder conditions, and laboratory and radiological monitoring for recurrence of disease, may be scheduled in advance consistent with professionally recognized standards of practice as determined by the treating licensed health care provider acting within the scope of their practice.
A referral to a specialist by a primary care provider or another specialist shall be subject to the relevant time-elapsed standard in subparagraph (A), (B) or (D), unless the requirements in subparagraph (H) or (I) are met, and shall be subject to the other provisions of this section.
The following types of health insurance policies shall be subject to the requirements in subparagraph (B):
A health insurance policy covering the pediatric oral or vision essential health benefit.
A specialized health insurance policy that provides coverage for the pediatric oral essential health benefit, as defined in paragraph (5) of subdivision (a) of Section 10112.27.
A specialized health insurance policy that covers dental benefits only, as defined in subdivision (c) of Section 106.
In addition to ensuring compliance with the clinical appropriateness standard set forth in paragraph (1), each health insurance policy specified in subparagraph (A) shall ensure that contracted oral or vision provider networks have adequate capacity and availability of licensed health care providers, including generalist and specialist dentists, ophthalmologists, optometrists, and opticians, to offer insureds appointments for covered oral or vision services in accordance with the following requirements:
Urgent appointments within the plan network shall be offered within 72 hours of the time of request for appointment, if consistent with the insured’s individual needs and as required by professionally recognized standards of dental practice.
Nonurgent appointments shall be offered within 36 business days of the request for appointment, except as provided in clause (iii).
Preventive care appointments shall be offered within 40 business days of the request for appointment.
The applicable waiting time for a particular appointment in this paragraph may be extended if the referring or treating licensed health care provider, or the health professional providing triage or screening services, as applicable, acting within the scope of the provider’s practice and consistent with professionally recognized standards of practice, has determined and noted in the relevant record that a longer waiting time will not have a detrimental impact on the health of the insured.
An insurer shall ensure it has sufficient numbers of contracted providers to maintain compliance with the standards established by this section.
This section does not modify the requirements regarding accessibility established by Article 6 (commencing with Section 2240) of Title 10 of the California Code of Regulations.
An insurer shall ensure timely access to covered health care services as required by this section, including applicable time-elapsed standards, by assisting an insured to locate available and accessible contracted providers in a timely manner appropriate for the insured’s health needs. An insurer shall arrange for the provision of services outside the insurer’s contracted network if unavailable within the network if medically necessary for the insured’s condition. Insured costs for medically necessary referrals to nonnetwork providers shall not exceed applicable in-network copayments, coinsurance, and deductibles.
An insurer shall provide or arrange for the provision, 24 hours per day, 7 days per week, of triage or screening services by telephone, as defined in subdivision (f).
An insurer shall ensure that telephone triage or screening services are provided in a timely manner appropriate for the insured’s condition, and that the triage or screening waiting time does not exceed 30 minutes.
An insurer may provide or arrange for the provision of telephone triage or screening services through one or more of the following means: insurer-operated telephone triage or screening services, telephone medical advice services pursuant to Section 10279, the insurer’s contracted primary care and mental health care or substance use disorder provider network, or other method that provides triage or screening services consistent with this section.
An insurer that arranges for the provision of telephone triage or screening services through contracted primary care and mental health care and substance use disorder providers shall require those providers to maintain a procedure for triaging or screening insured telephone calls, which, at a minimum, shall include the employment, during and after business hours, of a telephone answering machine, an answering service, or office staff, that shall inform the caller of both of the following:
Regarding the length of wait for a return call from the provider.
(II) How the caller may obtain urgent or emergency care, including, if applicable, how to contact another provider who has agreed to be on call to triage or screen by phone, or if needed, deliver urgent or emergency care.
An insurer that arranges for the provision of triage or screening services through contracted primary care and mental health care and substance use disorder providers who are unable to meet the time-elapsed standards established in subparagraph (A) shall also provide or arrange for the provision of insurer-contracted or operated triage or screening services, which shall, at a minimum, be made available to insureds affected by that portion of the insurer’s network.
An unlicensed staff person handling insured calls may ask questions on behalf of a licensed staff person to help ascertain the condition of an insured so that the insured may be referred to licensed staff. However, an unlicensed staff person shall not, under any circumstances, use the answers to those questions in an attempt to assess, evaluate, advise, or make a decision regarding the condition of an insured or determine when an insured needs to be seen by a licensed medical professional.
A health insurance policy providing coverage for the pediatric oral and vision essential health benefit, and a specialized health insurance policy that provides coverage for dental care expenses only, shall require that contracted providers employ an answering service or a telephone answering machine during nonbusiness hours, which provides instructions regarding how an insured may obtain urgent or emergency care, including, if applicable, how to contact another provider who has agreed to be on call to triage or screen by phone, or if needed, deliver urgent or emergency care.
An insurer shall ensure that, during normal business hours, the waiting time for an insured to speak by telephone with an insurer customer service representative knowledgeable and competent regarding the insured’s questions and concerns shall not exceed 10 minutes, or that the covered person will receive a scheduled call-back within 30 minutes.
Notwithstanding subdivision (b), a specialized health insurance policy, as defined in subdivision (c) of Section 106, other than a specialized mental health insurance policy, is exempt from this section, except as specified in this subdivision. A specialized health insurance policy that provides coverage for dental care expenses only shall comply with paragraphs (1), (3), (4), (6), (7), (9), and (10) of subdivision (b).
An insurer shall incorporate the standards set forth in the insurer’s quality assurance systems and processes, as set forth in subdivision (b), and the processes as set forth in Title 10 of the California Code of Regulations, including Sections 2240.1, 2240.15, and 2240.16. An insurer shall not prevent, discourage, or discipline a contracting provider or employee for informing an insured or policyholder about the timely access standards.
For purposes of this section:
“Appointment waiting time” means the time from the initial request for health care services by an insured or the insured’s treating provider to the earliest date offered for the appointment for services inclusive of time for obtaining authorization from the insurer or completing any other condition or requirement of the insurer or its contracting providers.
“Preventive care” means health care provided for prevention and early detection of disease, illness, injury, or other health condition and includes, but is not limited to, all of the services required by all of the following laws:
Section 146.130 of Title 45 of the Code of Federal Regulations.
Clause (ii) of subparagraph (A) of paragraph (2) of subdivision (a) of Section 10112.27.
“Provider group” has the meaning set forth in subdivision (v) of Section 10133.15.
“Triage” or “screening” means the assessment of an insured’s health concerns and symptoms via communication with a physician, registered nurse, or other qualified health professional acting within their scope of practice and who is trained to screen or triage an insured who may need care for the purpose of determining the urgency of the insured’s need for care.
“Triage or screening waiting time” means the time waiting to speak by telephone with a physician, registered nurse, or other qualified health professional acting within their scope of practice and who is trained to screen or triage an insured who may need care.
“Urgent care” means health care for a condition which requires prompt attention, consistent with paragraph (2) of subdivision (h) of Section 10123.135.
The department may issue guidance to insurers regarding annual timely access and network reporting methodologies. The development and adoption of these methodologies shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) until December 31, 2025.
Notwithstanding paragraph (1), the department may take compliance or disciplinary action, including imposition of administrative penalties, on the basis of noncompliance with any of the provisions of this section, including, but not limited to, timeframes for appointments and followup appointments.
The department may review and adopt standards, in addition to those specified in this article, concerning the availability of primary care physicians, specialty physicians, hospital care, and other health care, so that consumers have timely access to care. In so doing, the department shall consider the nature of physician practices, including individual and group practices, as well as the nature of the network. The department shall also consider various circumstances affecting the delivery of care, including urgent care, care provided on the same day, and requests for specific providers. If the department finds that insurers and health care providers have difficulty meeting these standards, the department may make recommendations to the Assembly Committee on Health and the Senate Committee on Health. The development and adoption of standards under this paragraph shall not be subject to the Administrative Procedure Act until December 31, 2028. The department shall consult with stakeholders in developing the standards and methodologies described in this section.
Nothing in this section shall be construed to prevent the department from developing additional standards to improve timely access to care and network adequacy.
Except as provided in paragraph (2), every disability insurer covering hospital, medical, and surgical expenses on a group basis that contracts with providers for alternative rates pursuant to Section 10133 and limits payments under those policies to services secured by insureds and subscribers from providers charging alternative rates pursuant to these contracts, shall file with the Department of Insurance, a written policy describing how the insurer shall facilitate the continuity of care for new insureds or enrollees receiving services during a current episode of care for an acute condition from a noncontracting provider. This written policy shall describe the process used to facilitate continuity of care, including the assumption of care by a contracting provider.
On or before July 1, 2002, every disability insurer covering hospital, medical, and surgical expenses on a group basis that contracts with providers for alternative rates pursuant to Section 10133 and limits payments under those policies to services secured by insureds and subscribers from providers charging alternative rates pursuant to these contracts, shall file with the department a written policy describing how the insurer shall facilitate the continuity of care for new enrollees who have been receiving services for an acute, serious, or chronic mental health condition from a nonparticipating mental health provider when the enrollee’s employer has changed policies. Every written policy shall allow the new enrollee a reasonable transition period to continue his or her course of treatment with the nonparticipating mental health provider prior to transferring to another participating provider and shall include the provision of mental health services on a timely, appropriate, and medically necessary basis from the nonparticipating provider. The policy may provide that the length of the transition period take into account the severity of the enrollee’s condition and the amount of time reasonably necessary to effect a safe transfer on a case-by-case basis. Nothing in this paragraph shall be construed to require the insurer to accept a nonparticipating mental health provider onto its panel for treatment of other enrollees. For purposes of the continuing treatment of the transferring enrollee, the insurer may require the nonparticipating mental health provider, as a condition of the right conferred under this section, to enter into the standard mental health provider contract.
Notice of the policy and information regarding how enrollees may request a review under the policy shall be provided to all new enrollees, except those enrollees who are not eligible as described in subdivision (e). A copy of the written policy shall be provided to eligible enrollees upon request. The written policy required to be filed under subdivision (a) shall describe how requests to continue services with an existing noncontracting provider are reviewed by the insurer. The policy shall ensure that reasonable consideration is given to the potential clinical effect that a change of provider would have on the insured’s or subscriber’s treatment for the acute condition.
An insurer may require any nonparticipating provider whose services are continued pursuant to the written policy to agree in writing to meet the same contractual terms and conditions that are imposed upon the insurer’s participating providers, including location within the service area, reimbursement methodologies, and rates of payment. If the insurer determines that a patient’s health care treatment should temporarily continue with the patient’s existing provider or nonparticipating mental health provider, the insurer shall not be liable for actions resulting solely from the negligence, malpractice, or other tortious or wrongful acts arising out of the provision of services by the existing provider or nonparticipating mental health provider.
Nothing in this section shall require an insurer to cover services or provide benefits that are not otherwise covered under the terms and conditions of the policy contract.
The written policy shall not apply to any insured or subscriber who is offered an out-of-network option, or who had the option to continue with his or her previous health benefits carrier or provider and instead voluntarily chose to change.
This section shall not apply to insurer contracts that include out-of-network coverage under which the insured or subscriber is able to obtain services from the insured’s or subscriber’s existing provider or nonparticipating mental health provider.
For purposes of this section, “provider” refers to a person who is described in subdivision (f) of Section 900 of the Business and Professions Code.
For purposes of this section, “nonparticipating mental health provider” refers to a psychiatrist, licensed psychologist, licensed marriage and family therapist, licensed clinical social worker, or licensed professional clinical counselor who is not part of the insurer’s contracted provider network.
This section shall only apply to a group disability insurance policy if it provides coverage for hospital, medical, or surgical benefits.
A health insurer that enters into a contract with a professional or institutional provider to provide services at alternative rates of payment pursuant to Section 10133 shall, at the request of an insured, arrange for the completion of covered services by a terminated provider, if the insured is undergoing a course of treatment for any of the following conditions:
An acute condition. An acute condition is a medical condition that involves a sudden onset of symptoms due to an illness, injury, or other medical problem that requires prompt medical attention and that has a limited duration. Completion of covered services shall be provided for the duration of the acute condition.
A serious chronic condition. A serious chronic condition is a medical condition due to a disease, illness, or other medical problem or medical disorder that is serious in nature and that persists without full cure or worsens over an extended period of time or requires ongoing treatment to maintain remission or prevent deterioration. Completion of covered services shall be provided for a period of time necessary to complete a course of treatment and to arrange for a safe transfer to another provider, as determined by the health insurer in consultation with the insured and the terminated provider and consistent with good professional practice.
Completion of covered services under clause (i) shall not exceed 12 months from the contract termination date or 12 months from the effective date of coverage for a newly covered insured.
A pregnancy. A pregnancy is the three trimesters of pregnancy and the immediate postpartum period. Completion of covered services shall be provided for the duration of the pregnancy.
For purposes of an individual who presents written documentation of being diagnosed with a maternal mental health condition from the individual’s treating health care provider, completion of covered services for the maternal mental health condition shall not exceed 12 months from the diagnosis or from the end of pregnancy, whichever occurs later.
A terminal illness. A terminal illness is an incurable or irreversible condition that has a high probability of causing death within one year or less. Completion of covered services shall be provided for the duration of a terminal illness, which may exceed 12 months from the contract termination date or 12 months from the effective date of coverage for a new insured.
The care of a newborn child between birth and age 36 months. Completion of covered services under this paragraph shall not exceed 12 months from the contract termination date or 12 months from the effective date of coverage for a newly covered insured.
Performance of a surgery or other procedure that has been recommended and documented by the provider to occur within 180 days of the contract’s termination date or within 180 days of the effective date of coverage for a newly covered insured.
The insurer may require the terminated provider whose services are continued beyond the contract termination date pursuant to this subdivision, to agree in writing to be subject to the same contractual terms and conditions that were imposed upon the provider prior to termination, including, but not limited to, credentialing, hospital privileging, utilization review, peer review, and quality assurance requirements. If the terminated provider does not agree to comply or does not comply with these contractual terms and conditions, the insurer is not required to continue the provider’s services beyond the contract termination date.
Unless otherwise agreed upon between the terminated provider and the insurer or between the terminated provider and the provider group, the agreement shall be construed to require a rate and method of payment to the terminated provider, for the services rendered pursuant to this subdivision, that are the same as the rate and method of payment for the same services while under contract with the insurer and at the time of termination. The provider shall accept the reimbursement as payment in full and shall not bill the insured for any amount in excess of the reimbursement rate, with the exception of copayments and deductibles pursuant to subdivision (c).
Notice as to the process by which an insured may request completion of covered services pursuant to this section shall be provided in any insurer evidence of coverage and disclosure form issued after March 31, 2004. An insurer shall provide a written copy of this information to its contracting providers and provider groups. An insurer shall also provide a copy to its insureds upon request. Notice as to the availability of the right to request completion of covered services shall be part of, accompany, or be sent simultaneously with any termination of coverage notice sent in the circumstances described in subdivision (i).
The payment of copayments, deductibles, or other cost-sharing components by the insured during the period of completion of covered services with a terminated provider pursuant to subdivision (a) or a nonparticipating provider pursuant to subdivision (i) shall be the same copayments, deductibles, or other cost-sharing components that would be paid by the insured when receiving care from a provider currently contracting with the insurer.
If an insurer delegates the responsibility of complying with this section to its contracting entities, the insurer shall ensure that the requirements of this section are met.
For the purposes of this section, the following terms have the following meanings:
“Provider” means a person who is a licentiate as defined in Section 805 of the Business and Professions Code or a person licensed under Chapter 2 (commencing with Section 1000) of Division 2 of the Business and Professions Code.
“Provider group” includes a medical group, independent practice association, or any other similar organization.
“Nonparticipating provider” means a provider who is not contracted with the insured’s health insurer to provide services under the insured’s policy. A nonparticipating provider does not include a terminated provider.
“Terminated provider” means a provider whose contract to provide services to insureds is terminated or not renewed by the insurer or one of the insurer’s contracting provider groups. A terminated provider is not a provider who voluntarily leaves the insurer or contracting provider group.
“Maternal mental health condition” means a mental health condition that can impact a woman during pregnancy, peri or postpartum, or that arises during pregnancy, in the peri or postpartum period, up to one year after delivery.
This section does not require an insurer or provider group to provide for the completion of covered services by a provider whose contract with the insurer or provider group has been terminated or not renewed for reasons relating to medical disciplinary cause or reason, as defined in paragraph (6) of subdivision (a) of Section 805 of the Business and Professions Code, or fraud or other criminal activity.
This section does not require an insurer to cover services or provide benefits that are not otherwise covered under the terms and conditions of the insurer contract.
The provisions contained in this section are in addition to any other responsibilities of insurers to provide continuity of care pursuant to this chapter. This section does not preclude an insurer from providing continuity of care beyond the requirements of this section.
A health insurer shall, at the request of a newly covered insured under an individual insurance policy, arrange for the completion of covered services as set forth in this section by a nonparticipating provider for one of the conditions described in subdivision (a) if the newly covered insured meets both of the following:
At the time the insured’s coverage became effective, the newly covered insured was receiving services from that provider for one of the conditions described in subdivision (a).
The completion of covered services required to be provided under this subdivision shall apply to services rendered to the newly covered insured on and after the effective date of their new coverage.
The insurer may require a nonparticipating provider whose services are continued pursuant to this subdivision for a newly covered insured to agree in writing to be subject to the same contractual terms and conditions that are imposed upon currently participating providers providing similar services who are practicing in the same or a similar geographic area as the nonparticipating provider, including, but not limited to, credentialing, hospital privileging, utilization review, peer review, and quality assurance requirements. If the nonparticipating provider does not agree to comply or does not comply with these contractual terms and conditions, the insurer is not required to continue the provider’s services.
Unless otherwise agreed upon by the nonparticipating provider and the insurer, the services rendered pursuant to this subdivision shall be compensated at rates and methods of payment similar to those used by the insurer for currently participating providers providing similar services who are practicing in the same or a similar geographic area as the nonparticipating provider. Neither the insurer nor the provider group is required to continue the services of a nonparticipating provider if the provider does not accept the payment rates provided for in this paragraph. The provider who agrees to provide services pursuant to this subdivision shall accept the reimbursement as payment in full and shall not bill the insured for any amount in excess of the reimbursement rate, with the exception of copayments and deductibles pursuant to subdivision (c).
A provider’s agreement to contractual terms and conditions and acceptance of payment rates to provide the completion of covered services to an insured pursuant to this subdivision shall not be construed as an agreement to contractual terms and conditions or acceptance of payment rates for any other insureds or for any services other than covered services pursuant to this subdivision, nor shall it be construed as agreement to any other contract.
It is the intent of the Legislature to ensure that the citizens of this state receive high-quality health care coverage in the most efficient and cost-effective manner possible. In furtherance of this intent, the Legislature finds and declares that it is in the public interest to promote various types of contracts between public or private payers of health care coverage, and institutional or professional providers of health care services. This intent has been demonstrated by the recent enactment of Chapters 328, 329, and 1594 of the Statutes of 1982 authorizing various types of contracts to be entered into between public or private payers of health care coverage, and institutional or professional providers of health care services. The Legislature further finds and declares that individual providers, whether institutional or professional and individual purchasers, have not proven to be efficient-sized bargaining units for these contracts, and that the formation of groups and combinations of institutional and professional providers and purchasing groups for the purpose of creating efficient-sized contracting units represents a meaningful addition to the health care marketplace. The Legislature further finds and declares that the public interest in ensuring that citizens of this state receive high-quality health care coverage in the most efficient and cost-effective manner possible is furthered by permitting negotiations for alternative rate contracts between purchasers and payers and both institutional and professional providers, or through a person or entity acting for, or on behalf of, a health insurer or an institutional or professional provider, pursuant to Sections 10133 and 11512. It is the intent of the Legislature, therefore, that the formation of groups and combinations of purchasers, payers, and institutional and professional providers of health care services for the purpose of creating efficient-sized contracting units be recognized as the creation of a new product within the health care marketplace, and be subject, therefore, only to those antitrust prohibitions applicable to the conduct of other presumptively legitimate enterprises.
This section does not change existing antitrust law as it relates to any agreement or arrangement to exclude from any of the above-described groups or combinations, any person who is lawfully qualified to perform the services to be performed by the members of the group or combination, where the ground for the exclusion is failure to possess the same license or certification as is possessed by the members of the group or combination.
A contract issued, amended, renewed, or delivered on or after January 1, 2015, by or on behalf of a health insurer and a provider or supplier shall not contain any provision that restricts the ability of the health insurer to furnish consumers or purchasers information concerning any of the following:
The cost range of a procedure or a full course of treatment, including, but not limited to, facility, professional, and diagnostic services, prescription drugs, durable medical equipment, and other items and services related to the treatment.
The quality of services performed by the provider or supplier.
Any contractual provision inconsistent with this section shall be void and unenforceable.
A health insurer shall provide the provider or supplier an advance opportunity of 30 days to review the methodology and data developed and compiled by the health insurer, and used pursuant to subdivision (a), before cost or quality information is provided to consumers or purchasers, including material revisions or additions of new information. At the time the health insurer provides a provider or supplier with the opportunity to review the methodology and data, it shall also notify the provider or supplier in writing of their opportunity to provide an Internet Web site link pursuant to subdivision (f).
If the information proposed to be furnished to policyholders and insureds on the quality of services performed by a provider or supplier is data that the insurer has developed and compiled, the insurer shall utilize appropriate risk adjustment factors to account for different characteristics of the population, such as case mix, severity of patient’s condition, comorbidities, outlier episodes, and other factors to account for differences in the use of health care resources among providers and suppliers.
Any Internet Web site owned or controlled by a health insurer, or operated by another person or entity under contract with or on behalf of a health insurer, that displays the information developed and compiled by the health insurer as referenced by this section shall prominently post the following statement:
“Individual health care facilities or providers may disagree with the methodology used to define the cost ranges, the cost data, or quality measures. Many factors may influence cost or quality, including, but not limited to, the cost of uninsured and charity care, the type and severity of procedures, the case mix of a facility, special services such as trauma centers, burn units, medical and other educational programs, research, transplant services, technology, payer mix, and other factors affecting individual health care facilities and providers.”
A health insurer and a provider or supplier shall not be precluded from mutually agreeing in writing to an alternative method of conveying this statement.
If a provider or supplier chooses to provide an Internet Web site link where a response to the health insurer’s posting may be found, it shall do so in a timely manner in order to satisfy the requirements of this section. If a provider or supplier chooses to provide a response, an insurer shall post, in an easily identified manner, a prominent link to the provider’s or supplier’s Internet Web site where a response to the health insurer’s posting may be found. A health insurer and a provider or supplier shall not be precluded from mutually agreeing in writing to an alternative method to convey a provider’s or supplier’s response.
For the purposes of this section, the following definitions shall apply:
“Consumers” means policyholders or insureds of the health insurer or beneficiaries of a self-funded health coverage arrangement administered by the health insurer or other persons entitled to access services through a network established by the health insurer.
“Provider” has the same meaning as that term is defined in Section 10117.52.
“Purchasers” means the sponsors of a self-funded health coverage arrangement administered by the health insurer.
“Supplier” has the same meaning as that term is defined in Section 10117.52.
A contract between a health insurer and a provider of health care services shall not contain any term that would result in termination or nonrenewal of the contract or otherwise penalize the provider, based solely on either of the following:
A civil judgment issued in another state, a criminal conviction in another state, or another professional disciplinary action in another state, if the judgment, conviction, or professional disciplinary action is based solely on the application of another state’s law that interferes with a person’s right to receive care that would be lawful if provided in this state.
The manufacture, transport, distribution, delivery, receipt, acquisition, sale, possession, furnishment, dispensation, repackaging, or storage of brand name or generic mifepristone or any drug used for medication abortion that is lawful under the laws of the state.
A health insurer shall not discriminate, with respect to the provision of, or contracts for, professional services, against a licensed provider solely on the basis of either of the following:
A civil judgment issued in another state, a criminal conviction in another state, or another professional disciplinary action in another state if the judgment, conviction, or professional disciplinary action is based solely on the application of another state’s law that interferes with a person’s right to receive care that would be lawful if provided in this state.
The manufacture, transport, distribution, delivery, receipt, acquisition, sale, possession, furnishment, dispensation, repackaging, or storage of brand name or generic mifepristone or any drug used for medication abortion that is lawful under the laws of the state.
This section does not apply to a civil judgment, a criminal conviction, or a disciplinary action imposed in another state based upon conduct that would subject a provider to claim, charge, or action under the laws of this state.
The commissioner may enforce this section pursuant to Chapter 4.5 (commencing with Section 11400) or Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. This subdivision does not impair or restrict the commissioner’s enforcement authority pursuant to another provision of this code or the Administrative Procedure Act.
This section shall be known and may be cited as the Health Care Providers’ Bill of Rights.
No contract issued, amended, or renewed on or after January 1, 2003, between a health insurer and a health care provider for the provision of covered benefits at alternative rates of payment to an insured shall contain any of the following terms:
A provision that requires a health care provider to accept additional patients beyond the contracted number or in the absence of a number if, in the reasonable professional judgment of the provider, accepting additional patients would endanger patients’ access to, or continuity of, care.
A requirement to comply with quality improvement or utilization management programs or procedures of a health insurer, unless the requirement is fully disclosed to the health care provider at least 15 business days prior to the provider executing the contract. However, the health insurer may make a change to the quality improvement or utilization management programs or procedures at any time if the change is necessary to comply with state or federal law or regulations or any accreditation requirements of a private sector accreditation organization. A change to the quality improvement or utilization management programs or procedures shall be made pursuant to subdivision (c).
A provision that waives or conflicts with any provision of the Insurance Code.
A requirement to permit access to patient information in violation of federal or state laws concerning the confidentiality of patient information.
If a contract is with a health insurer that negotiates and arranges for alternative rates of payment with the provider to provide benefits to insureds, the contract may contain provisions permitting a material change to the contract by the health insurer if the health insurer provides at least 45 business days’ notice to the provider of the change, and the provider has the right to terminate the contract prior to implementation of the change.
With respect to a health insurance policy covering dental services or a specialized health insurance policy covering dental services, all of the following shall apply:
Any contract provision that violates subdivision (b), (c), or (d) shall be void, unlawful, and unenforceable.
The Department of Insurance shall annually compile all provider complaints that it receives under this section, and shall report to the Legislature and the Governor the number and nature of those complaints by March 15 of each calendar year.
Nothing in this section shall be construed or applied as setting the rate of payment to be included in contracts between health insurers and health care providers.
For purposes of this section, the following definitions apply:
“Health care provider” means any professional person, medical group, independent practice association, organization, health facility, or other person or institution licensed or authorized by the state to deliver or furnish health care services.
“Health insurer” means any admitted insurer writing health insurance, as defined in Section 106, that enters into a contract with a provider to provide covered benefits at alternative rates of payment.
“Material” means a provision in a contract to which a reasonable person would attach importance in determining the action to be taken upon the provision.
A health insurer shall comply with all the following:
Deadlines shall not be imposed for the receipt of a claim from a professional provider who submits a claim on behalf of an insured or pursuant to a professional provider’s contract with a health insurer that is less than 90 days for contracted providers and 180 days for noncontracted providers after the date of service, except as required by any state or federal law or regulation. If a health insurer is not the primary payor under coordination of benefits, the insurer shall not impose a deadline for submitting supplemental or coordination of benefits claims to any secondary payor that is less than 90 days from the date of payment or date of contest, denial, or notice from the primary payor. A health insurer that denies a claim because it was filed beyond the claim filing deadline shall, upon provider’s demonstration of good cause for the delay, accept and adjudicate the claim according to Section 10123.13 or 10123.147, whichever is applicable. This subdivision shall not alter or affect any rights providers may have under any applicable statute of limitations or antiforfeiture provisions available under the laws of the State of California.
Reimbursement requests for the overpayment of a claim shall not be made, including requests made pursuant to Section 10123.145, unless a written request for reimbursement is sent to the provider within 365 days of the date of payment on the overpaid claim. The written notice shall clearly identify the claim, the name of the patient, and the date of service, and shall include a clear explanation of the basis upon which it is believed the amount paid on the claim was in excess of the amount due, including interest and penalties on the claim. The 365-day time limit shall not apply if the overpayment was caused in whole or in part by fraud or misrepresentation on the part of the provider.
The receipt of each claim shall be identified and acknowledged, whether or not complete, and the recorded date of receipt shall be disclosed in the same manner as the claim was submitted or provided through an electronic means, by telephone, Web site, or another mutually agreeable accessible method of notification, by which the provider may readily confirm the insurer’s receipt of the claim and the recorded date of receipt within 15 working days of the date of receipt of the claim by the office designated to receive the claim.
If a claimant submits a claim to a health insurer using a claims clearinghouse, its identification and acknowledgment to the clearinghouse within the timeframes set forth above shall constitute compliance with this section.
Beginning July 1, 2006, prior to contracting, annually thereafter on or before the contract anniversary date, and in addition, upon the contracted provider’s written request, the health insurer shall disclose to contracting providers all of the following information in an electronic format:
The amount of payment for each service to be provided under the contract, including any fee schedules or other factors or units used in determining the fees for each service. To the extent that reimbursement is made pursuant to a specified fee schedule, the contract shall incorporate that fee schedule by reference, including the year of the schedule. For any proprietary fee schedule, the contract shall include sufficient detail that payment amounts related to that fee schedule can be accurately predicted.
The detailed payment policies and rules and nonstandard coding methodologies used to adjudicate claims, that shall, unless otherwise prohibited by state law do all of the following:
When available, be consistent with Current Procedural Terminology (CPT), and standards accepted by nationally recognized medical societies and organizations, federal regulatory bodies, and major credentialing organizations.
Clearly and accurately state what is covered by any global payment provisions for both professional and institutional services, any global payment provisions for all services necessary as part of a course of treatment in an institutional setting, and any other global arrangements such as per diem hospital payments.
At a minimum, clearly and accurately state the policies regarding all of the following:
Consolidation of multiple services or charges, and payment adjustments due to coding changes.
Reimbursement for multiple procedures.
Reimbursement for assistant surgeons.
Reimbursement for the administration of immunizations and injectable medications.
Recognition of CPT modifiers.
The information disclosures required by this section shall be in sufficient detail and in an understandable format that does not disclose proprietary trade secret information or violate copyright law or patented processes, so that a reasonable person with sufficient training, experience, and competence in claims processing can determine the payment to be made according to the terms of the contract.
A health insurer may disclose the fee schedules mandated by this section through the use of a Web site so long as it provides written notice to the contracted provider at least 45 days prior to implementing a Web site transmission format or posting any changes to the information on the Web site.
On or before July 1, 2006, the commissioner, pursuant to his or her authority under Section 12921.1, shall also complete all of the following duties:
Provide announcements that inform health insurance consumers and their health care providers of the department’s toll-free telephone number that is dedicated to the handling of complaints and of the availability of the Internet Web page established under this section, and the process to register a complaint with the department and to submit an inquiry to it.
Establish an Internet Web page located on the department’s public Internet Web site dedicated exclusively to processing complaints and inquiries relating to health insurance issues from insureds and their health care providers. The Web page shall provide insureds and their health care providers with information concerning filing a complaint and making an inquiry concerning a health insurer and, at a minimum, shall provide the following information:
The department’s toll-free telephone number.
A list of all health insurers licensed by the department.
Educational and informational guides for health insurance consumers and health care providers describing their rights under this code. The guides shall be easy to read and understand and shall be made available to the public, including access on the department’s Internet Web site.
A separate, standardized complaint form for health care providers to file a complaint.
An insured or health care provider may file a written complaint with the department with respect to the handling of a claim or other obligation under a health insurance policy by a health insurer or production agency, or with respect to the alleged misconduct by a health insurer or production agency. The commissioner shall notify the complainant of the receipt of the complaint within 10 business days of its receipt. The commissioner shall make a determination on the complaint within 60 calendar days of the date of its receipt, unless the commissioner, in his or her discretion, determines that additional time is reasonably necessary to fully and fairly evaluate the complaint. The commissioner shall notify the complainant of the final action taken on his or her complaint within 30 days of the final action. The notification shall include a summary explaining the commissioner’s reasons for the final action.
Pursuant to Section 12921, the commissioner may also agree to payment to a health care provider who submitted a claim for health care benefits provided to an insured that are covered under the insured’s health insurance policy.
On and after January 1, 1994, any disability insurer shall pay group insurance benefits contingent upon, or for expenses incurred on account of, hospitalization or medical or surgical aid to the person or persons having provided or having paid for the hospitalization or medical or surgical aid where that person has qualified for reimbursement by submitting the items and information specified in subdivisions (b) and (c). The amount of any such payment shall not exceed the amount of benefit provided by the policy with respect to the service or billing of the provider of aid, and the amount of payments shall not exceed the amount of expenses incurred on account of the hospitalization or medical or surgical aid. Payment so made shall discharge the insurer’s obligation with respect to the amount so paid.
The items which shall be submitted to the insurer for reimbursement pursuant to subdivision (a) are as follows:
Proof of payment of medical services and a provider’s itemized bill for service.
In the case where the insured does not reside with the person or persons seeking hospitalization or medical or surgical aid, either a copy of the judicial order requiring the insured to provide dependent coverage or a state approved form verifying the existence of a judicial order to be filed with the insurer on an annual basis.
In the case where the insured does not reside with the person or persons seeking hospitalization or medical or surgical aid, and the provider is seeking direct reimbursement, an itemized bill with the signature of the custodial parent or guardian certifying that services being billed for have been provided and, on an annual basis, either a copy of the judicial order requiring the insured to provide dependent coverage or a state approved form verifying the existence of a judicial order.
When seeking payment from an insurer, a person shall provide an insurer the items specified in subdivision (b) with the name and address of the person to be reimbursed, the name and policy number of the insured, the name of the individual for whom hospitalization or medical or surgical aid has been provided, and other necessary information directly related to coverage under the policy.
In the case of a Medi-Cal beneficiary, where the State Department of Health Services has paid for the hospitalization or medical or surgical aid, any disability insurer shall pay group insurance benefits to the State Department of Health Services for expenses contingent upon, or incurred on account of hospitalization or medical or surgical aid. Payment so made shall discharge the insurer’s obligation with respect to the amount so paid. The amount of any such payment shall not exceed the amount of benefit provided by the policy with respect to the service or billing of the provider of aid, and the amount of payments shall not exceed the amount of expenses incurred on account of hospitalization or medical or surgical aid.
The commissioner shall, on or before January 1, 2006, promulgate regulations applicable to all individual and group policies of health insurance establishing standards and requirements to provide insureds with appropriate access to translated materials and language assistance in obtaining covered benefits. A health insurer that participates in the Healthy Families Program may assess the Healthy Families Program enrollee population separately from the remainder of its population for purposes of subparagraph (A) of paragraph (3) of subdivision (b). An insurer that chooses to separate its Healthy Families Program enrollment from the remainder of its population shall treat the Healthy Families Program population separately for purposes of determining whether subparagraph (A) of paragraph (3) of subdivision (b) is applicable and shall also treat the Healthy Families Program population separately for purposes of applying the percentage and numerical thresholds in subparagraph (A) of paragraph (3) of subdivision (b).
The regulations described in subdivision (a) shall include the following:
A requirement to conduct an assessment of the needs of the insured group, pursuant to this subdivision.
Requirements for surveying the language preferences and assessment of linguistic needs of insureds within one year of the effective date of the regulations that permit health insurers to utilize various survey methods, including, but not limited to, the use of existing enrollment and renewal processes, newsletters, or other mailings. Health insurers shall update the linguistic needs assessment, demographic profile, and language translation requirements every three years. However, the regulations may provide that the surveys and assessments by insurers of supplemental insurance products may be conducted less frequently than three years if the commissioner determines that the results are unlikely to affect the translation requirements.
Requirements for the translation of vital documents that include the following:
A requirement that all vital documents, as defined pursuant to subparagraph (B), be translated into an indicated language, as follows:
A health insurer with an insured population of 1,000,000 or more shall translate vital documents into the top two languages other than English as determined by the needs assessment pursuant to paragraph (2) and any additional languages when 0.75 percent or 15,000 of the insured population, whichever number is less, indicates in the needs assessment pursuant to paragraph (2) a preference for written materials in that language.
A health insurer with an insured population of 300,000 or more but less than 1,000,000 shall translate vital documents into the top one language other than English as determined by the needs assessment pursuant to paragraph (2) and any additional languages when 1 percent or 6,000 of the insured population, whichever number is less, indicates in the needs assessment pursuant to paragraph (2) a preference for written materials in that language.
A health insurer with an insured population of less than 300,000 shall translate vital documents into a language other than English when 3,000 or more or 5 percent of the insured population, whichever number is less, indicates in the needs assessment pursuant to paragraph (2) a preference for written materials in that language.
Specification of vital documents produced by the insurer that are required to be translated. The specification of vital documents shall not exceed that of the United States Department of Health and Human Services (HHS) Office for Civil Rights (OCR) Policy Guidance (65 Federal Register 52762 (August 30, 2000)), but shall include all of the following:
Applications.
Consent forms.
Letters containing important information regarding eligibility or participation criteria.
Notices pertaining to the denial, reduction, modification, or termination of services and benefits, the right to file a complaint or appeal.
Notices advising limited-English-proficient persons of the availability of free language assistance and other outreach materials that are provided to insureds.
Translated documents shall not include an insurer’s explanation of benefits or similar claim processing information that are sent to insureds unless the document requires a response by the insured.
For those documents described in subparagraph (B) that are not standardized but contain insured specific information, health insurers shall not be required to translate the documents into the threshold languages identified by the needs assessment pursuant to paragraph (2) but rather shall include with the document a written notice of the availability of interpretation services in the threshold languages identified by the needs assessment pursuant to paragraph (2). A health insurer subject to the requirements in Section 10133.11 shall also include with the documents a written notice of the availability of interpretation services in the top 15 languages spoken by limited-English-proficient (LEP) individuals in California as determined by the State Department of Health Care Services.
Upon request, the insured shall receive a written translation of those documents. The health insurer shall have up to, but not to exceed, 21 days to comply with the insured’s request for a written translation. If an enrollee requests a translated document, all timeframes and deadlines requirements related to the documents that apply to the health insurer and insureds under the provisions of this chapter and under any regulations adopted pursuant to this chapter shall begin to run upon the health insurer’s issuance of the translated document.
For appeals that require expedited review and response in accordance with the statutes and regulations of this chapter, the health insurer may satisfy this requirement by providing notice of the availability and access to oral interpretation services.
A requirement that health insurers advise limited-English-proficient insureds of the availability of interpreter services.
Standards to ensure the quality and accuracy of the written translation and that a translated document meets the same standards required for the English version of the document. The English language documents shall determine the rights and obligations of the parties, and the translated documents shall be admissible in evidence only if there is a dispute regarding a substantial difference in the material terms and conditions of the English language document and the translated document.
Requirements for individual access to interpretation services that include the following:
A requirement that an interpreter meets, at a minimum, all of the following qualifications:
Demonstrated proficiency in both English and the target language.
Knowledge in both English and the target language of health care terminology and concepts relevant to health care delivery systems.
Adheres to generally accepted interpreter ethics principles, including client confidentiality.
A requirement that the insured with limited English proficiency shall not be required to provide their own interpreter or rely on a staff member who does not meet the qualifications described in subparagraph (A) to communicate directly with the limited-English-proficient insured.
A requirement that the insured with limited English proficiency shall not be required to rely on an adult or minor child accompanying the insured to interpret or facilitate communication except under either of the following circumstances:
In an emergency, as described in Section 1317.1 of the Health and Safety Code, if a qualified interpreter is not immediately available for the insured with limited English proficiency.
If the individual with limited English proficiency specifically requests that the accompanying adult interpret or facilitate communication, the accompanying adult agrees to provide that assistance, and reliance on that accompanying adult for that assistance is appropriate under the circumstances.
Standards to ensure the quality and timeliness of oral interpretation services provided by health insurers.
In developing the regulations, standards, and requirements described in this section, the commissioner shall consider the following:
Information gathered from complaints to the commissioner and consumer assistance help lines regarding language assistance services.
The cost of compliance and the availability of translation and interpretation services and professionals.
Flexibility to accommodate variations in networks and method of service delivery. The commissioner shall allow for health insurer flexibility in determining compliance with the standards for oral and written interpretation services.
In designing the regulations, the commissioner shall consider all other relevant guidelines in an effort to accomplish maximum accessibility within a cost-efficient system of indemnification. The commissioner shall seek public input from a wide range of interested parties.
Services, verbal communications, and written materials provided by or developed by the health insurers that contract for alternative rates of payment with providers, shall comply with the standards developed under this section.
Beginning on January 1, 2008, the department shall report biennially to the Legislature regarding health insurer compliance with the standards established by this section, including results of compliance audits made in conjunction with other audits and reviews. The department shall also utilize the reported information to make recommendations for changes that further enhance standards pursuant to this section. The commissioner shall work to ensure that the biennial reports required by this section, and the data collected for the reports, do not require duplicative or conflicting data collection with other reports that may be required by government-sponsored programs. The commissioner may also delay or otherwise phase in implementation of the standards and requirements in recognition of costs and availability of translation and interpretation services and professionals.
This section does not prohibit government purchasers from including in their contracts additional translation or interpretation requirements, to meet the linguistic and cultural needs, beyond those set forth pursuant to this section.
Within a year after the health insurer’s assessment pursuant to paragraph (2) of subdivision (b) of Section 10133.8, health insurers shall report to the Department of Insurance on internal policies and procedures related to cultural appropriateness, in a format specified by the department, in the following ways:
Collection of data regarding the insured population based on the needs assessment as required by paragraph (2) of subdivision (b) of Section 10133.8.
Education of health insurer staff who have routine contact with insureds regarding the diverse needs of the insured population.
Recruitment and retention efforts that encourage workforce diversity.
Evaluation of the health insurer’s programs and services with respect to the insurer’s enrollee populations, using processes such as an analysis of complaints and satisfaction survey results.
The periodic provision of information regarding the ethnic diversity of the insurer’s insured population and any related strategies to insurers providers. Insurers may use existing means of communication.
The periodic provision of educational information to insureds on the insurer’s services and programs. Insurers may use existing means of communication.
An insurer that markets, advertises, or produces educational materials for a health insurance policy, as defined in Section 106, in the individual or small group health insurance markets, or allows any other person or business to market or advertise on its behalf in the individual or small group health insurance markets, in a non-English language that does not meet the requirements set forth in Sections 10133.8 and 10133.9, shall provide the following documents in the same non-English language:
Welcome letters or notices of initial coverage, if applicable.
Applications for health insurance and any information pertinent to eligibility or participation.
Notices advising limited-English-proficient persons of the availability of no-cost translation and interpretation services.
Notices pertaining to the right and instructions on how an insured may file a grievance.
The uniform summary of benefits and coverage required pursuant to paragraph (2) of subdivision (a) of Section 10603.
An insurer shall use trained and qualified translators for the translation of all marketing and advertising materials relating to health insurance products and for all of the documents specified in subdivision (a).
This section shall not apply to a specialized health insurance policy that does not offer an essential health benefit as defined in Section 10112.27.
An insurer shall notify insureds and members of the public of all of the following information:
The availability of language assistance services, including oral interpretation and translated written materials, free of charge and in a timely manner pursuant to Section 10133.8, and how to access these services. This information shall be available in the top 15 languages spoken by limited-English-proficient individuals in California as determined by the State Department of Health Care Services.
The availability of appropriate auxiliary aids and services, including qualified interpreters for individuals with disabilities and information in alternate formats, free of charge and in a timely manner, when those aids and services are necessary to ensure an equal opportunity to participate for individuals with disabilities.
An insurer does not discriminate on the basis of race, color, national origin, ancestry, religion, sex, marital status, gender, gender identity, sexual orientation, age, or disability.
How to file a complaint, including the name of the health insurer representative and the telephone number, address, and email address of the health insurer representative who may be contacted about the complaint, and how to submit the complaint to the department for review.
How to file a discrimination complaint with the United States Department of Health and Human Services Office for Civil Rights if there is a concern of discrimination based on race, color, national origin, age, disability, or sex.
The information required to be provided pursuant to this section shall be provided to an insured with individual coverage upon initial enrollment and annually thereafter upon renewal, and to insureds with group coverage upon initial enrollment and annually thereafter upon renewal. An insurer may include this information with other materials sent to the insured. The information shall also be provided in the following manner:
In a conspicuously visible location in the evidence of coverage.
At least annually, in or with newsletters, outreach, or other materials that are routinely disseminated to the health insurer’s insureds.
On the Internet Web site published and maintained by the health insurer, in a manner that allows insureds, prospective insureds, and members of the public to easily locate the information.
Commencing January 1, 2027, or when final federal rules are implemented, whichever occurs later, the department shall require a health insurer to establish and maintain the following application programming interfaces (API) for the benefit of all insureds and contracted providers, as applicable:
Patient access API.
Provider access API.
Payer-to-payer API.
Prior authorization API.
API described in subdivision (a) shall be in accordance with standards published in a final rule issued by the federal Centers for Medicare and Medicaid Services and published in the Federal Register, and shall align with federal effective dates, including enforcement delays and suspensions, issued by the federal Centers for Medicare and Medicaid Services.
Until January 1, 2027, the commissioner may issue guidance to health insurers regarding compliance with this section and that guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
This section does not limit existing requirements under this chapter, including, but not limited to, Section 10133.15.
Within six months after the department issues guidance pursuant to paragraph (1) of subdivision (d), and no later than March 1, 2025, a health insurer that issues, sells, renews, or offers health insurance policies for health care coverage in this state, including a grandfathered health insurance policy, but not including specialized health insurance policies that provide only dental or vision services, shall require all of its health insurer staff who are in direct contact with insureds in the delivery of care or insured services to complete evidence-based cultural competency training for the purpose of providing trans-inclusive health care for individuals who identify as transgender, gender diverse, or intersex (TGI).
An evidence-based cultural competency training implemented pursuant to paragraph (1) shall include all of the following:
Information about the effects, including, but not limited to, ongoing personal effects, of historical and contemporary exclusion and oppression of TGI communities.
Information about communicating more effectively across gender identities, including TGI-inclusive terminology, using people’s correct names and pronouns, even when they are not reflected in records or legal documents; avoiding language, whether verbal or nonverbal, that demeans, ridicules, or condemns TGI individuals; and avoiding making assumptions about gender identity by using gender-neutral language and avoiding language that presumes all individuals are heterosexual, cisgender or gender conforming, or nonintersex.
Discussion on health inequities within the TGI community, including family and community acceptance.
Perspectives of diverse, local constituency groups and TGI-serving organizations, including, but not limited to, the California Transgender Advisory Council.
Recognition of the difference between personal values and professional responsibilities with regard to serving TGI people.
Facilitation by TGI-serving organizations.
Use of any training curricula for purposes of implementing paragraph (1) shall be subject to approval by the department, following stakeholder engagement with local constituency groups and TGI-serving organizations, including, but not limited to, the California Transgender Advisory Council.
After first-time completion of the evidence-based cultural competency training, in the form of initial basic training, an individual described in paragraph (1) shall complete a refresher course if a complaint has been filed, and a decision has been made in favor of the complainant, against that individual for not providing trans-inclusive health care, or on a more frequent basis if deemed necessary by the health insurer or the department for purposes of providing trans-inclusive health care.
No later than September 1, 2024, the department shall develop and implement procedures, and may impose sanctions pursuant to any applicable enforcement provisions, to ensure that a health insurer is compliant with the requirements described in subdivision (a).
Within six months after the department issues guidance pursuant to paragraph (1) of subdivision (d), the department shall track and monitor complaints received by the department related to trans-inclusive health care and publicly report this data with other complaint data on its website or with other public reports containing complaint data.
For purposes of this section, the following definitions apply:
“Trans-inclusive health care” means comprehensive health care that is consistent with the standards of care for individuals who identify as TGI, honors an individual’s personal bodily autonomy, does not make assumptions about an individual’s gender, accepts gender fluidity and nontraditional gender presentation, and treats everyone with compassion, understanding, and respect.
If a health insurer delegates duties under this section to a contracted entity, including, but not limited to, a medical group or independent practice association, then the entity to which those duties are delegated shall comply with this section.
The commissioner may take enforcement action, including, but not limited to, imposing penalties for noncompliance with the requirements of this section or regulations promulgated thereunder. If the commissioner determines that a health insurer, or an entity contracted with the health insurer, has violated this section, the commissioner may, after appropriate notice and opportunity for hearing in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), by order, assess a civil penalty not to exceed five thousand dollars ($5,000) for each violation, or if a violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
No later than March 1, 2025, a health insurer subject to Section 10133.13 shall include information within or accessible from the insurer’s provider directory, and accessible through the insurer’s call center, that identifies which of an insurer’s in-network providers have affirmed that they offer and have provided gender-affirming services, including, but not limited to, feminizing mammoplasty, male chest reconstruction, mastectomy, gender-confirming facial surgery, hysterectomy, oophorectomy, penectomy, orchiectomy, feminizing genitoplasty, metoidioplasty, phalloplasty, scrotoplasty, voice masculinization or feminization, hormone therapy related to gender dysphoria or intersex conditions, gender-affirming gynecological care, or voice therapy related to gender dysphoria or intersex conditions. This information shall be updated when an in-network provider requests its inclusion or exclusion as a provider that offers and provides gender-affirming services. Nothing in this act alters any business establishment’s obligation to provide full and equal services to customers or patients regardless of their sex and other protected characteristics, pursuant to the Unruh Civil Rights Act (Section 51 of the Civil Code) and other applicable law.
ARTICLE 2.3. Transfers of Structured Settlement Payment Rights [10134. - 10139.5.]
For the purposes of this article, the following terms have the following meanings:
“Buyer’s first right of refusal” means any provision in the transfer agreement or related documents that obligate the payee to give to the buyer the first choice or option to purchase any remaining structured settlement rights belonging to the payee.
“Dependents” include the payee’s spouse and minor children and all other family members and other persons for whom the payee is legally obligated to provide support, including alimony.
“Discounted present value” means the fair present value of future payments, as determined by discounting those payments to the present using the most recently published applicable federal rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service.
“Effective equivalent interest rate,” with respect to a transfer of structured settlement payment rights, means the annualized rate of interest on the net advance amount, calculated by treating the transferred structured settlement payments as if they were installment payments on a loan, with each payment applied first to accrued unpaid interest and then to principal.
“Expenses” means all broker’s commissions, service charges, application or processing fees, closing costs, filing or administrative charges, legal fees, notary fees and other commissions, fees, costs, and charges that a payee would have to pay to transfer the structured settlement payment rights of a structured settlement agreement or that would be deducted from the gross consideration that would be paid to the payee in connection with the transfer of the structured settlement payment rights of a structured settlement agreement.
“Independent professional advice” means advice of an attorney, certified public accountant, actuary, or other licensed professional adviser meeting all of the following requirements:
The adviser is engaged by a claimant or payee to render advice concerning the legal, tax, or financial implications of a structured settlement or a transfer of structured settlement payment rights.
The adviser’s compensation for rendering independent professional advice is not affected by occurrence or lack of occurrence of a settlement or transfer.
A particular adviser is not referred to the payee by the transferee or its agent, except that the transferee may refer the payee to a lawyer referral service or agency operated by a state or local bar association.
“Interested parties” means, with respect to a structured settlement agreement, the payee, the payee’s attorney, any beneficiary irrevocably designated under the annuity contract to receive payments following the payee’s death, the annuity issuer, the structured settlement obligor, and any other party who has continuing rights or obligations under the structured settlement agreement. If the designated beneficiary is a minor, the beneficiary’s parent or guardian shall be an interested party.
“Payee” means an individual who received tax-free payments pursuant to a structured settlement agreement.
“Qualified assignment agreement” means an agreement providing for a qualified assignment within the meaning of Section 130 of Title 26 of the United States Code, as amended from time to time.
“Structured settlement agreement” means an arrangement for periodic payment of damages established by settlement or judgment in resolution of a tort claim in which the payment of the judgment or award is paid in whole, or in part, in periodic tax-free payments rather than a lump-sum payment. A structured settlement agreement entered into pursuant to Section 667.7 of the Code of Civil Procedure or Section 970.6 or 984 of the Government Code is not subject to the provisions of this article other than the requirements of Section 10138.
“Structured settlement obligor” means the party that has the continuing periodic payment obligation to the payee under a structured settlement agreement or a qualified assignment agreement.
“Structured settlement payment rights” means rights to receive periodic payments, including lump-sum payments, pursuant to a structured settlement agreement, whether from the settlement obligor or an annuity issuer.
“Terms of the structured settlement” include, with respect to a structured settlement agreement, the terms of the structured settlement agreement, annuity contract, qualified assignment agreement, and any order or approval of a court or responsible administrative authority or other governmental authority authorizing or approving the structured settlement.
“Transfer” means any sale, assignment, pledge, hypothecation, or other form of alienation or encumbrance made for consideration.
“Transfer agreement” means the agreement providing for the transfer, and any other document used to effectuate the transfer, from the payee to the transferee of structured settlement payment rights of a structured settlement agreement.
“Transferee” means any person receiving structured settlement payment rights resulting from a transfer.
This article is only applicable to transfers entered into on or after January 1, 2000.
Notwithstanding subdivision (a), the changes to this article made by the act amending this section in the 2001–02 Regular Session shall only be applicable to transfers entered into on or after January 1, 2002.
This article is only applicable to transfers of structured settlement payment rights if one of the following requirements is met:
The payee is domiciled in California at the time the transfer agreement is signed by the payee.
The payee is not domiciled in California at the time the transfer agreement is signed and the state where the payee is domiciled does not have a structured settlement transfer statute, but either the structured settlement obligor or annuity issuer is domiciled in California.
No direct or indirect transfer of structured settlement payment rights by a payee to which this article applies shall be effective, and no structured settlement obligor or annuity issuer shall be required to make any payment directly or indirectly to a transferee, unless all of the provisions of this section are satisfied.
Ten or more days before the payee executes a transfer agreement, the transferee shall provide the payee with a separate written disclosure statement, accurately completed with the information that applies to the transfer agreement, in substantially the following form, in at least 12-point type unless otherwise indicated (bracketed instructions shall not appear in the form):
“Disclosure Notice Required By Law [14-point boldface type]
You are selling (technically called ‘transferring’) your right to receive your payments under a structured settlement. You should get this disclosure notice at least 10 days before you sign any contract.
IMPORTANT TERMS: [14-point boldface type ]
You have agreed to sell to the transferee future payments totaling ____ dollars ($____) in exchange for a purchase price of ____ dollars ($____).
Those future payments have a discounted present value equal to ____ dollars ($____), calculated by applying the discount rate of ____ percent utilized by the Internal Revenue Service to value annuities in probate proceedings.
The purchase price to be paid to you was calculated using a discount rate of ____ percent.
The purchase price payable to you is less than the present value of the future payments stated above because the discount rate of your transaction is greater than the rate utilized by the Internal Revenue Service.
For comparison purposes:
If you did not sell your right to receive structured settlement payments, but instead borrowed the net amount of $____ and paid that loan back in installments with each of the payments you are now selling, the equivalent interest rate you would be paying for that loan would be ____% per year.
[The text and information set forth above under ‘IMPORTANT TERMS’ shall be in 14-point type and circumscribed by a box with a bold border]
To figure the net amount we are paying, we have charged you for the following expenses:
[itemize in a list by type and amount]
for a total of $____ in expenses.
You should get independent professional advice about whether selling your structured settlement payments is a good idea for you and for your dependents.
You are advised to seek independent legal or financial advice regarding the transaction and, under the law, the cost of that advice, up to one thousand five hundred dollars ($1,500), will be paid by the transferee, the person or entity to whom you have agreed to transfer and assign the payments in question. The transferee or purchaser’s accountant, counsel, or actuary may not advise you in this transaction.
You also should get independent professional advice from an accountant or lawyer experienced in tax matters about any income tax consequences from selling your structured settlement payments. We cannot give you the name of anyone to advise you.
Court approval is needed [14-point boldface type]. A court must approve any agreement you sign to sell your rights under a structured settlement. You will not receive any money until the court approves the sale. Court approval could take more than 30 days following the day you sign an agreement selling your rights under a structured settlement.
A sale of future structured settlement payments will mean that you will no longer receive the future payments that are sold. You are advised to enter into this transaction only after you have carefully considered the consequences of the transaction.
You may cancel the contract before court approval [14-point boldface type]. You may cancel the agreement selling (or transferring) your rights under a structured settlement without any cost or obligation. You may cancel at any time before the court approves the contract. You will get notice of the date of the court hearing.
If you want to cancel, you do not need any special form. But, you must cancel in writing. Send your cancellation to: [insert transferee’s name and address].
If you believe that you have been treated unfairly or have been misled, you should contact your local district attorney or the state Attorney General.”
The transfer agreement shall be written in at least 12-point type and shall be complete and without blank spaces to be completed after the payee’s signature. The transfer agreement shall set forth clear and conspicuously, and in no less than 12-point type, all of the following:
A statement that the agreement is not effective until the date on which a court enters a final order approving the transfer agreement and that payment to the payee pursuant to the transfer agreement will be delayed up to 30 days or more after the date the payee signed the transfer agreement in order for the court to review and approve the transfer agreement.
The amounts and due dates of the structured settlement payments to be transferred.
The aggregate amount of the structured settlement payments to be transferred. This amount shall be disclosed in the form prescribed in subdivision (b).
The aggregate amount of all expenses, if any, to be deducted from the purchase price to be paid to the payee in exchange for the payments to be transferred, and an itemization of all expenses by type and amount.
The amount payable to the payee, net of all expenses, in exchange for the payments to be transferred. This amount shall be disclosed in the form prescribed in subdivision (b).
The discounted present value of all structured settlement payments to be transferred and a statement that “This is the value of your structured settlement in current dollars.” This amount shall be disclosed in the form prescribed in subdivision (b).
The federal rate, as described in subdivision (c) of Section 10134, used in determining the discounted present value.
The effective equivalent interest rate, which shall be disclosed in the following statement:
“YOU WILL BE PAYING THE EQUIVALENT OF AN INTEREST RATE OF ____% PER YEAR.
Based on the net amount that you will receive from us and the amounts and timing of the structured settlement payments that you are transferring to us, if the transferred structured settlement payments were installment payments on a loan, with each payment applied first to accrued unpaid interest and then to principal, it would be as if you were paying interest to us of ____% per year, assuming funding on the effective date of transfer.”
This percentage amount shall be disclosed in the form prescribed in subdivision (b) in the space for “the equivalent interest rate you would be paying for this loan would be ____% per year.”
The quotient (expressed as a percentage) obtained by dividing the net payment amount by the discounted present value of the payments.
A statement that the payee should obtain independent professional advice regarding any federal and state income tax consequences arising from the proposed transfer, and that the transferee may not refer the payee to any specific adviser for that purpose.
A statement that the court approving the transfer agreement retains continuing jurisdiction to interpret and monitor implementation of the agreement as justice may require.
The following statement: “If you believe you were treated unfairly or were misled as to the nature of the obligations you assumed upon entering into this agreement, you should report those circumstances to your local district attorney or the office of the Attorney General.”
The following statement printed in 14-point type, circumscribed by a box with a bold border, and set forth immediately above or adjacent to the space reserved for the payee’s signature: “You have the right to cancel this agreement without any cost or obligation until the date the court approves this agreement. You will receive notice of the court hearing date when approval may occur. You must cancel in writing and send your cancellation to [insert transferee’s name and address].”
The contract for transferring the structured settlement payment rights may not violate Section 10138.
At any time before the date on which a court enters a final order approving the transfer agreement pursuant to Section 10139.5, the payee may cancel the transfer agreement, without cost or further obligation, by providing written notice of cancellation to the transferee.
A transfer of structured settlement payment rights is void unless a court reviews and approves the transfer and finds the following conditions are met:
The transfer of the structured settlement payment rights is fair and reasonable and in the best interest of the payee, taking into account the welfare and support of his or her dependents.
The transfer complies with the requirements of this article, will not contravene other applicable law, and the court has reviewed and approved the transfer as provided in Section 10139.5.
A transfer agreement, as defined in subdivision (o) of Section 10134, shall not include any provision described in the paragraphs below. Any inclusion of a prohibited provision, with respect to a seller who is a California resident, shall make the provision void and unenforceable.
Any provision that waives the seller’s right to sue under any law, or in which the seller agrees not to sue, or that waives jurisdiction or standing to sue under the contract.
Any provision that requires the seller to indemnify and hold harmless the buyer, or to pay the buyer’s costs of defense, in any claim or action brought by the seller or on the seller’s behalf contesting the sale for any reason.
Any provision that waives benefits or rights conferred by law with respect to garnishment of wages.
Any provision providing that the contract is confidential or proprietary, belonging to the buyer.
Any provision in which the seller stipulates to a confession of judgment.
Any provision requiring the seller to pay the buyer’s attorney’s fees and costs if the purchase agreement is not completed.
Any provision requiring the seller to pay any tax liability arising under the federal tax laws, other than the seller’s own tax liability, if any, that results from the transfer.
Any provision providing for brokerage fees incurred in the contract to be deducted from the purchase price disclosed pursuant to paragraph (5) of subdivision (b) of Section 10136.
If the payee is domiciled in California at the time that the transfer agreement is signed by the payee, any forum selection provision providing for jurisdiction to be in a court outside of California for any action arising under the contract.
If the payee is domiciled in California at the time that the transfer agreement is signed by the payee, any choice-of-law provision that provides for controlling law to be other than California law in any action arising under the contract.
A provision that provides the transferee with a security interest or collateral interest in any structured settlement payment rights that exceed the actual dollar amount of the structured settlement payment rights being transferred.
Any provision that creates a “buyer’s first right of refusal” to purchase any remaining structured payment rights that the payee may desire to sell in the future.
The provisions in this section may not be waived by agreement of the parties.
The transferee shall retain, for three years after the date of the last payment under the structured settlement agreement, or for five years after the date of the transfer, whichever date is later, a copy of the transferee’s petition for approval filed pursuant to Section 10139.5, a copy of the written disclosure statement required by subdivision (b) of Section 10136, a copy of the transfer agreement as defined in subdivision (o) of Section 10134, and, unless excepted pursuant to subparagraph (H) of paragraph (2) of subdivision (f) of Section 10139.5, a copy of the annuity contract, any qualified assignment agreement, the underlying structured settlement agreement, or any order or approval of any court or responsible administrative authority authorizing or approving the structured settlement, and a copy and proof of notice to the interested parties, and a verified statement from the transferee stating that all of the conditions set forth in Sections 10136, 10137, and 10138 have been met.
Any subsequent transfer of any additional structured settlement payments between the payee and transferee may be made only after compliance with all of the requirements of this article.
Any notice required by this article shall be deemed to have been given if addressed to the recipient’s last known address and deposited, first class postage paid, in the United States mail not less than five calendar days prior to the date on which notice is required.
None of the provisions of this article may be waived by the payee.
A payee who proposes to make a transfer of structured settlement payment rights shall not incur any penalty, shall not forfeit any application fee or other payment, and shall not otherwise incur any liability to the proposed transferee based on any failure of that transfer to satisfy the requirements of Sections 10136, 10137, and 10138.
The transferee and any assignee shall be liable to the structured settlement obligor and the annuity issuer for any and all taxes incurred as a consequence of the transfer or as a consequence of any failure of the transferee or assignee to comply with this article or the terms of the structured settlement agreement.
Neither the annuity issuer nor the structured settlement obligor may be required to divide any structured settlement payment between the payee and any transferee or assignee or between two or more transferees or assignees.
A violation of this article by a transferee shall constitute an unfair business practice pursuant to Chapter 5 (commencing with Section 17200) of Part 2 of Division 7 of the Business and Professions Code and shall be subject to the penalties and other remedies of that chapter.
A direct or indirect transfer of structured settlement payment rights is not effective and a structured settlement obligor or annuity issuer is not required to make any payment directly or indirectly to any transferee of structured settlement payment rights unless the transfer has been approved in advance in a final court order based on express written findings by the court that:
The transfer is in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.
The payee has been advised in writing by the transferee to seek independent professional advice regarding the transfer and has either received that advice or knowingly waived, in writing, the opportunity to receive the advice.
The transfer does not contravene any applicable statute or the order of any court or other government authority.
The payee understands the terms of the transfer agreement, including the terms set forth in the disclosure statement required by Section 10136.
The payee understands and does not wish to exercise the payee’s right to cancel the transfer agreement.
When determining whether the proposed transfer should be approved, including whether the transfer is fair, reasonable, and in the payee’s best interest, taking into account the welfare and support of the payee’s dependents, the court shall consider the totality of the circumstances, including, but not limited to, all of the following:
The reasonable preference and desire of the payee to complete the proposed transaction, taking into account the payee’s age, mental capacity, legal knowledge, and apparent maturity level.
The stated purpose of the transfer.
The payee’s financial and economic situation.
The terms of the transaction, including whether the payee is transferring monthly or lump sum payments or all or a portion of his or her future payments.
Whether, when the settlement was completed, the future periodic payments that are the subject of the proposed transfer were intended to pay for the future medical care and treatment of the payee relating to injuries sustained by the payee in the incident that was the subject of the settlement and whether the payee still needs those future payments to pay for that future care and treatment.
Whether, when the settlement was completed, the future periodic payments that are the subject of the proposed transfer were intended to provide for the necessary living expenses of the payee and whether the payee still needs the future structured settlement payments to pay for future necessary living expenses.
Whether the payee is, at the time of the proposed transfer, likely to require future medical care and treatment for the injuries that the payee sustained in connection with the incident that was the subject of the settlement and whether the payee lacks other resources, including insurance, sufficient to cover those future medical expenses.
Whether the payee has other means of income or support, aside from the structured settlement payments that are the subject of the proposed transfer, sufficient to meet the payee’s future financial obligations for maintenance and support of the payee’s dependents, specifically including, but not limited to, the payee’s child support obligations, if any. The payee shall disclose to the transferee and the court his or her court-ordered child support or maintenance obligations for the court’s consideration.
Whether the financial terms of the transaction, including the discount rate applied to determine the amount to be paid to the payee, the expenses and costs of the transaction for both the payee and the transferee, the size of the transaction, the available financial alternatives to the payee to achieve the payee’s stated objectives, are fair and reasonable.
Whether the payee completed previous transactions involving the payee’s structured settlement payments and the timing and size of the previous transactions and whether the payee was satisfied with any previous transaction.
Whether the transferee attempted previous transactions involving the payee’s structured settlement payments that were denied, or that were dismissed or withdrawn prior to a decision on the merits, within the past five years.
Whether, to the best of the transferee’s knowledge after making inquiry with the payee, the payee has attempted structured settlement payment transfer transactions with another person or entity, other than the transferee, that were denied, or which were dismissed or withdrawn prior to a decision on the merits, within the past five years.
Whether the payee, or his or her family or dependents, are in or are facing a hardship situation.
Whether the payee received independent legal or financial advice regarding the transaction. The court may deny or defer ruling on the petition for approval of a transfer of structured settlement payment rights if the court believes that the payee does not fully understand the proposed transaction and that independent legal or financial advice regarding the transaction should be obtained by the payee.
Any other factors or facts that the payee, the transferee, or any other interested party calls to the attention of the reviewing court or that the court determines should be considered in reviewing the transfer.
Every petition for approval of a transfer of structured settlement payment rights, except as provided in subdivision (d), shall include, to the extent known after the transferee has made reasonable inquiry with the payee, all of the following:
With respect to the information required to be included in every petition for approval of a transfer of structured settlement payment rights pursuant to paragraphs (2), (3), (4), (5), and (6) of subdivision (c), that information shall be deemed to be included in the petition if it is provided at the scheduled hearing on the proposed transfer through oral testimony or documentary evidence filed with the court and made a part of the record consistent with the rules of evidence and procedure.
Following a transfer of structured settlement payment rights under this article:
The structured settlement obligor and the annuity issuer shall, as to all parties except the transferee, be discharged and released from any and all liability for the transferred payments.
The transferee shall be liable to the structured settlement obligor and the annuity issuer if the transfer contravenes the terms of the structured settlement for the following:
Any taxes incurred by those parties as a consequence of the transfer.
Any other liabilities or costs, including reasonable costs and attorney’s fees, arising from compliance by those parties with the order of the court or arising as a consequence of the transferee’s failure to comply with this article.
Neither the annuity issuer nor the structured settlement obligor may be required to divide any periodic payment between the payee and any transferee or assignee or between two, or more, transferees or assignees.
Any further transfer of structured settlement payment rights by the payee may be made only after compliance with all of the requirements of this article.
A petition under this article for approval of a transfer of structured settlement payment rights shall be made by the transferee and brought in the county in which the payee resides at the time the transfer agreement is signed by the payee, or, if the payee is not domiciled in California, in the county in which the payee resides or in the county where the structured settlement obligor or annuity issuer is domiciled.
Not less than 20 days prior to the scheduled hearing on any petition for approval of a transfer of structured settlement payment rights under this article, the transferee shall file with the court and serve on all interested parties a notice of the proposed transfer and the petition for its authorization, and shall include the following with that notice:
A copy of the transferee’s current petition and any other prior petition, whether approved or withdrawn, that was filed with the court in accordance with paragraph (6) of subdivision (c).
A copy of the proposed transfer agreement and disclosure form required by paragraph (3) of subdivision (a).
A listing of each of the payee’s dependents, together with each dependent’s age.
A copy of the disclosure required in subdivision (b) of Section 10136.
A copy of the annuity contract, if available.
A copy of any qualified assignment agreement, if available.
A copy of the underlying structured settlement agreement, if available.
If a copy of a document described in subparagraph (E), (F), or (G) is unavailable or cannot be located, then the transferee is not required to attach a copy of that document to the petition or notice of the proposed transfer if the transferee satisfies the court that reasonable efforts to locate and secure a copy of the document have been made, including making inquiry with the payee. If the documents are available, but contain a confidentiality or nondisclosure provision, then the transferee shall summarize in the petition the payments due and owing to the payee, and, if requested by the court, shall provide copies of the documents to the court at a scheduled hearing.
Proof of service showing compliance with the notification requirements of this section.
Notification that any interested party is entitled to support, oppose, or otherwise respond to the transferee’s petition, either in person or by counsel, by submitting written comments to the court or by participating in the hearing.
Notification of the time and place of the hearing and notification of the manner in which and the time by which written responses to the petition must be filed, which may not be less than 15 days after service of the transferee’s notice, in order to be considered by the court.
If the payee entered into the structured settlement at issue within five years prior to the date of the transfer agreement, then the transferee shall provide the following notice to the payee’s attorney of record at the time the structured settlement was created, if the attorney is licensed to practice in California, at the attorney’s address on file with the State Bar of California. The notice shall be delivered by regular mail and shall contain the following language:
“Your former client, (insert name, address and telephone number of payee), the ‘payee,’ has entered into a contract with (insert name of transferee) to transfer and assign certain future structured settlement payment rights. The transaction is subject to court review and approval under California law. As the payee’s former attorney, you are entitled to receive this notice. You are not required to represent, advise, or consult with the payee in connection with the proposed transaction. You are not required to take any action at all in response to this notice. You may, but are not required to, contact the payee regarding the transaction. The payee is not required to consult with you or provide you any information regarding the transaction, but the payee may do so if he or she wishes.”
The notice to the former attorney described in this section is not required to be provided if the payee in the transaction was not a party to the original structured settlement at issue (for example, if the payee is an heir or beneficiary of the person who was a party to the original structured settlement). Also, if the payee cannot recall or identify his or her former attorney and if the identity of the former attorney cannot be ascertained from the available structured settlement documents, then the notice described in this subparagraph is not required to be provided and the transfer may proceed without the notice.
All court costs and filing fees shall be paid by the transferee.
No later than the time of filing the petition for court approval, the transferee shall advise the payee of the payee’s right to seek independent counsel and financial advice in connection with the transferee’s petition for court approval of the transfer agreement, and shall further advise the payee that if the payee retains counsel, a licensed certified public accountant, or a licensed actuary in connection with a petition for an order approving the transfer agreement, that the transferee shall pay the fees of the payee’s counsel, accountant, or actuary, regardless of whether the transfer agreement is approved, and regardless of whether the attorney, accountant, or actuary files any document or appears at the hearing on the petition for transfer, in an aggregate amount not to exceed one thousand five hundred dollars ($1,500). The transferee’s accountant, counsel, or actuary may not advise the payee.
The court shall retain continuing jurisdiction to interpret and monitor the implementation and closing of the transaction that is the subject of the transfer agreement as justice requires.
ARTICLE 2.5. Discriminatory Practices [10140. - 10145.4.]
No admitted insurer, licensed to issue life or disability insurance, shall fail or refuse to accept an application for that insurance, to issue that insurance to an applicant therefor, or issue or cancel that insurance, under conditions less favorable to the insured than in other comparable cases, except for reasons applicable alike to persons of every race, color, religion, sex, gender, gender identity, gender expression, national origin, ancestry, or sexual orientation. Race, color, religion, national origin, ancestry, or sexual orientation shall not, of itself, constitute a condition or risk for which a higher rate, premium, or charge may be required of the insured for that insurance. Unless otherwise prohibited by law, premium, price, or charge differentials because of the sex of any individual when based on objective, valid, and up-to-date statistical and actuarial data or sound underwriting practices are not prohibited.
Except as otherwise permitted by law, no admitted insurer, licensed to issue disability insurance policies for hospital, medical, and surgical expenses, shall fail or refuse to accept an application for that insurance, fail or refuse to issue that insurance to an applicant therefor, cancel that insurance, refuse to renew that insurance, charge a higher rate or premium for that insurance, or offer or provide different terms, conditions, or benefits, or place a limitation on coverage under that insurance, on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring.
No admitted insurer, licensed to issue disability insurance for hospital, medical, and surgical expenses, shall seek information about a person’s genetic characteristics for any nontherapeutic purpose.
No discrimination shall be made in the fees or commissions of agents or brokers for writing or renewing a policy of disability insurance, other than disability income, on the basis of a person’s genetic characteristics that may, under some circumstances, be associated with disability in that person or that person’s offspring.
It shall be deemed a violation of subdivision (a) for any insurer to consider sexual orientation in its underwriting criteria or to utilize marital status, living arrangements, occupation, sex, beneficiary designation, ZIP Codes or other territorial classification within this state, or any combination thereof for the purpose of establishing sexual orientation or determining whether to require a test for the presence of the human immunodeficiency virus or antibodies to that virus, where that testing is otherwise permitted by law. Nothing in this section shall be construed to alter, expand, or limit in any manner the existing law respecting the authority of insurers to conduct tests for the presence of human immunodeficiency virus or evidence thereof.
This section shall not be construed to limit the authority of the commissioner to adopt regulations prohibiting discrimination because of sex, marital status, or sexual orientation or to enforce these regulations, whether adopted before or on or after January 1, 1991.
“Genetic characteristics” as used in this section shall have the same meaning as defined in Section 10123.3.
“Sex” as used in this section shall have the same meaning as “gender.” “Gender” means sex, and includes a person’s gender identity and gender expression. “Gender expression” means a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth.
This section shall apply to the disclosure of genetic test results contained in an applicant or enrollee’s medical records by an admitted insurer licensed to issue life or disability insurance, except life and disability income policies issued or delivered on or after January 1, 1995, that are contingent upon review or testing for other diseases or medical conditions.
Any person who negligently discloses results of a test for a genetic characteristic to any third party in a manner that identifies or provides identifying characteristics, of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), shall be assessed a civil penalty in an amount not to exceed one thousand dollars ($1,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully discloses the results of a test for a genetic characteristic to any third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), shall be assessed a civil penalty in an amount not less than one thousand dollars ($1,000) and no more than five thousand dollars ($5,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully or negligently discloses the results of a test for a genetic characteristic to a third party in a manner that identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization as described in subdivision (g), that results in economic, bodily, or emotional harm to the subject of the test, is guilty of a misdemeanor punishable by a fine not to exceed ten thousand dollars ($10,000).
In addition to the penalties listed in subdivisions (b) and (c), any person who commits any act described in subdivision (b) or (c) shall be liable to the subject for all actual damages, including damages for economic, bodily, or emotional harm which is proximately caused by the act.
Each disclosure made in violation of this section is a separate and actionable offense.
The applicant’s “written authorization,” as used in this section, shall satisfy the following requirements:
Is written in plain language.
Is dated and signed by the individual or a person authorized to act on behalf of the individual.
Specifies the types of persons authorized to disclose information about the individual.
Specifies the nature of the information authorized to be disclosed.
States the name or functions of the persons or entities authorized to receive the information.
Specifies the purposes for which the information is collected.
Specifies the length of time the authorization shall remain valid.
Advises the person signing the authorization of the right to receive a copy of the authorization. Written authorization is required for each separate disclosure of the test results, and the authorization shall set forth the person or entity to whom the disclosure would be made.
This section shall not apply to disclosures required by the Department of Health Services necessary to monitor compliance with Chapter 1 (commencing with Section 124975) of Part 5 of Division 106 of the Health and Safety Code, nor to disclosures required by the Department of Managed Health Care necessary to administer and enforce compliance with Section 1374.7 of the Health and Safety Code.
Notwithstanding Section 10140, a health insurance policy issued, amended, or renewed on or after January 1, 2011, shall not be subject to premium, price, or charge differentials because of the sex of any contracting party, potential contracting party, or person reasonably expected to benefit from the policy as a policyholder, insured, or otherwise.
For purposes of this section, “sex” shall have the same meaning as “gender.” “Gender” means sex, and includes a person’s gender identity and gender expression. “Gender expression” means a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth.
In addition to any other remedy permitted by law, the commissioner shall have the administrative authority to assess penalties specified in this section against life or disability insurers for violations of Section 10140.
Any life or disability insurer that violates Section 10140 is liable for administrative penalties of not more than two thousand five hundred dollars ($2,500) for the first violation and not more than five thousand dollars ($5,000) for each subsequent violation.
Any life or disability insurer that violates Section 10140 with a frequency that indicates a general business practice or commits a knowing violation of that section, is liable for administrative penalties of not less than fifteen thousand dollars ($15,000) and not more than one hundred thousand dollars ($100,000) for each violation.
An act or omission that is inadvertent and that results in incorrect premium rates being charged to more than one subscriber shall be a single violation for the purpose of this section.
No application for insurance or insurance investigation report furnished by such an insurer to its agents or employees for use in determining the insurability of the applicant shall carry any identification, or any requirement therefor, of the applicant’s race, color, religion, ancestry, national origin, or sexual orientation.
Nothing in this article shall prohibit use in an application for life or disability insurance of a question asking for the birthplace of an applicant if such question is used only to identify the applicant and not to discriminate against him.
No insurance company licensed in this state shall refuse to issue or sell or renew any policy of life or disability insurance after appropriate application solely by reason of the fact that the person to be insured carries a gene which may, under some circumstances, be associated with disability in that person’s offspring, but which causes no adverse effects on the carrier. Such genes shall include, but not be limited to, Tay-Sachs trait, sickle cell trait, thalassemia trait, and X-linked hemophilia A. No such policy issued and delivered in this state to any association, corporation, firm, fund, individual, group, order, organization, society, or trust subject to the supervision of the commissioner shall demand or require a higher premium rate or charge by reason of the fact that the person to be insured carries such traits than is at that time required of any other association, corporation, firm, fund, individual, group, order, organization, society, or trust in an otherwise identical classification, nor shall any association, corporation, firm, fund, group, individual, order, organization, society, or trust make or require any rebate, discrimination, or discount upon the amount to be paid or the service to be rendered on such policy because the person to be insured carries such traits.
No insurance company licensed in this state shall insert in a policy of life or disability insurance any condition, nor make any stipulation, whereby the person insured who carries a gene which may, under some circumstances, be associated with disability in that person’s offspring, but which causes no adverse effects on the carrier, including, but not limited to, Tay-Sachs trait, sickle cell trait, thalassemia trait, and X-linked hemophilia A, shall bind himself, his heirs, executors, administrators, or assignees to accept any sum or service less than the full value or amount of the policy in case of a claim accruing thereon other than such as are imposed upon other persons in similar cases and any such stipulation or condition so made or inserted shall be void.
No insurance company licensed in this state shall fix any lower rate in the fees or commissions of agents or brokers for writing or renewing a policy of life or disability insurance solely because the applicant carries a gene which may, under some circumstances, be associated with disability in that person’s offspring, but which causes no adverse effects on the carrier. Such genes shall include, but are not limited to, Tay-Sachs trait, sickle cell trait, or X-linked hemophilia A.
No insurer issuing, providing, or administering any contract of individual or group insurance providing life, annuity, or disability benefits applied for and issued on or after January 1, 1984, shall refuse to insure, or refuse to continue to insure, or limit the amount, extent, or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of a physical or mental impairment, except where the refusal, limitation or rate differential is based on sound actuarial principles or is related to actual and reasonably anticipated experience.
“Physical or mental impairment” means any physical, sensory, or mental impairment which substantially limits one or more of that person’s major life activities.
A disability insurer that denies coverage for an experimental medical procedure or plan of treatment for a claimant with a terminal illness, which for the purposes of this section refers to an incurable or irreversible condition that has a high probability of causing death within one year or less, under a disability insurance policy that includes hospital, medical, or surgical coverage issued in this state shall provide written notification directly to the claimant or representative, which shall include all of the following:
The specific medical and scientific reasons for the denial and specific references to pertinent policy provisions upon which the denial is based.
A description of the alternative medical procedures or treatments covered by the policy, if any. Compliance with this subdivision by an insurer shall not be construed to mean that the insurer is engaging in the unlawful practice of medicine.
A description of the process by which the claimant or representative may exercise his or her right to appeal the denial and obtain and participate in a review of the information provided to the claimant or representative pursuant to subdivisions (a) and (b). The review shall not be limited to written communication and shall be provided by the appropriate named fiduciary or his or her designee rendering the decision. The review shall be provided to the claimant within 30 calendar days following the receipt of the request for review. However, the review required by this section shall be held within five business days if the treating physician determines, in consultation with the medical director of the insurer, based on standard medical practice, that the effectiveness of either the proposed treatment, services, or supplies or any alternative treatment, services, or supplies covered by the policy, would be materially reduced if not provided at the earliest possible date.
No disability insurer covering hospital, medical, or surgical expenses shall deny, refuse to insure, refuse to renew, cancel, restrict, or otherwise terminate, exclude, or limit coverage or charge a different rate for the same coverage, on the basis that the applicant or insured person is, has been, or may be a victim of domestic violence.
Nothing in this section shall prevent a disability insurer covering hospital, medical, or surgical expenses from underwriting coverage on the basis of the medical condition of an individual so long as the consideration of the condition (1) does not take into account whether such an individual’s medical condition was caused by an act of domestic violence, (2) is the same with respect to an applicant or insured who is not the subject of domestic violence as with an applicant or insured who is the subject of domestic violence, and (3) does not violate any other act, regulation, or rule of law. The fact that an individual is, has been, or may be the subject of domestic violence shall not be considered a medical condition.
As used in this section, “domestic violence” means domestic violence, as defined in Section 6211 of the Family Code.
No admitted insurer licensed to issue life insurance shall refuse to accept an application for insurance, refuse to issue or renew a policy, cancel a policy, or deny coverage under a policy because the applicant for insurance or any person who is or would be insured is, or has been, a victim of domestic violence.
Nothing in this section shall prevent a life insurer from taking any of the actions set forth in subdivision (a) on the basis of criteria not otherwise made invalid by this section or any other act, regulation, or rule of law. If discrimination by a life insurer is not in violation of this section but is based on any other criteria that are allowable by law, the fact that the applicant or insured is, has been, or may be the subject of domestic violence shall be irrelevant.
Nothing in this section shall require a life insurer to pay for any loss if that payment is prohibited by Section 533.
As used in this section, “domestic violence” means domestic violence as defined in Section 6211 of the Family Code.
A large group health insurance policy shall provide all covered mental health and substance use disorder benefits in compliance with the federal Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (Public Law 110-343) and all rules, regulations, and guidance issued pursuant to Section 2726 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-26).
An individual or small group health insurance policy shall provide all covered mental health and substance use disorder benefits in compliance with the federal Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (Public Law 110-343), all rules, regulations, and guidance issued pursuant to Section 2726 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-26), and Section 10112.27.
Every disability insurance policy issued, amended, or renewed on or after January 1, 2021, that provides hospital, medical, or surgical coverage shall provide coverage for medically necessary treatment of mental health and substance use disorders, under the same terms and conditions applied to other medical conditions as specified in subdivision (c).
For purposes of this section, “mental health and substance use disorders” means a mental health condition or substance use disorder that falls under any of the diagnostic categories listed in the mental and behavioral disorders chapter of the most recent edition of the World Health Organization’s International Statistical Classification of Diseases and Related Health Problems, or that is listed in the most recent version of the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders. Changes in terminology, organization, or classification of mental health and substance use disorders in future versions of the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders or the World Health Organization’s International Statistical Classification of Diseases and Related Health Problems shall not affect the conditions covered by this section as long as a condition is commonly understood to be a mental health or substance use disorder by health care providers practicing in relevant clinical specialties.
For purposes of this section, “medically necessary treatment of a mental health or substance use disorder” means a service or product addressing the specific needs of that patient, for the purpose of preventing, diagnosing, or treating an illness, injury, condition, or its symptoms, including minimizing the progression of an illness, injury, condition, or its symptoms, in a manner that is all of the following:
In accordance with the generally accepted standards of mental health and substance use disorder care.
Clinically appropriate in terms of type, frequency, extent, site, and duration.
Not primarily for the economic benefit of the disability insurer and insureds or for the convenience of the patient, treating physician, or other health care provider.
This paragraph does not limit in any way the independent medical review rights of an insured or policyholder under this chapter.
“Health care provider” means any of the following:
A person who is licensed under Division 2 (commencing with Section 500) of the Business and Professions Code.
An associate marriage and family therapist or marriage and family therapist trainee functioning pursuant to Section 4980.43.3 of the Business and Professions Code.
An associate clinical social worker functioning pursuant to Section 4996.23.2 of the Business and Professions Code.
An associate professional clinical counselor or professional clinical counselor trainee functioning pursuant to Section 4999.46.3 of the Business and Professions Code.
A registered psychologist, as described in Section 2909.5 of the Business and Professions Code.
A registered psychological assistant, as described in Section 2913 of the Business and Professions Code.
A psychology trainee or person supervised as set forth in Section 2910 or 2911 of, or subdivision (d) of Section 2914 of, the Business and Professions Code.
For purposes of this section, “generally accepted standards of mental health and substance use disorder care” has the same meaning as defined in paragraph (1) of subdivision (f) of Section 10144.52.
A disability insurer shall not limit benefits or coverage for mental health and substance use disorders to short-term or acute treatment.
All medical necessity determinations made by the disability insurer concerning service intensity, level of care placement, continued stay, and transfer or discharge of insureds diagnosed with mental health and substance use disorders shall be conducted in accordance with the requirements of Section 10144.52.
A disability insurer that authorizes a specific type of treatment by a provider pursuant to this section shall not rescind or modify the authorization after the provider renders the health care service in good faith and pursuant to this authorization for any reason, including, but not limited to, the insurer’s subsequent rescission, cancellation, or modification of the insured’s or policyholder’s contract, or the insurer’s subsequent determination that it did not make an accurate determination of the insured’s or policyholder’s eligibility. This section shall not be construed to expand or alter the benefits available to the insured or policyholder under an insurance policy.
The benefits that shall be covered pursuant to this section shall include, but not be limited to, the following:
Basic health care services, as defined in subdivision (b) of Section 1345 of the Health and Safety Code.
Intermediate services, including the full range of levels of care, including, but not limited to, residential treatment, partial hospitalization, and intensive outpatient treatment.
Prescription drugs, if the policy includes coverage for prescription drugs.
The terms and conditions applied to the benefits required by this section, that shall be applied equally to all benefits under the disability insurance policy shall include, but not be limited to, all of the following patient financial responsibilities:
Out-of-pocket maximums.
If services for the medically necessary treatment of a mental health or substance use disorder are not available in network within the geographic and timely access standards set by law or regulation, the disability insurer shall arrange coverage to ensure the delivery of medically necessary out-of-network services and any medically necessary followup services that, to the maximum extent possible, meet those geographic and timely access standards. As used in this subdivision, to “arrange coverage to ensure the delivery of medically necessary out-of-network services” includes, but is not limited to, providing services to secure medically necessary out-of-network options that are available to the insured within geographic and timely access standards. The insured shall pay no more than the same cost sharing that the insured would pay for the same covered services received from an in-network provider.
This section shall not apply to accident-only, specified disease, hospital indemnity, Medicare supplement, dental-only, or vision-only insurance policies.
For the purpose of compliance with this section, a disability insurer may provide coverage for all or part of the mental health and substance use disorder services required by this section through a separate specialized health insurance policy or mental health policy. This paragraph shall not apply to policies that are subject to Section 10112.27.
A disability insurer shall provide the mental health and substance use disorder coverage required by this section in its entire service area and in emergency situations as may be required by applicable laws and regulations. For purposes of this section, disability insurance policies that provide benefits to insureds through preferred provider contracting arrangements are not precluded from requiring insureds who reside or work in geographic areas served by specialized health insurance policies or mental health insurance policies to secure all or part of their mental health services within those geographic areas served by specialized health insurance policies or mental health insurance policies, provided that all appropriate mental health or substance use disorder services are actually available within those geographic service areas within timeliness standards.
Notwithstanding any other law, in the provision of benefits required by this section, a disability insurer may utilize case management, network providers, utilization review techniques, prior authorization, copayments, or other cost sharing, provided that these practices are consistent with Section 10144.4 of this code, and Section 2052 of the Business and Professions Code.
This section shall not be construed to deny or restrict in any way the department’s authority to ensure a disability insurer’s compliance with this code.
A disability insurer shall not limit benefits or coverage for medically necessary services on the basis that those services should be or could be covered by a public entitlement program, including, but not limited to, special education or an individualized education program, Medicaid, Medicare, Supplemental Security Income, or Social Security Disability Insurance, and shall not include or enforce a contract term that excludes otherwise covered benefits on the basis that those services should be or could be covered by a public entitlement program.
A disability insurer shall not adopt, impose, or enforce terms in its policies or provider agreements, in writing or in operation, that undermine, alter, or conflict with the requirements of this section.
If the commissioner determines that a disability insurer has violated this section, the commissioner may, after appropriate notice and opportunity for hearing in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), by order, assess a civil penalty not to exceed five thousand dollars ($5,000) for each violation, or, if a violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
Every health insurance policy shall also provide coverage for behavioral health treatment for pervasive developmental disorder or autism no later than July 1, 2012. The coverage shall be provided in the same manner and is subject to the same requirements as provided in Section 10144.5.
Notwithstanding paragraph (1), as of the date that the proposed final rulemaking for essential health benefits is issued, this section does not require any benefits to be provided that exceed the essential health benefits that all health insurers will be required by federal regulations to provide under Section 1302(b) of the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152).
This section does not affect services for which an individual is eligible pursuant to Division 4.5 (commencing with Section 4500) of the Welfare and Institutions Code or Title 14 (commencing with Section 95000) of the Government Code.
This section does not affect or reduce any obligation to provide services under an individualized education program, as defined in Section 56032 of the Education Code, or an individual service plan, as described in Section 5600.4 of the Welfare and Institutions Code, or under the federal Individuals with Disabilities Education Act (20 U.S.C. Sec. 1400 et seq.) and its implementing regulations.
Pursuant to Article 6 (commencing with Section 2240) of Subchapter 2 of Chapter 5 of Title 10 of the California Code of Regulations, every health insurer subject to this section shall maintain an adequate network that includes qualified autism service providers who supervise or employ qualified autism service professionals or paraprofessionals who provide and administer behavioral health treatment. A health insurer is not prevented from selectively contracting with providers within these requirements.
A health insurance policy issued, amended, or renewed on or after January 1, 2026, shall not require an insured previously diagnosed with pervasive developmental disorder or autism to receive a rediagnosis to maintain coverage for behavioral health treatment for pervasive developmental disorder or autism.
This subdivision does not prohibit or restrict a treating provider from reevaluating an insured for purposes of determining the appropriate treatment. The treatment plan shall be made available to the insurer upon request.
This subdivision does not prohibit a treating provider from prescribing a rediagnosis at the discretion of the physician licensed pursuant to Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code or a psychologist licensed pursuant to Chapter 6.6 (commencing with Section 2900) of Division 2 of the Business and Professions Code.
A health insurer shall not discontinue or delay existing treatment while waiting for a rediagnosis to be completed.
This subdivision does not prohibit a health insurer from requiring utilization review. For the purpose of this section, utilization review is distinct from a rediagnosis.
For the purposes of this section, the following definitions shall apply:
The treatment is prescribed by a physician and surgeon licensed pursuant to Chapter 5 (commencing with Section 2000) of, or is developed by a psychologist licensed pursuant to Chapter 6.6 (commencing with Section 2900) of, Division 2 of the Business and Professions Code.
The treatment is provided under a treatment plan prescribed by a qualified autism service provider and is administered by one of the following:
A qualified autism service provider.
A qualified autism service professional supervised by the qualified autism service provider.
A qualified autism service paraprofessional supervised by a qualified autism service provider or qualified autism service professional.
The treatment plan has measurable goals over a specific timeline that is developed and approved by the qualified autism service provider for the specific patient being treated. The treatment plan shall be reviewed no less than once every six months by the qualified autism service provider and modified whenever appropriate, and shall be consistent with Section 4686.2 of the Welfare and Institutions Code pursuant to which the qualified autism service provider does all of the following:
Describes the patient’s behavioral health impairments or developmental challenges that are to be treated.
Designs an intervention plan that includes the service type, number of hours, and parent participation needed to achieve the plan’s goal and objectives, and the frequency at which the patient’s progress is evaluated and reported.
Provides intervention plans that utilize evidence-based practices, with demonstrated clinical efficacy in treating pervasive developmental disorder or autism.
Discontinues intensive behavioral intervention services when the treatment goals and objectives are achieved or no longer appropriate.
The treatment plan is not used for purposes of providing or for the reimbursement of respite, daycare, or educational services and is not used to reimburse a parent for participating in the treatment program. The treatment plan shall be made available to the insurer upon request.
“Utilization review” means utilization review or utilization management functions that prospectively, retrospectively, or concurrently review and approve, modify, or deny, based in whole or in part on medical necessity to cure and relieve, treatment recommendations by physicians licensed pursuant to Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code before, after, or concurrent with the provision of medical treatment services. “Utilization review” refers to an evaluation of existing treatment to ensure the insured receives the proper care at the proper time.
This section does not apply to either of the following:
A specialized health insurance policy that does not cover mental health or behavioral health services or an accident-only, specified disease, hospital indemnity, or Medicare supplement policy.
A health insurance policy in the Medi-Cal program (Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code).
This section does not limit the obligation to provide services under Section 10144.5.
As provided in Section 10144.5 and in paragraph (1) of subdivision (a), in the provision of benefits required by this section, a health insurer may utilize case management, network providers, utilization review techniques, prior authorization, copayments, or other cost sharing.
A disability insurer that provides hospital, medical, or surgical coverage shall base any medical necessity determination or the utilization review criteria that the insurer, and any entity acting on the insurer’s behalf, applies to determine the medical necessity of health care services and benefits for the diagnosis, prevention, and treatment of mental health and substance use disorders on current generally accepted standards of mental health and substance use disorder care.
In conducting utilization review of all covered health care services and benefits for the diagnosis, prevention, and treatment of mental health and substance use disorders in children, adolescents, and adults, a disability insurer shall apply the criteria and guidelines set forth in the most recent versions of the treatment criteria developed by the nonprofit professional association for the relevant clinical specialty.
In conducting utilization review involving level of care placement decisions or any other patient care decisions that are within the scope of the sources specified in subdivision (b), a disability insurer shall not apply different, additional, conflicting, or more restrictive utilization review criteria than the criteria and guidelines set forth in those sources. This subdivision does not prohibit a disability insurer from applying utilization review criteria to health care services and benefits for mental health and substance use disorders that meet either of the following criteria:
Are outside the scope of the criteria and guidelines set forth in the sources specified in subdivision (b), provided the utilization review criteria were developed in accordance with subdivision (a).
Relate to advancements in technology or types of care that are not covered in the most recent versions of the sources specified in subdivision (b), provided that the utilization review criteria were developed in accordance with subdivision (a).
If a disability insurer purchases or licenses utilization review criteria pursuant to paragraph (1) or (2) of subdivision (c), the insurer shall verify and document before use that the criteria were developed in accordance with subdivision (a).
To ensure the proper use of the criteria described in subdivision (b), every disability insurer shall do all of the following:
Sponsor a formal education program by nonprofit clinical specialty associations to educate the disability insurer’s staff, including any third parties contracted with the disability insurer to review claims, conduct utilization reviews, or make medical necessity determinations about the clinical review criteria.
Make the education program available to other stakeholders, including the insurer’s participating providers and covered lives.
Provide, at no cost, the clinical review criteria and any training material or resources to providers and insured patients.
Track, identify, and analyze how the clinical review criteria are used to certify care, deny care, and support the appeals process.
Conduct interrater reliability testing to ensure consistency in utilization review decisionmaking covering how medical necessity decisions are made. This assessment shall cover all aspects of utilization review as defined in paragraph (3) of subdivision (f).
Run interrater reliability reports about how the clinical guidelines are used in conjunction with the utilization management process and parity compliance activities.
Achieve interrater reliability pass rates of at least 90 percent and, if this threshold is not met, immediately provide for the remediation of poor interrater reliability and interrater reliability testing for all new staff before they can conduct utilization review without supervision.
The following definitions apply for purposes of this section:
“Generally accepted standards of mental health and substance use disorder care” means standards of care and clinical practice that are generally recognized by health care providers practicing in relevant clinical specialties such as psychiatry, psychology, clinical sociology, addiction medicine and counseling, and behavioral health treatment pursuant to Section 10144.51. Valid, evidence-based sources establishing generally accepted standards of mental health and substance use disorder care include peer-reviewed scientific studies and medical literature, clinical practice guidelines and recommendations of nonprofit health care provider professional associations, specialty societies and federal government agencies, and drug labeling approved by the United States Food and Drug Administration.
“Mental health and substance use disorders” has the same meaning as defined in paragraph (2) of subdivision (a) of Section 10144.5.
“Utilization review” means either of the following:
Prospectively, retrospectively, or concurrently reviewing and approving, modifying, delaying, or denying, based in whole or in part on medical necessity, requests by health care providers, insureds, or their authorized representatives for coverage of health care services prior to, retrospectively or concurrent with the provision of health care services to insureds.
Evaluating the medical necessity, appropriateness, level of care, service intensity, efficacy, or efficiency of health care services, benefits, procedures, or settings, under any circumstances, to determine whether a health care service or benefit subject to a medical necessity coverage requirement in a disability insurance policy is covered as medically necessary for an insured.
“Utilization review criteria” means any criteria, standards, protocols, or guidelines used by a disability insurer to conduct utilization review.
This section applies to all health care services and benefits for the diagnosis, prevention, and treatment of mental health and substance use disorders covered by a disability insurance policy, including prescription drugs.
This section applies to a disability insurer that covers hospital, medical, or surgical expenses and conducts utilization review as defined in this section, and any entity or contracting provider that performs utilization review or utilization management functions on an insurer’s behalf.
If the commissioner determines that a disability insurer has violated this section, the commissioner may, after appropriate notice and opportunity for hearing in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), by order, assess a civil penalty not to exceed five thousand dollars ($5,000) for each violation, or, if a violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
A disability insurer shall not adopt, impose, or enforce terms in its policies or provider agreements, in writing or in operation, that undermine, alter, or conflict with the requirements of this section.
This section does not apply to accident-only, specified disease, hospital indemnity, Medicare supplement, dental-only, or vision-only insurance policies.
A disability insurance policy issued, amended, renewed, or delivered on or after January 1, 2024, that is required to provide coverage for medically necessary treatment of mental health and substance use disorders pursuant to Sections 10144.5, 10144.51, and 10144.52 shall cover the provision of the services identified in the fee-for-service reimbursement schedule published by the State Department of Health Care Services, as described in subparagraph (B) of paragraph (5) of subdivision (c), when those services are delivered at schoolsites pursuant to this section, regardless of the network status of the local educational agency, institution of higher education, or health care provider.
This section does not relieve a local educational agency or institution of higher education from requirements to accommodate or provide services to students with disabilities pursuant to any applicable state and federal law, including, but not limited to, the federal Individuals with Disabilities Education Act (20 U.S.C. Sec. 1400 et seq.), Part 30 (commencing with Section 56000) of Division 4 of Title 2 of the Education Code, Chapter 26.5 (commencing with Section 7570) of Division 7 of Title 1 of the Government Code, and Chapter 3 (commencing with Section 3000) of Division 1 of Title 5 of the California Code of Regulations.
The following definitions apply for purposes of this section:
“Institution of higher education” means the California Community Colleges, the California State University, or the University of California.
“Local educational agency” means a school district, county office of education, charter school, the California Schools for the Deaf, and the California School for the Blind.
“Medically necessary treatment of a mental health or substance use disorder” has the same meaning as defined in paragraph (3) of subdivision (a) of Section 10144.5.
“Mental health and substance use disorders” has the same meaning as defined in paragraph (2) of subdivision (a) of Section 10144.5.
“Schoolsite” means a facility or location used for public kindergarten, elementary, secondary, or postsecondary purposes. “Schoolsite” also includes a location not owned or operated by a public school, or public school district if the school or school district provides or arranges for the provision of medically necessary treatment of a mental health or substance use disorder to its students at that location, including off-campus clinics, mobile counseling services, and similar locations.
“Utilization review” has the same meaning as defined in paragraph (3) of subdivision (f) of Section 10144.52.
If a local educational agency or institution of higher education provides or arranges for the provision of treatment of a mental health or substance use disorder services subject to this section by a health care provider at a schoolsite for an individual 25 years of age or younger, the student’s disability insurer shall reimburse the local educational agency or institution of higher education for those services.
The disability insurer’s contracted rate with the local educational agency, institution of higher education, or health care provider, if any.
The fee-for-service reimbursement rate published by the State Department of Health Care Services for the same or similar services provided in an outpatient setting, pursuant to Section 5961.4 of the Welfare and Institutions Code.
An individual or entity shall not bill the policyholder or insured, nor seek reimbursement from the policyholder or insured, for services provided pursuant to this section.
The commissioner shall issue guidance to disability insurers regarding compliance with this section, as well as requirements necessary to comply with Section 5961.4 of the Welfare and Institutions Code. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Guidance issued pursuant to this subdivision shall be effective only until the commissioner adopts regulations pursuant to the Administrative Procedure Act.
An insurance policy issued, amended, renewed, or delivered on or after July 1, 2023, shall cover the cost of developing an evaluation pursuant to Section 5977.1 of the Welfare and Institutions Code and the provision of all health care services for an insured when required or recommended for the insured pursuant to a CARE agreement or CARE plan approved by a court in accordance with the court’s authority under Sections 5977.1, 5977.2, 5977.3, and 5982 of the Welfare and Institutions Code, regardless of whether the service is delivered by an in-network or out-of-network provider.
An insurer shall not require prior authorization for services, other than prescription drugs, provided pursuant to a CARE agreement or CARE plan approved by a court pursuant to Part 8 (commencing with Section 5970) of Division 5 of the Welfare and Institutions Code.
An insurer may conduct a postclaim review to determine appropriate payment of a claim. Payment for services subject to this section may be denied only if the insurer reasonably determines the insured was not insured at the time the services were rendered, the services were never performed, or the services were not provided by a health care provider appropriately licensed or authorized to provide the services.
Notwithstanding paragraph (1), an insurer may require prior authorization for services as permitted by the department pursuant to subdivision (e).
The insurer’s contracted rate with the provider.
The fee-for-service or case reimbursement rate paid in the Medi-Cal program for the same or similar services as identified by the State Department of Health Care Services.
Services provided to an insured pursuant to a CARE agreement or CARE plan, excluding prescription drugs, shall not be subject to copayment, coinsurance, deductible, or any other form of cost sharing. An individual or entity shall not bill the insured, nor seek reimbursement from the insured, for services provided pursuant to a CARE agreement or CARE plan, regardless of whether the service is delivered by an in-network or out-of-network provider.
No later than July 1, 2023, the department may issue guidance to insurers regarding compliance with this section. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Guidance issued pursuant to this subdivision shall be effective only until the department adopts regulations pursuant to the Administrative Procedure Act.
This section does not excuse an insurer from complying with Section 10144.5.
Every policy of disability income insurance, as defined in subdivision (c) of Section 799.01, that is of a short-term limited duration of two years or less, that is issued, amended, or renewed on or after July 1, 2014, and that provides disability income benefits shall provide coverage for disability caused by severe mental illnesses.
For the purposes of this section, “severe mental illnesses” shall include:
Schizophrenia.
Schizoaffective disorder.
Bipolar disorder (manic-depressive illness).
Major depressive disorders, including postpartum depression.
Panic disorder.
Obsessive-compulsive disorder.
Pervasive developmental disorder or autism.
Anorexia nervosa.
Bulimia nervosa.
For provider contracts issued, amended, or renewed on and after January 1, 2023, a disability insurer that provides coverage for mental health and substance use disorders and that credentials health care providers of those services for its networks shall assess and verify the qualifications of a health care provider within 60 days after receiving a completed provider credentialing application. Upon receipt of the application by the credentialing department, the disability insurer shall notify the applicant within seven business days, to verify receipt and inform the applicant whether the application is complete. The 60-day timeline shall apply only to the credentialing process and does not include contracting completion.
For the purposes of this section, “mental health and substance use disorder” and “health care provider” have the same meanings as defined in Section 10144.5.
Except as provided in Section 10144.56, within one year of the operative date of this section, a health insurer or its delegate that credentials health care providers for its networks shall make a determination regarding the credentials of a health care provider within 90 days after receiving a completed provider credentialing application, including all required third-party verifications. Upon receipt of the application by the credentialing department, the health insurer or its delegate shall notify the applicant within 10 business days to verify receipt and inform the applicant whether the application is complete. The health insurer shall activate the provider upon successful approval and notify the applicant of the activation within 10 days of approval if the approval occurs prior to the end of the 90-day timeline. The 90-day timeline shall apply only to the credentialing process and does not include contracting completion. If the health insurer or its delegate does not meet the 90-day requirement, the applicant’s credentials shall be provisionally approved for 120 days unless any of the following apply:
The applicant is subject to discipline by the licensing entity for that applicant.
The applicant has one or more adverse action reports or one or more reports of malpractice payments filed with the National Practitioner Data Bank.
The applicant has not been credentialed by the health insurer in the past five years.
Coverage of mental health and substance use disorder treatment pursuant to Section 10144.5 includes behavioral health crisis services that are provided to an insured by a 988 center, mobile crisis team, or other provider of behavioral health crisis services, as set forth in Chapter 1 (commencing with Section 53123.1) of Part 1 of Division 2 of Title 5 of the Government Code, regardless of whether the service is provided by an in-network or out-of-network provider or facility. With respect to behavioral health crisis services that are provided to an insured by a 988 center or mobile crisis team, a health insurance policy shall cover, at a minimum, all items and services that are eligible for coverage under the Medi-Cal program.
An insurer shall not require prior authorization for behavioral health crisis stabilization services and care provided by a 988 center, mobile crisis team, or other provider of behavioral health crisis services.
Notwithstanding any other law, payment for behavioral health crisis stabilization services and care pursuant to this section shall not be denied unless a health insurer reasonably determines that care was not rendered.
If its prior authorization requirements comply with Section 10144.4, a health insurer may require prior authorization for poststabilization care. If there is a disagreement between a health insurer and behavioral health crisis services provider or facility regarding the need for poststabilization care, an insurer shall assume responsibility for care of the insured by promptly arranging for care pursuant to Section 10144.5 at a level of care determined in accordance with utilization review criteria under Section 10144.52.
The health insurer authorized the 988 center, mobile crisis team, or other provider of behavioral health crisis services to provide poststabilization care.
The health insurer did not respond to the provider’s initial contact or did not make a decision regarding whether to authorize poststabilization care or to promptly transfer the insured’s care within the timeframe set forth in paragraph (1).
There is an unreasonable delay in the transfer of the insured’s care to another provider, and the provider determines that the insured requires poststabilization care.
A 988 center, mobile crisis team, or other provider of behavioral health crisis services shall not bill a patient who is an insured of a health insurer for poststabilization care, except for the in-network cost-sharing amount as defined in paragraph (2) of subdivision (d). An insured who is billed in violation of this section may report receipt of the bill to the health insurer and the department. The department shall forward that report to the State Department of Public Health.
For purposes of this section:
“Behavioral health crisis services” has the same meaning as set forth in Section 53123.1.5 of the Government Code.
“Behavioral health crisis stabilization services” means health care items and services that are necessary to determine if a behavioral health crisis exists and, if a behavioral health crisis does exist, the care and treatment that is necessary to stabilize the behavioral health crisis, within the capability of the 988 center, mobile crisis team, or other provider of behavioral health crisis services.
“Poststabilization care” means medically necessary care provided after a behavioral health crisis has been stabilized.
An insured is “stabilized” or “stabilization” has occurred when, in the opinion of the treating provider or facility, the insured’s condition is such that, within reasonable medical probability, both of the following criteria are satisfied:
Material deterioration of the insured’s condition is unlikely to result from, or occur during, the discharge or transfer of the insured to the care of another provider or facility.
The insured is able to travel safely from the site of care using nonmedical transportation or nonemergency medical transportation. The health insurer shall continue to cover all services and care as behavioral health crisis stabilization services until the insured is discharged or transferred.
This section does not excuse a disability insurer from complying with Section 10144.5 or any other requirement of this part.
This section does not apply to Medicare supplement, dental-only, or vision-only health insurance policies.
The commissioner may promulgate regulations subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) to implement this section, and Section 10144.4, 10144.5, 10144.51, or 10144.52 of this code. This subdivision shall not be construed to impair or restrict the commissioner’s rulemaking authority pursuant to another provision of this code or the Administrative Procedure Act.
For services provided to an insured under a disability insurance policy issued, amended, or renewed on or after July 1, 2025, a disability insurer subject to Section 10144.5, and its delegates, shall establish a process to reimburse providers for mental health and substance use disorder treatment services that are integrated with primary care services. A process required under this section may be based upon federal rules or guidance issued for the Medicare program.
No disability insurer may utilize any information regarding whether a beneficiary’s psychiatric inpatient admission was made on a voluntary or involuntary basis for the purpose of determining eligibility for claim reimbursement.
No insurer issuing, providing, or administering any contract of individual or group insurance providing life, annuity, or disability benefits applied for and issued on or after January 1, 1986, shall refuse to insure, or refuse to continue to insure, or limit the amount, extent, or kind of coverage available to an individual, or charge a different rate for the same coverage solely because of blindness or partial blindness.
“Blindness or partial blindness” means central visual acuity of not more than 20/200 in the better eye, after correction, or visual acuity greater than 20/200 but with a limitation in the fields of vision so that the widest diameter of the visual field subtends an angle no greater than 20 degrees, certified by a licensed physician and surgeon who specializes in diseases of the eye or a licensed optometrist.
Every policy of disability insurance that is issued, amended, or renewed on or after July 1, 2002, that covers hospital, medical, or surgery expenses shall provide coverage for a vaccine for acquired immune deficiency syndrome (AIDS) that is approved for marketing by the federal Food and Drug Administration and that is recommended by the United States Public Health Service.
This section may not be construed to require a policy to provide coverage for any clinical trials relating to an AIDS vaccine or for any AIDS vaccine that has been approved by the federal Food and Drug Administration in the form of an investigational new drug application.
This section shall not apply to vision only, dental only, accident only, specified disease, hospital indemnity, Medicare supplement, CHAMPUS supplement, long-term care, or disability income insurance. For hospital indemnity, accident only, or specified disease insurance coverage, benefits under this section shall apply only to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy or certificate. Nothing in this section shall be construed as imposing a new benefit mandate on accident only, hospital indemnity, or specified disease insurance.
Nothing in this section is to be construed in any manner to limit or impede a disability insurer’s power or responsibility to negotiate the most cost-effective price for vaccine purchases.
Every disability insurer that covers hospital, medical, or surgical benefits shall provide an external, independent review process to examine the insurer’s coverage decisions regarding experimental or investigational therapies for individual insureds who meet all of the following criteria:
The insured has a life-threatening or seriously debilitating condition.
For purposes of this section, “life-threatening” means either or both of the following:
Diseases or conditions where the likelihood of death is high unless the course of the disease is interrupted.
Diseases or conditions with potentially fatal outcomes, where the end point of clinical intervention is survival.
For purposes of this section, “seriously debilitating” means diseases or conditions that cause major irreversible morbidity.
The insured’s physician certifies that the insured has a condition, as defined in paragraph (1), for which standard therapies have not been effective in improving the condition of the insured, for which standard therapies would not be medically appropriate for the insured, or for which there is no more beneficial standard therapy covered by the insurer than the therapy proposed pursuant to paragraph (3).
Either (A) the insured’s contracting physician has recommended a drug, device, procedure, or other therapy that the physician certifies in writing is likely to be more beneficial to the insured than any available standard therapies, or (B) the insured, or the insured’s physician who is a licensed, board-certified or board-eligible physician qualified to practice in the area of practice appropriate to treat the insured’s condition, has requested a therapy that, based on two documents from the medical and scientific evidence, as defined in subdivision (d), is likely to be more beneficial for the insured than any available standard therapy. The physician certification pursuant to this subdivision shall include a statement of the evidence relied upon by the physician in certifying his or her recommendation. Nothing in this subdivision shall be construed to require the insurer to pay for the services of a noncontracting physician, provided pursuant to this subdivision, that are not otherwise covered pursuant to the contract.
The insured has been denied coverage by the insurer for a drug, device, procedure, or other therapy recommended or requested pursuant to paragraph (3), unless coverage for the specific therapy has been excluded by the insurer’s contract.
The specific drug, device, procedure, or other therapy recommended pursuant to paragraph (3) would be a covered service except for the insurer’s determination that the therapy is experimental or under investigation.
The insurer’s decision to deny, delay, or modify experimental or investigational therapies shall be subject to the independent medical review process established under Article 3.5 (commencing with Section 10169) of Chapter 1 of Part 2 of Division 2, except that in lieu of the information specified in subdivision (b) of Section 10169.3, an independent medical reviewer shall base his or her determination on relevant medical and scientific evidence, including, but not limited to, the medical and scientific evidence defined in subdivision (d).
The independent medical review process shall also meet the following criteria:
The insurer shall notify eligible insureds in writing of the opportunity to request the external independent review within five business days of the decision to deny coverage.
If the insured’s physician determines that the proposed therapy would be significantly less effective if not promptly initiated, the analyses and recommendations of the experts on the panel shall be rendered within seven days of the request for expedited review. At the request of the expert, the deadline shall be extended by up to three days for a delay in providing the documents required. The timeframes specified in this paragraph shall be in addition to any otherwise applicable timeframes contained in subdivision (c) of Section 10169.3.
Each expert’s analysis and recommendation shall be in written form and state the reasons the requested therapy is or is not likely to be more beneficial for the insured than any available standard therapy, and the reasons that the expert recommends that the therapy should or should not be covered by the insurer, citing the insured’s specific medical condition, the relevant documents, and the relevant medical and scientific evidence, including, but not limited to, the medical and scientific evidence as defined in subdivision (d), to support the expert’s recommendation.
Coverage for the services required under this section shall be provided subject to the terms and conditions generally applicable to other benefits under the contract.
For the purposes of subdivision (b), “medical and scientific evidence” means the following sources:
The American Hospital Formulary Service’s Drug Information.
The American Dental Association Accepted Dental Therapeutics.
Any of the following reference compendia, if recognized by the federal Centers for Medicare and Medicaid Services as part of an anticancer chemotherapeutic regimen:
The Elsevier Gold Standard’s Clinical Pharmacology.
The National Comprehensive Cancer Network Drug and Biologics Compendium.
The Thomson Micromedex DrugDex.
Findings, studies, or research conducted by or under the auspices of federal government agencies and nationally recognized federal research institutes, including the Federal Agency for Health Care Policy and Research, National Institutes of Health, National Cancer Institute, National Academy of Sciences, Health Care Financing Administration, Congressional Office of Technology Assessment, and any national board recognized by the National Institutes of Health for the purpose of evaluating the medical value of health services.
Peer-reviewed abstracts accepted for presentation at major medical association meetings.
The independent review process established by this section shall be required on and after January 1, 2001.
An individual or group health insurance policy that is issued, amended, or renewed on or after January 1, 2020, shall not:
Deny a qualified insured’s participation in an approved clinical trial.
Deny, limit, or impose additional conditions on the coverage of routine patient care costs for items and services furnished in connection with a qualified insured’s participation in an approved clinical trial.
Discriminate against an insured based on the qualified insured’s participation in an approved clinical trial.
Subdivision (a) applies to:
A qualified insured participating in an approved clinical trial conducted by a participating provider.
A qualified insured participating in an approved clinical trial conducted by a nonparticipating provider, including a nonparticipating provider located outside this state, if the clinical trial is not offered or available through a participating provider.
If one or more participating providers is conducting an approved clinical trial, a health insurer may require a qualified insured to participate in the clinical trial through a participating provider if the participating provider accepts the insured as a clinical trial participant.
A health insurer may restrict coverage to an approved clinical trial in this state, unless the clinical trial is not offered or available through a participating provider in this state.
For purposes of this section:
The National Institutes of Health.
The federal Centers for Disease Control and Prevention.
The Agency for Healthcare Research and Quality.
The federal Centers for Medicare and Medicaid Services.
A cooperative group or center of any of the entities described in clauses (i) to (iv), inclusive, the Department of Defense, or the United States Department of Veterans Affairs.
A qualified nongovernmental research entity identified in the guidelines issued by the National Institutes of Health for center support grants.
One of the following departments, if the study or investigation has been reviewed and approved through a system of peer review that the Secretary of the United States Department of Health and Human Services determines is comparable to the system of peer review used by the National Institutes of Health and ensures unbiased review of the highest scientific standards by qualified individuals who have no interest in the outcome of the review:
The United States Department of Veterans Affairs.
(II) The United States Department of Defense.
(III) The United States Department of Energy.
The study or investigation is a drug trial that is exempt from an investigational new drug application reviewed by the United States Food and Drug Administration.
The insured is eligible to participate in an approved clinical trial, according to the clinical trial protocol, for the treatment of cancer or another life-threatening disease or condition.
Either of the following applies:
The referring health care professional is a participating provider and has concluded that the insured’s participation in the clinical trial would be appropriate because the insured meets the conditions of subparagraph (A).
The insured provides medical and scientific information establishing that the insured’s participation in the clinical trial would be appropriate because the insured meets the conditions of subparagraph (A).
“Routine patient care costs” include drugs, items, devices, and services provided consistent with coverage under the policy for an insured who is not enrolled in an approved clinical trial, including the following:
Drugs, items, devices, and services typically covered absent a clinical trial.
Drugs, items, devices, and services required solely for the provision of an investigational drug, item, device, or service.
Drugs, items, devices, and services required for the clinically appropriate monitoring of the investigational drug, item, device, or service.
Drugs, items, devices, and services provided for the prevention of complications arising from the provision of the investigational drug, item, device, or service.
Drugs, items, devices, and services needed for the reasonable and necessary care arising from the provision of the investigational drug, item, device, or service, including diagnosis and treatment of complications.
“Routine patient care costs” does not include the following:
The investigational drug, item, device, or service itself.
Drugs, items, devices, and services provided solely to satisfy data collection and analysis needs that are not used in the direct clinical management of the insured.
Drugs, items, devices, and services specifically excluded from coverage in the policy, except for drugs, items, devices, and services required to be covered pursuant to this section or other applicable law.
Drugs, items, devices, and services customarily provided free of charge to a clinical trial participant by the research sponsor.
This section shall not be construed to limit coverage provided by a health insurance policy with respect to clinical trials.
The provision of services required by this section shall not, in itself, give rise to liability on the part of the health insurer.
This section does not apply to vision-only, dental-only, accident-only, specified disease, hospital indemnity, Medicare supplement, CHAMPUS supplement, long-term care, or disability income insurance policies, except that for specified disease and hospital indemnity insurance, coverage for benefits under this section shall apply, but only to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy. This section shall not be construed as imposing a new benefit mandate on specified disease or hospital indemnity insurance.
ARTICLE 2.6. Underwriting on the Basis of Test of Genetic Characteristics [10146. - 10149.1.]
The purposes of this article are to establish standards regarding unfair discrimination among individuals of the same class in the underwriting of life or disability income insurance on the basis of tests of a person’s genetic characteristics; to establish minimum standards for determining insurability which are sufficiently reliable to be used for life and disability income insurance risk classification and underwriting purposes; to require the maintenance of strict confidentiality of personal information obtained through a test of a person’s genetic characteristics; and to require informed consent before insurers underwrite on the basis of a test of a person’s genetic characteristics. This article and Sections 10140 and 10143 shall constitute the exclusive requirements for insurers’ practices relating to genetic characteristics or to tests thereof.
As used in this article:
“Disability income insurance” means insurance against loss of occupational earning capacity arising from injury, sickness, or disablement, and includes insurance which provides benefits for overhead expenses of a business or profession when the insured becomes disabled.
“Genetic characteristics” means any scientifically or medically identifiable gene or chromosome, or alteration thereof, that is known to be a cause of a disease or disorder, or that is determined to be associated with a statistically increased risk of development of a disease or disorder, and that is presently not associated with any symptoms of any disease or disorder.
“Life or disability income insurer” means an insurer licensed to transact life insurance or disability income insurance in this state or a fraternal benefit society licensed in this state.
“Policy” means (1) a life insurance policy or a disability income insurance policy delivered in this state, or (2) a certificate of life insurance benefits or disability income insurance benefits, issued under a group life or disability income insurance policy and delivered in this state by a life or disability income insurer or a fraternal benefits society, regardless of the location of the group master policy.
“Test of a person’s genetic characteristics” means a laboratory test which is generally accepted in the scientific and medical communities for the determination of the presence or absence of genetic characteristics.
No insurer shall require a test for the presence of a genetic characteristic for the purpose of determining insurability other than for those policies that are contingent on review or testing for other diseases or medical conditions. In those cases, the test shall be done in accordance with the informed consent and privacy protection provisions of this article and Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1. Notwithstanding any other provision of law, this constitutes the exclusive requirements for informed consent and privacy protection for that testing.
An insurer that requests an applicant to take a genetic characteristic test shall obtain the applicant’s written informed consent for the test. Written informed consent shall include a description of the test to be performed, including its purpose, potential uses, and limitations, the meaning of its results, procedures for notifying the applicant of the results, and the right to confidential treatment of the results.
The insurer shall notify an applicant of a test result by notifying the applicant or the applicant’s designated physician. If the applicant tested has not given written consent authorizing a physician to receive the test results, the applicant shall be urged, at the time the applicant is informed of the test results, to contact a health care professional.
The commissioner shall develop and adopt standardized language for the informed consent disclosure form required by this section to be given to any applicant for life or disability income insurance who takes a test for a genetic characteristic.
A life or disability income insurer shall not require a person to undergo a test of the person’s genetic characteristics unless the cost of the test is paid by the insurer.
No policy shall limit benefits otherwise payable if loss is caused or contributed to by the presence or absence of genetic characteristics, except to the extent and in the same fashion as the insurer limits coverage for loss caused or contributed to by other medical conditions presenting an increased degree of risk.
Nothing in this chapter shall limit an insurer’s right to decline an application or enrollment request for a life or disability income insurance policy, charge a higher rate or premium for such a policy, or place a limitation on coverage under such a policy, on the basis of manifestations of any disease or disorder.
No discrimination shall be made in the fees or commissions of agents or brokers writing or renewing a life or disability income policy on the basis of a test of that person’s genetic characteristics.
All underwriting activities undertaken by insurers pursuant to this article shall be subject to all applicable provisions of Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1.
No life or disability income insurer shall require a genetic characteristic test if the results of the test would be used exclusively or nonexclusively for the purpose of determining eligibility for hospital, medical, or surgical insurance coverage or eligibility for coverage under a nonprofit hospital service plan or health care service plan.
This section shall apply to the disclosure of the results of a test for a genetic characteristic requested by an insurer pursuant to this article.
Any person who negligently discloses results of a test for a genetic characteristic to any third party, in a manner which identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization, as described in subdivision (g), or except as provided in this article or in Sections 1603.1 and 1603.3 of the Health and Safety Code, shall be assessed a civil penalty in an amount not to exceed one thousand dollars ($1,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully discloses the results of a test for a genetic characteristic to any third party, in a manner which identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization, as described in subdivision (g), or except as provided in this article or in Sections 1603.1 and 1603.3 of the Health and Safety Code, shall be assessed a civil penalty in an amount not less than one thousand dollars ($1,000) and no more than five thousand dollars ($5,000) plus court costs, as determined by the court, which penalty and costs shall be paid to the subject of the test.
Any person who willfully or negligently discloses the results of a test for a genetic characteristic to a third party, in a manner which identifies or provides identifying characteristics of the person to whom the test results apply, except pursuant to a written authorization, as described in subdivision (g), or except as provided in this article or in Sections 1603.1 and 1603.3 of the Health and Safety Code, which results in economic, bodily, or emotional harm to the subject of the test, is guilty of a misdemeanor punishable by imprisonment in a county jail for a period not to exceed one year, by a fine of not to exceed ten thousand dollars ($10,000), or by both that fine and imprisonment.
Any person who commits any act described in subdivision (b) or (c) shall be liable to the subject for all actual damages, including damages for economic, bodily, or emotional harm which is proximately caused by the act.
Each disclosure made in violation of this section is a separate and actionable offense.
The applicant’s “written authorization,” as used in this section, applies only to the disclosure of test results by a person responsible for the care and treatment of the person subject to the test. Written authorization is required for each separate disclosure of the test results, and shall include to whom the disclosure would be made.
ARTICLE 3. Policy Provisions Required [10150. - 10154.]
The provisions of this article shall not apply to annuities, industrial policies or to term contracts issued for periods of twenty years or less.
This article is not applicable to life policies issued on or after the operative date as to such policies of Article 3a, Chapter 1, Part 2, Division 2.
Every contract or policy of life insurance (excluding additional benefits specified therein or issued in connection therewith for accidental death or disability) hereinafter made by any person or corporation, with and upon the life of a resident of this State, and delivered within this State, shall provide, in event of default of any premium payment after three full annual premiums shall have been paid on such policy, that without any action on the part of the insured, the net value of such policy based upon the reserve basis used in computing the premiums and values thereunder (the policy to specify the mortality table and rate of interest so adopted) which net value shall be at least equal to its entire net reserve at the date of default, including that of dividend additions, if any, based upon a standard not lower than the American experience tables of mortality with interest at three and one-half per cent yearly, less a surrender charge of not more than two and one-half per cent of the face amount of the policy and of any existing dividend additions thereto and less any indebtedness to the company on or secured by the policy, shall be applied as a single premium to the purchase of one of the following stipulated forms of insurance:
First. Paid-up participating or nonparticipating term insurance in the amount of the face of the policy, plus dividend additions, if any, for such a period as the net value outlined above will purchase at the net single premium, at the attained age of the insured at the time of the lapse, based upon the reserve basis described in the policy; provided, however, that under endowment contracts the term shall not extend beyond the endowment period named in the original contract, and the excess value, if any, shall be applied as a net single premium to purchase in the same manner paid-up pure endowment insurance, payable at the end of the endowment period named in the contract if the insured be then living, or,
Second. Paid-up participating or nonparticipating term insurance in the amount of the face of the policy, plus dividend additions, if any, and less any outstanding indebtedness, for such a period as the net value outlined above will purchase at the net single premium, at the attained age of the insured, based upon the reserve basis described in the policy; provided, however, that under endowment contracts the term shall not extend beyond the endowment period named in the original contract, and the excess value, if any, shall be applied as a net single premium to purchase in the same manner paid-up pure endowment insurance, payable at the end of the endowment period named in the contract if the insured be then living, or
Third. Paid-up participating or nonparticipating insurance payable at the time and on the conditions named in the policy for such an amount as the net value outlined above will purchase at the net single premium, at the attained age of the insured, based upon the reserve basis described in the policy.
In lieu of the application of the provisions for automatic insurance upon nonpayment of premium the policy may be surrendered to the insurer at its home office, upon due application by the legal owner thereof, within one month after date of premium default for a specified cash value which shall be at least equal to the sum which would be otherwise available for the purchase of the automatic form of insurance provided therein. The insurer may defer payment of such cash value for not more than six months after application therefor is made.
Any life policy issued upon the life of a resident of this State and delivered within this State, which does not contain an automatic nonforfeiture value in conformity with section 10151 shall be construed as granting the nonparticipating term insurance as provided in paragraph first of section 10151. Such a benefit shall be read into the policy.
ARTICLE 3a. Standard Nonforfeiture Law for Life Insurance [10159.1. - 10167.5.]
This article is applicable only to policies and contracts issued on or after the operative date as to such policies or contracts of this article.
The term “operative date of the valuation manual” means the January 1 of the first calendar year that the valuation manual, as defined in Section 10489.1, is effective.
After December 31, 1943, any insurer may file with the commissioner a written notice of its election to comply with the provisions of this article as to any or all of its policies after a specified date before January 1, 1948. After the filing of such notice, then upon such specified date, this article shall become operative with respect to the policies specified in the notice and which are thereafter issued by such insurer. As to all of its policies with respect to which an insurer makes no such election, the operative date of this article shall be January 1, 1948.
Except as provided in Section 10165, no policy of life insurance shall be delivered or issued for delivery in this state unless it shall contain in substance the following provisions, or corresponding provisions which are at least as favorable to the defaulting or surrendering policyholder as are the minimum requirements hereinafter specified and are essentially in compliance with Section 10164.1 of this law:
That, in the event of default in any premium payment after premiums have been paid for at least one full year the insurer will grant, upon proper request not later than 60 days after the due date of the premium in default, a paid-up nonforfeiture benefit on a plan stipulated in the policy, effective as of such due date, of such amount as may be hereinafter specified. In lieu of this stipulated paid-up nonforfeiture benefit, the company may substitute, upon proper request not later than 60 days after the due date of the premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or longer period of death benefits or, if applicable, a greater amount or earlier payment of endowment benefits.
That, upon surrender of the policy within 60 days after the due date of any premium payment in default after premiums have been paid for at least three full years in the case of ordinary insurance or five full years in the case of industrial insurance, the insurer will pay, in lieu of any paid-up nonforfeiture benefit, a cash surrender value of such amount as may be hereinafter specified.
That a specified paid-up nonforfeiture benefit shall become effective as specified in the policy unless the person entitled to make such election elects another available option not later than 60 days after the due date of the premium in default.
That, if the policy shall have become paid-up by completion of all premium payments or if it is continued under any paid-up nonforfeiture benefit which became effective on or after the third policy anniversary in the case of ordinary insurance or the fifth policy anniversary in the case of industrial insurance, the insurer will pay, upon surrender of the policy within 30 days after any policy anniversary, a cash surrender value of such amount as may be hereinafter specified.
In the case of policies which cause, on a basis guaranteed in the policy, unscheduled changes in benefits or premiums, or which provide an option for changes in benefits or premiums other than a change to a new policy, a statement of the mortality table, interest rate, and method used in calculating cash surrender values and the paid-up nonforfeiture benefits available under the policy. In the case of all other policies, a statement of the mortality table and interest rate used in calculating the cash surrender values and the paid-up nonforfeiture benefits available under the policy, together with a schedule showing the cash surrender value, if any, and paid-up nonforfeiture benefit, if any, available under the policy on each policy anniversary either during the first 20 policy years or during the term of the policy, whichever is shorter, such values and benefits to be calculated upon the assumption that there are no dividends or paid-up additions credited to the policy and that there is no indebtedness to the insurer on account of or secured by the policy. At the option of the insurer such schedule may also show such values and benefits for any year or years beyond the twentieth policy year.
A brief and general statement of the method to be used in calculating the cash surrender value and the paid-up nonforfeiture benefit available under the policy on any policy anniversary beyond the last anniversary for which such values and benefits are consecutively shown in the policy with an explanation of the manner in which the cash surrender values and the paid-up nonforfeiture benefits are altered by the existence of any paid-up additions credited to the policy or any indebtedness to the insurer on account of or secured by the policy.
Any of the foregoing provisions or portions thereof not applicable by reason of the plan of insurance may, to the extent inapplicable, be omitted from the policy.
The insurer shall reserve the right to defer the payment of any cash surrender value for a period of six months after demand therefor with surrender of the policy.
Any cash surrender value available under the policy in the event of default in a premium payment due on any policy anniversary, whether or not required by Section 10160, shall be an amount not less than the excess, if any, of the present value, on such anniversary, of the future guaranteed benefits which would have been provided for by the policy, including any existing paid-up additions, if there had been no default, over the sum of (a) the then present value of the adjusted premiums as defined in Sections 10163, 10163.1, and 10163.2 corresponding to premiums which would have fallen due on and after such anniversary, and (b) the amount of any indebtedness to the company on the policy.
Provided, however, that for any policy issued on or after January 1, 1989, which provides supplemental life insurance or annuity benefits at the option of the insured and for an identifiable additional premium by rider or supplemental policy provision, the cash surrender value referred to in the first paragraph of this section shall be an amount not less than the sum of the cash surrender value as defined in such paragraph for an otherwise similar policy issued at the same age without such rider or supplemental policy provision and the cash surrender value as defined in such paragraph for a policy which provides only the benefits otherwise provided by such rider or supplemental policy provision.
Provided, further, that for any family policy issued on or after January 1, 1989, which defines a primary insured and provides term insurance on the life of the spouse of the primary insured expiring before the spouse’s age of 71, the cash surrender value referred to in the first paragraph of this section shall be an amount not less than the sum of the cash surrender value as defined in such paragraph for an otherwise similar policy issued at the same age without such term insurance on the life of the spouse and the cash surrender value as defined in such paragraph for a policy which provides only the benefits otherwise provided by such term insurance on the life of the spouse.
Any cash surrender value available within 30 days after any policy anniversary under any policy paid up by completion of all premium payments or any policy continued under any paid-up nonforfeiture benefit, whether or not required by Section 10160, shall be an amount not less than the present value, on such anniversary, of the future guaranteed benefits provided for by the policy, including any existing paid-up additions, decreased by any indebtedness to the company on the policy.
Any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment due on any policy anniversary shall be such that its present value as of such anniversary shall be at least equal to the cash surrender value then provided for by the policy or, if none is provided for, that cash surrender value which would have been required by this article in the absence of the condition that premiums shall have been paid for at least a specified period.
This section shall not apply to policies issued on or after the operative date of Section 10163.2 as defined therein. Except as provided in the third paragraph of this section, the adjusted premiums for any policy shall be calculated on an annual basis and shall be such uniform percentage of the respective premiums specified in the policy for each policy year, excluding extra premiums on a substandard policy, that the present value, at the date of issue of the policy, of all such adjusted premiums shall be equal to the sum of (i) the then present value of the future guaranteed benefits provided for by the policy; (ii) two percent (2%) of the amount of insurance, if the insurance be uniform in amount, or of the equivalent uniform amount, as hereinafter defined, if the amount of insurance varies with duration of the policy; (iii) forty percent (40%) of the adjusted premium for the first policy year; (iv) twenty-five percent (25%) of either the adjusted premium for the first policy year or the adjusted premium for a whole life policy of the same uniform or equivalent uniform amount with uniform premiums for the whole of life issued at the same age for the same amount of insurance, whichever is less. In applying the percentages specified in (iii) and (iv) above, no adjusted premium shall be deemed to exceed four percent (4%) of the amount of insurance or uniform amount equivalent thereto.
In the case of a policy providing an amount of insurance varying with duration of the policy, the equivalent uniform amount thereof for the purpose of this section shall be deemed to be the uniform amount of insurance provided by an otherwise similar policy, containing the same endowment benefit or benefits, if any, issued at the same age and for the same term, the amount of which does not vary with duration and the benefits under which have the same present value at the date of issue as the benefits under the policy, provided, however, that in the case of a policy providing a varying amount of insurance issued on the life of a child under age 10, the equivalent uniform amount may be computed as though the amount of insurance provided by the policy prior to the attainment of age 10 were the amount provided by such policy at age 10.
The adjusted premiums for any policy providing term insurance benefits by rider or supplemental policy provision unless such term insurance benefits are disregarded under Section 10164 shall be equal to (a) the adjusted premiums for an otherwise similar policy issued at the same age without such term insurance benefits, increased, during the period for which premiums for such term insurance benefits are payable, by (b) the adjusted premiums for such term insurance, the foregoing items (a) and (b) being calculated separately and as specified in the first two paragraphs of this section.
Except as otherwise provided in Section 10163.1, all adjusted premiums and present values referred to in this article shall for all policies of ordinary insurance be calculated on the basis of the Commissioners 1941 Standard Ordinary Mortality Table; provided, however, that for any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated, at the option of the insurer, according to an age not more than three years younger than the actual age of the insured, and such calculations for all policies of industrial insurance shall be made on the basis of the 1941 Standard Industrial Mortality Table. All calculations shall be made on the basis of the rate of interest, not exceeding three and one-half percent (312%) per annum, specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits. However, in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than one hundred thirty percent (130%) of the rates of mortality according to such applicable table; and for insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the insurer and approved by the commissioner.
In the case of ordinary policies issued on or after the operative date of this subdivision as defined herein, all adjusted premiums and present values referred to in this article shall be calculated on the basis of the Commissioners 1958 Standard Ordinary Mortality Table and the rate of interest specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits, provided that such rate of interest shall not exceed 312 percent per annum except that a rate of interest not exceeding 4 percent per annum may be used for all policies issued on or after January 1, 1970, and prior to January 1, 1980, and a rate of interest not exceeding 512 percent per annum may be used for all such policies issued on or after January 1, 1980, except that for any single premium whole life or endowment insurance policy a rate of interest not exceeding 612 percent per annum may be used; provided, that for any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated according to an age not more than six years younger than the actual age of the insured; provided, however, that in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the Commissioners 1958 Extended Term Insurance Table; provided further, that for insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the company and approved by the commissioner.
On or after January 1, 1961, any company may file with the commissioner a written notice of its election to comply with the provisions of this subdivision after a specified date before January 1, 1966. After the filing of such notice, then upon such specified date (which shall be the operative date of this subdivision for such company), this subdivision shall become operative with respect to the ordinary policies thereafter issued by such company. If a company makes no such election, the operative date of this subdivision for such company shall be January 1, 1966.
In the case of industrial policies issued on or after the operative date of this subdivision as defined herein, all adjusted premiums and present values referred to in this article shall be calculated on the basis of the Commissioners 1961 Standard Industrial Mortality Table and the rate of interest specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits, provided that such rate of interest shall not exceed 312 percent per annum except that a rate of interest not exceeding 4 percent per annum may be used for all such policies issued on or after January 1, 1970, and prior to January 1, 1980, and a rate of interest not exceeding 512 percent per annum may be used for all such policies issued on or after January 1, 1980, except that for any single premium whole life or endowment insurance policy a rate of interest not exceeding 612 percent per annum may be used. Provided, however, that in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the Commissioners 1961 Industrial Extended Term Insurance Table. Provided, further, that for insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the company and approved by the commissioner.
After September 20, 1963, any company may file with the commissioner a written notice of its election to comply with the provisions of this subdivision after a specified date before January 1, 1968. After the filing of such notice, then upon such specified date (which shall be the operative date of this subdivision for such company), this subdivision shall become operative with respect to the industrial policies thereafter issued by such company. If a company makes no such election, the operative date of this subdivision for such company shall be January 1, 1968.
This section shall not apply to ordinary or industrial policies issued on or after the operative date of Section 10163.2.
This section shall apply to all policies issued on or after the operative date of this section as defined herein. Except as provided in subdivision (g), the adjusted premiums for any policy shall be calculated on an annual basis and shall be such uniform percentage of the respective premiums specified in the policy for each policy year, excluding amounts payable as extra premiums to cover impairments or special hazards and also excluding any uniform annual contract charge or policy fee specified in the policy in a statement of the method to be used in calculating the cash surrender values and paid-up nonforfeiture benefits, that the present value, at the date of issue of the policy, of all adjusted premiums shall be equal to the sum of (1) the then present value of the future guaranteed benefits provided for by the policy; (2) 1 percent of either the amount of insurance, if the insurance is uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years; and (3) 125 percent of the nonforfeiture net level premium as hereinafter defined. Provided, however, that in applying the percentage specified in (3) no nonforfeiture net level premium shall be deemed to exceed 4 percent of either the amount of insurance, if the insurance is uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years. The date of issue of a policy for the purpose of this section shall be the date as of which the rated age of the insured is determined.
The nonforfeiture net level premium shall be equal to the present value, at the date of issue of the policy, of the guaranteed benefits provided for by the policy, divided by the present value, at the date of issue of the policy, of an annuity of 1 percent per annum payable on the date of issue of the policy and on each anniversary of such policy on which a premium falls due.
In the case of policies that cause on a basis guaranteed in the policy, unscheduled changes in benefits or premiums, or that provide an option for changes in benefits or premiums other than a change to a new policy, the adjusted premiums and present values shall initially be calculated on the assumption that future benefits and premiums do not change from those stipulated at the date of issue of the policy. At the time of any such change in the benefits or premiums, the future adjusted premiums, nonforfeiture net level premiums, and present values shall be recalculated on the assumption that future benefits and premiums do not change from those stipulated by the policy immediately after the change.
Except as otherwise provided in subdivision (g), the recalculated future adjusted premiums for any such policy shall be such uniform percentage of the respective future premiums specified in the policy for each policy year, excluding amounts payable as extra premiums to cover impairments and special hazards, and also excluding any uniform annual contract charge or policy fee specified in the policy in a statement of the method to be used in calculating the cash surrender values and paid-up nonforfeiture benefits, that the present value, at the time of change to the newly defined benefits or premiums, of all such future adjusted premiums shall be equal to the excess of (1) the sum of (A) the then present value of the then future guaranteed benefits provided for by the policy and (B) the additional expense allowance, if any, over (2) the then cash surrender value, if any, or present value of any paid-up nonforfeiture benefit under the policy.
The additional expense allowance, at the time of the change to the newly defined benefits or premiums, shall be the sum of (1) 1 percent of the excess, if positive, of the average amount of insurance at the beginning of each of the first 10 policy years subsequent to the change over the average amount of insurance prior to the change at the beginning of each of the first 10 policy years subsequent to the time of the most recent previous change, or, if there has been no previous change, the date of issue of the policy; and (2) 125 percent of the increase, if positive, in the nonforfeiture net level premium.
The recalculated nonforfeiture net level premium shall be equal to the result obtained by dividing (1) by (2) where:
It equals the sum of:
The nonforfeiture net level premium applicable prior to the change times the present value of an annuity of 1 percent per annum payable on each anniversary of the policy on or subsequent to the date of the change on which a premium would have fallen due had the change not occurred, and
The present value of the increase in future guaranteed benefits provided for by the policy, and
It equals the present value of an annuity of 1 percent per annum payable on each anniversary of the policy on or subsequent to the date of change on which a premium falls due.
Notwithstanding any other provision of this section to the contrary, in the case of a policy issued on a substandard basis that provides reduced graded amounts of insurance so that, in each policy year, such policy has the same tabular mortality cost as an otherwise similar policy issued on the standard basis that provides higher uniform amounts of insurance, adjusted premiums and present values for such substandard policy may be calculated as if it were issued to provide such higher uniform amounts of insurance on the standard basis.
All adjusted premiums and present values referred to in this article shall for all policies of ordinary insurance be calculated on the basis of (1) the Commissioners 1980 Standard Ordinary Mortality Table or (2) at the election of the company for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors; shall for all policies of industrial insurance be calculated on the basis of the Commissioners 1961 Standard Industrial Mortality Table; and shall for all policies issued in a particular calendar year be calculated on the basis of a rate of interest not exceeding the nonforfeiture interest rate as defined in this section for policies issued in that calendar year. Provided, however, that:
At the option of the company, calculations for all policies issued in a particular calendar year may be made on the basis of a rate of interest not exceeding the nonforfeiture interest rate, as defined in this section, for policies issued in the immediately preceding calendar year.
Under any paid-up nonforfeiture benefit, including any paid-up dividend additions, any cash surrender value available, whether or not required by Section 10160, shall be calculated on the basis of the mortality table and rate of interest used in determining the amount of such paid-up nonforfeiture benefit and paid-up dividend additions, if any.
A company may calculate the amount of any guaranteed paid-up nonforfeiture benefit including any paid-up additions under the policy on the basis of an interest rate no lower than that specified in the policy for calculating cash surrender values.
In calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the Commissioners 1980 Extended Term Insurance Table for policies of ordinary insurance and not more than the Commissioners 1961 Industrial Extended Term Insurance Table for policies of industrial insurance.
For insurance issued on a substandard basis, the calculation of any such adjusted premiums and present values may be based on appropriate modifications of the aforementioned tables.
For policies issued prior to the operative date of the valuation manual, any Commissioners Standard Ordinary mortality tables, adopted after 1980 by the National Association of Insurance Commissioners (NAIC), or its successor, that are approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum nonforfeiture standard may be substituted for the Commissioners 1980 Standard Ordinary Mortality Table with or without Ten-Year Select Mortality Factors or for the Commissioners 1980 Extended Term Insurance Table.
For policies issued on or after the operative date of the valuation manual, the valuation manual shall provide the Commissioners Standard mortality table for use in determining the minimum nonforfeiture standard that may be substituted for the Commissioners 1980 Standard Ordinary Mortality Table with or without Ten-Year Select Mortality Factors or for the Commissioners 1980 Extended Term Insurance Table. If the commissioner approves by regulation any Commissioners Standard Ordinary mortality table adopted by the NAIC for use in determining the minimum nonforfeiture standard for policies issued on or after the operative date of the valuation manual then that minimum nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the valuation manual.
For policies issued prior to the operative date of the valuation manual, any Commissioners Standard Industrial mortality tables, adopted after 1980 by the NAIC, or its successor, that are approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum nonforfeiture standard may be substituted for the Commissioners 1961 Standard Industrial Mortality Table or the Commissioners 1961 Industrial Extended Term Insurance Table.
For policies issued on or after the operative date of the valuation manual, the valuation manual shall provide the Commissioners Standard mortality table for use in determining the minimum nonforfeiture standard that may be substituted for the Commissioners 1961 Standard Ordinary Mortality Table or the Commissioners 1961 Industrial Extended Term Insurance Table. If the commissioner approves by regulation any Commissioners Standard Ordinary mortality table adopted by the NAIC for use in determining the minimum nonforfeiture standard for policies issued on or after the operative date of the valuation manual then that minimum nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the valuation manual.
The nonforfeiture interest rate.
Notwithstanding any other provision in this code to the contrary, any refiling of nonforfeiture values or their methods of computation for any previously approved policy form that involves only a change in the interest rate or mortality table used to compute nonforfeiture values shall not require refiling of any other provisions of that policy form.
After the effective date of this section, any company may file with the commissioner a written notice of its election to comply with this section after a specified date before January 1, 1989, which shall be the operative date of this section for such company. If a company makes no such election, the operative date of this section for such company shall be January 1, 1989.
In the case of any plan of life insurance that provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of any plan of life insurance that is of such a nature that minimum values cannot be determined by the methods described in Section 10160, 10161, 10162, 10163, 10163.1, or 10163.2, then:
The commissioner must be satisfied that the benefits and the pattern of premiums of that plan are not such as to mislead prospective policyholders or insureds.
The cash surrender values and paid-up nonforfeiture benefits provided by the plan must not be less than the minimum values and benefits required for the plan computed by a method consistent with the principles of this Standard Nonforfeiture Law for Life Insurance, as determined by regulations promulgated by the commissioner.
Notwithstanding any other provision of law, the form of any policy, contract, or certificate providing life insurance that is subject to this article shall be filed by the obligor under the policy, contract, or certificate with the commissioner before it is marketed, issued, delivered, or used in this state.
Nothing contained in this section shall be construed as requiring or providing for the prior approval by the commissioner of forms of individual life insurance policies, contracts, or certificates prior to the time the forms are marketed, issued, delivered, or used in this state.
Any cash surrender value and any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment due at any time other than on the policy anniversary, shall be calculated with allowance for the lapse of time and the payment of fractional premiums beyond the last preceding policy anniversary. All values referred to in Sections 10161, 10162, 10163, 10163.1, and 10163.2 may be calculated upon the assumption that any death benefit is payable at the end of the policy year of death. The net value of any paid-up additions, other than paid-up term additions, shall be not less than the amounts used to provide such additions. Notwithstanding the provisions of Section 10161, additional benefits payable (a) in the event of death or dismemberment by accident or accidental means, (b) in the event of total and permanent disability, (c) as reversionary annuity or deferred reversionary annuity benefits, (d) as term insurance benefits provided by a rider or supplemental policy provision to which, if issued as a separate policy, this article would not apply, (e) as term insurance on the life of a child or on the lives of children provided in a policy on the life of a parent of the child, if such term insurance expires before the child’s age is 26, is uniform in amount after the child’s age is one, and has not become paid up by reason of the death of a parent of the child, and (f) as other policy benefits additional to life insurance and endowment benefits, and premiums for all such additional benefits, shall be disregarded in ascertaining cash surrender values and nonforfeiture benefits required by this article, and no such additional benefits shall be required to be included in any paid-up nonforfeiture benefits.
This section shall apply to all policies issued on or after January 1, 1986. Any cash surrender value available under the policy in the event of default in a premium payment due on any policy anniversary shall be in an amount which does not differ by more than two-tenths of 1 percent of either the amount of insurance, if the insurance be uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years, from the sum of (a) the greater of zero and the basic cash value hereinafter specified and (b) the present value of any existing paid-up additions less the amount of any indebtedness to the company under the policy.
The basic cash value shall be equal to the present value, on such anniversary, of the future guaranteed benefits which would have been provided for by the policy, excluding any existing paid-up additions and before deduction of any indebtedness to the company, if there had been no default, less the then present value of the nonforfeiture factors, as hereinafter defined, corresponding to premiums which would have fallen due on and after such anniversary. Provided, however, that the effects on the basic cash value of supplemental life insurance or annuity benefits or of family coverage, as described in Section 10161 or 10163 whichever is applicable, shall be the same as are the effects specified in Section 10161 or 10163 whichever is applicable, on the cash surrender values defined in that section.
The nonforfeiture factor for each policy year shall be an amount equal to a percentage of the adjusted premium for the policy year, as defined in Section 10163 or 10163.2 whichever is applicable. Except as is required by the next succeeding sentence of this paragraph, such percentage:
Shall be the same percentage for each policy year between the second policy anniversary and the later of (i) the fifth policy anniversary and (ii) the first policy anniversary at which there is available under the policy a cash surrender value in an amount, before including any paid-up additions and before deducting any indebtedness, of at least two-tenths of 1 percent of either the amount of insurance, if the insurance be uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years.
Must be such that no percentage after the later of the two policy anniversaries specified in subdivision (a) may apply to fewer than five consecutive policy years.
Provided, that no basic cash value may be less than the value which would be obtained if the adjusted premiums for the policy, as defined in Section 10163 or 10163.2 whichever is applicable, were substituted for the nonforfeiture factors in the calculation of the basic cash value.
All adjusted premiums and present values referred to in this section shall for a particular policy be calculated on the same mortality and interest bases as are used in demonstrating the policy’s compliance with the other sections of this article. The cash surrender values shall include any endowment benefits provided for by the policy.
Any cash surrender value available other than in the event of default in a premium payment due on a policy anniversary, and the amount of any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment shall be determined in manners consistent with the manners specified for determining the analogous minimum amounts in Sections 10160, 10161, 10162, 10163.2, and 10164. The amounts of any cash surrender values and of any paid-up nonforfeiture benefits granted in connection with additional benefits such as those listed as items (a) through (f) in Section 10164 shall conform with the principles of this section.
For a policy of individual life insurance that is surrendered by the policy owner, the insurer shall return to the owner all moneys due in relation to that policy as expeditiously as possible, but in no event more than 45 days from the date the surrender is effective as provided in subdivision (b). However, this section does not supersede the provisions of subdivision (f) of Section 10160 empowering an insurer to defer payment of cash surrender value for up to six months, to the extent that deferral is necessary to assure the solvency of the insurer.
Unless a later date permitted by the policy, but not later than 45 days after the request is received, is requested by the policy owner, a surrender of a life insurance policy is effective on the date the request is received, if the request is made to the insurer or servicing agent authorized by the insurer in writing to receive these requests on the insurer’s behalf and contains the elements specified by the insurer in the contract. The insurer may require the request be in writing. The insurer may require some or all of the following elements, but shall not require more:
A statement that makes it clear that the policy owner intends to surrender, in whole or in part, the contract in question.
The policy number of the policy to be surrendered.
The name of the insured on the policy to be surrendered.
The signature of the owner of the policy and, if required by the policy or by a legally binding document of which the insurer has actual notice, the signature of a collateral assignee, irrevocable beneficiary, or other person having an interest in the policy through the legally binding document.
Either the policy itself, or, in lieu of the policy, a statement that the policy has been lost or destroyed.
When the policy owner requests of an insurer or servicing agent information about surrendering a policy, the insurer or servicing agent shall provide, as expeditiously as possible, a written notice setting forth either the requirements of this section or the insurer’s requirements, if less.
A policy subject to this section issued on or after January 1, 1997, shall either include language that may be included by endorsement, or be accompanied by a notice setting forth the elements necessary to surrender the policy as required by this section or by the insurer, if less.
Nothing in this section shall be construed to limit an existing statutory right to return a policy for surrender, nor shall it limit a contractual provision that provides a greater right or option to the policy owner.
For a written request, for purposes of this section, “received” means the first day that the written notice is delivered to the address of the insurer or servicing agent authorized by the insurer in writing to receive these requests on the insurer’s behalf. An insurer or servicing agent shall maintain a procedure for ensuring that requests for surrender are logged or stamped on the date received, and not on a later date due to the insurer’s or servicing agent’s internal routing or delivery procedures. If this procedure is not maintained, it shall be conclusively presumed that a request was received on the delivery date shown on an express, certified, or registered mail receipt form of the United States Postal Service or by a commercial carrier, if delivered by commercial carrier, or the earlier of (1) two business days after the request was postmarked by the United States Postal Service or (2) one business day before the date stamped received by the insurer or servicing agent. For purposes of this subdivision, “business day” has the meaning set forth in subdivision (b) of Section 1215. Postmarks generated by postage meters not located at an office of the United States Postal Service are to be disregarded.
This section does not alter a contractual provision governing calculation of cash or surrender or other values. The effective date established by subdivision (b) is intended to establish a date certain on which a policyholder may rely in determining when the 45-day period specified in subdivision (a) begins to run. Subdivision (b) is not intended to advance a date otherwise provided by contract that is triggered by a request to surrender. An insurer may request information in addition to that listed in subdivision (b). However, an insurer’s request for additional information does not delay an effective date established by a policyholder’s compliance with subdivision (b).
This article shall not apply to any of the following:
Reinsurance.
Group insurance.
Pure endowment.
Annuity or reversionary annuity contract.
Term policy of uniform amount, which provides no guaranteed nonforfeiture or endowment benefits, or renewal thereof, of 20 years or less expiring before age 71, for which uniform premiums are payable during the entire term of the policy.
Term policy of decreasing amount, which provides no guaranteed nonforfeiture or endowment benefits, on which each adjusted premium, calculated as specified in Sections 10163, 10163.1, and 10163.2, is less than the adjusted premium so calculated, on a term policy of uniform amount, or renewal thereof, which provides no guaranteed nonforfeiture or endowment benefits, issued at the same age and for the same initial amount of insurance and for a term of 20 years or less expiring before age 71, for which uniform premiums are payable during the entire term of the policy.
A policy, which provides no guaranteed nonforfeiture or endowment benefits, for which no cash surrender value, if any, or present value of any paid-up nonforfeiture benefit, at the beginning of any policy year, calculated as specifed in Sections 10161, 10162, 10163, 10163.1, and 10163.2, exceeds 212 percent of the amount of insurance at the beginning of the same policy year, nor
A policy which shall be delivered outside this state through an agent or other representative of the company issuing the policy.
For purposes of determining the applicability of this article, the age at expiry for a joint-term life insurance policy shall be the age at expiry of the oldest life.
No agreement between the insurer and the policyholder or applicant for insurance contrary to this article shall be held to waive any of the provisions of this article.
Any policy to which this article is applicable which does not contain a paid-up nonforfeiture benefit shall be construed as granting nonparticipating paid-up term insurance as a nonforfeiture benefit under subdivision (a) Section 10160.
Whenever a nonforfeiture benefit is implemented by a life insurer in connection with a defaulting policyowner, the insurer shall provide a notice to the policyowner which explains that action and refers the policyowner to the other available options, if any, under the provisions of the policy.
For purposes of this section, any notice to a policyholder shall be in writing and shall be mailed to the last known address of the policyowner shown on the records of the insurer.
This section does not apply to any of the following:
Reinsurance.
Group insurance.
Pure endowment.
Annuity or reversionary annuity contract.
Industrial insurance.
ARTICLE 3b. Standard Nonforfeiture Law for Individual Deferred Annuities [10168. - 10168.10.]
This article shall not apply to any reinsurance, group annuity purchased under a retirement plan or plan of deferred compensation established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as now or hereafter amended, premium deposit fund, variable annuity, investment annuity, immediate annuity, any deferred annuity contract after annuity payments have commenced, or reversionary annuity, nor to any contract which shall be delivered outside this state through an agent or other representative of the company issuing the contract.
In the case of contracts issued on or after the operative date of this article as defined in Section 10168.10, no contract of annuity, except as stated in Section 10168, shall be delivered or issued for delivery in this state unless it contains in substance the following provisions, or corresponding provisions which in the opinion of the commissioner are at least as favorable to the contractholder, upon cessation of payment of considerations under the contract.
If a contract provides for a lump-sum settlement at maturity, or at any other time, that upon surrender of the contract at or prior to the commencement of any annuity payments, the company shall pay in lieu of any paid-up annuity benefit a cash surrender benefit in the amount specified in Sections 10168.3, 10168.4, 10168.6, and 10168.8. The company may, after making written request and receiving the written approval of the commissioner, reserve the right to defer the payment of the cash surrender benefit for a period not to exceed six months after demand therefor with surrender of the contract. The request shall address the necessity and equitability to all policyholders of the deferral.
A statement of the mortality table, if any, and interest rates used in calculating any minimum paid-up annuity, cash surrender, or death benefits that are guaranteed under the contract, together with sufficient information to determine the amounts of those benefits.
A statement that any paid-up annuity, cash surrender, or death benefits that may be available under the contract are not less than the minimum benefits required by any statute of the state in which the contract is delivered, and an explanation of the manner in which the benefits are altered by the existence of any additional amounts credited by the company to the contract, any indebtedness to the company on the contract, or any prior withdrawals from or partial surrenders of the contract.
Notwithstanding the requirements of this section, any deferred annuity contract may provide that if no considerations have been received under a contract for a period of two full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the contract arising from considerations paid prior to that period would be less than twenty dollars ($20) monthly, the company may at its option terminate the contract by payment in cash of the then present value of that portion of the paid-up annuity benefit, calculated on the basis of the mortality table, if any, and the interest rate specified in the contract for determining the paid-up annuity benefit, and by that payment shall be relieved of any further obligation under the contract.
This section shall apply to contracts issued before January 1, 2004, and may be applied by a company, on a contract-form-by-contract-form basis, to any contract issued on or after January 1, 2004, and before January 1, 2006. This section shall not apply to any contract issued on or after January 1, 2006.
The minimum values as specified in Sections 10168.3, 10168.4, 10168.5, 10168.6, and 10168.8 of any paid-up annuity, cash surrender or death benefits available under an annuity contract shall be based upon minimum nonforfeiture amounts as defined in this section.
With respect to contracts providing for flexible considerations, the minimum nonforfeiture amount at any time at or prior to the commencement of any annuity payments shall be equal to an accumulation up to that time at a rate of interest of 3 percent per annum of percentages of the net considerations (as hereinafter defined) paid prior to that time, decreased by the sum of (i) any prior withdrawals from or partial surrenders of the contract accumulated at a rate of interest of 3 percent per annum and (ii) the amount of any indebtedness to the company on the contract, including interest due and accrued, and increased by any existing additional amounts credited by the company to the contract.
The net considerations for a given contract year used to define the minimum nonforfeiture amount shall be an amount not less than zero and shall be equal to the corresponding gross considerations credited to the contract during that contract year less an annual contract charge of thirty dollars ($30) and less a collection charge of one dollar and twenty-five cents ($1.25) per consideration credited to the contract during that contract year. The percentages of net considerations shall be 65 percent of the net consideration for the first contract year and 8712 percent of the net considerations for the second and later contract years. Notwithstanding the provisions of the preceding sentence, the percentage shall be 65 percent of the portion of the total net consideration for any renewal contract year which exceeds by not more than two times the sum of those portions of the net considerations in all prior contract years for which the percentage was 65 percent.
With respect to contracts providing for fixed scheduled considerations, minimum nonforfeiture amounts shall be calculated on the assumption that considerations are paid annually in advance and shall be defined as for contracts with flexible considerations which are paid annually with two exceptions:
The portion of the net consideration for the first contract year to be accumulated shall be the sum of 65 percent of the net consideration for the first contract year plus 2212 percent of the excess of the net consideration for the first contract year over the lesser of the net considerations for the second and third contract years.
The annual contract charge shall be the lesser of thirty dollars ($30) or 10 percent of the gross annual consideration.
With respect to contracts providing for a single consideration, minimum nonforfeiture amounts shall be defined as for contracts with flexible considerations except that the percentage of net consideration used to determine the minimum nonforfeiture amount shall be equal to 90 percent and the net consideration shall be the gross consideration less a contract charge of seventy-five dollars ($75).
This section shall apply to contracts issued on and after January 1, 2006, and may be applied by a company, on a contract-form-by-contract-form basis, to any contract issued on or after January 1, 2004, and before January 1, 2006.
The minimum values as specified in Sections 10168.3, 10168.4, 10168.5, 10168.6, and 10168.8 of any paid-up annuity, cash surrender, or death benefits available under an annuity contract shall be based upon minimum nonforfeiture amounts as defined in this section.
The minimum nonforfeiture amount at any time at or prior to the commencement of any annuity payments shall be equal to an accumulation up to that time, at the rates of interest indicated in subdivision (d), of the net considerations (as hereafter defined) paid prior to that time, decreased by the sum of all of the following:
Any prior withdrawals from or partial surrenders of the contract, accumulated at the rates of interest indicated in subdivision (d).
An annual contract charge of fifty dollars ($50), accumulated at the rates of interest indicated in subdivision (d).
Any state premium tax paid by the company for the contract, accumulated at the rates of interest indicated in subdivision (d). However, the minimum nonforfeiture amount may not be decreased by this amount if the premium tax is subsequently credited back to the company.
The amount of any indebtedness to the company on the contract, including interest due and accrued.
The net considerations for a given contract year used to define the minimum nonforfeiture amount shall be an amount equal to 87.5 percent of the gross considerations credited to the contract during that contract year.
The interest rate used in determining minimum nonforfeiture amounts shall be an annual rate of interest determined as the lesser of 3 percent per annum and the following, which shall be specified in the contract if the interest rate will be reset:
During the period or term that a contract provides substantive participation in an equity indexed benefit, it may increase the reduction described in paragraph (1) of subdivision (d) by up to an additional 100 basis points to reflect the value of the equity index benefit. The present value at the contract issue date, and at each redetermination date thereafter, of the additional reduction shall not exceed the market value of the benefit. The commissioner may require a demonstration that the present value of the additional reduction does not exceed the market value of the benefit. Lacking a demonstration that is acceptable to the commissioner, the commissioner may disallow or limit the additional reduction.
The commissioner may adopt regulations to implement the provisions of subdivision (e) and to provide for further adjustments to the calculation of minimum nonforfeiture amounts for contracts that provide substantive participation in an equity index benefit and for other contracts with respect to which the commissioner determines adjustments are justified.
Any paid-up annuity benefit available under a contract shall be such that its present value on the date annuity payments are to commence is at least equal to the minimum nonforfeiture amount on that date. Such present value shall be computed using the mortality table, if any, and the interest rate specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the contract.
Contracts that provide cash surrender benefits shall comply with all of the following:
Cash surrender benefits available prior to maturity shall not be less than the present value as of the date of surrender of that portion of the maturity value of the paid-up annuity benefit which would be provided under the contract at maturity arising from considerations paid prior to the time of cash surrender reduced by the amount appropriate to reflect any prior withdrawals from or partial surrenders of the contract, decreased by the amount of any indebtedness to the company on the contract, including interest due and accrued on the indebtedness, and increased by any existing additional amounts credited by the company to the contract.
For purposes of subdivision (a), the present value shall be calculated on the basis of an interest rate that is not more than 1 percent higher than the interest rate specified in the contract for accumulating the net considerations to determine the maturity value.
The cash surrender benefit shall not be less than the minimum nonforfeiture amount at the time of the surrender.
Except as otherwise provided in paragraph (2), the death benefit shall be at least equal to the cash surrender benefit.
For contracts issued or delivered on or after January 1, 2016, to persons who are 65 years of age or older, the death benefit shall be at least equal to the annuity value or accumulation value, excluding any surrender charges or penalties upon death.
For an individual annuity contract subject to this article that is surrendered by the contract owner, the insurer shall return to the owner all moneys due in relation to that contract as expeditiously as possible but not later than 45 days from the date the surrender is effective as provided in subdivision (b).
An insurer may defer payment of cash surrender value for up to six months if the approval described in subdivision (b) of Section 10168.1 has been received by the insurer.
A surrender of a contract is effective on the date the request is received if the request is made to the insurer, or servicing agent authorized by the insurer in writing to receive requests for surrender on the insurer’s behalf, and contains the elements specified by the insurer in the contract.
The effective date of the surrender of a contract may be up to 45 days after the request for surrender is received if it is permitted by the contract and requested by the contract owner.
The insurer may require the request for surrender to be in writing.
The elements the insurer may require as part of the request for surrender are limited to the following:
A statement that makes it clear that the contract owner intends to surrender, in whole or in part, the contract in question.
The contract number of the contract to be surrendered.
The name, address, and telephone number of the contract owner on the contract to be surrendered.
A clear method of delivery and payee instructions for payment of the surrender value.
For partial surrender, the withdrawal amount, including requested beginning date, frequency, and maximum annual withdrawal amount, and instructions on subaccount withdrawals.
Instructions for tax withholding.
The signature of the owner of the contract, which may be either a wet signature or an electronic signature at the insurer’s discretion, and if required by the contract or by a legally binding document that the insurer has actual notice of, the signature of a collateral assignee, irrevocable beneficiary, or other person having an interest in the contract through the legally binding document.
Either the contract itself, or, in lieu of the contract, a statement that the contract has been lost or destroyed.
The insurer may require the contract owner to complete an administrative form as part of the surrender process. The insurer’s administrative form may only request information required to complete the surrender transaction, as set forth in paragraph (3). An administrative form shall be sent or mailed to the contract owner within two business days of the request, and shall be available for the contract owner to access on the insurer’s Internet Web site if the contract owner accesses his or her account information through the insurer’s Internet Web site. The insurer’s requirement to complete an administrative form shall not further the effective date of the surrender or extend the 45-day period in which the surrender is required to be processed.
The administrative form shall be designed to provide the insurer with the information needed to complete the surrender transaction consistent with the contract owner’s request.
If the insurer requires an administrative form and the contract owner completes and submits that form within 14 days of the surrender request, the insurer shall return all moneys due as expeditiously as possible but not later than 30 days from the effective date of the surrender.
When the contract owner requests information about surrendering a contract from the insurer or servicing agent, the insurer or servicing agent shall provide, upon request, as expeditiously as possible, a written notice setting forth either the requirements of this section or the insurer’s requirements.
A contract subject to this section shall do either of the following:
Include language, which may be included by endorsement, setting forth the permitted requirements for surrender described in this section. Alternatively, if the insurer requires only some of the elements permitted in paragraph (3) of subdivision (b) for a surrender request, the contract language may exclude any of the elements in paragraph (3) of subdivision (b) that the insurer does not require to process the surrender.
For a written request and for purposes of this section, “received” means the first day that the written notice is delivered to the address of the insurer or servicing agent authorized by the insurer in writing to receive requests for surrender on the insurer’s behalf.
An insurer or servicing agent shall maintain a procedure for ensuring that requests for surrender are logged or stamped on the date received and not on a later date due to the insurer’s or servicing agent’s internal routing or delivery procedures.
If the procedure required pursuant to subparagraph (A) is not maintained, it shall be conclusively presumed that a request was received on the earliest of the following:
The delivery date shown on an express, certified, or registered mail receipt form of the United States Postal Service or by a commercial carrier.
Two business days after the request was postmarked by the United States Postal Service.
One business day before the date stamped received by the insurer or servicing agent.
For purposes of this paragraph, “business day” has the meaning set forth in subdivision (b) of Section 1215.
Postmarks generated by postage meters not located at an office of the United States Postal Service are to be disregarded.
This section does not alter a contractual provision governing calculation of cash or surrender or other values, unless that contractual provision applies a valuation date other than the effective date of surrender described in subdivision (b) to the calculation of cash or surrender or other values.
The effective date established by subdivision (b) is intended to establish a date certain on which a contract owner may rely in determining when the 45-day period specified in subdivision (a) begins to run and a date certain for the insurer to use for the valuation of the contract.
Notwithstanding paragraph (3) of subdivision (b), an insurer may request information that is reasonably necessary to process the surrender in addition to that listed in subdivision (b). An insurer’s request for additional information does not delay an effective date established by a contract owner’s compliance with subdivision (b).
An insurer may request a signature guarantee if there is reason to believe a fraudulent situation may occur.
This section shall only apply to contracts issued on or after January 1, 2019.
For contracts which do not provide cash surrender benefits, the present value of any paid-up annuity benefit available as a nonforfeiture option at any time prior to maturity shall not be less than the present value of that portion of the maturity value of the paid-up annuity benefit provided under the contract arising from considerations paid prior to the time the contract is surrendered in exchange for, or changed to, a deferred paid-up annuity, such present value being calculated for the period prior to the maturity date on the basis of the interest rate specified in the contract for accumulating the net considerations to determine such maturity value, and increased by any existing additional amounts credited by the company to the contract. For contracts which do not provide any death benefits prior to the commencement of any annuity payments, such present values shall be calculated on the basis of such interest rate and the mortality table specified in the contract for determining the maturity value of the paid-up annuity benefit. However, in no event shall the present value of a paid-up annuity benefit be less than the minimum nonforfeiture amount at that time.
In the case of annuity contracts under which the fixed maturity date is later than the later of the anniversary of the contract next following the annuitant’s 70th birthday or the 10th anniversary of the contract, the maturity date shall be deemed to be the later of the anniversary of the contract next following the annuitant’s 70th birthday or the 10th anniversary of the contract.
In the case of annuity contracts under which an election may be made to have annuity payments commence at optional maturity dates, the maturity date shall be deemed to be the latest date for which election shall be permitted by the contract, but shall not be deemed to be later than the anniversary of the contract next following the annuitant’s seventieth birthday or the tenth anniversary of the contract, whichever is later.
Any contract which does not provide cash surrender benefits or does not provide death benefits at least equal to the minimum nonforfeiture amount prior to the commencement of any annuity payments shall include a statement in a prominent place in the contract that such benefits are not provided.
Any paid-up annuity, cash surrender or death benefits available at any time, other than on the contract anniversary under any contract with fixed scheduled considerations, shall be calculated with allowance for the lapse of time and the payment of any scheduled considerations beyond the beginning of the contract year in which cessation of payment of considerations under the contract occurs.
For any contract which provides, within the same contract by rider or supplemental contract provision, both annuity benefits and life insurance benefits that are in excess of the greater of cash surrender benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract. Notwithstanding the provisions of Sections 10168.3, 10168.4, 10168.5, 10168.6, and 10168.8, additional benefits payable (a) in the event of total and permanent disability, (b) as reversionary annuity or deferred reversionary annuity benefits, or (c) as other policy benefits additional to life insurance, endowment, and annuity benefits, and considerations for all such additional benefits, shall be disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits that may be required by this article. The inclusion of such additional benefits shall not be required in any paid-up benefits, unless such additional benefits separately would require minimum nonforfeiture amounts, paid-up annuity, cash surrender and death benefits.
The commissioner may adopt regulations to implement the provisions of this article.
Notwithstanding any other provision of law, the form of any annuity contract that is subject to this article shall be filed by the obligor under the contract with the commissioner before it is marketed, issued, delivered, or used in this state.
Nothing contained in this section shall be construed as requiring or providing for the prior approval by the commissioner of forms of individual annuity contracts prior to the time the forms are marketed, issued, delivered, or used in this state.
After the effective date of this article, any company may file with the commissioner a written notice of its election to comply with the provisions of this article after a specified date before the second anniversary of the effective date of this article. After the filing of such notice, then upon such specified date, which shall be the operative date of this article for such company, this article shall become operative with respect to annuity contracts thereafter issued by such company. If a company makes no such election, the operative date of this article for such company shall be the second anniversary of the effective date of this article.
ARTICLE 3.5. Appeals Seeking Independent Medical Review [10169. - 10169.5.]
Commencing January 1, 2001, there is hereby established in the department the Independent Medical Review System.
For the purposes of this chapter, “disputed health care service” means any health care service eligible for coverage and payment under a disability insurance contract that has been denied, modified, or delayed by a decision of the insurer, or by one of its contracting providers, in whole or in part due to a finding that the service is not medically necessary. A decision regarding a disputed health care service relates to the practice of medicine and is not a coverage decision. A disputed health care service does not include services provided by a group or individual policy of vision- or dental-only coverage, except to the extent that (1) the service involves the practice of medicine, or (2) is provided pursuant to a contract with a disability insurer that covers hospital, medical, or surgical benefits. If an insurer, or one of its contracting providers, issues a decision denying, modifying, or delaying health care services, based in whole or in part on a finding that the proposed health care services are not a covered benefit under the contract that applies to the insured, the statement of decision shall clearly specify the provision in the contract that excludes that coverage.
For the purposes of this chapter, “coverage decision” means the approval or denial of health care services by a disability insurer, or by one of its contracting entities, substantially based on a finding that the provision of a particular service is included or excluded as a covered benefit under the terms and conditions of the disability insurance contract. A coverage decision does not encompass a disability insurer or contracting provider decision regarding a disputed health care service.
All insured grievances involving a disputed health care service are eligible for review under the Independent Medical Review System if the requirements of this article are met. If the department finds that an insured grievance involving a disputed health care service does not meet the requirements of this article for review under the Independent Medical Review System, the insured request for review shall be treated as a request for the department to review the grievance. All other insured grievances, including grievances involving coverage decisions, remain eligible for review by the department.
In any case in which an insured or provider asserts that a decision to deny, modify, or delay health care services was based, in whole or in part, on consideration of medical necessity, the department shall have the final authority to determine whether the grievance is more properly resolved pursuant to an independent medical review as provided under this article.
The department shall be the final arbiter when there is a question as to whether an insured grievance is a disputed health care service or a coverage decision. The department shall establish a process to complete an initial screening of an insured grievance. If there appears to be any medical necessity issue, the grievance shall be resolved pursuant to an independent medical review as provided under this article.
Every disability insurance contract that is issued, amended, renewed, or delivered in this state on or after January 1, 2000, shall provide an insured with the opportunity to seek an independent medical review whenever health care services have been denied, modified, or delayed by the insurer, or by one of its contracting providers, if the decision was based in whole or in part on a finding that the proposed health care services are not medically necessary. For purposes of this article, an insured may designate an agent to act on his or her behalf. The provider may join with or otherwise assist the insured in seeking an independent medical review, and may advocate on behalf of the insured.
Medicare beneficiaries enrolled in Medicare + Choice products shall not be excluded unless expressly preempted by federal law.
The department may seek to integrate the quality of care and consumer protection provisions, including remedies, of the Independent Medical Review System with related dispute resolution procedures of other health care agency programs, including the Medicare program, in a way that minimizes the potential for duplication, conflict, and added costs. Nothing in this subdivision shall be construed to limit any rights conferred upon insureds under this chapter.
The independent medical review process authorized by this article is in addition to any other procedures or remedies that may be available.
Every disability insurer shall prominently display in every insurer member handbook or relevant informational brochure, in every insurance contract, on insured evidence of coverage forms, on copies of insurer procedures for resolving grievances, on letters of denials issued by either the insurer or its contracting organization, and on all written responses to grievances, information concerning the right of an insured to request an independent medical review when the insured believes that health care services have been improperly denied, modified, or delayed by the insurer, or by one of its contracting providers. The department’s telephone number, 1-800-927-4357, and Internet Web site, www.insurance.ca.gov, shall also be displayed.
An insured may apply to the department for an independent medical review when all of the following conditions are met:
The insured’s provider has recommended a health care service as medically necessary, or
The insured has received urgent care or emergency services that a provider determined was medically necessary, or
The insured, in the absence of a provider recommendation under subparagraph (A) or the receipt of urgent care or emergency services by a provider under subparagraph (B), has been seen by a contracting provider for the diagnosis or treatment of the medical condition for which the insured seeks independent review. The insurer shall expedite access to a contracting provider upon request of an insured. The contracting provider need not recommend the disputed health care service as a condition for the insured to be eligible for an independent review.
For purposes of this article, the insured’s provider may be a noncontracting provider. However, the insurer shall have no liability for payment of services provided by a noncontracting provider, except as provided pursuant to Section 10169.3.
The disputed health care service has been denied, modified, or delayed by the insurer, or by one of its contracting providers, based in whole or in part on a decision that the health care service is not medically necessary.
The insured has filed a grievance with the insurer or its contracting provider, and the disputed decision is upheld or the grievance remains unresolved after 30 days. The insured shall not be required to participate in the insurer’s grievance process for more than 30 days. In the case of a grievance that requires expedited review, the insured shall not be required to participate in the insurer’s grievance process for more than three days.
An insured may apply to the department for an independent medical review of a decision to deny, modify, or delay health care services, based in whole or in part on a finding that the disputed health care services are not medically necessary, within six months of any of the qualifying periods or events under subdivision (j). The commissioner may extend the application deadline beyond six months if the circumstances of a case warrant the extension.
The insured shall pay no application or processing fees of any kind.
As part of its notification to the insured regarding a disposition of the insured’s grievance that denies, modifies, or delays health care services, the insurer shall provide the insured with a one- or two-page application form approved by the department, and an addressed envelope, which the insured may return to initiate an independent medical review. The insurer shall include on the form any information required by the department to facilitate the completion of the independent medical review, such as the insured’s diagnosis or condition, the nature of the disputed health care service sought by the insured, a means to identify the insured’s case, and any other material information. The form shall also include the following:
Notice that a decision not to participate in the independent review process may cause the insured to forfeit any statutory right to pursue legal action against the insurer regarding the disputed health care service.
A statement indicating the insured’s consent to obtain any necessary medical records from the insurer, any of its contracting providers, and any noncontracting provider the insured may have consulted on the matter, to be signed by the insured.
Notice of the insured’s right to provide information or documentation, either directly or through the insured’s provider, regarding any of the following:
A provider recommendation indicating that the disputed health care service is medically necessary for the insured’s medical condition.
Medical information or justification that a disputed health care service, on an urgent care or emergency basis, was medically necessary for the insured’s medical condition.
Reasonable information supporting the insured’s position that the disputed health care service is or was medically necessary for the insured’s medical condition, including all information provided to the insured by the insurer or any of its contracting providers, still in the possession of the insured, concerning an insurer or provider decision regarding disputed health care services, and a copy of any materials the insured submitted to the insurer, still in the possession of the insured, in support of the grievance, as well as any additional material that the insured believes is relevant.
A section designed to collect information on the insured’s ethnicity, race, and primary language spoken that includes both of the following:
A statement of intent indicating that the information is used for statistics only, in order to ensure that all insureds get the best care possible.
A statement indicating that providing this information is optional and will not affect the independent medical review process in any way.
Upon notice from the department that the insured has applied for an independent medical review, the insurer or its contracting providers, shall provide to the independent medical review organization designated by the department a copy of all of the following documents within three business days of the insurer’s receipt of the department’s notice of a request by an insured for an independent review:
A copy of all of the insured’s medical records in the possession of the insurer or its contracting providers relevant to each of the following:
The insured’s medical condition.
The health care services being provided by the insurer and its contracting providers for the condition.
The disputed health care services requested by the insured for the condition.
Any newly developed or discovered relevant medical records in the possession of the insurer or its contracting providers after the initial documents are provided to the independent medical review organization shall be forwarded immediately to the independent medical review organization. The insurer shall concurrently provide a copy of medical records required by this subparagraph to the insured or the insured’s provider, if authorized by the insured, unless the offer of medical records is declined or otherwise prohibited by law. The confidentiality of all medical record information shall be maintained pursuant to applicable state and federal laws.
A copy of all information provided to the insured by the insurer and any of its contracting providers concerning insurer and provider decisions regarding the insured’s condition and care, and a copy of any materials the insured or the insured’s provider submitted to the insurer and to the insurer’s contracting providers in support of the insured’s request for disputed health care services. This documentation shall include the written response to the insured’s grievance. The confidentiality of any insured medical information shall be maintained pursuant to applicable state and federal laws.
A copy of any other relevant documents or information used by the insurer or its contracting providers in determining whether disputed health care services should have been provided, and any statements by the insurer and its contracting providers explaining the reasons for the decision to deny, modify, or delay disputed health care services on the basis of medical necessity. The insurer shall concurrently provide a copy of documents required by this paragraph, except for any information found by the commissioner to be legally privileged information, to the insured and the insured’s provider. The department and the independent medical review organization shall maintain the confidentiality of any information found by the commissioner to be the proprietary information of the insurer.
This section shall become operative on January 1, 2017.
If there is an imminent and serious threat to the health of the insured, as specified in subdivision (c) of Section 10169.3, all necessary information and documents shall be delivered to an independent medical review organization within 24 hours of approval of the request for review. In reviewing a request for review, the department may waive the requirement that the insured follow the insurer’s grievance process in extraordinary and compelling cases, where the commissioner finds that the insured has acted reasonably.
The department shall expeditiously review requests and immediately notify the insured in writing as to whether the request for an independent medical review has been approved, in whole or in part, and, if not approved, the reasons therefor. The insurer shall promptly issue a notification to the insured, after submitting all of the required material to the independent medical review organization, that includes an annotated list of documents submitted and offer the insured the opportunity to request copies of those documents from the insurer. The department shall promptly approve insured requests whenever the insurer has agreed that the case is eligible for an independent medical review. The department shall not refer coverage decisions for independent review. To the extent an insured request for independent review is not approved by the department, the insured request shall be treated as an immediate request for the department to review the grievance.
An independent medical review organization, specified in Section 10169.2, shall conduct the review in accordance with Section 10169.3 and any regulations or orders of the commissioner adopted pursuant thereto. The organization’s review shall be limited to an examination of the medical necessity of the disputed health care services and shall not include any consideration of coverage decisions or other contractual issues.
The department shall contract with one or more independent medical review organizations in the state to conduct reviews for purposes of this article. The independent medical review organizations shall be independent of any disability insurer doing business in this state. The commissioner may establish additional requirements, including conflict-of-interest standards, consistent with the purposes of this article, that an organization shall be required to meet in order to qualify for participation in the Independent Medical Review System and to assist the department in carrying out its responsibilities.
The independent medical review organizations and the medical professionals retained to conduct reviews shall be deemed to be medical consultants for purposes of Section 43.98 of the Civil Code.
The independent medical review organization, any experts it designates to conduct a review, or any officer, director, or employee of the independent medical review organization shall not have any material professional, familial, or financial affiliation, as determined by the commissioner, with any of the following:
The insurer.
Any officer, director, or employee of the insurer.
A physician, the physician’s medical group, or the independent practice association involved in the health care service in dispute.
The facility or institution at which either the proposed health care service, or the alternative service, if any, recommended by the insurer, would be provided.
The development or manufacture of the principal drug, device, procedure, or other therapy proposed by the insured whose treatment is under review, or the alternative therapy, if any, recommended by the insurer.
The insured or the insured’s immediate family.
In order to contract with the department for purposes of this article, an independent medical review organization shall meet all of the following requirements:
The names of all stockholders and owners of more than 5 percent of any stock or options, if a publicly held organization.
The names of all holders of bonds or notes in excess of one hundred thousand dollars ($100,000), if any.
The names of all corporations and organizations that the independent medical review organization controls or is affiliated with, and the nature and extent of any ownership or control, including the affiliated organization’s type of business.
The names and biographical sketches of all directors, officers, and executives of the independent medical review organization, as well as a statement regarding any past or present relationships the directors, officers, and executives may have with any health care service plan, disability insurer, managed care organization, provider group, or board or committee of an insurer, a plan, a managed care organization, or a provider group.
The percentage of revenue the independent medical review organization receives from expert reviews, including, but not limited to, external medical reviews, quality assurance reviews, and utilization reviews.
The names of any insurer or provider group for which the independent medical review organization provides review services, including, but not limited to, utilization review, quality assurance review, and external medical review. Any change in this information shall be reported to the department within five business days of the change.
A description of the review process including, but not limited to, the method of selecting expert reviewers and matching the expert reviewers to specific cases.
A description of the system the independent medical review organization uses to identify and recruit medical professionals to review treatment and treatment recommendation decisions, the number of medical professionals credentialed, and the types of cases and areas of expertise that the medical professionals are credentialed to review.
A description of how the independent medical review organization ensures compliance with the conflict-of-interest provisions of this section.
Ensures that the medical professionals retained are appropriately credentialed and privileged.
Ensures that the reviews provided by the medical professionals are timely, clear, and credible, and that reviews are monitored for quality on an ongoing basis.
Ensures that the method of selecting medical professionals for individual cases achieves a fair and impartial panel of medical professionals who are qualified to render recommendations regarding the clinical conditions and the medical necessity of treatments or therapies in question.
Ensures the confidentiality of medical records and the review materials, consistent with the requirements of this section and applicable state and federal law.
Ensures the independence of the medical professionals retained to perform the reviews through conflict-of-interest policies and prohibitions, and ensures adequate screening for conflicts of interest, pursuant to paragraph (5).
The medical professional shall be a clinician expert in the treatment of the insured’s medical condition and knowledgeable about the proposed treatment through recent or current actual clinical experience treating patients with the same or a similar medical condition as the insured.
Notwithstanding any other provision of law, the medical professional shall hold a nonrestricted license in any state of the United States, and for physicians, a current certification by a recognized American medical specialty board in the area or areas appropriate to the condition or treatment under review. The independent medical review organization shall give preference to the use of a physician licensed in California as the reviewer, except when training and experience with the issue under review reasonably requires the use of an out-of-state reviewer.
The medical professional shall have no history of disciplinary action or sanctions, including, but not limited to, loss of staff privileges or participation restrictions, taken or pending by any hospital, government, or regulatory body.
The disability insurer or a provider group of the insurer, except that an academic medical center under contract to the insurer to provide services to insureds may qualify as an independent medical review organization provided it will not provide the service and provided the center is not the developer or manufacturer of the proposed treatment.
Any officer, director, or management employee of the insurer.
The physician, the physician’s medical group, or the independent practice association (IPA) proposing the treatment.
The institution at which the treatment would be provided.
The development or manufacture of the treatment proposed for the insured whose condition is under review.
The insured or the insured’s immediate family.
“Material familial affiliation” means any relationship as a spouse, child, parent, sibling, spouse’s parent, or child’s spouse.
“Material professional affiliation” means any physician-patient relationship, any partnership or employment relationship, a shareholder or similar ownership interest in a professional corporation, or any independent contractor arrangement that constitutes a material financial affiliation with any expert or any officer or director of the independent medical review organization. “Material professional affiliation” does not include affiliations that are limited to staff privileges at a health facility.
“Material financial affiliation” means any financial interest of more than 5 percent of total annual revenue or total annual income of an independent medical review organization or individual to which this subdivision applies. “Material financial affiliation” does not include payment by the insurer to the independent medical review organization for the services required by this section, nor does “material financial affiliation” include an expert’s participation as a contracting provider where the expert is affiliated with an academic medical center or a National Cancer Institute-designated clinical cancer research center.
The department shall provide, upon the request of any interested person, a copy of all nonproprietary information, as determined by the commissioner, filed with it by an independent medical review organization seeking to contract under this article. The department may charge a nominal fee to the interested person for photocopying the requested information.
The commissioner may contract with the Department of Managed Health Care to administer the independent medical review process established by this article.
This section shall become operative on July 1, 2015.
Upon receipt of information and documents related to a case, the medical professional reviewer or reviewers selected to conduct the review by the independent medical review organization shall promptly review all pertinent medical records of the insured, provider reports, as well as any other information submitted to the organization as authorized by the department or requested from any of the parties to the dispute by the reviewers. If reviewers request information from any of the parties, a copy of the request and the response shall be provided to all of the parties. The reviewer or reviewers shall also review relevant information related to the criteria set forth in subdivision (b).
Following its review, the reviewer or reviewers shall determine whether the disputed health care service was medically necessary based on the specific medical needs of the insured and any of the following:
Peer-reviewed scientific and medical evidence regarding the effectiveness of the disputed service.
Nationally recognized professional standards.
Expert opinion.
Generally accepted standards of medical practice.
Treatments that are likely to provide a benefit to a patient for conditions for which other treatments are not clinically efficacious.
The organization shall complete its review and make its determination in writing, and in layperson’s terms to the maximum extent practicable, within 30 days of the receipt of the application for review and supporting documentation, or within less time as prescribed by the commissioner. If the disputed health care service has not been provided and the insured’s provider or the department certifies in writing that an imminent and serious threat to the health of the insured may exist, including, but not limited to, serious pain, the potential loss of life, limb, or major bodily function, or the immediate and serious deterioration of the health of the insured, the analyses and determinations of the reviewers shall be expedited and rendered within three days of the receipt of the information. Subject to the approval of the department, the deadlines for analyses and determinations involving both regular and expedited reviews may be extended by the commissioner for up to three days in extraordinary circumstances or for good cause.
The medical professionals’ analyses and determinations shall state whether the disputed health care service is medically necessary. Each analysis shall cite the insured’s medical condition, the relevant documents in the record, and the relevant findings associated with the provisions of subdivision (b) to support the determination. If more than one medical professional reviews the case, the recommendation of the majority shall prevail. If the medical professionals reviewing the case are evenly split as to whether the disputed health care service should be provided, the decision shall be in favor of providing the service.
The independent medical review organization shall provide the director, the insurer, the insured, and the insured’s provider with the analyses and determinations of the medical professionals reviewing the case, and a description of the qualifications of the medical professionals. The independent medical review organization shall keep the names of the reviewers confidential in all communications with entities or individuals outside the independent medical review organization, except in cases where the reviewer is called to testify and in response to court orders. If more than one medical professional reviewed the case and the result was differing determinations, the independent medical review organization shall provide each of the separate reviewer’s analyses and determinations.
The commissioner shall immediately adopt the determination of the independent medical review organization, and shall promptly issue a written decision to the parties that shall be binding on the insurer.
After removing the names of the parties, including, but not limited to, the insured, all medical providers, the insurer, and any of the insurer’s employees or contractors, commissioner decisions adopting a determination of an independent medical review organization shall be made available by the department in a searchable database on the department’s Internet Web site, after considering applicable laws governing disclosure of public records, confidentiality, and personal privacy.
Information regarding each commissioner decision provided by the database referenced in subdivision (g) shall include all of the following:
Insured demographic profile information, including age and gender.
The insured diagnosis and disputed health care service.
Whether the independent medical review was for medically necessary services pursuant to this article or for experimental or investigational therapies pursuant to Section 10145.3.
Whether the independent medical review was standard or expedited.
Length of time from the receipt by the independent medical review organization of the application for review and supporting documentation to the rendering of a determination by the independent medical review organization in writing.
Length of time from receipt by the department of the independent medical review application to the issuance of the commissioner’s determination in writing to the parties that is binding on the health insurer.
Credentials and qualifications of the reviewer or reviewers.
The nature of the statutory criteria set forth in subdivision (b) that the reviewer or reviewers used to make the case decision.
The final result of the determination.
The year the determination was made.
A detailed case summary that includes the specific standards, criteria, and medical and scientific evidence, if any, that led to the case decision.
The database referenced in subdivision (g) shall be accompanied by all of the following:
The annual rate of independent medical review among the total insured population.
The annual rate of independent medical review cases by health insurer.
The number, type, and resolution of independent medical review cases by health insurer.
The number, type, and resolution of independent medical review cases by ethnicity, race, and primary language spoken.
This section shall become operative on July 1, 2015.
After considering the results of a competitive bidding process and any other relevant information on program costs, the commissioner shall establish a reasonable, per-case reimbursement schedule to pay the costs of independent medical review organization reviews, which may vary depending on the type of medical condition under review and on other relevant factors.
The costs of the independent medical review system for insureds shall be borne by disability insurers pursuant to an assessment fee system established by the commissioner. In determining the amount to be assessed, the commissioner shall consider all appropriations available for the support of this article, and existing fees paid to the department. The commissioner may adjust fees upward or downward, on a schedule set by the department, to address shortages or overpayments, and to reflect utilization of the independent review process.
The commissioner may contract with the Department of Managed Health Care to administer the requirements of this article.
ARTICLE 4. Payment and Proceeds [10170. - 10180.]
Life insurance may be made payable as follows:
On the death of the insured.
On his or her surviving a specified period.
Periodically as long as he or she lives.
Otherwise contingently on the continuance or determination of life.
Upon those terms and conditions and subject to those restrictions as to revocation by the policyholder and control by beneficiaries as shall have been agreed to in writing by the insurer and the policyholder. If no terms and conditions have been agreed to by the insurer and the policyholder during the insured’s lifetime then upon those terms and conditions and subject to those restrictions as may be agreed to in writing by the insurer and the beneficiaries. Any agreement may be rescinded or amended by the parties to the agreement without the consent of any designated beneficiary unless the rights of any beneficiary have been expressly declared to be irrevocable. No agreement hereafter made shall vest in the insurer discretion as to the conditions, time, amount, manner, or method of payment. The relationship between the insurer and the policyholder or beneficiaries under any agreement shall be that of debtor and creditor, and the insurer shall not be required to segregate funds so held but shall hold them as a part of its general corporate assets.
Notwithstanding subdivision (e), all life insurance benefits shall be paid in the form of a lump-sum payment to the beneficiary or by another settlement option that is clearly described in the claim form. If the beneficiary is provided settlement options in addition to a lump-sum payment or a settlement option selected by the policyholder, the beneficiary shall have the option to choose how benefits are to be paid to the beneficiary. If the beneficiary does not choose one of the available settlement options, a retained-asset account may be the default option only if the claim form provides a prominent disclosure that, in the absence of a choice by the beneficiary, payment of policy benefits shall be made through establishment of a retained-asset account on the beneficiary’s behalf. This disclosure shall be provided in the portion of the claim form where the beneficiary is offered the ability to select his or her choice of payment method and shall be in easy-to-understand language and in bold and at least 12-point font type. In all such cases, whether by beneficiary choice or default, the insurer shall provide to the beneficiary the disclosure provided for in Section 10509.937.
If an insurer offers an option or recommends the option to a policyholder of an individual or group life insurance policy that the beneficiary receive life insurance proceeds in the form of a retained-asset account or any arrangement other than a lump-sum payment, the insurer shall provide the policyholder, at the time the offer or recommendation is made, written information describing each of the settlement options available under the policy and specific details relevant to those options. If an insurer offers or recommends to a beneficiary that the beneficiary receive life insurance proceeds in the form of a retained-asset account or any arrangement other than a lump-sum payment in advance of the time the claim is made, the insurer shall provide the beneficiary written information describing each of the settlement options available under the policy and specific details relevant to those options. If an insurer offers or recommends to a beneficiary that the beneficiary receive life insurance proceeds in the form of a retained-asset account at the time a claim is being made, the insurer shall comply with the procedures set forth in Article 11 (commencing with Section 10509.930) of Chapter 5.
For purposes of this subdivision, the following terms have the following meanings:
“Lump-sum payment” means a single payment made directly to the beneficiary that satisfies all of the benefits owed to the beneficiary.
“Retained-asset account” means any mechanism whereby the settlement of proceeds payable under a life insurance policy is accomplished by the insurer, or an entity acting on behalf of the insurer, by depositing those proceeds into an account with check or draft writing privileges, and where those proceeds are retained by the insurer pursuant to a supplemental contract not involving annuity benefits.
An insurer that fails to conform to the requirements provided under this section shall be subject to Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1.
The commissioner may, from time to time and after notice and public hearing, adopt regulations specifying reasonable requirements for the form of agreements entered into and written disclosures provided pursuant to subdivisions (e) and (f), and for compliance with Section 10172.5.
Any life policy or other agreement relating to the holding or payment of the proceeds of a life policy may provide that the proceeds thereof or payments thereunder shall not be subject to transfer, anticipation or commutation or encumbrance by any beneficiary, and shall not be subject to the claims of creditors of any beneficiary or any legal process against any beneficiary.
Notwithstanding Sections 751 and 1100 of the Family Code and Section 249.5 of the Probate Code, when the proceeds of, or payments under, a life insurance policy become payable and the insurer makes payment thereof in accordance with the terms of the policy, or in accordance with the terms of any written assignment thereof if the policy has been assigned, that payment shall fully discharge the insurer from all claims under the policy unless, before that payment is made, the insurer has received, at its home office, written notice by or on behalf of some other person that the other person claims to be entitled to that payment or some interest in the policy.
Notwithstanding any other provision of law, each insurer admitted to transact life insurance, credit life insurance, or accidental death insurance in this state that fails or refuses to pay the proceeds of, or payments under, any policy of life insurance issued by it within 30 days after the date of death of the insured shall pay interest, at a rate not less than the then current rate of interest on death proceeds left on deposit with the insurer computed from the date of the insured’s death, on any moneys payable and unpaid after the expiration of the 30-day period. This section shall apply only to deaths of insureds which occur on or after January 1, 1976.
Nothing in this section shall be construed to allow any insurer admitted to transact life insurance, credit life insurance, or accidental death insurance in this state to withhold payment of money payable under a life insurance policy to any beneficiary for a period longer than reasonably necessary to transmit that payment. Whenever possible payment shall be made within 30 days after the date of death of the insured.
In any case in which interest on the proceeds of, or payments under, any policy of life insurance, credit life insurance, or accidental death insurance becomes payable pursuant to subdivision (a), the insurer shall notify the named beneficiary or beneficiaries at their last known address that interest will be paid on the proceeds of, or payments under, that policy from the date of death of the named insured. That notice shall specify the rate of interest to be paid. In any case where the notice required by Section 249.5 of the Probate Code has been given to a life insurer, that insurer is not required to provide the notice required by this section until after it has been notified that a child has actually been born within two years of the death of the decedent. The obligation shall be deemed satisfied by giving notice to the person who first provides proof to the insurer that the child has been born alive.
This section shall not require the payment of interest in any case in which the beneficiary elects in writing delivered to the insurer to receive the proceeds of, or payments under, the policy by any means other than a lump-sum payment thereof.
When a policy of life insurance is assigned in writing the insurer may deal with the assignee in any manner not inconsistent with the terms of said assignment until the insurer has received at its home office written notice by or on behalf of some other person that such other person claims to be entitled to some interest in such policy.
When a policy of life insurance is, after the effective date of this section, assigned in writing as security for an indebtedness, the insurer shall, in any case in which it has received written notice of the name and address of the assignee, mail to the assignee a written notice, postage prepaid and addressed to the assignee’s address filed with the insurer, not less than 30 days prior to the final lapse of the policy, each time the policy owner has failed or refused to transmit a premium payment to the insurer before the commencement of the policy’s grace period or before the notice is mailed. The insurer shall give that notice to the assignee in the proper case while the assignment remains in effect, unless the assignee has notified the insurer in writing that the notice is waived. The insurer shall be permitted to charge the policy owner directly or against the policy the reasonable cost of complying with this section, but in no event to exceed two dollars and fifty cents ($2.50) for each notice.
As used in this section, “final lapse of the policy” means the date after which the policy will not be reinstated by the insurer without requiring evidence of insurability or written application.
No disability insurance contract with a physician and surgeon, physician and surgeon group, or other licensed health care practitioner shall contain any incentive plan that includes specific payment made in any type or form, to a physician and surgeon, physician and surgeon group, or other licensed health care practitioner as an inducement to deny, reduce, limit, or delay specific, medically necessary, and appropriate services provided with respect to specific insureds or groups of insureds with similar medical conditions.
Nothing in this section shall be construed to prohibit payment arrangements that are not tied to specific medical decisions involving specific insureds or group of insureds with similar medical conditions.
In disability insurance, the policy may provide for payment of medical, surgical, chiropractic, physical therapy, speech pathology, audiology, acupuncture, professional mental health, dental, hospital, or optometric expenses upon a reimbursement basis, or for the exclusion of any of those services, and provision may be made therein for payment of all or a portion of the amount of charge for these services without requiring that the insured first pay the expenses. The policy shall not prohibit the insured from selecting any psychologist or other person who is the holder of a certificate or license under Section 1000, 1634, 2050, 2472, 2553, 2630, 2948, 3055, or 4938 of the Business and Professions Code, to perform the particular services covered under the terms of the policy, the certificate holder or licensee being expressly authorized by law to perform those services.
If the insured selects any person who is a holder of a certificate under Section 4938 of the Business and Professions Code, a disability insurer or nonprofit hospital service plan shall pay the bona fide claim of an acupuncturist holding a certificate pursuant to Section 4938 of the Business and Professions Code for the treatment of an insured person only if the insured’s policy or contract expressly includes acupuncture as a benefit and includes coverage for the injury or illness treated. Unless the policy or contract expressly includes acupuncture as a benefit, no person who is the holder of any license or certificate set forth in this section shall be paid or reimbursed under the policy for acupuncture.
The policy shall not prohibit the insured, upon referral by a physician and surgeon licensed under Section 2050 of the Business and Professions Code, from selecting any licensed clinical social worker who is the holder of a license issued under Section 4996 of the Business and Professions Code, any occupational therapist as specified in Section 2570.2 of the Business and Professions Code, any marriage and family therapist who is the holder of a license under Section 4980.50 of the Business and Professions Code, or any professional clinical counselor who is the holder of a license under Chapter 16 (commencing with Section 4999.10) of Division 2 of the Business and Professions Code, to perform the particular services covered under the terms of the policy, or from selecting any speech-language pathologist or audiologist licensed under Section 2532 of the Business and Professions Code or any registered nurse licensed pursuant to Chapter 6 (commencing with Section 2700) of Division 2 of the Business and Professions Code who possesses a master’s degree in psychiatric-mental health nursing and is listed as a psychiatric-mental health nurse by the Board of Registered Nursing, or any advanced practice registered nurse certified as a clinical nurse specialist pursuant to Article 9 (commencing with Section 2838) of Chapter 6 of Division 2 of the Business and Professions Code who participates in expert clinical practice in the specialty of psychiatric-mental health nursing, or any respiratory care practitioner certified pursuant to Chapter 8.3 (commencing with Section 3700) of Division 2 of the Business and Professions Code to perform services deemed necessary by the referring physician and surgeon, that certificate holder, licensee or otherwise regulated person, being expressly authorized by law to perform the services.
Nothing in this section shall be construed to allow any certificate holder or licensee enumerated in this section to perform professional mental health services beyond his or her field or fields of competence as established by his or her education, training, and experience.
For the purposes of this section:
“Marriage and family therapist” means a licensed marriage and family therapist who has received specific instruction in assessment, diagnosis, prognosis, and counseling, and psychotherapeutic treatment of premarital, marriage, family, and child relationship dysfunctions, which is equivalent to the instruction required for licensure on January 1, 1981.
“Professional clinical counselor” means a licensed professional clinical counselor who has received specific instruction in assessment, diagnosis, prognosis, counseling, and psychotherapeutic treatment of mental and emotional disorders, which is equivalent to the instruction required for licensure on January 1, 2012.
An individual disability insurance policy, which is issued, renewed, or amended on or after January 1, 1988, which includes mental health services coverage may not include a lifetime waiver for that coverage with respect to any applicant. The lifetime waiver of coverage provision shall be deemed unenforceable.
As of the effective date of the amendments to this section enacted at the 1969 Regular Session of the Legislature all disability policies shall be construed to be in compliance with Section 10176, and any provision in such policies in conflict therewith shall be of no effect.
As an alternative to the exclusion permitted by Section 10176, a disability insurance policy may provide that services of a licensed physical therapist, licensed pursuant to Section 2630 of the Business and Professions Code, will be paid only if rendered pursuant to a method of treatment prescribed by a person holding a physician’s and surgeon’s certificate issued by the Medical Board of California.
As an alternative to an exclusion permitted by Section 10176, a disability insurance policy may provide that services of a registered dietitian or other nutrition professional meeting the qualifications prescribed by subdivision (a) or (e) of Section 2585 of the Business and Professions Code will be paid only if rendered pursuant to a method of treatment prescribed by a person holding a physician’s and surgeon’s certificate issued by the Medical Board of California.
Nothing in this section requires disability insurers to automatically pay for services provided by a registered dietitian or other nutrition professional.
For purposes of establishing the fact of disability in credit disability insurance, disability insurance or life insurance, chiropractors’ certifications of disability when made within the scope of their license shall be accepted by insurers as equally valid as physicians and surgeons’ certifications of disability when made within the scope of their license.
Disability insurance which is written or issued for delivery outside California in a state the laws of which require recognition of psychologists licensed in such state for services performed within the scope of psychological practice shall not be deemed to prohibit the insured from selecting a psychologist licensed in California to perform services in California which are covered under the terms of the policy even though such psychologist is not licensed in the state in which the insurance is written or issued for delivery.
On and after January 1, 1982, every policy of disability insurance which is issued, amended, delivered, or renewed that covers hospital, medical, or surgical expenses on a group basis shall offer coverage for diabetic daycare self-management education programs, under such terms and conditions as may be agreed upon between the insurer and the group policyholder, subject to utilization controls.
Coverage shall only apply to programs directed and supervised by a licensed physician who is board certified in internal medicine or pediatrics. Diabetic daycare self-management and education programs shall be provided by health care professionals including, but not limited to, physicians, registered nurses, registered pharmacists, and registered dieticians who are knowledgeable about the disease process of diabetes and the treatment of diabetic patients.
As used in this section, diabetic daycare self-management education programs means instruction which will enable diabetic patients and their families to gain an understanding of the diabetic disease process, and the daily management of diabetic therapy thereby avoiding frequent hospitalizations and complications.
Nothing in this section shall be construed to require the offering of programs whose sole or primary purpose is weight reduction.
An insurer issuing, amending, delivering, or renewing a disability insurance policy on or after January 1, 2000, that covers hospital, medical, or surgical expenses shall include coverage for the following equipment and supplies for the management and treatment of insulin-using diabetes, non-insulin-using diabetes, and gestational diabetes as medically necessary, even if the items are available without a prescription:
Blood glucose monitors and blood glucose testing strips.
Blood glucose monitors designed to assist the visually impaired.
Insulin pumps and all related necessary supplies.
Ketone urine testing strips.
Lancets and lancet puncture devices.
Pen delivery systems for the administration of insulin.
Podiatric devices to prevent or treat diabetes-related complications.
Insulin syringes.
Visual aids, excluding eyewear, to assist the visually impaired with proper dosing of insulin.
An insurer issuing, amending, delivering, or renewing a disability insurance policy on or after January 1, 2000, that covers prescription benefits shall include coverage for the following prescription items if the items are determined to be medically necessary:
Insulin.
Prescriptive medications for the treatment of diabetes.
Glucagon.
The coinsurances and deductibles for the benefits specified in subdivisions (a) and (b) shall not exceed those established for similar benefits within the given policy.
When the state has the capacity to label or produce an insulin prescription drug, the deductible and copayment limitations in paragraph (1) shall also apply to an insulin prescription drug, or any therapeutic equivalent insulin prescription drug, that is labeled or produced by the state.
For purposes of this subdivision and subdivision (e):
“Drug type” includes, but is not limited to, rapid acting, regular or short acting, intermediate acting, long acting, ultra-long acting, and premixed.
“Insulin prescription drug” means a prescription drug that contains insulin and is used to control blood glucose levels to treat diabetes.
Consistent with this section, on and after January 1, 2026, a health insurer shall not impose step therapy as a prerequisite to authorizing coverage of an insulin prescription drug described in subdivision (d), except as provided in paragraph (2). For purposes of this section, “step therapy” has the same meaning as defined in paragraph (2) of subdivision (i) of Section 10123.201. For purposes of this section, step therapy is prohibited for both self-administered drugs and physician-administered drugs, except as provided in paragraph (2).
Because the United States Food and Drug Administration has approved one or more types of insulin, this section does not require a health care service plan to cover all of the types of insulin without step therapy, if at least one insulin in each drug type is covered without step therapy.
An insurer shall provide coverage for diabetes outpatient self-management training, education, and medical nutrition therapy necessary to enable an insured to properly use the equipment, supplies, and medications set forth in subdivisions (a) and (b) and additional diabetes outpatient self-management training, education, and medical nutrition therapy upon the direction or prescription of those services by the insured’s participating physician. If an insurer delegates outpatient self-management training to contracting providers, the insurer shall require contracting providers to ensure that diabetes outpatient self-management training, education, and medical nutrition therapy are provided by appropriately licensed or registered health care professionals.
The diabetes outpatient self-management training, education, and medical nutrition therapy services identified in subdivision (f) shall be provided by appropriately licensed or registered health care professionals as prescribed by a health care professional legally authorized to prescribe the services.
The coinsurances and deductibles for the benefits specified in subdivision (f) shall not exceed those established for physician office visits by the insurer.
Every disability insurer governed by this section shall disclose the benefits covered pursuant to this section in the insurer’s evidence of coverage and disclosure forms.
An insurer shall not reduce or eliminate coverage as a result of this section.
This section does not apply to vision-only, dental-only, accident-only, specified disease, hospital indemnity, Medicare supplement, long-term care, or disability income insurance, except that for accident-only, specified disease, and hospital indemnity insurance coverage, benefits under this section only apply to the extent that the benefits are covered under the general terms and conditions that apply to all other benefits under the policy. This section does not impose a new benefit mandate on accident-only, specified disease, or hospital indemnity insurance.
Disability insurance where the insurer is licensed to do business in this state and which provides coverage under a contract of insurance which includes California residents but which may be written or issued for delivery outside of California where benefits are provided within the scope of practice of a licensed clinical social worker, a registered nurse licensed pursuant to Chapter 6 (commencing with Section 2700) of Division 2 of the Business and Professions Code who possesses a master’s degree in psychiatric-mental health nursing and two years of supervised experience in psychiatric-mental health nursing, a marriage and family therapist who is the holder of a license under Chapter 13 (commencing with Section 4980) of Division 2 of the Business and Professions Code, a professional clinical counselor who is the holder of a license under Chapter 16 (commencing with Section 4999.10) of Division 2 of the Business and Professions Code, or a respiratory care practitioner certified pursuant to Chapter 8.3 (commencing with Section 3700) of Division 2 of the Business and Professions Code shall not be deemed to prohibit persons covered under the contract from selecting those licensees in California to perform the services in California that are within the terms of the contract even though the licensees are not licensed in the state where the contract is written or issued for delivery.
It is the intent of the Legislature in amending this section in the 1984 portion of the 1983–84 Legislative Session that persons covered by the insurance and those providers of health care specified in this section who are licensed in California should be entitled to the benefits provided by the insurance for services of those providers rendered to those persons.
A disability insurance policy may provide that services of a respiratory care practitioner certified pursuant to Chapter 8.3 (commencing with Section 3700) of the Division 2 of the Business and Professions Code, will be paid for pulmonary rehabilitation and respiratory home care only if rendered pursuant to a method of treatment prescribed by a physician and surgeon.
No policy, contract, or agreement coming within the provisions of this article, issued, entered into or renewed on or after July 1, 1984, shall be deemed to contain any provision restricting the liability of the insurer or plan with respect to expenses solely because the expenses were incurred while the person insured was in a state hospital, if the policy, contract, or agreement would have paid for the services but for the fact that they were provided in a state hospital. Nothing in this section shall be deemed to require an insurer or plan to pay a state hospital for covered expenses incurred by an insured or covered individual at a rate or charge higher than the insurer or plan would pay for such services to a hospital with which the insurer or plan has entered a contract providing for alternative rates of payment or limiting payments for services secured by insureds or covered individuals.
On or after January 1, 1994, no disability insurer issuing policies covering hospital, surgical, or medical expenses delivered or renewed in this state or certificates of group disability insurance delivered or renewed in this state pursuant to a master group policy delivered or renewed in another state, to individuals, or to employer groups with fewer than two eligible employees, as defined in subdivision (g) of Section 10700, shall close a block of business without complying with this section.
As used in this section, “block of business” means individual, group, or blanket disability insurance contracts covering hospital, medical, or surgical expenses of a particular policy form that has distinct benefits or marketing methods. “Closed block of business” means a block of business for which an insurer ceases to actively market and sell new contracts under a particular policy form in this state.
Notwithstanding subdivision (b), a block of business shall be presumed closed if either of the following applies:
There has been an overall reduction of 12 percent in the number of in force policies of a particular form for a period of 12 months.
The block has less than 2,000 insured nationally or 1,000 insureds in California. This presumption shall not apply to a block of business initiated within the previous 24 months, but notification of that block shall be provided to the commissioner. The notification shall not be subject to the approval required by subdivision (d).
An insurer may present evidence for consideration by the commissioner that the presumption in the particular case is incorrect. Should the determination be made that the block is closed, the insurer shall be given those remedy options contained in subdivision (d). The fact that a block of business does not meet one of the presumptions set forth in this subdivision shall not preclude a determination that it is closed as defined in subdivision (b).
An insurer shall notify the commissioner within 30 days of its decision to close a block or, in the absence of an actual decision to close a block of business, within 30 days of its determination that the block is within the presumptions set forth in subdivision (c). The commissioner may notify an insurer that he or she has determined that the presumptions contained in subdivision (c) apply to a block. No insurer providing disability insurance covering hospital, medical, or surgical expenses shall close a policy form or group certificate without notification to the commissioner. That notification shall include a plan to permit an insured to move to any open block, providing comparable benefits with no additional underwriting requirement or, alternatively, the insurer shall be required to pool the closed block’s experience with all appropriate open forms for purposes of renewal rate determination, with no rate penalty or surcharge, beyond that which reflects the experience of the combined pool. When the insurer chooses to pool, the notice shall include the insurer’s plan for pooling the closed block’s experience. The insurer may implement the pooling plan if 30 days expire after the submission is filed without written notice from the commissioner specifying the reasons for his or her opinion that the pooling plan does not comply with the requirements of this section, or, prior to that time, if the commissioner provides the insurer written notice that the pooling plan complies with the requirements of this section.
The approval shall be based upon consideration of the accumulative recent and expected future experience of the closed form and those with which the closed form is to be combined.
No insurer shall offer or sell any form nor provide misleading information about the active or closed status of its business for the purpose of evading this section.
An insurer shall bring any blocks of business closed prior to the effective date of this section into compliance with the terms of this section no later than December 31, 1994.
This section shall not apply to small employer carriers providing small employer health insurance to individuals or employer groups with fewer than two eligible employees if that coverage is provided pursuant to Chapter 14 (commencing with Section 10700) of Part 2 of Division 2, and with specific reference to coverage for individuals or employer groups with fewer than two eligible employees, is approved by the commissioner pursuant to Section 10705, provided a carrier electing to sell coverage pursuant to this subdivision shall continue to do so until such time as the carrier ceases to market coverage to small employers and complies with subdivision (c) of Section 10713.
This section shall not apply to accident only coverage, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement coverage, long-term care insurance, dental, vision, or conversion coverage, coverage issued as a supplement to liability insurance, or automobile medical payment insurance.
An insurer that provides a policy of health insurance shall accept premium payments from the following third-party entities without the need to comply with subdivision (c):
A Ryan White HIV/AIDS Program under Title XXVI of the federal Public Health Service Act.
An Indian tribe, tribal organization, or urban Indian organization.
A local, state, or federal government program, including a grantee directed by a government program to make payments on its behalf.
A member of the individual’s family, defined for purposes of this section to include the individual’s spouse, domestic partner, child, parent, grandparent, and siblings, unless the true source of funds used to make the premium payment originates with a financially interested entity.
A financially interested entity that is not specified in subdivision (a) and is making third-party premium payments shall comply with all of the following requirements:
It shall provide assistance for the full policy year and notify the insured prior to an open enrollment period, if applicable, if financial assistance will be discontinued. Notification shall include information regarding alternative coverage options, including, but not limited to, Medicare, Medicaid, individual market policies, and employer policies, if applicable. Assistance may be discontinued at the request of an insured who obtains other health insurance coverage, or if the insured dies during the policy year.
It shall agree not to condition financial assistance on eligibility for, or receipt of, any surgery, transplant, procedure, drug, or device.
It shall inform an applicant of financial assistance, and shall inform an insured annually, of all available health coverage options, including, but not limited to, Medicare, Medicaid, individual market plans, and employer plans, if applicable.
It shall agree not to steer, direct, or advise the insured into or away from a specific coverage program option or health coverage.
It shall agree that financial assistance shall not be conditioned on the use of a specific facility, health care provider, or coverage type.
It shall agree that financial assistance shall be based on financial need in accordance with criteria that are uniformly applied and publicly available.
A financially interested entity shall not make a third-party premium payment unless the entity complies with both of the following requirements:
Commencing January 1, 2022, if a financially interested entity makes a third-party premium payment to a health insurer on behalf of an insured, reimbursement to a financially interested provider for covered services shall be determined by the following:
For a contracted financially interested provider that makes a third-party premium payment or has a financial relationship with the entity making the third-party premium payment, the amount of reimbursement for covered services that shall be paid to the financially interested provider on behalf of the insured shall be governed by the higher of the Medicare reimbursement or the rate determined pursuant to the process described in this subdivision, if a rate determination pursuant to that process is sought by either the provider or the health insurer. Financially interested providers shall neither bill the insured nor seek reimbursement from the insured for services provided, except for cost sharing pursuant to the terms and conditions of the insured’s health insurance policy. If an insured’s policy imposes a coinsurance payment for a claim that is subject to this paragraph, the coinsurance payment shall be based on the amount paid by the health insurer pursuant to this paragraph.
For a noncontracting financially interested provider that makes a third-party premium payment or has a financial relationship with the entity making the third-party premium payment, the amount of reimbursement for covered services that shall be paid to the financially interested provider on behalf of the insured shall be governed by the terms and conditions of the insured’s health insurance policy or the rate determined pursuant to the process described in this subdivision, whichever is lower, if a rate determination pursuant to that process is sought by either the provider or the health insurer. Financially interested providers shall not bill the insured nor seek reimbursement from the insured for services provided, except for cost sharing pursuant to the terms and conditions of the insured’s health insurance policy. If the insured’s policy imposes a coinsurance payment for a claim that is subject to this paragraph, the coinsurance payment shall be based on the amount paid by the health insurer pursuant to this paragraph. A claim submitted to a health insurer by a noncontracting financially interested provider may be considered an incomplete claim and contested by the health insurer pursuant to Section 10123.13 or 10123.147 if the financially interested provider has not provided the information as required in subdivision (c).
By October 1, 2021, the department shall establish an independent dispute resolution process for the purpose of determining if the amount required to be reimbursed by subdivision (e) is appropriate.
If either the provider or health insurer submits a claim to the department’s independent dispute resolution process, the other party shall participate in the independent dispute resolution process.
In making its determination, the independent organization shall consider information submitted by either party regarding the actual cost to provide services, patient eligibility for Medicare or Medi-Cal, and the rate that would be paid by Medicare or Medi-Cal for patients eligible for those programs.
The health insurer shall implement the determination obtained through the independent dispute resolution process. The independent organization’s determination of the amount required to be reimbursed shall apply for the duration of the policy year for that insured. If dissatisfied, either party may pursue any right, remedy, or penalty established under any other applicable law.
In establishing the independent dispute resolution process, the department shall permit the bundling of claims submitted to the same insurer or the same delegated entity for the same or similar services. The department shall permit claims on behalf of multiple insureds from the same provider to the same health insurer to be combined into a single independent dispute resolution process.
The department shall establish uniform written procedures for the submission, receipt, processing, and resolution of claim payment disputes pursuant to this section and any other guidelines for implementing this section.
The department shall establish reasonable and necessary fees not to exceed the reasonable costs of administering this subdivision.
The department may contract with one or more independent organizations to conduct the proceedings. The independent organization handling a dispute shall be independent of either party to the dispute.
The department shall use conflict-of-interest standards consistent with the standards pursuant to subdivisions (c) and (d) of Section 10169.2.
The department may contract with the same independent organization or organizations as the Department of Managed Health Care.
The independent organization retained to conduct proceedings shall be deemed to be consultants for purposes of Section 43.98 of the Civil Code.
Contracts entered into pursuant to the authority in this subdivision shall be exempt from Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, Section 19130 of the Government Code, and Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, and shall be exempt from the review or approval of any division of the Department of General Services.
This subdivision does not alter a health insurer’s obligations under Section 10123.13.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement, interpret, or make specific this section by issuing guidance, without taking regulatory action, until regulations are adopted.
For the purposes of this section, third-party premium payments only include health insurance premium payments made directly by a provider or other third party, made indirectly through payments to the individual for the purpose of making health insurance premium payments, or provided to one or more intermediaries with the intention that the funds be used to make health insurance premium payments for the individuals.
The following definitions apply for purposes of this section:
“Financially interested” includes any of the following entities:
A provider of health care services that receives a direct or indirect financial benefit from a third-party premium payment.
An entity that receives the majority of its funding from one or more financially interested providers of health care services, parent companies of providers of health care services, subsidiaries of health care service providers, or related entities.
A chronic dialysis clinic that is operated, owned, or controlled by a parent entity or related entity that meets the definition of a large dialysis clinic organization (LDO) under the federal Centers for Medicare and Medicaid Services Comprehensive ESRD Care Model as of January 1, 2019. A chronic dialysis clinic that does not meet the definition of an LDO or has no more than 10 percent of California’s market share of licensed chronic dialysis clinics shall not be considered financially interested for purposes of this section.
“Health insurance” means an individual or group health insurance policy as defined in subdivision (b) of Section 106. The term does not include coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement coverage, or specialized health insurance coverage as described in subdivision (c) of Section 106.
“Insured” means an individual whose health insurance premiums are paid by a financially interested entity.
“Provider” means a professional person, organization, health facility, or other person or institution that delivers or furnishes health care services.
The following shall occur if a health insurer subsequently discovers that a financially interested entity fails to provide disclosure pursuant to subdivision (c):
Commencing January 1, 2022, each health insurer licensed by the department and subject to this section shall provide to the department information regarding premium payments by financially interested entities and reimbursement for services to providers under subdivision (e). The information shall be provided at least annually at the discretion of the department and shall include, to the best of the health insurer’s knowledge, the number of insureds whose premiums were paid by financially interested entities, disclosures provided to the insurer pursuant to subdivision (c), the identities of any providers whose reimbursement rate was governed by subdivision (e), the identities of any providers who failed to provide disclosure as described in subdivision (c), and, at the discretion of the department, additional information necessary for the implementation of this section.
This section does not limit the authority of the Attorney General to take action to enforce this section.
This section does not affect a contracted payment rate for a provider who is not financially interested.
This section does not alter any of a health insurer’s obligations and requirements under this part, including, but not limited to, the following:
A health insurer may not deny coverage to an insured whose premiums are paid by a third party.
This section does not supersede or modify any privacy and information security requirements and protections in federal and state law regarding protected health information or personally identifiable information, including, but not limited to, the federal Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. Sec. 300gg).
Notwithstanding clause (iii) of subparagraph (A) of paragraph (1) of subdivision (d) of Section 10965.3, an insured’s loss of coverage due to a financially interested entity’s failure to pay premiums on a timely basis shall be deemed a triggering event for special enrollment pursuant to subparagraph (A) of paragraph (1) of subdivision (d) of Section 10965.3.
A self-insured employee welfare benefit plan may provide for payment of professional mental health expenses upon a reimbursement basis, or for the exclusion of those services, and provision may be made therein for payment of all or a portion of the amount of charge for those services without requiring that the employee first pay those expenses. The plan shall not prohibit the employee from selecting any psychologist who is the holder of a certificate issued under Section 2948 of the Business and Professions Code or, upon referral by a physician and surgeon licensed under Section 2135 of the Business and Professions Code, any licensed clinical social worker who is the holder of a license issued under Section 4996 of the Business and Professions Code or any marriage and family therapist who is the holder of a certificate or license under Section 4980.50 of the Business and Professions Code, any professional clinical counselor who is the holder of a license under Chapter 16 (commencing with Section 4999.10) of Division 2 of the Business and Professions Code, or any registered nurse licensed pursuant to Chapter 6 (commencing with Section 2700) of Division 2 of the Business and Professions Code, who possesses a master’s degree in psychiatric-mental health nursing and is listed as a psychiatric-mental health nurse by the Board of Registered Nursing or any advanced practice registered nurse certified as a clinical nurse specialist pursuant to Article 9 (commencing with Section 2838) of Chapter 6 of Division 2 of the Business and Professions Code who participates in expert clinical practice in the specialty of psychiatric-mental health nursing, to perform the particular services covered under the terms of the plan, the certificate or license holder being expressly authorized by law to perform these services.
Nothing in this section shall be construed to allow any certificate holder or licensee enumerated in this section to perform professional services beyond his or her field or fields of competence as established by his or her education, training, and experience.
For the purposes of this section:
“Marriage and family therapist” shall mean a licensed marriage and family therapist who has received specific instruction in assessment, diagnosis, prognosis, and counseling, and psychotherapeutic treatment of premarital, marriage, family, and child relationship dysfunctions, which is equivalent to the instruction required for licensure on January 1, 1981.
“Professional clinical counselor” means a licensed professional clinical counselor who has received specific instruction in assessment, diagnosis, prognosis, counseling, and psychotherapeutic treatment of mental and emotional disorders, which is equivalent to the instruction required for licensure on January 1, 2012.
A self-insured employee welfare benefit plan, which is issued, renewed, or amended on or after January 1, 1988, that includes mental health services coverage in nongroup contracts may not include a lifetime waiver for that coverage with respect to any employee. The lifetime waiver of coverage provision shall be deemed unenforceable.
A self-insured employee welfare benefit plan which is written or issued for delivery outside California in a state the laws of which require recognition of psychologists licensed in such state for services performed within the scope of psychological practice shall not be deemed to prohibit the insured from selecting a psychologist licensed in California to perform services in California which are covered under the terms of the policy even though such psychologist is not licensed in the state in which the insurance is written or issued for delivery.
On and after the effective date of this section, a self-insured employee welfare benefit plan shall not prohibit the insured from selecting any person who is the holder of a certificate or license under Section 3055 of the Business and Professions Code to perform the particular services covered under the terms of the plan, such certificate holder or licensee being expressly authorized by law to perform such services.
This section shall not apply to any plan governed by federal law which expressly preempts state regulation.
On and after January 1, 1982, every self-insured employee welfare benefit plan which is issued, amended, delivered, or renewed that covers hospital, medical, or surgical expenses on a group basis shall offer coverage for diabetic daycare self-management education programs, under such terms and conditions as may be agreed upon between the plan and the group policyholder, subject to utilization controls.
Coverage shall only apply to programs directed and supervised by a licensed physician who is board certified in internal medicine or pediatrics. Covered diabetic daycare self-managment and education programs shall be provided by health care professionals including, but not limited to, physicians, registered nurses, registered pharmacists, and registered dietitians who are knowledgeable about the disease process of diabetes and the treatment of diabetic patients.
As used in this section, diabetic daycare self-management education programs means instruction which will enable diabetic patients and their families to gain an understanding of the diabetic disease process, and the daily management of diabetic therapy thereby avoiding frequent hospitalizations and complications.
Nothing in this section shall be construed to require the offering of programs whose sole or primary purpose is weight reduction.
A self-insured employee welfare benefit plan doing business in this state and providing coverage that includes California residents but that may be written or issued for delivery outside of California where benefits are provided within the scope of practice of a licensed clinical social worker, a registered nurse licensed pursuant to Chapter 6 (commencing with Section 2700) of Division 2 of the Business and Professions Code who possesses a master’s degree in psychiatric-mental health nursing and two years of supervised experience in psychiatric-mental health nursing, a marriage and family therapist who is the holder of a license under Chapter 13 (commencing with Section 4980) of Division 2 of the Business and Professions Code, or a professional clinical counselor who is the holder of a license under Chapter 16 (commencing with Section 4999.10) of Division 2 of the Business and Professions Code, shall not be deemed to prohibit persons covered under the plan from selecting those licensees in California to perform the services in California that are within the terms of the contract even though the licensees are not licensed in the state where the contract is written or issued.
It is the intent of the Legislature in amending this section in the 1984 portion of the 1983–84 Legislative Session that persons covered by the plan and those providers of health care specified in this section who are licensed in California should be entitled to the benefits provided by the plan for services of those providers rendered to those persons.
It is the intent of the Legislature that all persons licensed in this state to engage in the practice of dentistry shall be accorded equal professional status and privileges, without regard to the degree earned.
Notwithstanding any other provision of law, no nonprofit hospital service plan or self-insured employee welfare benefit plan shall discriminate, with respect to employment, staff privileges, or the provision of, or contracts for, professional services, against a licensed dentist solely on the basis of the educational degree held by the dentist.
No admitted insurer, union trust fund which administers health, medical, or surgical insurance, or employer which has an insurance company administering its health services program, shall deny, for the reason that the insured incurred no expense, a claim for hospital, medical or surgical services rendered by a nongovernmental charitable research hospital in this state which makes no charge for its services in the absence of insurance. No expense-incurred, group hospital, medical or surgical policy or certificate or union trust fund which administers health, medical, or surgical insurance, or employer which has an insurance company administering its health services program, shall except, limit or reduce benefits for services rendered by a nongovernmental charitable research hospital because it does not charge for its services in the absence of insurance. No expense-incurred individual hospital, medical or surgical policy or certificate or union trust fund which administers health, medical, or surgical insurance, or employer which has an insurance company administering its health services program, shall except, limit, or reduce benefits for services rendered by a nongovernmental charitable research hospital because it does not charge for its services in the absence of insurance.
This section shall apply to every group policy or certificate of expense-incurred hospital, medical, or surgical insurance covering or delivered to a covered individual in this state, notwithstanding the situs of the group master policy pursuant to which the coverage is provided.
As used in this section, charitable research hospital means a hospital that meets all the following criteria:
Is internationally recognized as devoting itself primarily to medical research.
Expends not less than 10 percent of its operating budget in each fiscal year exclusively on medical research activities which are not directly related to the provision of services to patients.
Derives not less than one-third of its gross revenues in each fiscal year from contributions, donations, grants, gifts, or other gratuitous forms from individuals, groups, persons, or entities unrelated to the hospital. Contributions, donations, grants, gifts or other gratuitous sources of revenue received as compensation for medical services provided patients shall not be considered for purposes of this subdivision.
Accepts patients without regard to the patient’s ability to pay for medical services.
Not less than two-thirds of the patients admitted have a primary diagnosis or suspected disease or condition directly related to the specific area or areas in which the hospital conducts research. Patients admitted because of an emergent life-threatening condition who could not be safely transported to another hospital shall not be considered as patients for purposes of this section.
In order to prevent the improper selling, leasing, or transferring of a health care provider’s contract, it is the intent of the Legislature that every arrangement that results in a payor paying a health care provider a reduced rate for health care services based on the health care provider’s participation in a network or panel shall be disclosed to the provider in advance and that the payor shall actively encourage beneficiaries to use the network, unless the health care provider agrees to provide discounts without that active encouragement.
Beginning July 1, 2000, every contracting agent that sells, leases, assigns, transfers, or conveys its list of contracted health care providers and their contracted reimbursement rates to a payor, as defined in subparagraph (A) of paragraph (3) of subdivision (d), or another contracting agent shall, upon entering or renewing a provider contract, do all of the following:
Disclose whether the list of contracted providers may be sold, leased, transferred, or conveyed to other payors or other contracting agents, and specify whether those payors or contracting agents include workers’ compensation insurers or automobile insurers.
Disclose what specific practices, if any, payors utilize to actively encourage a payor’s beneficiaries to use the list of contracted providers when obtaining medical care that entitles a payor to claim a contracted rate. For purposes of this paragraph, a payor is deemed to have actively encouraged its beneficiaries to use the list of contracted providers if one of the following occurs:
The payor’s contract with subscribers or insureds offers beneficiaries direct financial incentives to use the list of contracted providers when obtaining medical care. “Financial incentives” means reduced copayments, reduced deductibles, premium discounts directly attributable to the use of a provider panel, or financial penalties directly attributable to the nonuse of a provider panel.
The payor provides information to its beneficiaries, who are parties to the contract, or, in the case of workers’ compensation insurance, the employer, advising them of the existence of the list of contracted providers through the use of a variety of advertising or marketing approaches that supply the names, addresses, and telephone numbers of contracted providers to beneficiaries in advance of their selection of a health care provider, which approaches may include, but are not limited to, the use of provider directories, or the use of toll-free telephone numbers or Internet Web site addresses supplied directly to every beneficiary. However, Internet Web site addresses alone shall not be deemed to satisfy the requirements of this subparagraph. Nothing in this subparagraph shall prevent contracting agents or payors from providing only listings of providers located within a reasonable geographic range of a beneficiary.
Disclose whether payors to which the list of contracted providers may be sold, leased, transferred, or conveyed may be permitted to pay a provider’s contracted rate without actively encouraging the payors’ beneficiaries to use the list of contracted providers when obtaining medical care. Nothing in this subdivision shall be construed to require a payor to actively encourage the payor’s beneficiaries to use the list of contracted providers when obtaining medical care in the case of an emergency.
Disclose, upon the initial signing of a contract, and within 30 calendar days of receipt of a written request from a provider or provider panel, a payor summary of all payors currently eligible to claim a provider’s contracted rate due to the provider’s and payor’s respective written agreements with any contracting agent.
Allow providers, upon the initial signing, renewal, or amendment of a provider contract, to decline to be included in any list of contracted providers that is sold, leased, transferred, or conveyed to payors that do not actively encourage the payors’ beneficiaries to use the list of contracted providers when obtaining medical care as described in paragraph (2). Each provider’s election under this paragraph shall be binding on the contracting agent with which the provider has a contract and any other contracting agent that buys, leases, or otherwise obtains the list of contracted providers. A provider shall not be excluded from any list of contracted providers that is sold, leased, transferred, or conveyed to payors that actively encourage the payors’ beneficiaries to use the list of contracted providers when obtaining medical care, based upon the provider’s refusal to be included on any list of contracted providers that is sold, leased, transferred, or conveyed to payors that do not actively encourage the payors’ beneficiaries to use the list of contracted providers when obtaining medical care.
Nothing in this subdivision shall be construed to impose requirements or regulations upon payors, as defined in subparagraph (A) of paragraph (3) of subdivision (d).
Beginning July 1, 2000, a payor, as defined in subparagraph (B) of paragraph (3) of subdivision (d), shall do all of the following:
For the purposes of this section, the following terms have the following meanings:
For automobile insurance, those persons covered under the medical payments portion of the insurance contract.
For group or individual health services covered through a health care service plan contract, including a specialized health care service plan contract, or a policy of disability insurance that covers hospital, medical, or surgical benefits, a subscriber, an enrollee, a policyholder, or an insured.
For workers’ compensation insurance, an employee seeking health care services for a work-related injury.
For the purposes of subdivision (b), “payor” means a health care service plan, including a specialized health care service plan, an insurer licensed under this code to provide disability insurance that covers hospital, medical, or surgical benefits, automobile insurance, or workers’ compensation insurance, or a self-insured employer that is responsible to pay for health care services provided to beneficiaries.
For the purposes of subdivision (c), “payor” means only an insurer licensed under this code to provide disability insurance that covers hospital, medical, or surgical benefits, or automobile insurance, if that insurer is responsible to pay for health care services provided to beneficiaries.
Any person licensed or certified pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code.
Any person licensed pursuant to the Chiropractic Initiative Act or the Osteopathic Initiative Act.
Any person licensed pursuant to Chapter 2.5 (commencing with Section 1440) of Division 2 of the Health and Safety Code.
A clinic, health dispensary, or health facility licensed pursuant to Division 2 (commencing with Section 1200) of the Health and Safety Code.
Any entity exempt from licensure pursuant to Section 1206 of the Health and Safety Code.
This section shall become operative on July 1, 2000.
When a contracting agent sells, leases, or transfers a health provider’s contract to a payor, the rights and obligations of the provider shall be governed by the underlying contract between the health care provider and the contracting agent.
For purposes of this section, the following terms shall have the following meanings:
“Contracting agent” has the meaning set forth in paragraph (2) of subdivision (d) of Section 10178.3.
“Payor” has the meaning set forth in paragraph (3) of subdivision (d) of Section 10178.3.
Every self-insured employee welfare benefit plan issued, amended, or renewed on and after January 1, 1987, that offers coverage for medical transportation services, shall contain a provision providing for direct reimbursement to any provider of covered medical transportation services if the provider has not received payment for those services from any other source.
Subdivision (a) shall not apply to any transaction between a provider of medical transportation services and a self-insured employee welfare benefit plan if the parties have entered into a contract providing for direct payment.
For purposes of this subdivision, “direct reimbursement” means the following:
The insured shall file a claim for the medical transportation service with the plan; the plan shall pay the medical transportation provider directly; and the medical transportation provider shall not demand payment from the insured until having received payment from the plan, at which time the medical transportation provider may demand payment from the insured for any unpaid portion of the provider’s fee.
A disability insurer that offers or provides coverage for any services that are legally within the scope of the practice of podiatric medicine, as defined in Section 2472 of the Business and Professions Code, as a specific plan benefit or otherwise, shall not refuse to give reasonable consideration to negotiating contracts with or affiliation with podiatrists for the provision of service solely on the basis that they are podiatrists.
A disability insurer which negotiates and enters into a contract with professional providers to provide services at alternative rates of payment pursuant to Section 10133 of the Insurance Code, shall give reasonable consideration to timely written proposals for contracting by licensed or certified professional providers.
For the purposes of this section, the following definitions are applicable:
“Reasonable consideration” means consideration in good faith of the terms of proposals for contracting prior to the time that contracts for alternative rates of payment are entered into or renewed. An insurer may specify the terms and conditions of contracting to assure cost efficiency, qualification of providers, appropriate utilization of services, accessibility, convenience to persons who would receive the provider’s services, and consistency with its basic method of operation, but shall not exclude providers because of their category of license.
“Professional provider” means a holder of a certificate or license under Division 2 (commencing with Section 500) of the Business and Professions Code, or any initiative act referred to therein, except for those certified or licensed pursuant to Article 3 of Chapter 5 (commencing with Section 2050) or Chapter 11 (commencing with Section 4800), who may, within the scope of their licenses, perform the services of a specific benefit defined in the insurer’s policy.
An insurer which has a contract with an institutional provider or with professional providers is not required by this section to give consideration to contracting with professional providers who hold the same category of license or certificate and propose to serve a geographic area served adequately by the contracting providers that provide their professional services as employees or agents of that institutional or professional provider, or contract with that institutional or professional provider to provide professional services.
ARTICLE 4.5. Review of Rate Increases [10181. - 10181.14.]
For purposes of this article, the following definitions shall apply:
“Blended” means a rating method that combines community rating and experience rating methods.
“Community rated” means a rating method in the large group market that bases rates on the expected costs to a health insurer of providing covered benefits to all insureds, including both low-risk and high-risk insureds. Premiums may vary according to the factors in this article.
“Experience rated” means a rating method in the large group market under which a health insurer calculates the premiums for a large group in whole or blended based on the group’s prior experience.
An area composed of regions 2, 4, 5, 6, 7, and 8, which consist of the Counties of Alameda, Contra Costa, Marin, Napa, San Mateo, Santa Clara, Solano, and Sonoma and the City and County of San Francisco.
An area composed of regions 1 and 3, which consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Placer, Plumas, Sacramento, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, Yolo, and Yuba.
An area composed of regions 9 and 12, which consist of the Counties of Monterey, San Benito, San Luis Obispo, Santa Barbara, Santa Cruz, and Ventura.
An area composed of regions 10, 11, and 14, which consist of the Counties of Fresno, Kern, Kings, Madera, Mariposa, Merced, San Joaquin, Stanislaus, and Tulare.
An area composed of regions 13 and 17, which consist of the Counties of Imperial, Inyo, Mono, Riverside, and San Bernardino.
An area composed of regions 15 and 16, which consist of the County of Los Angeles.
An area composed of regions 18 and 19, which consist of the Counties of Orange and San Diego.
“PPACA” means Section 2794 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-94), as amended by the federal Patient Protection and Affordable Care Act (Public Law 111-148), and any subsequent rules, regulations, or guidance issued pursuant to that law.
“Unreasonable rate increase” has the same meaning as that term is defined in PPACA.
This article shall apply to a health insurance policy offered in the individual or group market in California, including a health insurance policy covering dental services and a specialized health insurance policy covering dental services. However, this article shall not apply to a nondental specialized health insurance policy, a Medicare supplement policy subject to Article 6 (commencing with Section 10192.1), a health insurance policy offered in the Medi-Cal program (Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code), a health insurance policy offered in the California Major Risk Medical Insurance Program (Chapter 4 (commencing with Section 15870) of Part 3.3 of Division 9 of the Welfare and Institutions Code), a health insurance conversion policy offered pursuant to Section 12682.1, a health insurance policy offered to a federally eligible defined individual under Chapter 9.5 (commencing with Section 10900), or a Mexican prepaid health plan subject to Section 1351.2 of the Health and Safety Code.
A health insurer shall file with the department all required rate information for grandfathered individual and grandfathered and nongrandfathered group health insurance policies at least 120 days before implementing any rate change.
A health insurer shall file with the department all required rate information for nongrandfathered individual health insurance policies on the earlier of the following dates:
One hundred days before the commencement of the annual enrollment period of the preceding policy year.
The date specified in the federal guidance issued pursuant to Section 154.220(b) of Title 45 of the Code of Federal Regulations.
For large group products that are either experience rated, in whole or blended, or community rated, a health insurer shall file the information required by this article at least annually and shall file 120 days before any change in the methodology, factors, or assumptions that would affect the rates paid by a large group.
An insurer shall disclose to the department all of the following for each rate filing for products in the individual, small group, community-rated segment of the large group market, and experience-rated segment, in whole or blended, in the large group market:
Company name and contact information.
Number of policy forms covered by the filing.
Policy form numbers covered by the filing.
Product type, such as indemnity or preferred provider organization.
Segment type.
Type of insurer involved, such as for profit or not for profit.
Whether the products are opened or closed.
Enrollment in each policy and rating form.
Insured months in each policy form.
Annual rate.
Total earned premiums in each policy form.
Total incurred claims in each policy form.
Average rate increase initially requested.
Review category: initial filing for new product, filing for existing product, or resubmission.
Average rate of increase.
Effective date of rate increase.
Number of policyholders or insureds affected by each policy form.
A comparison of claims cost and rate of changes over time.
Any changes in insured cost sharing over the prior year associated with the submitted rate filing.
Any changes in insured benefits over the prior year associated with the submitted rate filing.
The certification described in subdivision (b) of Section 10181.6.
Any changes in administrative costs.
Any other information required for rate review under PPACA.
A health insurer subject to subdivision (a) shall disclose the following by geographic region for individual, grandfathered group, and nongrandfathered group policies:
A health insurer subject to subdivision (a) shall disclose, by geographic region for individual, grandfathered group, and nongrandfathered group policies, the amount of the projected trend attributable to the use of services, price inflation, or fees and risk for annual policy trends by aggregate benefit category, such as hospital inpatient, hospital outpatient, physician services, prescription drugs and other ancillary services, laboratory, and radiology.
An insurer subject to subdivision (a) shall also disclose the following aggregate data for all rate filings submitted under this section in the individual and group health insurance markets:
Number and percentage of rate filings reviewed by the following:
Plan year.
Segment type.
Product type.
Number of policyholders.
Number of covered lives affected.
The insurer’s average rate increase by the following categories:
Plan year.
Segment type.
Product type.
Any cost containment and quality improvement efforts since the insurer’s last rate filing for the same category of health benefit plan. To the extent possible, the insurer shall describe any significant new health care cost containment and quality improvement efforts and provide an estimate of potential savings together with an estimated cost or savings for the projection period. If rate filings in a prior year or years included a description of cost containment or quality improvement efforts, the insurer shall document the effects of those efforts, if any, including the impact on rates and documented improvements in quality, such as reduction of readmissions, reduction of emergency room use, or other recognized measures of quality improvement.
For large group experience-rated, in whole or blended, and community-rated filings, the insurer shall also submit the following:
The geographic regions used.
Age, including age rating factors.
Industry or occupation adjustments.
Family composition.
Insured cost sharing.
Covered benefits in addition to basic health care services, as defined in subdivision (b) of Section 1345 of the Health and Safety Code, and other benefits mandated by this article.
The base rate or rates and the factors used to determine the base rate or rates.
Whether benefits, including prescription drugs, dental, and vision, are separately contracted.
Variations in covered benefits, including durable medical equipment, infertility, and other similar benefits.
Cost-sharing variations, described with actuarial value ranges and any expected impact on rates.
Any other factor that affects the community rating.
For large group filings that are experience rated, either in whole or blended, the insurer shall submit the methodology for modifying the rate based on experience.
The department may require all health insurers to submit all rate filings to the National Association of Insurance Commissioners’ System for Electronic Rate and Form Filing (SERFF). Submission of the required rate filings to SERFF shall be deemed to be filing with the department for purposes of compliance with this section.
If California-specific information is required, the department may require additional schedules or documents.
A health insurer shall submit any other information required under PPACA. A health insurer shall also submit any other information required pursuant to a regulation adopted by the department to comply with this article.
A health insurer shall respond to the department’s request for any additional information necessary for the department to complete its review of the health insurer’s rate filing for individual and group health insurance policies under this article within five business days of the department’s request or as otherwise required by the department.
Except as provided in paragraph (3), the department shall determine whether a health insurer’s rate change for individual and small group insurance policies is unreasonable or not justified no later than 60 days following receipt of all the information the department requires to make its determination. For both experience-rated, in whole or blended, and community-rated large groups, the department shall determine whether the methodology, factors, and assumptions used to determine rates are unreasonable or not justified no later than 60 days following receipt of all the information the department requires to make its determination.
For all nongrandfathered individual health insurance policies, the department shall issue a determination that the health insurer’s rate change is unreasonable or not justified no later than 15 days before the start of the next annual enrollment period. If a health insurer fails to provide all the information the department requires in order for the department to make its determination, the department may determine that a health insurer’s rate change is unreasonable or not justified.
The department may contract with a consultant or consultants with expertise to assist the department in its review. Contracts entered into pursuant to the authority in this article shall be exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, Article 4 (commencing with Section 19130) of Chapter 5 of Part 2 of Division 5 of Title 2 of the Government Code, and the State Contract Act (Chapter 1 (commencing with Section 10100) of Part 2 of Division 2 of the Public Contract Code).
If the department determines that a health insurer’s rate change for individual or group health insurance policies is unreasonable or not justified consistent with this article, the health insurer shall provide notice of that determination to any individual or group applicant. For both experience-rated, in whole or blended, and community-rated large groups, the determination by the department shall apply to methodology, factors, and assumptions used to determine rates. The notice provided to an individual applicant shall be consistent with the notice described in subdivision (c) of Section 10113.9. The notice provided to a group applicant shall be consistent with the notice described in subdivision (d) of Section 10199.1.
Failure to provide the information required by subdivision (b), (c), (d), (e), (f), or (g) shall constitute an unjustified rate.
For purposes of this section, “policy year” has the same meaning as set forth in subdivision (g) of Section 10965.
The department may adopt emergency regulations implementing this section. The department may, on a one-time basis, readopt an emergency regulation authorized by this section that is the same as, or substantially equivalent to, an emergency regulation previously adopted under this section.
The initial adoption of emergency regulations implementing this section and the readoption of emergency regulations authorized by this subdivision shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, safety, or general welfare. The initial emergency regulations and the readoption of emergency regulations authorized by this section shall be submitted to the Office of Administrative Law for filing with the Secretary of State and each shall remain in effect for no more than 180 days, by which time final regulations may be adopted.
The amendments made to this section by Chapter 807 of the Statutes of 2019 (Assembly Bill 731 of the 2019–20 Regular Session) shall become operative on July 1, 2020.
Upon receiving notice of a rate change, a large group contractholder that has coverage that is experience rated in whole or blended and that meets the criteria in subdivision (e), may apply within 60 days to have the department review the rate change to determine whether the rate change is unreasonable or not justified, consistent with this article.
Upon receiving an application, the department shall notify the health insurer of the application, and the insurer shall provide the information required by the department to complete the department’s review of the proposed rate within five business days of the department’s request or as otherwise required by the department.
The department shall use reasonable efforts to complete its review of the rate change within 60 days of receiving all the information the department requires to make its determination, and shall notify the health insurer and the large group contractholder of its determination.
A rate change under review by the department shall not be imposed before a determination is made by the department pursuant to subdivision (c) or within 60 days following receipt by the department of all information the department requires to make its determination, whichever occurs earlier.
To apply for a review of a rate change for a particular group, at least one of the following shall apply:
The contractholder has more than 2,000 total insureds.
The insurer failed to provide the information required by this article or Section 10181.10.
To facilitate review, the department may group appeals that apply to the same health insurer and that raise similar questions about rates, methodology, assumptions, or factors.
The department may contract with a consultant or consultants with expertise to assist the department in its review. Contracts entered into pursuant to the authority in this article shall be exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, Article 4 (commencing with Section 19130) of Chapter 5 of Part 2 of Division 5 of Title 2 of the Government Code, and the State Contract Act (Chapter 1 (commencing with Section 10100) of Part 2 of Division 2 of the Public Contract Code).
This section shall become operative on July 1, 2021.
It is the intent of the Legislature in enacting this section to ensure that insureds benefit from reductions in the rate of growth in health care costs as a result of the establishment of the Office of Health Care Affordability.
In submitting rates for review consistent with this article, a health insurer shall demonstrate the impact of any changes in the rate of growth in health care costs resulting from the health care cost targets set pursuant to Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107 of the Health and Safety Code.
In determining whether a rate is unreasonable or not justified, the commissioner shall consider the impact on changes in health care costs as a result of the health care cost targets set pursuant to Chapter 2.6 (commencing with Section 127500) of Part 2 of Division 107 of the Health and Safety Code.
For large group health insurance policies, all health insurers shall file with the department at least 60 days prior to implementing any rate change all required rate information for unreasonable rate increases. This filing shall be concurrent with the written notice described in Section 10199.1.
For large group rate filings, health insurers shall submit all information that is required by PPACA. A health insurer shall also submit any other information required pursuant to any regulation adopted by the department to comply with this article.
A health insurer subject to subdivision (a) shall also disclose the following aggregate data for all rate filings submitted under this section in the large group health insurance market:
Number and percentage of rate filings reviewed by the following:
Plan year.
Segment type.
Product type.
Number of insureds.
Number of covered lives affected.
The insurer’s average rate increase by the following categories:
Plan year.
Segment type.
Product type.
Any cost containment and quality improvement efforts since the health insurer’s last rate filing for the same category of health insurance policy. To the extent possible, the health insurer shall describe any significant new health care cost containment and quality improvement efforts and provide an estimate of potential savings together with an estimated cost or savings for the projection period.
The department may require all health insurers to submit all rate filings to the National Association of Insurance Commissioners’ System for Electronic Rate and Form Filing (SERFF). Submission of the required rate filings to SERFF shall be deemed to be filing with the department for purposes of compliance with this section.
For large group health insurance policies, a health insurer shall file with the department the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year. The average shall be weighted by the number of insureds in each large group benefit design in the insurer’s large group market and adjusted to the most commonly sold large group benefit design by enrollment during the 12-month period. For the purposes of this section, the large group benefit design includes, but is not limited to, benefits such as basic health care services and prescription drugs. The large group benefit design shall not include cost sharing, including, but not limited to, deductibles, copays, and coinsurance.
A health insurer shall also submit any other information required pursuant to any regulation adopted by the department to comply with this article.
The department shall conduct a public meeting in every even-numbered year regarding large group rates within four months of posting the aggregate information described in this section in order to permit a public discussion of the reasons for the changes in the rates, benefits, and cost sharing in the large group market. The meeting shall be held in either the Los Angeles area or the San Francisco Bay area.
A health insurer subject to subdivision (a) shall also disclose the following for the aggregate rate information for the large group market submitted under this section:
Plan year.
Segment type, including whether the rate is community rated, in whole or in part.
Product type.
Number of insureds.
The number of products sold that have materially different benefits, cost sharing, or other elements of benefit design.
Geographic region.
Age, including age rating factors.
Occupation.
Industry.
Health status factors, including, but not limited to, experience and utilization.
Employee, and employee and dependents, including a description of the family composition used.
Insureds’ share of premiums.
Insureds’ cost sharing, including cost sharing for prescription drugs.
Covered benefits in addition to basic health care services, as defined in Section 1345 of the Health and Safety Code, and other benefits mandated under this article.
Which market segment, if any, is fully experience rated and which market segment, if any, is in part experience rated and in part community rated.
Any other factor that affects the rate that is not otherwise specified.
The insurer’s overall annual medical trend factor assumptions for all benefits and by aggregate benefit category, including hospital inpatient, hospital outpatient, physician services, prescription drugs and other ancillary services, laboratory, and radiology for the applicable 12-month period ending January 1 of the following year.
The amount of the projected trend separately attributable to the use of services, price inflation, and fees and risk for annual policy trends by aggregate benefit category, including hospital inpatient, hospital outpatient, physician services, prescription drugs and other ancillary services, laboratory, and radiology.
A comparison of the aggregate per insured per month costs and rate of changes over the last five years for each of the following:
Premiums.
Claims costs, if any.
Administrative expenses.
Taxes and fees.
Any changes in insured cost sharing over the prior year associated with the submitted rate information, including both of the following:
Actual copays, coinsurance, deductibles, annual out of pocket maximums, and any other cost sharing by the benefit categories determined by the department.
Any aggregate changes in insured cost sharing over the prior years as measured by the weighted average actuarial value, weighted by the number of insureds.
Any changes in insured benefits over the prior year, including a description of benefits added or eliminated as well as any aggregate changes as measured as a percentage of the aggregate claims costs, listed by the categories determined by the department.
Any cost containment and quality improvement efforts made since the insurer’s prior year’s information pursuant to this section for the same category of health insurer. To the extent possible, the insurer shall describe any significant new health care cost containment and quality improvement efforts and provide an estimate of potential savings together with an estimated cost or savings for the projection period.
The number of products covered by the information that incurred the excise tax paid by the health insurer.
For covered prescription generic drugs excluding specialty generic drugs, prescription brand name drugs excluding specialty drugs, and prescription brand name and generic specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use, all of the following shall be disclosed:
The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs as defined in this subparagraph.
The year-over-year increase, as a percentage, in per-member, per-month total health insurer spending for each category of prescription drugs as defined in this subparagraph.
The year-over-year increase in per-member, per-month costs for drug prices compared to other components of the health care premium.
The specialty tier formulary list.
The insurer shall include the percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available.
The insurer shall include information on its use of a pharmacy benefit manager, if any, including which components of the prescription drug coverage described in subparagraphs (A) and (B) are managed by the pharmacy benefit manager.
The insurer shall also include the name or names of the pharmacy benefit manager, or managers if the insurer uses more than one.
The information required pursuant to this section shall be submitted to the department on or before October 1, 2016, and on or before October 1 annually thereafter. Information submitted pursuant to this section is subject to Section 10181.7.
For the purposes of this section, a “specialty drug” is one that exceeds the threshold for a specialty drug under the Medicare Part D program (Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173)).
A health insurer, not including a specialized health insurance policy, shall annually report to the department the information described in subdivision (c) for all grandfathered and nongrandfathered products that the insurer offers and sells in the individual market, including both on-exchange and off-exchange enrollment, for rates effective during the 12-month period ending January 1 of the following year.
A health insurer, not including a specialized health insurance policy, shall annually report to the department the information described in subdivision (c) for all grandfathered and nongrandfathered products that the insurer offers and sells in the small group market, including both on-exchange and off-exchange enrollment, for products with rates effective during that 12-month period ending January 1 of the following year.
Information on premiums, including share of premium, if applicable, average premium weighted by enrollment, and weighted average rate change.
Cost sharing, including deductibles, maximum out-of-pocket limit, copayments, coinsurance and any other cost sharing for covered benefits as well as high deductible health policies.
For nongrandfathered policies, essential health benefits and basic health care services.
For grandfathered policies, covered benefits, including mandates, if any.
Standard and nonstandard benefit designs, including on-exchange and off-exchange nonstandard benefit designs.
Enrollment by actuarial value tier, product, benefit design and premiums, including both of the following:
Enrollment in products with zero deductibles, high deductibles as defined in this section, and deductibles between zero and high.
Enrollment by premium.
For small group products, enrollment by share of premium.
Trend factors as reported in individual and small group rate filings for the health insurer, including both price and utilization, as required in Section 10181.3.
By October 1, 2021, and annually thereafter, a health insurer shall submit the annual report, as described under subdivision (a), to the department in a form and manner determined by the department.
Beginning in 2022, the department shall annually present the information reported under this section in the meeting specified in Section 10181.45 or at any other public meeting the department deems appropriate. The department also shall post the information reported under this section on its internet website no later than December 15 of each year.
For purposes of this section, the following definitions apply:
“Average premium weighted by enrollment” means both of the following:
For the individual market, the average premium shall be weighted by the number of individual insureds in the insurer’s individual market during the 12-month period.
For the small group market, the average premium shall be weighted by the number of insureds in each small group benefit design in the insurer’s small group market during the 12-month period.
“Benefit design” means the cost sharing for covered benefits.
“High deductible” has the same meaning as defined in Section 223(c)(2)(A) of Title 26 of the United States Code.
“Nonstandard benefit design” means a benefit design other than the standard benefit design.
“Share of premium” means the share of premium paid by the insured on behalf of the insured and any dependents, not the employer.
“Standard benefit design” means the standardized products approved by the executive board of the California Health Benefit Exchange pursuant to subdivision (c) of Section 100504 of the Government Code.
Until January 1, 2023, a health insurer shall not be required to report either of the following information:
Share of premium paid by insured.
Enrollment by benefit design, deductible, or share of premium.
The commissioner may issue guidance to health insurers regarding compliance with this section. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) until January 1, 2024.
Notwithstanding any provision in a contract between a health insurer and a provider, the department may request from a health insurer any information required under this article or PPACA.
A filing submitted under this article shall be actuarially sound.
The health insurer shall contract with an independent actuary or actuaries consistent with this section.
A filing submitted under this article shall include a certification by an independent actuary or actuarial firm that the rate increase is reasonable or unreasonable and, if unreasonable, that the justification for the increase is based on accurate and sound actuarial assumptions and methodologies. Unless PPACA requires a certification of actuarial soundness for each large group health insurance policy, a filing submitted under Section 10181.4 shall include a certification by an independent actuary, as described in this section, that the aggregate or average rate increase is based on accurate and sound actuarial assumptions and methodologies.
The actuary or actuarial firm acting under paragraph (2) shall not be an affiliate or a subsidiary of, nor in any way owned or controlled by, a health insurer or a trade association of health insurers. A board member, director, officer, or employee of the actuary or actuarial firm shall not serve as a board member, director, or employee of a health insurer. A board member, director, or officer of a health insurer or a trade association of health insurers shall not serve as a board member, director, officer, or employee of the actuary or actuarial firm.
Nothing in this article shall be construed to permit the commissioner to establish the rates charged insureds and policyholders for covered health care services.
Notwithstanding Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code, all information submitted under this article shall be made publicly available by the department except as provided in subdivision (b).
The contracted rates between a health insurer and a provider shall be deemed confidential information that shall not be made public by the department and are exempt from disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). The contracted rates between a health insurer and a provider shall not be disclosed by a health insurer to a large group purchaser that receives information pursuant to Section 10181.10.
The contracted rates between a health insurer, including those submitted to the department pursuant to Section 10181.31, and a large group shall be deemed confidential information that shall not be made public by the department and are exempt from disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Information provided to a large group purchaser pursuant to Section 10181.10 shall be deemed confidential information that shall not be made public by the department and shall be exempt from disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code).
All information submitted to the department under this article shall be submitted electronically in order to facilitate review by the department and the public.
In addition, the department and the health insurer shall, at a minimum, make the following information readily available to the public on their internet websites in plain language and in a manner and format specified by the department, except as provided in subdivision (b). For individual and small group health insurance policies, the information shall be made public for 120 days prior to the implementation of the rate increase. For large group health care insurance policies, the information shall be made public for 60 days prior to the implementation of the rate increase. The information shall include:
An insurer’s actual costs, by aggregate benefit category to include, hospital inpatient, hospital outpatient, physician services, prescription drugs and other ancillary services, laboratory, and radiology.
The amount of the projected trend attributable to the use of services, price inflation, or fees and risk for annual policy trends by aggregate benefit category, such as hospital inpatient, hospital outpatient, physician services, prescription drugs and other ancillary services, laboratory, and radiology.
On or before July 1, 2012, the commissioner may issue guidance to health insurers regarding compliance with this article. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
The department shall consult with the Department of Managed Health Care in issuing guidance under subdivision (a), in adopting necessary regulations, in posting information on its Internet Web site under this article, and in taking any other action for the purpose of implementing this article.
A health insurer shall annually provide claims data at no charge to a large group purchaser if the large group purchaser requests the information and otherwise meets the requirements of this section.
The health insurer shall provide claims data that a qualified statistician has determined are deidentified so that the claims data do not identify or do not provide a reasonable basis from which to identify an individual. If the statistician is unable to determine that the data has been deidentified, then the data that cannot be deidentified shall not be provided by the health insurer to the large group purchaser. A health insurer may provide the claims data in an aggregated form as necessary to comply with subdivisions (e) and (f).
As an alternative to providing claims data required pursuant to subdivision (a), the insurer shall provide, at no charge to a large group purchaser, all of the following:
Deidentified data sufficient for the large group purchaser to calculate the cost of obtaining similar services from other health insurers and plans and evaluate cost-effectiveness by service and disease category.
Deidentified aggregated patient-level data on demographics, prescribing, encounters, inpatient services, outpatient services, and any other data that is comparable to what is required of the health insurer to comply with risk adjustment, reinsurance, or risk corridors pursuant to the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
Deidentified aggregated patient-level data used to experience rate the large group, including diagnostic and procedure coding and costs assigned to each service that the insurer has available.
The health insurer shall obtain a formal determination from a qualified statistician that the data provided pursuant to this subdivision have been deidentified so that the data do not identify or do not provide a reasonable basis from which to identify an individual. If the statistician is unable to determine that the data has been deidentified, the health insurer shall not provide the data that cannot be deidentified to the large group purchaser. The statistician shall document the formal determination in writing and shall, upon request, provide the protocol used for deidentification to the department.
Data provided pursuant to this section shall only be provided to a large group purchaser that meets both of the following conditions:
Nothing in this section shall be construed to prohibit an insurer and purchaser from negotiating the release of additional information not described in this section.
All disclosures of data to the large group purchaser made pursuant to this section shall comply with the federal Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191) and the federal Health Information Technology for Economic and Clinical Health Act, Title XIII of the federal American Recovery and Reinvestment Act of 2009 (Public Law 111-5), and implementing regulations.
All disclosures of data to the large group purchaser made pursuant to this section shall comply with the Insurance Information and Privacy Protection Act (Chapter 1 (commencing with Section 791) of Part 2 of Division 1 of the Insurance Code).
Whenever it appears to the department that any person has engaged, or is about to engage, in any act or practice constituting a violation of this article, including the filing of inaccurate or unjustified rates or inaccurate or unjustified rate information, the department may review rate filing to ensure compliance with the law.
The department may review other filings.
The department shall accept and post to its Internet Web site any public comment on a rate increase submitted to the department during the applicable period described in subdivision (d) of Section 10181.7.
The department shall report to the Legislature at least quarterly on all unreasonable rate filings.
The department shall post on its Internet Web site any changes submitted by the insurer to the proposed rate increase, including any documentation submitted by the insurer supporting those changes.
If the commissioner makes a decision that an unreasonable rate increase is not justified or that a rate filing contains inaccurate information, the department shall post that decision on its Internet Web site.
Nothing in this article shall be construed to impair or impede the department’s authority to administer or enforce any other provision of this code.
The department shall do all of the following in a manner consistent with applicable federal laws, rules, and regulations:
Provide data to the United States Secretary of Health and Human Services on health insurer rate trends in premium rating areas.
Commencing with the creation of the Exchange, provide to the Exchange such information as may be necessary to allow compliance with federal law, rules, regulations, and guidance.
This section shall apply only to a specialized health insurance policy covering dental services, as defined in Section 10120.41.
On or after January 1, 2025, and at least annually thereafter, a health insurer shall file with the department the information required by this article, as applicable, including, but not limited to, all of the following:
Type of insurer involved, such as for profit or not for profit.
Product type.
Whether the products are opened or closed.
Annual rate.
Total earned premiums in each policy form.
Total incurred claims in each policy form.
Review category: initial filing for new product, filing for existing product, or resubmission.
Average rate of increase.
Effective date of rate increase.
Number of policyholders or insureds affected by each policy form.
A comparison of claims cost and rate changes over time.
Any changes in insured cost sharing over the prior year associated with the submitted rate filing.
Any changes in insured benefits over the prior year associated with the submitted rate filing.
Any changes in administrative costs.
Variation in trend, by geographic region, if the insurer serves more than one geographic region.
Proposed and effective rates for all products.
A rating manual that outlines the methodology used in the development of the premium rates, along with a description of how rates were determined.
The base rate or rates and the factors used to determine the base rate or rates.
Trend, including overall average, and by-product, if different.
Any other factors affecting dental premium rates.
An actuarial certification signed by a qualified actuary.
Any other information required for the department to make its determination.
For all health insurers covering dental services, the department shall issue a determination that the health insurer’s rate change is unreasonable or not justified no later than 60 days following receipt of all the information the department requires to make its determination. The determination by the department shall also apply to the methodology, factors, and assumptions used to determine rates.
The department may review the rate filings to ensure compliance with the law, as described in Section 10181.11, excluding subdivision (c).
The department may require all health insurers to submit all rate filings to the National Association of Insurance Commissioners’ System for Electronic Rate and Form Filing (SERFF). Submission of the required rate filings to SERFF shall be deemed to be filing with the department for purposes of compliance with this section.
The department may adopt emergency regulations implementing this section. The initial adoption of emergency regulations implementing this section and the readoption of emergency regulations authorized by this subdivision shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, safety, or general welfare.
On or before July 1, 2024, the commissioner may issue guidance to health insurers regarding compliance with this section. This guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
The department shall consult with the Department of Managed Health Care when issuing guidance on adopting necessary regulations pursuant to this subdivision.
ARTICLE 5. Exemptions and Miscellaneous Provisions Relating to Insurance Contracts [10190. - 10192.]
The commissioner may, from time to time as conditions warrant, after notice and hearing, promulgate such reasonable rules and regulations, and amendments and additions thereto, as are necessary or advisable, to establish and maintain a procedure for the filing and approval of documents, as defined in this section, prior to their issuance, delivery, or use in this state, in lieu of the requirements of submission, filing, or approval for the documents presently provided in Section 10205, 10205.5, 10205.6, 10225, 10270, 10270.1, 10270.57, 10270.9, 10270.91, 10270.92, 10270.93, 10290, 10292, 11066, 11069, 11513, 11513.1, 11513.2, 11515, or 11658. For purposes of this section, “document” includes, but is not limited to, every form of contract, insurance policy, application, rider, endorsement, amendment, insert policy page, certificate, or other evidence or notice of insurance, fill-in material, schedules of rates and classifications of risks, and any modification to any document, which is subject to the requirements of any of the enumerated sections.
Any such rule or regulation shall be promulgated in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
In promulgating any such rule or regulation, the commissioner may give consideration to the following circumstances:
Whether all such documents, the submission, filing, or approval of which is governed by any of the foregoing enumerated sections, or only a portion thereof described in the rule or regulation, shall be subject thereto.
Whether certain documents or portions thereof should be regulated in respect of submission, filing, or approval in a fashion differing from similar requirements applicable to other documents.
Whether varying procedures may be made applicable among admitted insurers in respect of the submission, filing or approval predicated, in whole or in part, upon such factors as the age and size of the submitting insurer, the period of its licensing in this state for the class or classes of insurance represented by the documents, the nature and number of prior submissions of similar documents and the disposition thereof by the commissioner, and similar criteria which is relevant to a determination that the submitting insurer has demonstrated compliance with all applicable statutes, rules, and regulations relating to documents comprising prior submissions.
In promulgating any such rules and regulations, the commissioner shall, so far as practical, describe or define certain provisions: (1) which the commissioner will authorize without review when accompanied by a certification prescribed by him or her by rule, and (2) which the commissioner will under no circumstances approve.
The commissioner shall establish a period of time, not shorter than one year, during which any change in the provisions which pursuant to subdivision (d), he or she has provided he or she will under no circumstances approve, will not apply to policies filed prior to the effective date of the change.
Except as otherwise provided in this section any document approved by the commissioner pursuant to rules and regulations authorized by this section may have its approval withdrawn in accordance with subdivision (d) of Section 10291.5 or Section 12957, whichever is applicable.
In order to streamline the department’s file review process for life and disability insurance forms, the commissioner may develop and publish all of the following:
Procedural requirements for file submission.
Guidelines and checklists that list and interpret applicable required and optional insurance statutes and regulations.
Standard insurance contract language previously approved by the department.
Documented use of the published standards described in paragraphs (1) to (3), inclusive, of subdivision (a) will enable the department to expedite its review process. In order to expedite file review, an expanded cover letter, in a format published by the department, shall be used to clearly document and demonstrate compliance with those standards.
A publication developed pursuant to this section shall be made available on a dedicated page of the department’s Internet Web site.
The commissioner shall request that a multistate regulatory support organization commission a study to examine and report on the extent to which the uniform standards set forth in the Interstate Insurance Product Regulation Compact developed by the Interstate Insurance Product Regulation Commission provide consumer protections that are equivalent to those established under state law for annuity, life, disability income, and long-term care insurance products.
The commissioner’s request for the study described in paragraph (1) shall include a request that the study be completed no later than January 1, 2017, and that the study, to the extent feasible, highlight the substantive differences between the uniform standards set forth in the Interstate Insurance Product Regulation Compact and the statutory requirements under state law for annuity, life, disability income, and long-term care insurance products.
Upon completion of the study described in paragraph (1) of subdivision (a), the commissioner shall submit the study to the Chairpersons of the Assembly and Senate committees on insurance. The study shall be submitted in compliance with Section 9795 of the Government Code.
The commissioner may review the final study prior to its submission to the Legislature, and submit written comments on the results of the study to the Legislature when submitting the study to the Legislature pursuant to paragraph (1).
No moneys from the General Fund or the Insurance Fund may be used to implement this section.
If a policy of life insurance becomes paid up pursuant to a paid up nonforfeiture benefit, the insurer shall send a notice to the owner of the policy not later than six months after the date the paid up nonforfeiture benefit becomes effective, and once every five years thereafter. The notice shall advise the owner of the policy that the owner, within six months after the date of the notice, may request the insurer to send notices to all direct beneficiaries named in the policy. If so requested, the insurer shall send the notices by first-class mail to the addresses of the beneficiaries as supplied by the owner. The notices shall advise the beneficiaries that they are named as beneficiaries in the policy, and shall identify the owner of the policy and the insured. The insurer shall provide, but not be limited to, the following information upon request from the beneficiary: (a) how the policy of insurance is identified on the records of the insurer, (b) the amount of death benefits, and (c) the cash surrender value of the policy.
ARTICLE 6. Medicare Supplement Policies [10192.1. - 10192.24.]
The purpose of this article is to provide for the reasonable standardization of coverage and simplification of terms and benefits of Medicare supplement policies, to facilitate public understanding and comparison of those policies, to eliminate provisions contained in those policies that may be misleading or confusing in connection with the purchase of the policies or with the settlement of claims, and to provide for full disclosures in the sale of Medicare supplement insurance policies to persons eligible for Medicare.
Except as otherwise provided in this section or in Sections 10192.7, 10192.12, 10192.13, 10192.16, and 10192.21, this article shall apply to all Medicare supplement policies advertised, solicited, or issued for delivery in this state on or after January 1, 2001, and to all certificates delivered in this state under a group Medicare supplement master policy agreement that have been advertised, solicited, or issued for delivery in this state on or after that date.
This article shall not apply to a policy or contract of one or more employers or labor organizations, or of the trustees of a fund established by one or more employers or labor organizations, or combination thereof, for employees or former employees, or a combination thereof, or for members or former members, or a combination thereof, of the labor organizations.
This article shall not apply to Medicare supplement policies subject to Article 3.5 (commencing with Section 1358.1) of Chapter 2.2 of Division 2 of the Health and Safety Code.
The commissioner may, from time to time, promulgate regulations to implement this article.
The following definitions apply for the purposes of this article:
“Applicant” means:
The person who seeks to contract for insurance benefits, in the case of an individual Medicare supplement policy.
The proposed certificate holder, in the case of a group Medicare supplement policy.
“Bankruptcy” means that situation in which a Medicare Advantage organization that is not an issuer has filed, or has had filed against it, a petition for declaration of bankruptcy and has ceased doing business in the state.
“Certificate” means a certificate issued for delivery in this state under a group Medicare supplement policy.
“Certificate form” means the form on which the certificate is issued for delivery by the issuer.
“Continuous period of creditable coverage” means the period during which an individual was covered by creditable coverage, if during the period of the coverage the individual had no breaks in coverage greater than 63 days.
“Creditable coverage” means, with respect to an individual, coverage of the individual provided under any of the following:
Any individual or group contract, policy, certificate, or program that is written or administered by a health care service plan, health insurer, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage.
Part A or B of Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395c et seq.) (Medicare).
Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.) (Medicaid (known as Medi-Cal in California)), other than coverage consisting solely of benefits under Section 1928 of that act.
Chapter 55 of Title 10 of the United States Code (CHAMPUS).
A medical care program of the Indian Health Service or of a tribal organization.
A state health benefits risk pool.
A health plan offered under Chapter 89 of Title 5 of the United States Code (Federal Employees Health Benefits Program).
A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(I) of the federal Public Health Service Act, as amended by Public Law 104-191, the federal Health Insurance Portability and Accountability Act of 1996.
A health benefit plan under Section 5(e) of the federal Peace Corps Act (Section 2504(e) of Title 22 of the United States Code).
Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital, and surgical care.
Any other creditable coverage as defined by subsection (c) of Section 2701 of Title XXVII of the federal Public Health Service Act (42 U.S.C. Sec. 300gg(c)).
“Creditable coverage” shall not include one or more, or any combination of, the following:
Coverage only for accident or disability income insurance, or any combination thereof.
Coverage issued as a supplement to liability insurance.
Liability insurance, including general liability insurance and automobile liability insurance.
Workers’ compensation or similar insurance.
Automobile medical payment insurance.
Credit-only insurance.
Coverage for onsite medical clinics.
Other similar insurance coverage, specified in federal regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.
“Creditable coverage” shall not include the following benefits if they are provided under a separate policy, certificate, or contract of insurance or are otherwise not an integral part of the plan:
Limited scope dental or vision benefits.
Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof.
Other similar, limited benefits as are specified in federal regulations.
“Creditable coverage” shall not include the following benefits if offered as independent, noncoordinated benefits:
Coverage only for a specified disease or illness.
Hospital indemnity or other fixed indemnity insurance.
“Creditable coverage” shall not include the following if offered as a separate policy, certificate, or contract of insurance:
Medicare supplemental health insurance as defined under Section 1882(g)(1) of the federal Social Security Act.
Coverage supplemental to the coverage provided under Chapter 55 of Title 10 of the United States Code.
Similar supplemental coverage provided to coverage under a group health plan.
“Employee welfare benefit plan” means a plan, fund, or program of employee benefits as defined in Section 1002 of Title 29 of the United States Code (Employee Retirement Income Security Act).
“Insolvency” means when an issuer, licensed to transact the business of insurance in this state, has had a final order of liquidation entered against it with a finding of insolvency by a court of competent jurisdiction in the issuer’s state of domicile.
“Issuer” includes insurance companies, fraternal benefit societies, and any other entity delivering, or issuing for delivery, Medicare supplement policies or certificates in this state, except entities subject to Article 3.5 (commencing with Section 1358.1) of Chapter 2.2 of Division 2 of the Health and Safety Code.
“Medi-Cal” means California’s version of Medicaid under Title XIX of the federal Social Security Act.
“Medicare” means the Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965, as amended.
“Medicare Advantage plan” means a plan of coverage for health benefits under Medicare Part C and includes:
Coordinated care plans that provide health care services, including, but not limited to, health care service plans (with or without a point-of-service option), plans offered by provider-sponsored organizations, and preferred provider organizations plans.
Medical savings account plans coupled with a contribution into a Medicare Advantage medical savings account.
Medicare Advantage private fee-for-service plans.
“Medicare supplement policy” means a group or individual policy of health insurance, other than a policy issued pursuant to a contract under Section 1876 of the federal Social Security Act (42 U.S.C. Sec. 1395mm) or an issued policy under a demonstration project specified in Section 1395ss(g)(1) of Title 42 of the United States Code, that is advertised, marketed, or designed primarily as a supplement to reimbursements under Medicare for the hospital, medical, or surgical expenses of persons eligible for Medicare. “Medicare supplement policy” does not include a Medicare Advantage plan established under Medicare Part C, an outpatient prescription drug plan established under Medicare Part D, or a health care prepayment plan that provides benefits pursuant to an agreement under subparagraph (A) of paragraph (1) of subsection (a) of Section 1833 of the federal Social Security Act.
“Policy form” means the form on which the policy is issued for delivery by the issuer.
“1990 standardized Medicare supplement benefit plan,” “1990 standardized benefit plan,” or “1990 plan” means a group or individual policy of Medicare supplement insurance issued on or after July 21, 1992, and with an effective date prior to June 1, 2010, and includes Medicare supplement insurance policies and certificates renewed on or after that date which are not replaced by the issuer at the request of the insured.
“2010 standardized Medicare supplement benefit plan,” “2010 standardized benefit plan,” or “2010 plan” means a group or individual policy of Medicare supplement insurance issued with an effective date on or after June 1, 2010.
“Secretary” means the Secretary of the United States Department of Health and Human Services.
A policy or certificate shall not be advertised, solicited, or issued for delivery as a Medicare supplement policy or certificate unless the policy or certificate contains definitions or terms that conform to the requirements of this section.
“Accident,” “accidental injury,” or “accidental means” shall be defined to employ “result” language and shall not include words that establish an accidental means test or use words such as “external, violent, visible wounds” or other similar words of description or characterization.
The definition shall not be more restrictive than the following: “injury or injuries for which benefits are provided means accidental bodily injury sustained by the insured person that is the direct result of an accident, independent of disease or bodily infirmity or any other cause, and occurs while insurance coverage is in force.”
The definition may provide that injuries shall not include injuries for which benefits are provided or available under any workers’ compensation, employer’s liability, or similar law, unless prohibited by law.
“Benefit period” or “Medicare benefit period” shall not be defined more restrictively than as defined in the Medicare Program.
“Convalescent nursing home,” “extended care facility,” or “skilled nursing facility” shall not be defined more restrictively than as defined in the Medicare Program.
“Health care expenses” means expenses of health maintenance organizations associated with the delivery of health care services, which expenses are analogous to incurred losses of insurers.
“Health care expenses” shall not include any of the following:
Home office and overhead costs.
Advertising costs.
Commissions and other acquisition costs.
Taxes.
Capital costs.
Administrative costs.
Claims processing costs.
“Hospital” may be defined in relation to its status, facilities, and available services or to reflect its accreditation by the Joint Commission on Accreditation of Hospitals, but not more restrictively than as defined in the Medicare Program.
“Medicare” shall be defined in the policy and certificate. “Medicare” may be substantially defined as “The Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965, as amended,” or “Title I, Part I of Public Law 89-97, as enacted by the 89th Congress and popularly known as the Health Insurance for the Aged Act, as amended,” or words of similar import.
“Medicare eligible expenses” shall mean expenses of the kinds covered by Medicare Parts A and B, to the extent recognized as reasonable and medically necessary by Medicare.
“Physician” shall not be defined more restrictively than as defined in the Medicare Program.
“Sickness” shall not be defined more restrictively than as follows: “sickness means illness or disease of an insured person that first manifests itself after the effective date of insurance and while the insurance is in force.”
The definition may be further modified to exclude sicknesses or diseases for which benefits are provided under any workers’ compensation, occupational disease, employer’s liability, or similar law.
With regard to Medicare supplement policies, all insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing.
Conduct of an insurer, broker, or agent during the offer and sale of a Medicare supplement policy previous to the purchase is relevant to any action alleging a breach of the duty of honesty, and a duty of good faith and fair dealing set forth in subdivision (a).
Except for permitted preexisting condition clauses as described in Sections 10192.7, 10192.8, and 10192.81, a policy or certificate shall not be advertised, solicited, or issued for delivery as a Medicare supplement policy if the policy or certificate contains limitations or exclusions on coverage that are more restrictive than those of Medicare.
A Medicare supplement policy or certificate shall not use waivers to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions.
A Medicare supplement policy or certificate in force shall not contain benefits that duplicate benefits provided by Medicare.
Subject to paragraphs (4) and (5) of subdivision (a) of Section 10192.8, a Medicare supplement policy with benefits for outpatient prescription drugs that was issued prior to January 1, 2006, shall be renewed for current policyholders, at the option of the policyholder, who do not enroll in Medicare Part D.
A Medicare supplement policy with benefits for outpatient prescription drugs shall not be issued on and after January 1, 2006.
On and after January 1, 2006, a Medicare supplement policy with benefits for outpatient prescription drugs shall not be renewed after the policyholder enrolls in Medicare Part D unless both of the following conditions exist:
The policy is modified to eliminate outpatient prescription drug coverage for outpatient prescription drug expenses incurred after the effective date of the individual’s coverage under a Medicare Part D plan.
The premium is adjusted to reflect the elimination of outpatient prescription drug coverage at the time of enrollment in Medicare Part D, accounting for any claims paid if applicable.
A policy or certificate shall not be advertised, solicited, or issued for delivery as a Medicare supplement policy or certificate prior to January 1, 2001, unless it meets or exceeds requirements applicable pursuant to this code that were in effect prior to that date.
The following standards are applicable to all Medicare supplement policies or certificates advertised, solicited, or issued for delivery on or after January 1, 2001, and with an effective date prior to June 1, 2010. A policy or certificate shall not be advertised, solicited, or issued for delivery as a Medicare supplement policy or certificate unless it complies with these benefit standards.
The following general standards apply to Medicare supplement policies and certificates and are in addition to all other requirements of this article:
A Medicare supplement policy or certificate shall not exclude or limit benefits for losses incurred more than six months from the effective date of coverage because it involved a preexisting condition. The policy or certificate shall not define a preexisting condition more restrictively than a condition for which medical advice was given or treatment was recommended by or received from a physician within six months before the effective date of coverage.
A Medicare supplement policy or certificate shall not indemnify against losses resulting from sickness on a different basis than losses resulting from accidents.
A Medicare supplement policy or certificate shall provide that benefits designed to cover cost-sharing amounts under Medicare will be changed automatically to coincide with any changes in the applicable Medicare deductible, copayment, or coinsurance amounts. Premiums may be modified to correspond with those changes.
A Medicare supplement policy or certificate shall not provide for termination of coverage of a spouse solely because of the occurrence of an event specified for termination of coverage of the insured, other than the nonpayment of premium.
Each Medicare supplement policy shall be guaranteed renewable or noncancelable.
The issuer shall not cancel or nonrenew the policy solely on the ground of health status of the individual.
The issuer shall not cancel or nonrenew the policy for any reason other than nonpayment of premium or misrepresentation which is shown by the issuer to be material to the acceptance for coverage. The contestability period for Medicare supplement insurance shall be two years.
If the Medicare supplement policy is terminated by the master policyholder and is not replaced as provided under subparagraph (E), the issuer shall offer certificate holders an individual Medicare supplement policy that, at the option of the certificate holder, either provides for continuation of the benefits contained in the group policy or provides for benefits that otherwise meet the requirements of one of the standardized policies defined in this article.
If an individual is a certificate holder in a group Medicare supplement policy and membership in the group is terminated, the issuer shall either offer the certificate holder the conversion opportunity described in subparagraph (C) or, at the option of the group policyholder, shall offer the certificate holder continuation of coverage under the group policy.
If a group Medicare supplement policy is replaced by another group Medicare supplement policy purchased by the same policyholder, the issuer of the replacement policy shall offer coverage to all persons covered under the old group policy on its date of termination. Coverage under the new policy shall not result in any exclusion for preexisting conditions that would have been covered under the group policy being replaced.
If a Medicare supplement policy or certificate replaces another Medicare supplement policy or certificate that has been in force for six months or more, the replacing issuer shall not impose an exclusion or limitation based on a preexisting condition. If the original coverage has been in force for less than six months, the replacing issuer shall waive any time period applicable to preexisting conditions, waiting periods, elimination periods, or probationary periods in the new policy or certificate to the extent the time was spent under the original coverage.
If a Medicare supplement policy eliminates an outpatient prescription drug benefit as a result of requirements imposed by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173), the policy as modified as a result of that act shall be deemed to satisfy the guaranteed renewal requirements of this paragraph.
Termination of a Medicare supplement policy or certificate shall be without prejudice to any continuous loss that commenced while the policy was in force, but the extension of benefits beyond the period during which the policy was in force may be predicated upon the continuous total disability of the insured, limited to the duration of the policy benefit period, if any, or to payment of the maximum benefits. Receipt of Medicare Part D benefits shall not be considered in determining a continuous loss.
A Medicare supplement policy or certificate shall provide that benefits and premiums under the policy or certificate shall be suspended at the request of the policyholder or certificate holder for the period, not to exceed 24 months, in which the policyholder or certificate holder has applied for and is determined to be entitled to Medi-Cal, but only if the policyholder or certificate holder notifies the issuer of the policy or certificate within 90 days after the date the individual becomes entitled to assistance. Upon receipt of timely notice, the insurer shall return directly to the insured that portion of the premium attributable to the period of Medi-Cal eligibility, subject to adjustment for paid claims. If suspension occurs and if the policyholder or certificate holder loses entitlement to Medi-Cal, the policy or certificate shall be automatically reinstituted (effective as of the date of termination of entitlement) as of the termination of entitlement if the policyholder or certificate holder provides notice of loss of entitlement within 90 days after the date of loss and pays the premium attributable to the period, effective as of the date of termination of entitlement, or equivalent coverage shall be provided if the prior form is no longer available.
A Medicare supplement policy or certificate shall provide that benefits and premiums under the policy or certificate shall be suspended at the request of the policyholder or certificate holder for any period that may be provided by federal regulation if the policyholder is entitled to benefits under Section 226(b) of the Social Security Act and is covered under a group health plan, as defined in Section 1862(b)(1)(A)(v) of the Social Security Act. If suspension occurs and the policyholder or certificate holder loses coverage under the group health plan, the policy or certificate shall be automatically reinstituted, effective as of the date of loss of coverage if the policyholder provides notice within 90 days of the date of the loss of coverage.
Reinstitution of coverages:
Shall not provide for any waiting period with respect to treatment of preexisting conditions.
Shall provide for resumption of coverage that is substantially equivalent to coverage in effect before the date of suspension. If the suspended Medicare supplement policy provided coverage for outpatient prescription drugs, reinstitution of the policy for a Medicare Part D enrollee shall not include coverage for outpatient prescription drugs but shall otherwise provide coverage that is substantially equivalent to the coverage in effect before the date of suspension.
Shall provide for classification of premiums on terms at least as favorable to the policyholder or certificate holder as the premium classification terms that would have applied to the policyholder or certificate holder had the coverage not been suspended.
If an issuer makes a written offer to the Medicare supplement policyholders or certificate holders of one or more of its plans, to exchange during a specified period from his or her 1990 standardized plan, as described in Section 10192.9, to a 2010 standardized plan, as described in Section 10192.91, the offer and subsequent exchange shall comply with the following requirements:
An issuer need not provide justification to the commissioner if the insured replaces a 1990 standardized policy or certificate with an issue age rated 2010 standardized policy or certificate at the insured’s original issue age and duration. If an insured’s policy or certificate to be replaced is priced on an issue age rate schedule at the time of that offer, the rate charged to the insured for the new exchanged policy shall recognize the policy reserve buildup, due to the prefunding inherent in the use of an issue age rate basis, for the benefit of the insured. The method proposed to be used by an issuer shall be filed with the commissioner.
The rating class of the new policy or certificate shall be the class closest to the insured’s class of the replaced coverage.
An issuer shall not apply new preexisting condition limitations or a new incontestability period to the new policy for those benefits contained in the exchanged 1990 standardized policy or certificate of the insured, but may apply preexisting condition limitations of no more than six months to any added benefits contained in the new 2010 standardized policy or certificate not contained in the exchanged policy. This subparagraph shall not apply to an applicant who is guaranteed issue under Section 10192.11 or 10192.12.
The new policy or certificate shall be offered to all policyholders or certificate holders within a given plan, except where the offer or issue would be in violation of state or federal law.
A Medicare supplement policy shall not limit coverage exclusively to a single disease or affliction.
With respect to the standards for basic (core) benefits for benefit plans A to J, inclusive, every issuer shall make available a policy or certificate including only the following basic “core” package of benefits to each prospective insured. An issuer may make available to prospective insureds any of the other Medicare supplement insurance benefit plans in addition to the basic core package, but not in lieu of it. However, the benefits described in paragraphs (6) and (7) shall not be offered so long as California is required to disallow these benefits for Medicare beneficiaries by the Centers for Medicare and Medicaid Services or other agent of the federal government under Section 1395ss of Title 42 of the United States Code.
Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day to the 90th day, inclusive, in any Medicare benefit period.
Coverage of Part A Medicare eligible expenses incurred for hospitalization to the extent not covered by Medicare for each Medicare lifetime inpatient reserve day used.
Upon exhaustion of the Medicare hospital inpatient coverage including the lifetime reserve days, coverage of 100 percent of the Medicare Part A eligible expenses for hospitalization paid at the appropriate Medicare standard of payment, subject to a lifetime maximum benefit of an additional 365 days. The provider shall accept the issuer’s payment as payment in full and may not bill the insured for any balance.
Coverage under Medicare Parts A and B for the reasonable cost of the first three pints of blood, or equivalent quantities of packed red blood cells, as defined under federal regulations, unless replaced in accordance with federal regulations.
Coverage for the coinsurance amount, or in the case of hospital outpatient department services, the copayment amount, of Medicare eligible expenses under Part B regardless of hospital confinement, subject to the Medicare Part B deductible.
Coverage of the actual cost, up to the legally billed amount, of an annual mammogram as provided in Section 10123.81, to the extent not paid by Medicare.
Coverage of the actual cost, up to the legally billed amount, of an annual cervical cancer screening test as provided in Section 10123.18, to the extent not paid by Medicare.
The following additional benefits shall be included in Medicare supplement benefit plans B to J, inclusive, only as provided by Section 10192.9.
With respect to medically necessary emergency care in a foreign country, coverage to the extent not covered by Medicare for 80 percent of the billed charges for Medicare-eligible expenses for medically necessary emergency hospital, physician, and medical care received in a foreign country, which care would have been covered by Medicare if provided in the United States and which care began during the first 60 consecutive days of each trip outside the United States, subject to a calendar year deductible of two hundred fifty dollars ($250), and a lifetime maximum benefit of fifty thousand dollars ($50,000). For purposes of this benefit, “emergency care” shall mean care needed immediately because of an injury or an illness of sudden and unexpected onset.
With respect to the following, reimbursement shall be for the actual charges up to 100 percent of the Medicare-approved amount for each service, as if Medicare were to cover the service as identified in American Medical Association Current Procedural Terminology (AMA CPT) codes, up to a maximum of one hundred twenty dollars ($120) annually under this benefit, however, this benefit shall not include payment for any procedure covered by Medicare:
An annual clinical preventive medical history and physical examination that may include tests and services from subparagraph (B) and patient education to address preventive health care measures.
The following screening tests or preventive services that are not covered by Medicare, the selection and frequency of which are determined to be medically appropriate by the attending physician:
Fecal occult blood test.
Mammogram.
Influenza vaccine administered at any appropriate time during the year.
With respect to the at-home recovery benefit, coverage for the actual charges up to forty dollars ($40) per visit and an annual maximum of one thousand six hundred dollars ($1,600) per year to provide short-term, at-home assistance with activities of daily living for those recovering from an illness, injury, or surgery.
For purposes of this benefit, the following definitions shall apply:
“Activities of daily living” include, but are not limited to, bathing, dressing, personal hygiene, transferring, eating, ambulating, assistance with drugs that are normally self-administered, and changing bandages or other dressings.
“Care provider” means a duly qualified or licensed home health aide or homemaker, or a personal care aide or nurse provided through a licensed home health care agency or referred by a licensed referral agency or licensed nurses registry.
“Home” shall mean any place used by the insured as a place of residence, provided that the place would qualify as a residence for home health care services covered by Medicare. A hospital or skilled nursing facility shall not be considered the insured’s place of residence.
“At-home recovery visit” means the period of a visit required to provide at-home recovery care, without any limit on the duration of the visit, except that each consecutive four hours in a 24-hour period of services provided by a care provider is one visit.
With respect to coverage requirements and limitations, the following shall apply:
At-home recovery services provided shall be primarily services that assist in activities of daily living.
The insured’s attending physician shall certify that the specific type and frequency of at-home recovery services are necessary because of a condition for which a home care plan of treatment was approved by Medicare.
Coverage is limited to the following:
No more than the number and type of at-home recovery visits certified as necessary by the insured’s attending physician. The total number of at-home recovery visits shall not exceed the number of Medicare-approved home health care visits under a Medicare-approved home care plan of treatment.
(II) The actual charges for each visit up to a maximum reimbursement of forty dollars ($40) per visit.
(III) One thousand six hundred dollars ($1,600) per calendar year.
(IV) Seven visits in any one week.
Care furnished on a visiting basis in the insured’s home.
(VI) Services provided by a care provider as defined in subparagraph (A).
(VII) At-home recovery visits while the insured is covered under the policy or certificate and not otherwise excluded.
(VIII) At-home recovery visits received during the period the insured is receiving Medicare-approved home care services or no more than eight weeks after the service date of the last Medicare-approved home health care visit.
Coverage is excluded for the following:
Home care visits paid for by Medicare or other government programs.
Care provided by family members, unpaid volunteers, or providers who are not care providers.
The standardized Medicare supplement benefit plan “K” shall consist of the following benefits:
The standardized Medicare supplement benefit plan “L” shall consist of the following benefits:
The benefits described in paragraphs (1), (2), (3), and (9) of subdivision (d).
With respect to the Medicare Part A deductible, coverage for 75 percent of the Medicare Part A inpatient hospital deductible amount per benefit period until the out-of-pocket limitation described in paragraph (8) is met.
With respect to skilled nursing facility care, coverage for 75 percent of the coinsurance amount for each day used from the 21st day to the 100th day, inclusive, in a Medicare benefit period for posthospital skilled nursing facility care eligible under Medicare Part A until the out-of-pocket limitation described in paragraph (8) is met.
With respect to hospice care, coverage for 75 percent of cost sharing for all Medicare Part A eligible expenses and respite care until the out-of-pocket limitation described in paragraph (8) is met.
Coverage for 75 percent, under Medicare Part A or B, of the reasonable cost of the first three pints of blood or equivalent quantities of packed red blood cells, as defined under federal regulations, unless replaced in accordance with federal regulations, until the out-of-pocket limitation described in paragraph (8) is met.
Except for coverage provided in paragraph (7), coverage for 75 percent of the cost sharing otherwise applicable under Medicare Part B after the policyholder pays the Part B deductible until the out-of-pocket limitation described in paragraph (8) is met.
Coverage for 100 percent of the cost sharing for Medicare Part B preventive services after the policyholder pays the Part B deductible.
Coverage of 100 percent of the cost sharing for Medicare Parts A and B for the balance of the calendar year after the individual has reached the out-of-pocket limitation on annual expenditures under Medicare Parts A and B of two thousand dollars ($2,000) in 2006, indexed each year by the appropriate inflation adjustment specified by the secretary.
An issuer shall prominently indicate through text edits, or by other means acceptable to the commissioner, an amendment made to a Medicare supplement policy form that the department previously approved on the basis that the amendment is consistent with this section. The department may, in its discretion, restrict its review to amendments made to Medicare supplement policy forms that have not previously been found consistent with this section in order to facilitate the availability of amended policy forms that are consistent with the federal Medicare Modernization Act. The department shall not restrict its review if the amendment makes additional changes to the Medicare supplement policy form.
The following standards are applicable to all Medicare supplement policies or certificates delivered or issued for delivery in this state with an effective date on or after June 1, 2010. No policy or certificate may be advertised, solicited, delivered, or issued for delivery in this state as a Medicare supplement policy or certificate unless it complies with these benefit standards. No issuer may offer any 1990 standardized Medicare supplement benefit plan for sale with an effective date on or after June 1, 2010. Benefit standards applicable to Medicare supplement policies and certificates issued with an effective date prior to June 1, 2010, remain subject to the requirements of Section 10192.8.
The following general standards apply to Medicare supplement policies and certificates and are in addition to all other requirements of this article:
A Medicare supplement policy or certificate shall not exclude or limit benefits for losses incurred more than six months from the effective date of coverage because it involved a preexisting condition. The policy or certificate shall not define a preexisting condition more restrictively than a condition for which medical advice was given or treatment was recommended by or received from a physician within six months before the effective date of coverage.
A Medicare supplement policy or certificate shall not indemnify against losses resulting from sickness on a different basis than losses resulting from accidents.
A Medicare supplement policy or certificate shall provide that benefits designed to cover cost-sharing amounts under Medicare will be changed automatically to coincide with any changes in the applicable Medicare deductible, copayment, or coinsurance amounts. Premiums may be modified to correspond with those changes.
A Medicare supplement policy or certificate shall not provide for termination of coverage of a spouse solely because of the occurrence of an event specified for termination of coverage of the insured, other than the nonpayment of premium.
Each Medicare supplement policy shall be guaranteed renewable.
The issuer shall not cancel or nonrenew the policy solely on the ground of health status of the individual.
The issuer shall not cancel or nonrenew the policy for any reason other than nonpayment of premium or material misrepresentation which is shown by the issuer to be material to the acceptance for coverage. The contestability period for Medicare supplement insurance shall be two years, pursuant to Section 10350.2.
If the Medicare supplement policy is terminated by the master policyholder and is not replaced as provided under subparagraph (E), the issuer shall offer certificate holders an individual Medicare supplement policy which, at the option of the certificate holder, does one of the following:
Provides for continuation of the benefits contained in the group policy.
Provides for benefits that otherwise meet the requirements of one of the standardized policies defined in this article.
If an individual is a certificate holder in a group Medicare supplement policy and the individual terminates membership in the group, the issuer shall do one of the following:
Offer the certificate holder the conversion opportunity described in subparagraph (C).
At the option of the group policyholder, offer the certificate holder continuation of coverage under the group policy.
If a group Medicare supplement policy is replaced by another group Medicare supplement policy purchased by the same policyholder, the issuer of the replacement policy shall offer coverage to all persons covered under the old group policy on its date of termination. Coverage under the new policy shall not result in any exclusion for preexisting conditions that would have been covered under the group policy being replaced.
If a Medicare supplement policy or certificate replaces another Medicare supplement policy or certificate that has been in force for six months or more, the replacing issuer shall not impose an exclusion or limitation based on a preexisting condition. If the original coverage has been in force for less than six months, the replacing issuer shall waive any time period applicable to preexisting conditions, waiting periods, elimination periods, or probationary periods in the new policy or certificate to the extent the time was spent under the original coverage.
Termination of a Medicare supplement policy or certificate shall be without prejudice to any continuous loss that commenced while the policy was in force, but the extension of benefits beyond the period during which the policy was in force may be predicated upon the continuous total disability of the insured, limited to the duration of the policy benefit period, if any, or payment of the maximum benefits. Receipt of Medicare Part D benefits shall not be considered in determining a continuous loss.
A Medicare supplement policy or certificate shall provide that benefits and premiums under the policy or certificate shall be suspended at the request of the policyholder or certificate holder for the period, not to exceed 24 months, in which the policyholder or certificate holder has applied for and is determined to be entitled to medical assistance under Medi-Cal, but only if the policyholder or certificate holder notifies the issuer of the policy or certificate within 90 days after the date the individual becomes entitled to assistance. Upon receipt of timely notice, the insurer shall return directly to the insured that portion of the premium attributable to the period of Medi-Cal eligibility, subject to adjustment for paid claims.
If suspension occurs and if the policyholder or certificate holder loses entitlement to medical assistance under Medi-Cal, the policy or certificate shall be automatically reinstituted (effective as of the date of termination of entitlement) as of the termination of entitlement if the policyholder or certificate holder provides notice of loss of entitlement within 90 days after the date of loss and pays the premium attributable to the period, effective as of the date of termination of entitlement or equivalent coverage shall be provided if the prior form is no longer available.
Each Medicare supplement policy shall provide that benefits and premiums under the policy shall be suspended (for any period that may be provided by federal regulation) at the request of the policyholder if the policyholder is entitled to benefits under Section 226(b) of the federal Social Security Act and is covered under a group health plan (as defined in Section 1862(b)(1)(A)(v) of the federal Social Security Act). If suspension occurs and if the policyholder or certificate holder loses coverage under the group health plan, the policy shall be automatically reinstituted (effective as of the date of loss of coverage) if the policyholder provides notice of loss of coverage within 90 days after the date of the loss and pays the applicable premium.
Reinstitution of coverages shall comply with all of the following requirements:
Not provide for any waiting period with respect to treatment of preexisting conditions.
Provide for resumption of coverage that is substantially equivalent to coverage in effect before the date of suspension.
Provide for classification of premiums on terms at least as favorable to the policyholder or certificate holder as the premium classification terms that would have applied to the policyholder or certificate holder had the coverage not been suspended.
A Medicare supplement policy shall not limit coverage exclusively to a single disease or affliction.
A Medicare supplement policy shall provide an examination period of 30 days after the receipt of the policy by the applicant for purposes of review, during which time the applicant may return the policy as described in subdivision (e) of Section 10192.17.
With respect to the standards for basic (core) benefits for benefit plans A, B, C, D, F, high deductible F, G, M, and N, every issuer of Medicare supplement insurance benefit plans shall make available a policy or certificate including only the following basic “core” package of benefits to each prospective insured. An issuer may make available to prospective insureds any of the other Medicare Supplement Insurance Benefit Plans in addition to the basic (core) package, but not in lieu of it. However, the benefits described in paragraphs (7) and (8) shall not be offered so long as California is required to disallow these benefits for Medicare beneficiaries by the Centers for Medicare and Medicaid Services or other agent of the federal government under Section 1395ss of Title 42 of the United States Code.
Coverage of Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th day, inclusive, in any Medicare benefit period.
Coverage of Part A Medicare eligible expenses incurred for hospitalization to the extent not covered by Medicare for each Medicare lifetime inpatient reserve day used.
Upon exhaustion of the Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of 100 percent of the Medicare Part A eligible expenses for hospitalization paid at the applicable prospective payment system (PPS) rate, or other appropriate Medicare standard of payment, subject to a lifetime maximum benefit of an additional 365 days. The provider shall accept the issuer’s payment as payment in full and may not bill the insured for any balance.
Coverage under Medicare Parts A and B for the reasonable cost of the first three pints of blood, or equivalent quantities of packed red blood cells, as defined under federal regulations, unless replaced in accordance with federal regulations.
Coverage for the coinsurance amount, or in the case of hospital outpatient department services paid under a prospective payment system, the copayment amount, of Medicare eligible expenses under Part B regardless of hospital confinement, subject to the Medicare Part B deductible.
Coverage of cost sharing for all Part A Medicare eligible hospice care and respite care expenses.
Coverage of the actual cost, up to the legally billed amount, of an annual mammogram as provided in Section 10123.81, to the extent not paid by Medicare.
Coverage of the actual cost, up to the legally billed amount, of an annual cervical cancer screening test as provided in Section 10123.18, to the extent not paid by Medicare.
The following additional benefits shall be included in Medicare supplement benefit plans B, C, D, F, high deductible F, G, M, and N, consistent with the plan type and benefits for each plan as provided in Section 10192.91:
The following standards are applicable to all Medicare supplement policies or certificates delivered or issued for delivery in this state on or after July 1, 1992, and with an effective date prior to June 1, 2010.
An issuer shall make available to each prospective policyholder and certificate holder a policy form or certificate form containing only the basic (core) benefits, as defined in subdivision (b) of Section 10192.8.
No groups, packages, or combinations of Medicare supplement benefits other than those listed in this section shall be offered for sale in this state, except as may be permitted by subdivision (f) and by Section 10192.10.
Benefit plans shall be uniform in structure, language, designation and format to the standard benefit plans A to L, inclusive, listed in subdivision (e), and shall conform to the definitions in Section 10192.4. Each benefit shall be structured in accordance with the format provided in subdivisions (b), (c), (d), and (e) of Section 10192.8 and list the benefits in the order listed in subdivision (e). For purposes of this section, “structure, language, and format” means style, arrangement, and overall content of a benefit.
An issuer may use, in addition to the benefit plan designations required in subdivision (c), other designations to the extent permitted by law.
With respect to the makeup of benefit plans, the following shall apply:
Standardized Medicare supplement benefit plan A shall be limited to the basic (core) benefit common to all benefit plans, as defined in subdivision (b) of Section 10192.8.
Standardized Medicare supplement benefit plan B shall include only the following: the core benefit, plus the Medicare Part A deductible as defined in paragraph (1) of subdivision (c) of Section 10192.8.
Standardized Medicare supplement benefit plan C shall include only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, Medicare Part B deductible, and medically necessary emergency care in a foreign country as defined in paragraphs (1), (2), (3), and (8) of subdivision (c) of Section 10192.8, respectively.
Standardized Medicare supplement benefit plan D shall include only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, medically necessary emergency care in a foreign country, and the at-home recovery benefit as defined in paragraphs (1), (2), (8), and (10) of subdivision (c) of Section 10192.8, respectively.
Standardized Medicare supplement benefit plan E shall include only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, medically necessary emergency care in a foreign country, and preventive medical care as defined in paragraphs (1), (2), (8), and (9) of subdivision (c) of Section 10192.8, respectively.
Standardized Medicare supplement benefit plan F shall include only the following: the core benefit, plus the Medicare Part A deductible, the skilled nursing facility care, the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as defined in paragraphs (1), (2), (3), (5), and (8) of subdivision (c) of Section 10192.8, respectively.
Standardized Medicare supplement benefit high deductible plan F shall include only the following: 100 percent of covered expenses following the payment of the annual high deductible plan F deductible. The covered expenses include the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as defined in paragraphs (1), (2), (3), (5), and (8) of subdivision (c) of Section 10192.8, respectively. The annual high deductible plan F deductible shall consist of out-of-pocket expenses, other than premiums, for services covered by the Medicare supplement plan F policy, and shall be in addition to any other specific benefit deductibles. The annual high deductible Plan F deductible shall be one thousand five hundred dollars ($1,500) for 1998 and 1999, and shall be based on the calendar year, as adjusted annually thereafter by the secretary to reflect the change in the Consumer Price Index for all urban consumers for the 12-month period ending with August of the preceding year, and rounded to the nearest multiple of ten dollars ($10).
Standardized Medicare supplement benefit plan G shall include only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, 80 percent of the Medicare Part B excess charges, medically necessary emergency care in a foreign country, and the at-home recovery benefit as defined in paragraphs (1), (2), (4), (8), and (10) of subdivision (c) of Section 10192.8, respectively.
Standardized Medicare supplement benefit plan H shall consist of only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, basic outpatient prescription drug benefit, and medically necessary emergency care in a foreign country as defined in paragraphs (1), (2), (6), and (8) of subdivision (c) of Section 10192.8, respectively. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold on or after January 1, 2006.
Standardized Medicare supplement benefit plan I shall consist of only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B excess charges, basic outpatient prescription drug benefit, medically necessary emergency care in a foreign country, and at-home recovery benefit as defined in paragraphs (1), (2), (5), (6), (8), and (10) of subdivision (c) of Section 10192.8, respectively. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold on or after January 1, 2006.
Standardized Medicare supplement benefit plan J shall consist of only the following: the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, extended outpatient prescription drug benefit, medically necessary emergency care in a foreign country, preventive medical care, and at-home recovery benefit as defined in paragraphs (1), (2), (3), (5), (7), (8), (9), and (10) of subdivision (c) of Section 10192.8, respectively. The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold on or after January 1, 2006.
Standardized Medicare supplement benefit high deductible plan J shall consist of only the following: 100 percent of covered expenses following the payment of the annual high deductible plan J deductible. The covered expenses include the core benefit, plus the Medicare Part A deductible, skilled nursing facility care, Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, extended outpatient prescription drug benefit, medically necessary emergency care in a foreign country, preventive medical care benefit, and at-home recovery benefit as defined in paragraphs (1), (2), (3), (5), (7), (8), (9), and (10) of subdivision (c) of Section 10192.8, respectively. The annual high deductible plan J deductible shall consist of out-of-pocket expenses, other than premiums, for services covered by the Medicare supplement plan J policy, and shall be in addition to any other specific benefit deductibles. The annual deductible shall be one thousand five hundred dollars ($1,500) for 1998 and 1999, and shall be based on a calendar year, as adjusted annually thereafter by the secretary to reflect the change in the Consumer Price Index for all urban consumers for the 12-month period ending with August of the preceding year, and rounded to the nearest multiple of ten dollars ($10). The outpatient prescription drug benefit shall not be included in a Medicare supplement policy sold on or after January 1, 2006.
Standardized Medicare supplement benefit plan K shall consist of only those benefits described in subdivision (d) of Section 10192.8.
Standardized Medicare supplement benefit plan L shall consist of only those benefits described in subdivision (e) of Section 10192.8.
An issuer may, with the prior approval of the commissioner, offer policies or certificates with new or innovative benefits in addition to the benefits provided in a policy or certificate that otherwise complies with the applicable standards. The new or innovative benefits may include benefits that are appropriate to Medicare supplement insurance, that are not otherwise available and that are cost-effective and offered in a manner that is consistent with the goal of simplification of Medicare supplement policies. On and after January 1, 2006, the innovative benefit shall not include an outpatient prescription drug benefit.
The following standards are applicable to all Medicare supplement policies or certificates delivered or issued for delivery in this state with an effective date on or after June 1, 2010. No policy or certificate may be advertised, solicited, delivered, or issued for delivery in this state as a Medicare supplement policy or certificate unless it complies with these benefit plan standards. Benefit plan standards applicable to Medicare supplement policies and certificates issued with an effective date before June 1, 2010, remain subject to the requirements of Section 10192.9.
An issuer shall make available to each prospective policyholder and certificate holder a policy form or certificate form containing only the basic (core) benefits, as defined in subdivision (b) of Section 10192.81.
If an issuer makes available any of the additional benefits described in subdivision (c) of Section 10192.81, or offers standardized benefit plan K or L, as described in paragraphs (8) and (9) of subdivision (e), then the issuer shall make available to each prospective policyholder and certificate holder, in addition to a policy form or certificate form with only the basic core benefits as described in paragraph (1), a policy form or certificate form containing either standardized benefit plan C, as described in paragraph (3) of subdivision (e), or standardized benefit plan F, as described in paragraph (5) of subdivision (e).
No groups, packages, or combinations of Medicare supplement benefits other than those listed in this section shall be offered for sale in this state, except as may be permitted in subdivision (f) and by Section 10192.10.
Benefit plans shall be uniform in structure, language, designation, and format to the standard benefit plans listed in subdivision (e) and conform to the definitions in Section 10192.4. Each benefit shall be structured in accordance with the format provided in subdivisions (b) and (c) of Section 10192.81; or, in the case of plan K or L, in paragraph (8) or (9) of subdivision (e) and list the benefits in the order shown in subdivision (e). For purposes of this section, “structure, language, and format” means style, arrangement, and overall content of a benefit.
In addition to the benefit plan designations required in subdivision (c), an issuer may use other designations to the extent permitted by law.
With respect to the makeup of 2010 standardized benefit plans, the following shall apply:
Standardized Medicare supplement benefit plan A shall include only the basic (core) benefits as defined in subdivision (b) of Section 10192.81.
Standardized Medicare supplement benefit plan B shall include only the following: the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible as defined in paragraph (1) of subdivision (c) of Section 10192.81.
Standardized Medicare supplement benefit plan C shall include only the following: the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B deductible, and medically necessary emergency care in a foreign country, as defined in paragraphs (1), (3), (4), and (6) of subdivision (c) of Section 10192.81, respectively.
Standardized Medicare supplement benefit plan D shall include only the following: the basic (core) benefit, as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, and medically necessary emergency care in a foreign country, as defined in paragraphs (1), (3), and (6) of subdivision (c) of Section 10192.81, respectively.
Standardized Medicare supplement benefit plan F shall include only the following: the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible, the skilled nursing facility care, 100 percent of the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country as defined in paragraphs (1), (3), (4), (5), and (6) of subdivision (c) of Section 10192.81, respectively.
Standardized Medicare supplement benefit high deductible plan F shall include only the following: 100 percent of covered expenses following the payment of the annual deductible set forth in subparagraph (B).
The covered expenses include the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B deductible, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country, as defined in paragraphs (1), (3), (4), (5), and (6) of subdivision (c) of Section 10192.81, respectively.
The annual deductible in high deductible plan F shall consist of out-of-pocket expenses, other than premiums, for services covered by plan F, and shall be in addition to any other specific benefit deductibles. The basis for the deductible shall be one thousand five hundred dollars ($1,500) and shall be adjusted annually from 1999 by the Secretary of the United States Department of Health and Human Services to reflect the change in the Consumer Price Index for all urban consumers for the 12-month period ending with August of the preceding year, and rounded to the nearest multiple of ten dollars ($10).
Standardized Medicare supplement benefit plan G shall include only the following: the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, 100 percent of the Medicare Part B excess charges, and medically necessary emergency care in a foreign country, as defined in paragraphs (1), (3), (5), and (6) of subdivision (c) of Section 10192.81, respectively.
Effective January 1, 2020, the standardized benefit plans described in paragraph (4) of subdivision (a) of Section 10192.92 (redesignated high deductible plan G) may be offered to any individual who was eligible for Medicare prior to January 1, 2020.
Standardized Medicare supplement benefit plan K shall include only the following:
Coverage of 100 percent of the Part A hospital coinsurance amount for each day used from the 61st through the 90th day in any Medicare benefit period.
Coverage of 100 percent of the Part A hospital coinsurance amount for each Medicare lifetime inpatient reserve day used from the 91st through the 150th day in any Medicare benefit period.
Upon exhaustion of the Medicare hospital inpatient coverage, including the lifetime reserve days, coverage of 100 percent of the Medicare Part A eligible expenses for hospitalization paid at the applicable prospective payment system (PPS) rate, or other appropriate Medicare standard of payment, subject to a lifetime maximum benefit of an additional 365 days. The provider shall accept the issuer’s payment as payment in full and may not bill the insured for any balance.
Coverage for 50 percent of the Medicare Part A inpatient hospital deductible amount per benefit period until the out-of-pocket limitation is met as described in subparagraph (J).
Coverage for 50 percent of the coinsurance amount for each day used from the 21st day through the 100th day in a Medicare benefit period for posthospital skilled nursing facility care eligible under Medicare Part A until the out-of-pocket limitation is met as described in subparagraph (J).
Coverage for 50 percent of cost sharing for all Part A Medicare eligible expenses and respite care until the out-of-pocket limitation is met as described in subparagraph (J).
Coverage for 50 percent, under Medicare Part A or B, of the reasonable cost of the first three pints of blood, or equivalent quantities of packed red blood cells, as defined under federal regulations, unless replaced in accordance with federal regulations until the out-of-pocket limitation is met as described in subparagraph (J).
Except for coverage provided in subparagraph (I), coverage for 50 percent of the cost sharing otherwise applicable under Medicare Part B after the policyholder pays the Part B deductible until the out-of-pocket limitation is met as described in subparagraph (J).
Coverage of 100 percent of the cost sharing for Medicare Part B preventive services after the policyholder pays the Part B deductible.
Coverage of 100 percent of all cost sharing under Medicare Parts A and B for the balance of the calendar year after the individual has reached the out-of-pocket limitation on annual expenditures under Medicare Parts A and B of four thousand dollars ($4,000) in 2006, indexed each year by the appropriate inflation adjustment specified by the Secretary of the United States Department of Health and Human Services.
Standardized Medicare supplement benefit plan L shall include only the following:
The benefits described in subparagraphs (A), (B), (C), and (I) of paragraph (8).
The benefit described in subparagraphs (D), (E), (F), (G), and (H) of paragraph (8), but substituting 75 percent for 50 percent.
The benefit described in subparagraph (J) of paragraph (8), but substituting two thousand dollars ($2,000) for four thousand dollars ($4,000).
Standardized Medicare supplement benefit plan M shall include only the following: the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 50 percent of the Medicare Part A deductible, skilled nursing facility care, and medically necessary emergency care in a foreign country, as defined in paragraphs (2), (3), and (6) of subdivision (c) of Section 10192.81, respectively.
Standardized Medicare supplement benefit plan N shall include only the following: the basic (core) benefit as defined in subdivision (b) of Section 10192.81, plus 100 percent of the Medicare Part A deductible, skilled nursing facility care, and medically necessary emergency care in a foreign country, as defined in paragraphs (1), (3), and (6) of subdivision (c) of Section 10192.81, respectively, with copayments in the following amounts:
The lesser of twenty dollars ($20) or the Medicare Part B coinsurance or copayment for each covered health care provider office visit, including visits to medical specialists.
The lesser of fifty dollars ($50) or the Medicare Part B coinsurance or copayment for each covered emergency room visit; however, this copayment shall be waived if the insured is admitted to any hospital and the emergency visit is subsequently covered as a Medicare Part A expense.
An issuer may, with the prior approval of the commissioner, offer policies or certificates with new or innovative benefits, in addition to the standardized benefits provided in a policy or certificate that otherwise complies with the applicable standards. The new or innovative benefits shall include only benefits that are appropriate to Medicare supplement insurance, are new or innovative, are not otherwise available, and are cost effective. Approval of new or innovative benefits shall not adversely impact the goal of Medicare supplement simplification.
New or innovative benefits shall exclude an outpatient prescription drug benefit. New or innovative benefits shall not be used to change or reduce benefits, including a change of any cost-sharing provision, in any standardized plan.
Commencing July 1, 2020, the portion of the premium attributed to the new or innovative benefits shall be identified as a separate line item on the payment invoice or bill.
In the interest of full and fair disclosure, and to ensure the availability of necessary consumer information to current and prospective policyholders and certificate holders, for purposes of implementing this paragraph, the department shall collaborate with the Department of Managed Health Care, consumer group representatives, and issuers to develop and implement policies and procedures, as necessary, including, but not limited to, all of the following:
The development and dissemination of information and material about any new or innovative benefits approved for sale.
The standardization of new or innovative benefits, as appropriate, for purposes of allowing consumer comparison of benefits, out-of-pocket costs, and premiums.
On or before July 1, 2020, the commissioner may issue guidance to issuers regarding compliance with this section and that guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Any guidance issued pursuant to this subdivision shall be effective only through December 31, 2022, or until the commissioner adopts and effects regulations pursuant to the Administrative Procedure Act, whichever occurs first.
The following standards are applicable to all Medicare supplement policies or certificates delivered or issued for delivery in this state to individuals newly eligible for Medicare on or after January 1, 2020. A policy or certificate that provides coverage of the Medicare Part B deductible shall not be advertised, solicited, delivered, or issued for delivery in the state as a Medicare supplement policy or certificate to individuals newly eligible for Medicare on or after January 1, 2020. All policies must comply with the following benefit standards. Benefit plan standards applicable to Medicare supplement policies and certificates issued to individuals eligible for Medicare before January 1, 2020, remain subject to the requirements of Section 10192.91 or 10192.9, as applicable.
The standards and requirements of Section 10192.91 apply to all Medicare supplement policies delivered or issued for delivery to individuals newly eligible for Medicare on or after January 1, 2020, with the following exceptions:
Standardized Medicare supplement benefit plan C is redesignated as plan D and shall provide the benefits described in paragraph (3) of subdivision (e) of Section 10192.91 but shall not provide coverage for 100 percent, or any portion, of the Medicare Part B deductible.
Standardized Medicare supplement benefit plan F is redesignated as plan G and shall provide the benefits described in paragraph (5) of subdivision (e) of Section 10192.91, but shall not provide coverage for 100 percent, or any portion, of the Medicare Part B deductible.
Standardized Medicare supplement benefit plans C, F, and high deductible plan F may not be offered to individuals newly eligible for Medicare on or after January 1, 2020.
Standardized Medicare supplement benefit high deductible plan F is redesignated as high deductible plan G and shall provide the benefits described for standardized Medicare supplement benefit high deductible plan F in paragraph (6) of subdivision (e) of Section 10192.91, but shall not provide coverage for 100 percent, or any portion, of the Medicare Part B deductible. The Medicare Part B deductible paid by the beneficiary shall be considered an out-of-pocket expense in meeting the annual deductible under high deductible plan G.
The reference to standardized Medicare supplement benefit plan C or F in paragraph (2) of subdivision (a) of Section 10192.91 shall, for purposes of this section, be deemed a reference to standardized Medicare supplement benefit plan D or G, respectively.
This section applies only to individuals who are newly eligible for Medicare on or after January 1, 2020. For purposes of this section, “newly eligible Medicare beneficiary” means an individual who satisfies one of the following:
The individual has attained 65 years of age on or after January 1, 2020.
The individual is entitled to benefits under Medicare Part A pursuant to Section 226(b) or 226A of the federal Social Security Act, or is deemed eligible for benefits under Section 226(a) of the federal Social Security Act, on or after January 1, 2020.
For purposes of subdivision (e) of Section 10192.12, in the case of an individual newly eligible for Medicare on or after January 1, 2020, any reference to standardized Medicare supplement benefit plan C, plan F, or high deductible plan F shall be deemed to be a reference to standardized Medicare supplement benefit plan D, plan G, or high deductible plan G, respectively, that meet the requirements of subdivision (a).
On or after January 1, 2020, the standardized Medicare supplement benefit plans described in paragraph (4) of subdivision (a) may be offered to any individual who was eligible for Medicare prior to January 1, 2020, in addition to the standardized Medicare supplement benefit plans described in subdivision (e) of Section 10192.91.
This section shall apply to Medicare Select policies and certificates, as defined in this section.
A policy or certificate shall not be advertised as a Medicare Select policy or certificate unless it meets the requirements of this section.
For the purposes of this section:
“Appeal” means dissatisfaction expressed in writing by an individual insured under a Medicare Select policy or certificate with the administration, claims practices, or provision of services concerning a Medicare Select issuer or its network providers.
“Complaint” means any dissatisfaction expressed by an individual concerning a Medicare Select issuer or its network providers.
“Medicare Select issuer” means an issuer offering, seeking to offer, advertising, marketing, soliciting, or issuing a Medicare Select policy or certificate.
“Medicare Select policy” or “Medicare Select certificate” means respectively a Medicare supplement policy or certificate that contains restricted network provisions.
“Network provider” means a provider of health care, or a group of providers of health care, which has entered into a written agreement with the issuer or other entity to provide benefits insured under a Medicare Select policy.
“Restricted network provision” means any provision that conditions the payment of benefits, in whole or in part, on the use of network providers.
“Service area” means the geographic area approved by the commissioner within which an issuer is authorized to offer a Medicare Select policy.
“Grievance” means a written complaint registered by an individual for resolution under the formal grievance procedure, which may involve, but is not limited to, the administration, claims practices, or provision of services by the issuer or its network providers.
“Medicare Select coverage” means Medicare supplement coverage through a preferred provider organization or any other type of restricted network, which coverage has been approved by the commissioner under this section.
“Preferred provider organization” means a health care provider or an entity contracting with health care providers that (A) establishes alternative or discounted rates of payment, (B) offers the insureds certain advantages for selecting the member providers, or (C) withholds from the insureds certain advantages if they choose providers other than the member providers. Organizations regulated as Medicare Select include, but are not limited to, provider groups, hospital marketing plans, and organizations that are formed or operated by insurers or third-party administrators.
The commissioner may authorize an issuer to offer a Medicare Select policy or certificate pursuant to this section if the commissioner finds that the issuer has satisfied all of the requirements of this section.
A Medicare Select issuer shall not issue a Medicare Select policy or certificate in this state until its plan of operation has been approved by the commissioner.
A Medicare Select issuer shall file a proposed plan of operation with the commissioner in a format prescribed by the commissioner. The plan of operation shall contain at least the following information:
Evidence that all covered services that are subject to restricted network provisions are available and accessible through network providers, including a demonstration of all of the following:
That services can be provided by network providers with reasonable promptness with respect to geographic location, hours of operation, and afterhour care. The hours of operation and availability of afterhour care shall reflect usual practice in the local area. Geographic availability shall reflect the usual travel times within the community.
That the number of network providers in the service area is sufficient, with respect to current and expected policyholders, as to either of the following:
To deliver adequately all services that are subject to a restricted network provision.
To make appropriate referrals.
There are written agreements with network providers describing specific responsibilities.
Emergency care is available 24 hours per day and seven days per week.
In the case of covered services that are subject to a restricted network provision and are provided on a prepaid basis, that there are written agreements with network providers prohibiting the providers from billing or otherwise seeking reimbursement from or recourse against any individual insured under a Medicare Select policy or certificate.
This subparagraph shall not apply to supplemental charges or coinsurance amounts as stated in the Medicare Select policy or certificate.
A statement or map providing a clear description of the service area.
A description of the appeal or grievance procedure to be utilized.
A description of the quality assurance program, including all of the following:
The formal organizational structure.
The written criteria for selection, retention, and removal of network providers.
The procedures for evaluating quality of care provided by network providers, and the process to initiate corrective action when warranted.
A list and description, by specialty, of the network providers.
Copies of the written information proposed to be used by the issuer to comply with subdivision (i).
Any other information requested by the commissioner.
A Medicare Select issuer shall file any proposed changes to the plan of operation, except for changes to the list of network providers, with the commissioner prior to implementing the changes. Changes shall be considered approved by the commissioner after 30 days unless specifically disapproved.
An updated list of network providers shall be filed at the commissioner’s request, but at least quarterly.
A Medicare Select policy or certificate shall not restrict payment for covered services provided by nonnetwork providers if:
The services are for symptoms requiring emergency care or are immediately required for an unforeseen illness, injury, or condition.
It is not reasonable to obtain services through a network provider.
A Medicare Select policy or certificate shall provide payment for full coverage under the policy for covered services that are not available through network providers.
A Medicare Select issuer shall make full and fair disclosure in writing of the provisions, restrictions, and limitations of the Medicare Select policy or certificate to each applicant. This disclosure shall include at least the following:
An outline of coverage sufficient to permit the applicant to compare the coverage and premiums of the Medicare Select policy or certificate with both of the following:
Other Medicare supplement policies or certificates offered by the issuer.
Other Medicare Select policies or certificates.
A description, including address, telephone number, and hours of operation, of the network providers, including primary care physicians, specialty physicians, hospitals, and other providers.
A description of the restricted network provisions, including payments for coinsurance and deductibles when providers other than network providers are utilized. The description shall inform the applicant that expenses incurred when using out-of-network providers are excluded from the out-of-pocket annual limit in benefit plans K and L, unless the policy or certificate provides otherwise.
A description of coverage for emergency and urgently needed care and other out-of-service area coverage.
A description of limitations on referrals to restricted network providers and to other providers.
A description of the policyholder’s or certificate holder’s rights to purchase any other Medicare supplement policy or certificate otherwise offered by the issuer.
A description of the Medicare Select issuer’s quality assurance, grievance, and appeal procedure.
Prior to the sale of a Medicare Select policy or certificate, a Medicare Select issuer shall obtain from the applicant a signed and dated form stating that the applicant has received the information provided pursuant to subdivision (i) and that the applicant understands the restrictions of the Medicare Select policy or certificate. Acknowledgments shall be maintained by the insurer for at least five years in accordance with Section 10508.
A Medicare Select issuer shall have and use procedures for hearing complaints and resolving written appeals and grievances from the insureds. The procedures shall be aimed at mutual agreement for settlement and may include arbitration procedures.
The appeal and grievance procedure shall be described in the policy and certificates and in the outline of coverage.
At the time the policy or certificate is issued, the issuer shall provide detailed information to the policyholder or certificate holder describing how an appeal or grievance may be registered with the issuer.
Appeals or grievances shall be considered in a timely manner and shall be transmitted to appropriate fiduciaries who have authority to fully investigate the issue and take corrective action.
If an appeal or grievance is found to be valid, corrective action shall be taken promptly.
All concerned parties shall be notified about the results of an appeal or grievance.
The issuer shall report no later than each March 31st to the commissioner regarding its appeal or grievance procedure. The report shall be in a format prescribed by the commissioner and shall contain the number of appeals or grievances filed in the past year and a summary of the subject, nature, and resolution of those appeals or grievances.
Detailed information describing in writing how to register an appeal or grievance shall be provided to the insured prior to, or simultaneously with, the issuance of the policy or certificate.
The issuer shall maintain records of each appeal or grievance for at least five years.
At the time of initial purchase, a Medicare Select issuer shall make available to each applicant for a Medicare Select policy or certificate the opportunity to purchase any Medicare supplement policy or certificate otherwise offered by the issuer.
Medicare Select policies and certificates shall provide for continuation of coverage in the event the commissioner determines that Medicare Select policies and certificates issued pursuant to this section should be discontinued due to either the failure of the Medicare Select program to be reauthorized under law or its substantial amendment.
Each Medicare Select issuer shall make available to each individual insured under a Medicare Select policy or certificate the opportunity to purchase any Medicare supplement policy or certificate offered by the issuer that has comparable or lesser benefits and that does not contain a restricted network provision. The issuer shall make the policies and certificates available without requiring evidence of insurability.
For the purposes of this subdivision, a Medicare supplement policy or certificate will be considered to have comparable or lesser benefits unless it contains one or more significant benefits not included in the Medicare Select policy or certificate being replaced. For the purposes of this paragraph, a significant benefit means coverage for the Medicare Part A deductible, coverage for at-home recovery services, or coverage for Medicare Part B excess charges.
A Medicare Select issuer shall comply with reasonable requests for data made by state or federal agencies, including the United States Department of Health and Human Services for the purpose of evaluating the Medicare Select program.
The commissioner may grant special Medicare Select status to plans of guaranteed renewable Medicare supplement coverage provided through a preferred provider organization, which plans were offered to the public or in force before the effective date of this section, if the commissioner determines that the applicants will receive benefits and consumer protections that are substantially equivalent to those in other Medicare Select plans identified in this section, and if the issuer satisfies the following requirements:
The issuer shall apply within one year of the effective date of this section by submitting to the commissioner the following items:
The current plan of operation as defined in subdivision (e).
If the written disclosures of subdivision (i) have not been delivered to each applicant as required, the issuer’s plan to accomplish full disclosure to every insured and to achieve substantial compliance with subdivision (j).
The issuer’s statement of intent to comply with subdivision (f).
If the plan of operation does not comply with the standards of subdivision (g), (h), (k), (l), or (m), the issuer’s plan for achieving substantial compliance with these subdivisions for every insured.
The issuer shall alter the plan as requested by the commissioner in order to bring the plan into substantial compliance with Medicare Select standards.
The issuer shall issue disclosures or other notices to its insureds regarding its status as Medicare Select as ordered by the commissioner.
The issuer shall provide data as provided in subdivision (o).
An issuer shall not deny or condition the issuance or effectiveness of any Medicare supplement policy or certificate available for sale in this state, nor discriminate in the pricing of a policy or certificate because of the health status, claims experience, receipt of health care, or medical condition of an applicant in the case of an application for a policy or certificate that is submitted prior to or during the six-month period beginning with the first day of the first month in which an individual is both 65 years of age or older and is enrolled for benefits under Medicare Part B. Each Medicare supplement policy and certificate currently available from an issuer shall be made available to all applicants who qualify under this subdivision and who are 65 years of age or older.
An issuer shall make available Medicare supplement benefit plans A, B, C, and F, if currently available, to an applicant who qualifies under this subdivision, who is 64 years of age or younger, and who does not have end-stage renal disease. An issuer shall also make available to those applicants Medicare supplement benefit plan K or L, if currently available, or Medicare supplement benefit plan M or N, if currently available. The selection between Medicare supplement plan K or L and the selection between Medicare supplement benefit plan M or N shall be made at the issuer’s discretion.
For policies sold on or after January 1, 2020, to newly eligible Medicare beneficiaries, as defined in subdivision (b) of Section 10192.92, an issuer shall make available Medicare supplement benefit plans A, B, D, and G, if currently available, to applicants who qualify under this subdivision who are 64 years of age or younger and who do not have end-stage renal disease. An issuer shall also make available to those applicants Medicare supplement benefit plan K or L, if currently available, or Medicare supplement benefit plan M or N, if currently available. The selection between Medicare supplement benefit plan K or L and the selection between Medicare supplement benefit plan M or N shall be made at the issuer’s discretion.
This section and Section 10192.12 do not prohibit an issuer in determining premium rates from treating applicants who are under 65 years of age and are eligible for Medicare Part B as a separate risk classification. This section does not prevent the exclusion of benefits for preexisting conditions as defined in paragraph (1) of subdivision (a) of Section 10192.8 or paragraph (1) of subdivision (a) of Section 10192.81.
If an applicant qualifies under subdivision (a) and submits an application during the time period referenced in subdivision (a) and, as of the date of application, has had a continuous period of creditable coverage of at least six months, the issuer shall not exclude benefits based on a preexisting condition.
If the applicant qualifies under subdivision (a) and submits an application during the time period referenced in subdivision (a) and, as of the date of application, has had a continuous period of creditable coverage that is less than six months, the issuer shall reduce the period of any preexisting condition exclusion by the aggregate of the period of creditable coverage applicable to the applicant as of the enrollment date. The manner of the reduction under this subdivision shall be as specified by the commissioner.
Except as provided in subdivision (b) and Section 10192.23, subdivision (a) does not prevent the exclusion of benefits under a policy, during the first six months, based on a preexisting condition for which the policyholder or certificate holder received treatment or was otherwise diagnosed during the six months before the coverage became effective.
An individual enrolled in Medicare by reason of disability shall be entitled to open enrollment described in this section for six months after the date of their enrollment in Medicare Part B, or if notified retroactively of their eligibility for Medicare, for six months following notice of eligibility. Every issuer shall make available to every applicant qualified for open enrollment all policies and certificates offered by that issuer at the time of application. An issuer shall not discourage sales during the open enrollment period by any means, including the altering of the commission structure.
An individual enrolled in Medicare Part B is entitled to open enrollment described in this section for six months following:
Receipt of a notice of termination or, if no notice is received, the effective date of termination from any employer-sponsored health plan including an employer-sponsored retiree health plan.
Receipt of a notice of loss of eligibility due to the divorce or death of a spouse or, if no notice is received, the effective date of loss of eligibility due to the divorce or death of a spouse, from any employer-sponsored health plan including an employer-sponsored retiree health plan.
Termination of health care services for a military retiree or the retiree’s Medicare eligible spouse or dependent as a result of a military base closure or loss of access to health care services because the base no longer offers services or because the individual relocates.
For purposes of this subdivision, “employer-sponsored retiree health plan” includes any coverage for medical expenses, including, but not limited to, coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the California Continuation Benefits Replacement Act (Cal-COBRA), that is directly or indirectly sponsored or established by an employer for employees or retirees, their spouses, dependents, or other included insureds.
An individual enrolled in Medicare Part B is entitled to open enrollment described in this section if the individual was covered under a policy, certificate, or contract providing Medicare supplement coverage but that coverage terminated because the individual established residence at a location not served by the plan.
An individual whose coverage was terminated by a Medicare Advantage plan shall be entitled to an additional 60-day open enrollment period to be added on to and run consecutively after any open enrollment period authorized by federal law or regulation, for any Medicare supplement coverage provided by a Medicare supplement issuer and available on a guaranteed basis under state and federal law or regulation for persons terminated by their Medicare Advantage plan.
An individual shall be entitled to an annual open enrollment period lasting 60 days or more, commencing with the individual’s birthday, during which time that person may purchase any Medicare supplement policy that offers benefits equal to or lesser than those provided by the previous coverage. During this open enrollment period, an issuer that falls under this paragraph shall not deny or condition the issuance or effectiveness of Medicare supplement coverage, nor discriminate in the pricing of coverage, because of health status, claims experience, receipt of health care, or medical condition of the individual if, at the time of the open enrollment period, the individual is covered under another Medicare supplement policy or contract. An issuer shall notify a policyholder of their rights under this subdivision at least 30 and no more than 60 days before the beginning of the open enrollment period, and on any notice related to a benefit modification or premium adjustment.
For purposes of this subdivision, the following provisions apply:
A 1990 standardized Medicare supplement benefit plan A shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan A.
A 1990 standardized Medicare supplement benefit plan B shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan B.
A 1990 standardized Medicare supplement benefit plan C shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan C.
A 1990 standardized Medicare supplement benefit plan D shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan D.
A 1990 standardized Medicare supplement benefit plan E shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare benefit plan D.
A 1990 standardized Medicare supplement benefit plan F shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare benefit plan F.
A 1990 standardized Medicare supplement benefit high deductible plan F shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit high deductible plan F.
A 1990 standardized Medicare supplement benefit plan G shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan G.
A 1990 standardized Medicare supplement benefit plan H shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan D.
A 1990 standardized Medicare supplement benefit plan I shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan G.
A 1990 standardized Medicare supplement benefit plan J shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan F.
A 1990 standardized Medicare supplement benefit high deductible plan J shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit high deductible plan F.
A 1990 standardized Medicare supplement benefit plan K shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan K.
A 1990 standardized Medicare supplement benefit plan L shall be deemed to offer benefits equal to those provided by a 2010 standardized Medicare supplement benefit plan L.
New or innovative benefits, as described in subdivision (f) of Section 10192.9 and subdivision (f) of Section 10192.91, shall not be included when determining whether benefits are equal to or lesser than those provided by the previous coverage.
An individual enrolled in Medicare Part B is entitled to open enrollment described in this section upon being notified that, because of an increase in the individual’s income or assets, they meet one of the following requirements:
With respect to the guaranteed issue of a Medicare supplement policy, eligible persons are those individuals described in subdivision (b) who seek to enroll under the policy during the period specified in subdivision (c), and who submit evidence of the date of termination or disenrollment or enrollment in Medicare Part D with the application for a Medicare supplement policy.
With respect to eligible persons, an issuer shall not take any of the following actions:
Deny or condition the issuance or effectiveness of a Medicare supplement policy described in subdivision (e) that is offered and is available for issuance to new enrollees by the issuer.
Discriminate in the pricing of that Medicare supplement policy because of health status, claims experience, receipt of health care, or medical condition.
Impose an exclusion of benefits based on a preexisting condition under that Medicare supplement policy.
An eligible person is an individual described in any of the following paragraphs:
The individual is enrolled under an employee welfare benefit plan that provides health benefits that supplement the benefits under Medicare and either of the following applies:
The plan either terminates or ceases to provide all of those supplemental health benefits to the individual.
The employer no longer provides the individual with insurance that covers all of the payment for the 20-percent coinsurance.
The individual is enrolled with a Medicare Advantage organization under a Medicare Advantage plan under Medicare Part C, and any of the following circumstances apply:
The certification of the organization or plan has been terminated.
The organization has terminated or otherwise discontinued providing the plan in the area in which the individual resides.
The individual is no longer eligible to elect the plan because of a change in the individual’s place of residence or other change in circumstances specified by the secretary. Those changes in circumstances shall not include termination of the individual’s enrollment on the basis described in Section 1851(g)(3)(B) of the federal Social Security Act where the individual has not paid premiums on a timely basis or has engaged in disruptive behavior as specified in standards under Section 1856 of the federal Social Security Act, or the plan is terminated for all individuals within a residence area.
The Medicare Advantage plan in which the individual is enrolled reduces any of its benefits or increases the amount of cost sharing or premium or discontinues for other than good cause relating to quality of care its relationship or contract under the plan with a provider who is currently furnishing services to the individual. An individual shall be eligible under this subparagraph for a Medicare supplement policy issued by the same issuer through which the individual was enrolled at the time the reduction, increase, or discontinuance described above occurs or, commencing January 1, 2007, for one issued by a subsidiary of the parent company of that issuer or by a network that contracts with the parent company of that issuer. If no Medicare supplement policy is available to the individual from the same issuer, a subsidiary of the parent company of the issuer, or a network that contracts with the parent company of the issuer, the individual shall be eligible for a Medicare supplement policy pursuant to paragraph (1) of subdivision (e) issued by any issuer, if the Medicare Advantage plan in which the individual is enrolled does any of the following:
Increases the premium by 15 percent or more.
(II) Increases physician, hospital, or drug copayments by 15 percent or more.
(III) Reduces any benefits under the plan.
(IV) Discontinues, for other than good cause relating to quality of care, its relationship or contract under the plan with a provider who is currently furnishing services to the individual.
Enrollment in a Medicare supplement policy from an issuer unaffiliated with the issuer of the Medicare Advantage plan in which the individual is enrolled shall be permitted only during the annual election period for a Medicare Advantage plan, except where the Medicare Advantage plan has discontinued its relationship with a provider currently furnishing services to the individual. Nothing in this section shall be construed to authorize an individual to enroll in a group Medicare supplement policy if the individual does not meet the eligibility requirements for the group.
The individual demonstrates, in accordance with guidelines established by the secretary, either of the following:
The organization offering the plan substantially violated a material provision of the organization’s contract under this article in relation to the individual, including the failure to provide on a timely basis medically necessary care for which benefits are available under the plan or the failure to provide the covered care in accordance with applicable quality standards.
The organization, or agent or other entity acting on the organization’s behalf, materially misrepresented the plan’s provisions in marketing the plan to the individual.
The individual meets other exceptional conditions as the secretary may provide.
The individual is 65 years of age or older, is enrolled with a Program of All-Inclusive Care for the Elderly (PACE) provider under Section 1894 of the federal Social Security Act, and circumstances similar to those described in paragraph (2) exist that would permit discontinuance of the individual’s enrollment with the provider, if the individual were enrolled in a Medicare Advantage plan.
The individual meets both of the following conditions:
The individual is enrolled with any of the following:
An eligible organization under a contract under Section 1876 of the federal Social Security Act (Medicare cost).
A similar organization operating under demonstration project authority, effective for periods before April 1, 1999.
An organization under an agreement under Section 1833(a)(1)(A) of the federal Social Security Act (health care prepayment plan).
An organization under a Medicare Select policy.
The enrollment ceases under the same circumstances that would permit discontinuance of an individual’s election of coverage under paragraph (2) or (3).
The individual is enrolled under a Medicare supplement policy, and the enrollment ceases because of any of the following circumstances:
The insolvency of the issuer or bankruptcy of the nonissuer organization, or other involuntary termination of coverage or enrollment under the policy.
The issuer of the policy substantially violated a material provision of the policy.
The issuer, or an agent or other entity acting on the issuer’s behalf, materially misrepresented the policy’s provisions in marketing the policy to the individual.
The individual meets both of the following conditions:
The individual was enrolled under a Medicare supplement policy and terminates enrollment and subsequently enrolls, for the first time, with any Medicare Advantage organization under a Medicare Advantage plan under Medicare Part C, any eligible organization under a contract under Section 1876 of the federal Social Security Act (Medicare cost), any similar organization operating under demonstration project authority, any PACE provider under Section 1894 of the federal Social Security Act, or a Medicare Select policy.
The subsequent enrollment under subparagraph (A) is terminated by the individual during any period within the first 12 months of the subsequent enrollment (during which the enrollee is permitted to terminate the subsequent enrollment under Section 1851(e) of the federal Social Security Act).
The individual upon first becoming eligible for benefits under Medicare Part A at 65 years of age enrolls in a Medicare Advantage plan under Medicare Part C or with a PACE provider under Section 1894 of the federal Social Security Act, and disenrolls from the plan or program not later than 12 months after the effective date of enrollment.
The individual while enrolled under a Medicare supplement policy that covers outpatient prescription drugs enrolls in a Medicare Part D plan during the initial enrollment period terminates enrollment in the Medicare supplement policy, and submits evidence of enrollment in Medicare Part D along with the application for a policy described in paragraph (4) of subdivision (e).
The date that the individual receives a notice of termination, a notice of the issuer’s bankruptcy or insolvency, or other similar notice if any.
The date that the applicable coverage is terminated.
Under paragraphs (1), (2), (3), (4), and (5) of subdivision (b), an eligible individual is entitled to a Medicare supplement policy that has a benefit package classified as Plan A, B, C, F (including a high deductible Plan F), K, L, M, or N offered by any issuer.
Under paragraph (6) of subdivision (b), an eligible individual is entitled to the same Medicare supplement policy in which he or she was most recently enrolled, if available from the same issuer. If that policy is not available, the eligible individual is entitled to a Medicare supplement policy that has a benefit package classified as Plan A, B, C, F (including a high deductible Plan F), K, L, M, or N offered by any issuer.
On and after January 1, 2006, an eligible individual described in this paragraph who was most recently enrolled in a Medicare supplement policy with an outpatient prescription drug benefit is entitled to a Medicare supplement policy that is available from the same issuer but without an outpatient prescription drug benefit or, at the election of the individual, has a benefit package classified as a Plan A, B, C, F (including high deductible Plan F), K, L, M, or N that is offered by any issuer.
Under paragraph (7) of subdivision (b), an eligible individual is entitled to any Medicare supplement policy offered by any issuer.
Under paragraph (8) of subdivision (b), an eligible individual is entitled to a Medicare supplement policy that has a benefit package classified as Plan A, B, C, F (including a high deductible Plan F), K, L, M, or N and that is offered and is available for issuance to a new enrollee by the same issuer that issued the individual’s Medicare supplement policy with outpatient prescription drug coverage.
At the time of an event described in subdivision (b) by which an individual loses coverage or benefits due to the termination of a contract or agreement, policy, or plan, the organization that terminates the contract or agreement, the issuer terminating the policy, or the administrator of the plan being terminated, respectively, shall notify the individual of his or her rights under this section and of the obligations of issuers of Medicare supplement policies under subdivision (a). The notice shall be communicated contemporaneously with the notification of termination.
At the time of an event described in subdivision (b) by which an individual ceases enrollment under a contract or agreement, policy, or plan, the organization that offers the contract or agreement, regardless of the basis for the cessation of enrollment, the issuer offering the policy, or the administrator of the plan, respectively, shall notify the individual of his or her rights under this section, and of the obligations of issuers of Medicare supplement policies under subdivision (a). The notice shall be communicated within 10 working days of the date the issuer received notification of disenrollment.
An issuer shall refund any unearned premium that an insured paid in advance and shall terminate coverage upon the request of an insured.
An issuer shall comply with Section 1882(c)(3) of the federal Social Security Act (as enacted by Section 4081(b)(2)(C) of the federal Omnibus Budget Reconciliation Act of 1987 (OBRA), Public Law 100-203) by doing all of the following and by certifying compliance on the Medicare supplement insurance experience reporting form:
Accepting a notice from a Medicare Administrative Contractor, formerly known as a fiscal intermediary or carrier, on dually assigned claims submitted by participating physicians and suppliers as a claim for benefits in place of any other claim form otherwise required and making a payment determination on the basis of the information contained in that notice.
Notifying the participating physician or supplier and the beneficiary of the payment determination.
Paying the participating physician or supplier directly.
Furnishing, at the time of enrollment, each enrollee with a card listing the policy name, number, and a central mailing address to which notices from Medicare Administrative Contractors may be sent.
Paying user fees for claim notices that are transmitted electronically or otherwise.
Providing to the secretary, at least annually, a central mailing address to which all claims may be sent by Medicare Administrative Contractors.
File, by June 30 of each year, with the commissioner a list of its Medicare supplement policies and certificates offered or issued or in force in California as of the end of the previous year.
The list shall identify the issuer by name and address, shall identify each type of form it offers by name and form number, and shall differentiate between forms approved in the previous calendar year and those approved before the previous calendar year.
The list shall identify all of the following:
Forms issued and in force but no longer offered in California.
Forms that, for any reason, were not filed and approved by the commissioner.
Forms for which the commissioner’s approval was withdrawn within the previous calendar year.
The number of forms issued in California in the previous calendar year, and the number of forms in force in California on December 31 of the previous calendar year.
Compliance with the requirements set forth in subdivision (a) shall be certified on the Medicare supplement insurance experience reporting form provided by the commissioner.
The commissioner shall, by September 1 of each year, provide the secretary with a list identifying each issuer by name and address and provide the information requested in this section.
No issuer that administers Medicare coverage and federal employee programs may require that more than one form be submitted per claim in order to receive payment or reimbursement under any or all of those policies or programs.
With respect to loss ratio standards, a Medicare supplement policy form or certificate form shall not be advertised, solicited, or issued for delivery unless the policy form or certificate form can be expected, as estimated for the entire period for which rates are computed to provide coverage, to return to policyholders and certificate holders in the form of aggregate benefits, not including anticipated refunds or credits, provided under the policy form or certificate form at least 75 percent of the aggregate amount of premiums earned in the case of group policies, or at least 65 percent of the aggregate amount of premiums earned in the case of individual policies.
Loss ratio standards shall be calculated on the basis of incurred claims experience, and earned premiums shall be calculated for the period and in accordance with accepted actuarial principles and practices.
All filings of rates and rating schedules shall demonstrate that expected claims in relation to premiums comply with the requirements of this section when combined with actual experience to date. Filings of rate revisions shall also demonstrate that the anticipated loss ratio over the entire future period for which the revised rates are computed to provide coverage can be expected to meet the appropriate loss ratio standards.
For purposes of applying paragraph (1) of subdivision (a) and paragraph (3) of subdivision (d) of Section 10192.15 only, policies issued as a result of solicitations of individuals through the mail or by mass media advertising, including both print and broadcast advertising, shall be deemed to be individual policies.
With respect to refund or credit calculations, an issuer shall collect and file with the commissioner by May 31 of each year the data contained in the applicable reporting form required by the commissioner for each type of coverage in a standard Medicare supplement benefit plan.
If on the basis of the experience as reported the benchmark ratio since inception (ratio 1) exceeds the adjusted experience ratio since inception (ratio 3), then a refund or credit calculation is required. The refund calculation shall be done on a statewide basis for each type in a standard Medicare supplement benefit plan. For purposes of the refund or credit calculation, experience on policies issued within the reporting year shall be excluded.
For the purposes of this section, with respect to policies or certificates advertised, solicited, or issued for delivery prior to January 1, 2001, the issuer shall make the refund or credit calculation separately for all individual policies, including all group policies subject to an individual loss ratio standard when issued, combined and all other group policies combined for experience after January 1, 2001. The first report pursuant to paragraph (1) shall be due by May 31, 2003.
A refund or credit shall be made only when the benchmark loss ratio exceeds the adjusted experience loss ratio and the amount to be refunded or credited exceeds a de minimis level. The refund shall include interest from the end of the calendar year to the date of the refund or credit at a rate specified by the secretary, but in no event shall it be less than the average rate of interest for 13-week Treasury notes. A refund or credit against premiums due shall be made by September 30 following the experience year upon which the refund or credit is based.
An issuer of Medicare supplement policies and certificates shall file annually its rates, rating schedule, and supporting documentation including ratios of incurred losses to earned premiums by policy duration for approval by the commissioner in accordance with the filing requirements and procedures prescribed by the commissioner and this code. The supporting documentation shall also demonstrate in accordance with actuarial standards of practice using reasonable assumptions that the appropriate loss ratio standards can be expected to be met over the entire period for which rates are computed. The demonstration shall exclude active life reserves. An expected third-year loss ratio that is greater than or equal to the applicable percentage shall be demonstrated for policies or certificates in force less than three years.
As soon as practicable, but prior to the effective date of enhancements in Medicare benefits, every issuer of Medicare supplement policies or certificates shall file with the commissioner, in accordance with applicable filing procedures, all of the following:
Appropriate premium adjustments necessary to produce loss ratios as anticipated for the current premium for the applicable policies or certificates. The supporting documents necessary to justify the adjustment shall accompany the filing.
An issuer shall make premium adjustments necessary to produce an expected loss ratio under the policy or certificate to conform to minimum loss ratio standards for Medicare supplement policies and that are expected to result in a loss ratio at least as great as that originally anticipated in the rates used to produce current premiums by the issuer for the Medicare supplement policies or certificates. No premium adjustment that would modify the loss ratio experience under the policy other than the adjustments described in this section shall be made with respect to a policy at any time other than upon its renewal date or anniversary date.
If an issuer fails to make premium adjustments acceptable to the commissioner, the commissioner may order premium adjustments, refunds, or premium credits deemed necessary to achieve the loss ratio required by this section.
The commissioner may conduct a public hearing to gather information concerning a request by an issuer for an increase in a rate for a policy form or certificate form issued before or after the effective date of January 1, 2001, if the experience of the form for the previous reporting period is not in compliance with the applicable loss ratio standard. The determination of compliance is made without consideration of any refund or credit for the reporting period. Public notice of the hearing shall be furnished in a manner deemed appropriate by the commissioner.
An issuer shall not advertise, solicit, or issue for delivery a policy or certificate to a resident of this state unless the policy form or certificate form has been filed with and approved by the commissioner in accordance with filing requirements and procedures prescribed by the commissioner. Master policies issued outside California shall be filed for informational purposes along with the certificates. Until January 1, 2001, or 90 days after approval of Medicare supplement policies or certificates submitted for approval pursuant to this section, whichever is later, issuers may continue to offer and market previously approved Medicare supplement policies or certificates.
An issuer shall file any riders or amendments to policy or certificate forms to delete outpatient prescription drug benefits, as required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173), only with the commissioner in the state where the policy or certificate was issued.
An issuer shall not use or change premium rates for a Medicare supplement policy or certificate unless the rates, rating schedule, and supporting documentation have been filed with and approved by the commissioner in accordance with the filing requirements and procedures prescribed by the commissioner.
Paragraph (1) of subdivision (b) of Section 10290 shall not apply to Medicare supplement insurance forms or rates. However, the commissioner may authorize in writing, for good cause only, the limited use of a form or rates after that form or the rates have been filed with the commissioner for 60 days and have not otherwise been acted upon.
The inclusion of new or innovative benefits.
The addition of either direct response or agent marketing methods.
The addition of either guaranteed issue or underwritten coverage.
The offering of coverage to individuals eligible for Medicare by reason of disability.
For the purposes of this section, a “type” means an individual policy, a group policy, an individual Medicare Select policy, or a group Medicare Select policy.
Except as provided in subdivision (a), an issuer shall continue to make available for purchase any policy form or certificate form issued after January 1, 2001, that has been approved by the commissioner. A policy form or certificate form shall not be considered to be available for purchase unless the issuer has actively offered it for sale in the previous 12 months.
An issuer may discontinue the availability of a policy form or certificate form if the issuer provides to the commissioner in writing its decision at least 60 days prior to discontinuing the availability of the form of the policy or certificate. After receipt of the notice by the commissioner, the issuer shall no longer offer for sale the policy form or certificate form in this state.
An issuer that discontinues the availability of a policy form or certificate form pursuant to subparagraph (A) shall not file for approval a new policy form or certificate form of the same type for the same standard Medicare supplement benefit plan as the discontinued form for a period of five years after the issuer provides notice to the commissioner of the discontinuance. The period of discontinuance may be reduced if the commissioner determines that a shorter period is appropriate.
The sale or other transfer of Medicare supplement business to another issuer shall be considered a discontinuance for the purposes of this subdivision.
A change in the rating structure or methodology shall be considered a discontinuance under paragraph (1) unless the issuer complies with the following requirements:
The issuer provides an actuarial memorandum, in a form and manner prescribed by the commissioner, describing the manner in which the revised rating methodology and resultant rates differ from the existing rating methodology and existing rates. The commissioner may approve the change if it is in the public interest.
The issuer does not subsequently put into effect a change of rates or rating factors that would cause the percentage differential between the discontinued and subsequent rates as described in the actuarial memorandum to change. The commissioner may approve a change to the differential that is in the public interest. The commissioner may approve a change to the differential if it is in the public interest.
Except as provided in paragraph (2), the experience of all policy forms or certificate forms of the same type in a standard Medicare supplement benefit plan shall be combined for purposes of the refund or credit calculation prescribed in Section 10192.14.
Forms assumed under an assumption reinsurance agreement shall not be combined with the experience of other forms for purposes of the refund or credit calculation.
An issuer or other entity may provide commission or other compensation to an agent or other representative for the sale of a Medicare supplement policy or certificate only if the first year commission or other first year compensation is no more than 200 percent of the commission or other compensation paid for selling or servicing the policy or certificate in the second year or period. Every insurer shall file with the commissioner its commission structure or an explanation of the insurer’s plan to comply with this provision.
The commission or other compensation provided in subsequent renewal years must be the same as that provided in the second year or period and must be provided for no fewer than five renewal years.
No issuer or other entity shall provide compensation to its agents or other producers, and no agent or producer shall receive compensation, greater than the renewal compensation payable by the replacing issuer on renewal policies or certificates if an existing policy or certificate is replaced.
For purposes of this section, “commission” or “compensation” includes pecuniary or nonpecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate, including, but not limited to, bonuses, gifts, prizes, awards, and finders’ fees.
As prescribed in this chapter, the commissioner shall have the administrative authority to assess penalties against issuers, brokers, agents, and other entities engaged in the business of insurance or any other person or entity for violations of this article.
Upon a showing of a violation of this article in any civil action, a court may also assess the penalties prescribed in this chapter.
Whenever the commissioner has reasonable cause to believe or determines after a public hearing that any issuer, agent, broker, or other person or entity engaged in the business of insurance, has violated this article he or she shall make and serve upon the issuer, broker, or other person or entity a notice of hearing. The notice shall state the commissioner’s intent to assess the administrative penalties, the time and place of the hearing, and the conduct, condition, or ground upon which the commissioner is holding the hearing and assessing the penalties. The hearing shall occur within 30 days after the notice is served. Within 30 days after the hearing the commissioner shall issue an order specifying the amount of penalties to be paid. The penalties resulting from the hearing shall be paid to the Insurance Fund.
The powers vested in the commissioner by this section shall be additional to any and all powers and remedies vested in the commissioner by law.
Any broker, agent, or other person or entity engaged in the business of insurance, other than an issuer, who violates this article is liable for administrative penalties of no less than two hundred fifty dollars ($250) for the first violation.
Any broker, agent, other person, or other entity engaged in the business of insurance, other than an issuer, who engages in practices prohibited by this chapter a second or subsequent time or who commits a knowing violation of this article, is liable for administrative penalties of no less than one thousand dollars ($1,000) and no more than twenty-five thousand dollars ($25,000) for each violation.
Any issuer who violates this article is liable for administrative penalties of no less than two thousand five hundred dollars ($2,500) for the first violation.
Any issuer who violates this article with a frequency as to indicate a general business practice or commits a knowing violation of this article, is liable for administrative penalties of no less than ten thousand dollars ($10,000) and no more than one hundred thousand dollars ($100,000) for each violation.
In addition to any other applicable penalties, the commissioner may require issuers, agents, brokers, or other persons or entities violating any provision of this article or regulations promulgated pursuant to this article, to cease marketing in this state any Medicare supplement policy or certificate or may require the issuer, agent, broker, or other person or entity to take such actions as are necessary to comply with the provisions of this article, or both.
Any person who knowingly or intentionally violates any provision of this article is guilty of a public offense punishable by imprisonment in a county jail not exceeding one year, or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine not exceeding ten thousand dollars ($10,000), or by both that imprisonment and fine.
The requirements and remedies provided by this article are in addition to any other remedies provided by law.
If any provision of this article or the application thereof to any person or circumstances is held invalid, that invalidity shall not affect other provisions or applications of the article which can be given effect without the invalid provision or application, and to this end the provisions of this article are severable.
Medicare supplement policies and certificates shall include a renewal, continuation, or conversion provision. The language or specifications of the provision shall be consistent with the type of contract issued. The provision shall be appropriately captioned and shall appear on the first page of the policy, and shall include any reservation by the issuer of the right to change premiums and any automatic renewal premium increases based on the policyholder’s age.
Except for riders or endorsements by which the issuer effectuates a request made in writing by the insured, exercises a specifically reserved right under a Medicare supplement policy, or is required to reduce or eliminate benefits to avoid duplication of Medicare benefits, all riders or endorsements added to a Medicare supplement policy after the date of issue or upon reinstatement or renewal that reduce or eliminate benefits or coverage in the policy shall require a signed acceptance by the insured. After the date of policy or certificate issue, any rider or endorsement that increases benefits or coverage with a concomitant increase in premium during the policy term shall be agreed to in writing signed by the insured, unless the benefits are required by the minimum standards for Medicare supplement policies, or if the increased benefits or coverage is required by law. If a separate additional premium is charged for benefits provided in connection with riders or endorsements, the premium charge shall be set forth in the policy.
Medicare supplement policies or certificates shall not provide for the payment of benefits based on standards described as “usual and customary,” “reasonable and customary,” or words of similar import.
If a Medicare supplement policy or certificate contains any limitations with respect to preexisting conditions, those limitations shall appear as a separate paragraph of the policy and be labeled as “Preexisting Condition Limitations.”
Medicare supplement policies and certificates shall have a notice prominently printed on the first page of the policy or certificate, and of the outline of coverage, or attached thereto, in no less than 10-point uppercase type, stating in substance that the policyholder or certificate holder shall have the right to return the policy or certificate, via regular mail, within 30 days of receiving it, and to have the full premium refunded if, after examination of the policy or certificate, the insured person is not satisfied for any reason. The return shall void the contract from the beginning, and the parties shall be in the same position as if no contract had been issued.
For purposes of this section, a timely manner shall be no later than 30 days after the issuer receives the returned contract.
If the issuer fails to refund all prepaid or periodic charges paid in a timely manner, then the applicant shall receive interest on the paid charges at the legal rate of interest on judgments as provided in Section 685.010 of the Code of Civil Procedure. The interest shall be paid from the date the issuer received the returned contract.
Issuers of health insurance policies, certificates, or contracts that provide hospital or medical expense coverage on an expense incurred or indemnity basis, other than incidentally, to persons eligible for Medicare shall provide to those applicants a Guide to Health Insurance for People with Medicare in the form developed jointly by the National Association of Insurance Commissioners and the Centers for Medicare and Medicaid Services and in a type size no smaller than 12-point type. Delivery of the guide shall be made whether or not the policies or certificates are advertised, solicited, or issued for delivery as Medicare supplement policies or certificates as defined in this article. Except in the case of direct response issuers, delivery of the guide shall be made to the applicant at the time of application, and acknowledgment of receipt of the guide shall be obtained by the issuer. Direct response issuers shall deliver the guide to the applicant upon request, but not later than at the time the policy is delivered.
For the purposes of this section, “form” means the language, format, type size, type proportional spacing, bold character, and line spacing.
As soon as practicable, but no later than 30 days prior to the annual effective date of any Medicare benefit changes, an issuer shall notify its policyholders and certificate holders of modifications it has made to Medicare supplement policies or certificates in a format acceptable to the commissioner. The notice shall include both of the following:
A description of revisions to the Medicare Program and a description of each modification made to the coverage provided under the Medicare supplement policy or certificate.
Inform each policyholder or certificate holder as to when any premium adjustment is to be made due to changes in Medicare.
The notice of benefit modifications and any premium adjustments shall be in outline form and in clear and simple terms so as to facilitate comprehension.
The notices shall not contain or be accompanied by any solicitation.
Issuers shall provide an outline of coverage to all applicants at the time application is presented to the prospective applicant and, except for direct response policies, shall obtain an acknowledgment of receipt of the outline from the applicant. If an outline of coverage is provided at the time of application and the Medicare supplement policy or certificate is issued on a basis which would require revision of the outline, a substitute outline of coverage properly describing the policy or certificate shall accompany the policy or certificate when it is delivered and contain the following statement, in no less than 12-point type, immediately above the company name:
“NOTICE: Read this outline of coverage carefully. It is not identical to the outline of coverage provided upon application and the coverage originally applied for has not been issued.”
The outline of coverage provided to applicants pursuant to this section consists of four parts: a cover page, premium information, disclosure pages, and charts displaying the features of each benefit plan offered by the issuer. The outline of coverage shall be in the language and format prescribed below in no less than 12-point type. All Medicare supplement plans authorized by federal law shall be shown on the cover page, and the plans that are offered by the issuer shall be prominently identified. Premium information for plans that are offered shall be shown on the cover page or immediately following the cover page and shall be prominently displayed. The premium and mode shall be stated for all plans that are offered to the prospective applicant. All possible premiums for the prospective applicant shall be illustrated.
The commissioner may adopt regulations to implement this article, including, but not limited to, regulations that specify the required information to be contained in the outline of coverage provided to applicants pursuant to this section, including the format of tables, charts, and other information.
Any disability insurance policy or certificate, a basic, catastrophic or major medical expense policy, or single premium nonrenewal policy or certificate issued to persons eligible for Medicare, other than a Medicare supplement policy, a policy issued pursuant to a contract under Section 1876 of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.), a disability income policy, or any other policy identified in subdivision (b) of Section 10192.3, advertised, solicited, or issued for delivery in this state to persons eligible for Medicare, shall notify insureds under the policy that the policy is not a Medicare supplement policy or certificate. The notice shall either be printed or attached to the first page of the outline of coverage delivered to insureds under the policy, or if no outline of coverage is delivered, to the first page of the policy or certificate delivered to insureds. The notice shall be in no less than 12-point type and shall contain the following language:
“THIS [POLICY OR CERTIFICATE] IS NOT A MEDICARE SUPPLEMENT [POLICY OR CONTRACT]. If you are eligible for Medicare, review the Guide to Health Insurance for People with Medicare available from the company.”
Applications provided to persons eligible for Medicare for the disability insurance policies or certificates described in paragraph (1) shall disclose the extent to which the policy duplicates Medicare in a manner required by the commissioner. The disclosure statement shall be provided as a part of, or together with, the application for the policy or certificate.
The outline of coverage shall be in the language and format prescribed in this subdivision in no less than 12-point type, and shall include the following items in the order prescribed below. Titles, as set forth below in paragraphs (B) to (H), inclusive, shall be capitalized, centered, and printed in boldface type.
The following shall only apply to policies sold for effective dates prior to June 1, 2010:
The outline of coverage shall include the items, and in the same order, specified in the chart set forth in Section 17 of the Model Regulation to implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act, as adopted by the National Association of Insurance Commissioners in 2004.
(II) The cover page shall contain the 14-plan (A-L) charts. The plans offered by the insurer shall be clearly identified. Innovative benefits shall be explained in a manner approved by the commissioner. The text shall read:
“Medicare supplement insurance can be sold in only 12 standard plans. This chart shows the benefits included in each plan. Every insurance company must offer Plan A. Some plans may not be available.
The BASIC BENEFITS included in ALL plans are:
Hospitalization: Medicare Part A coinsurance plus coverage for 365 additional days after Medicare benefits end.
Medical expenses: Medicare Part B coinsurance (usually 20 percent of the Medicare-approved amount).
Blood: First three pints of blood each year.
Mammogram: One annual screening to the extent not covered by Medicare.
Cervical cancer test: One annual screening.”
[Reference to the mammogram and cervical cancer screening test shall not be included so long as California is required to disallow them for Medicare beneficiaries by the Centers for Medicare and Medicaid Services or other agent of the federal government under 42 U.S.C. Sec. 1395ss.]
The following shall only apply to policies sold for effective dates on or after June 1, 2010:
The following shall apply only to policies sold for effective dates on or after January 1, 2020:
PREMIUM INFORMATION. Premium information for plans that are offered by the insurer shall be shown on, or immediately following, the cover page and shall be clearly and prominently displayed. The premium and mode shall be stated for all offered plans. All possible premiums for the prospective applicant shall be illustrated in writing. If the premium is based on the increasing age of the insured, information specifying when and how premiums will change shall be clearly illustrated in writing. The text shall state: “We [the insurer’s name] can only raise your premium if we raise the premium for all policies like yours in California.”
The text shall state: “Use this outline to compare benefits and premiums among policies.”
READ YOUR POLICY VERY CAREFULLY. The text shall state: “This is only an outline describing your policy’s most important features. The policy is your insurance contract. You must read the policy itself to understand all of the rights and duties of both you and your insurance company.”
THIRTY-DAY RIGHT TO RETURN THIS POLICY. The text shall state: “If you find that you are not satisfied with your policy, you may return it to [insert the insurer’s address]. If you send the policy back to us within 30 days after you receive it, we will treat the policy as if it has never been issued and return all of your payments.”
POLICY REPLACEMENT. The text shall read: “If you are replacing another health insurance policy, do NOT cancel it until you have actually received your new policy and are sure you want to keep it.”
DISCLOSURES. The text shall read: “This policy may not fully cover all of your medical costs.” “Neither this company nor any of its agents are connected with Medicare.” “This outline of coverage does not give all the details of Medicare coverage. Contact your local social security office or consult ‘The Medicare Handbook’ for more details.” “For additional information concerning policy benefits, contact the Health Insurance Counseling and Advocacy Program (HICAP) or your agent. Call the HICAP toll-free telephone number, 1-800-434-0222, for a referral to your local HICAP office. HICAP is a service provided free of charge by the State of California.”
For policies effective on dates on or after June 1, 2010, the following language shall be required until June 1, 2011, “This outline shows benefits and premiums of policies sold for effective dates on or after June 1, 2010. Policies sold for effective dates prior to June 1, 2010 have different benefits and premiums. Plans E, H, I, and J are no longer available for sale.”
[For policies that are not guaranteed issue] COMPLETE ANSWERS ARE IMPORTANT. The text shall read: “When you fill out the application for a new policy, be sure to answer truthfully and completely all questions about your medical and health history. The company may have the right to cancel your policy and refuse to pay any claims if you leave out or falsify important medical information.
Review the application carefully before you sign it. Be certain that all information has been properly recorded.”
An issuer shall comply with all notice requirements of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173).
Application forms shall include the following questions designed to elicit information as to whether, as of the date of the application, the applicant currently has Medicare supplement, Medicare Advantage, Medi-Cal coverage, or another health insurance policy or certificate in force or whether a Medicare supplement policy or certificate is intended to replace any other disability policy or certificate presently in force. A supplementary application or other form to be signed by the applicant and agent containing those questions and statements may be used.
(Statements)
You do not need more than one Medicare supplement policy.
If you purchase this policy, you may want to evaluate your existing health coverage and decide if you need multiple coverages.
You may be eligible for benefits under Medi-Cal and may not need a Medicare supplement policy.
If after purchasing this policy you become eligible for Medi-Cal, the benefits and premiums under your Medicare supplement policy can be suspended, if requested, during your entitlement to benefits under Medi-Cal for 24 months. You must request this suspension within 90 days of becoming eligible for Medi-Cal. If you are no longer entitled to Medi-Cal, your suspended Medicare supplement policy or if that is no longer available, a substantially equivalent policy, will be reinstituted if requested within 90 days of losing Medi-Cal eligibility. If the Medicare supplement policy provided coverage for outpatient prescription drugs and you enrolled in Medicare Part D while your policy was suspended, the reinstituted policy will not have outpatient prescription drug coverage, but will otherwise be substantially equivalent to your coverage before the date of the suspension.
If you are eligible for, and have enrolled in, a Medicare supplement policy by reason of disability and you later become covered by an employer or union-based group health plan, the benefits and premiums under your Medicare supplement policy can be suspended, if requested, while you are covered under the employer or union-based group health plan. If you suspend your Medicare supplement policy under these circumstances and later lose your employer or union-based group health plan, your suspended Medicare supplement policy or if that is no longer available, a substantially equivalent policy, will be reinstituted if requested within 90 days of losing your employer or union-based group health plan. If the Medicare supplement policy provided coverage for outpatient prescription drugs and you enrolled in Medicare Part D while your policy was suspended, the reinstituted policy will not have outpatient prescription drug coverage, but will otherwise be substantially equivalent to your coverage before the date of the suspension.
Counseling services are available in this state to provide advice concerning your purchase of Medicare supplement insurance and concerning medical assistance through the Medi-Cal program, including benefits as a qualified Medicare beneficiary (QMB) and a specified low-income Medicare beneficiary (SLMB). If you want to discuss buying Medicare supplement insurance with a trained insurance counselor, call the California Department of Insurance’s toll-free telephone number 1-800-927-HELP, or access the department’s Internet Web site, www.insurance.ca.gov, and ask how to contact your local Health Insurance Counseling and Advocacy Program (HICAP) office. HICAP is a service provided free of charge by the State of California.
(Questions)
If you lost or are losing other health insurance coverage and received a notice from your prior insurer saying you were eligible for guaranteed issue of a Medicare supplement insurance policy or that you had certain rights to buy such a policy, you may be guaranteed acceptance in one or more of our Medicare supplement plans. Please include a copy of the notice from your prior insurer with your application. PLEASE ANSWER ALL QUESTIONS.
[Please mark Yes or No below with an “X.”]
To the best of your knowledge,
Did you enroll in Medicare Part B in the last 6 months?
Yes____ No____
If yes, what is the effective date? ___________________
Are you covered for medical assistance through California’s Medi-Cal program?
NOTE TO APPLICANT: If you have a share of cost under the Medi-Cal program, please answer NO to this question.
Yes____ No____
If yes,
Did you drop a Medicare supplement policy to enroll in the Medicare plan?
Yes____ No____
Have you had coverage under any other health insurance within the past 63 days (For example, an employer, union, or individual plan)?
Yes____ No____
List policies sold that are still in force.
List policies sold in the past five years that are no longer in force.
In the case of a direct response issuer, a copy of the application or supplemental form, signed by the applicant, and acknowledged by the issuer, shall be returned to the applicant by the issuer upon delivery of the policy.
Upon determining that a sale will involve replacement of Medicare supplement coverage, any issuer, other than a direct response issuer, or its agent, shall furnish the applicant, prior to issuance for delivery of the Medicare supplement policy or certificate, a notice regarding replacement of Medicare supplement coverage. One copy of the notice signed by the applicant and the agent, except when the coverage is sold without an agent, shall be provided to the applicant and an additional signed copy shall be retained by the issuer as provided in Section 10508. A direct response issuer shall deliver to the applicant at the time of the issuance of the policy the notice regarding replacement of Medicare supplement coverage.
The notice required by subdivision (d) for an issuer shall be in the form specified by the commissioner, using, to the extent practicable, a model notice prepared by the National Association of Insurance Commissioners for this purpose. The replacement notice shall be printed in no less than 12-point type in substantially the following form:
[Insurer’s name and address]
NOTICE TO APPLICANT REGARDING REPLACEMENT OF MEDICARE SUPPLEMENT COVERAGE OR MEDICARE ADVANTAGE
SAVE THIS NOTICE! IT MAY BE IMPORTANT IN THE FUTURE.
If you intend to cancel or terminate existing Medicare supplement or Medicare Advantage insurance and replace it with coverage issued by [company name], please review the new coverage carefully and replace the existing coverage ONLY if the new coverage materially improves your position. DO NOT CANCEL YOUR PRESENT COVERAGE UNTIL YOU HAVE RECEIVED YOUR NEW POLICY AND ARE SURE THAT YOU WANT TO KEEP IT.
If you decide to purchase the new coverage, you will have 30 days after you receive the policy to return it to the insurer, for any reason, and receive a refund of your money.
If you want to discuss buying Medicare supplement or Medicare Advantage coverage with a trained insurance counselor, call the California Department of Insurance’s toll-free telephone number 1-800-927-HELP, and ask how to contact your local Health Insurance Counseling and Advocacy Program (HICAP) office. HICAP is a service provided free of charge by the State of California.
STATEMENT TO APPLICANT FROM THE INSURER AND AGENT: I have reviewed your current health insurance coverage. To the best of my knowledge, the replacement of insurance involved in this transaction does not duplicate coverage or, if applicable, Medicare Advantage coverage because you intend to terminate your existing Medicare supplement coverage or leave your Medicare Advantage plan. In addition, the replacement coverage contains benefits that are clearly and substantially greater than your current benefits for the following reasons:
__ Additional benefits that are: ______
__ No change in benefits, but lower premiums.
__ Fewer benefits and lower premiums.
__ Plan has outpatient prescription drug coverage and applicant is enrolled in Medicare Part D.
__ Disenrollment from a Medicare Advantage plan. Reasons for disenrollment:
__ Other reasons specified here: ______
1. Note: If the issuer of the Medicare supplement policy being applied for does not impose, or is otherwise prohibited from imposing, preexisting condition limitations, please skip to statement 3 below. Health conditions that you may presently have (preexisting conditions) may not be immediately or fully covered under the new policy. This could result in denial or delay of a claim for benefits under the new policy, whereas a similar claim might have been payable under your present policy.
2. State law provides that your replacement Medicare supplement policy may not contain new preexisting conditions, waiting periods, elimination periods, or probationary periods. The insurer will waive any time periods applicable to preexisting conditions, waiting periods, elimination periods, or probationary periods in the new coverage for similar benefits to the extent that time was spent (depleted) under the original policy.
3. If you still wish to terminate your present policy and replace it with new coverage, be certain to truthfully and completely answer any and all questions on the application concerning your medical and health history. Failure to include all material medical information on an application requesting that information may provide a basis for the insurer to deny any future claims and to refund your premium as though your policy had never been in force. After the application has been completed and before you sign it, review it carefully to be certain that all information has been properly recorded. [If the policy or certificate is guaranteed issue, this paragraph need not appear.]
DO NOT CANCEL YOUR PRESENT POLICY UNTIL YOU HAVE RECEIVED YOUR NEW POLICY AND ARE SURE THAT YOU WANT TO KEEP IT.
An issuer, broker, agent, or other person shall not cause an insured to replace a Medicare supplement insurance policy unnecessarily. In recommending replacement of any Medicare supplement insurance, an agent shall make reasonable efforts to determine the appropriateness to the potential insured.
An issuer shall not require, request, or obtain health information as part of the application process for an applicant who is eligible for guaranteed issuance of, or open enrollment for, any Medicare supplement coverage pursuant to Section 10192.11 or 10192.12, except for purposes of paragraph (1) or (2) of subdivision (a) of Section 10192.11 when the applicant is first enrolled in Medicare Part B. The application form shall include a clear and conspicuous statement that the applicant is not required to provide health information during a period where guaranteed issue or open enrollment applies, as specified in Section 10192.11 or 10192.12, except for purposes of paragraph (1) or (2) of subdivision (a) of Section 10192.11 when the applicant is first enrolled in Medicare Part B, and shall inform the applicant of those periods of guaranteed issuance of Medicare supplement coverage. This subdivision does not prohibit an issuer from requiring proof of eligibility for a guaranteed issuance of Medicare supplement coverage.
This section shall become operative on January 1, 2017.
In addition to any other requirements of law, the following shall apply to a Medicare supplement policy:
The issuer shall not require an amount greater than one month’s premium to be submitted with an application for the policy of insurance if interim coverage is not provided. If interim coverage is provided, the issuer shall not require an amount greater than two months’ premium for that purpose. No further premiums may be collected until the policy is delivered to the applicant.
The issuer shall notify the applicant within 60 days from the date the issuer or issuer’s authorized representative or producer receives the application and the amount as to whether or not the applicant will be issued a policy of insurance. If the applicant is not so notified, the issuer or issuer’s authorized representative or producer shall pay interest to the applicant on the funds that the applicant submitted with the application, at the legal rate of interest on judgments as provided in Section 685.010 of the Code of Civil Procedure, from the date the issuer or issuer’s authorized representative or producer received those funds until they are refunded to the applicant or are applied toward the premium.
An issuer shall provide a copy of any Medicare supplement advertisement intended for use in this state whether through written, radio, or television medium to the commissioner for review at least 30 days before dissemination of the advertisement. The advertisement shall comply with all applicable laws of California.
A television, radio, mail, or newspaper advertisement which is designed to produce leads either by use of a coupon or a request to write or otherwise contact the issuer, a production agent, or other person or a subsequent advertisement prior to contact shall include information disclosing that an agent may contact the applicant if that is the fact. In addition, an agent who makes contact with a consumer, as a result of acquiring that consumer’s name from a lead generating device shall disclose that fact in the initial contact with the consumer.
No issuer, agent, broker, solicitor, or other person or other entity shall solicit residents of this state for the purchase of a Medicare supplement policy through the use of a true or fictitious name which is deceptive or misleading with regard to the status, character, or proprietary or representative capacity of the entity or person or the true purpose of the advertisement.
For purposes of this section, an advertisement includes envelopes, stationery, business cards, or other materials designed to describe and encourage the purchase of a Medicare supplement policy.
Advertisements may not employ words, letters, initials, symbols, or other devices which are so similar to those used by governmental agencies, a nonprofit or charitable institution, senior organization, or other insurer that they could have the capacity or tendency to mislead the public. Examples of misleading materials, include, but are not limited to, those which imply any of the following:
The advertised coverages are somehow provided by or are endorsed by the governmental agencies or the other insurer.
The advertiser is the same as, is connected with, or is endorsed by, the governmental agencies, other entity, or other insurers.
That the advertised coverages are somehow provided by or are endorsed by the governmental agencies, other entity, or other insurers.
No advertisement shall use the name of a state or political subdivision thereof in a policy name or description.
No advertisement may use any name, service mark, slogan, symbol, or a device in any manner that implies that the issuer or the Medicare supplement policy advertised, or that any agency who may call upon the consumer in response to the advertisement is connected with a governmental agency, such as the Social Security Administration.
No advertisement shall be used that fails to prominently display the disclaimer to the effect of “Not Connected with or endorsed by the U.S. Government or the federal Medicare program.”
No advertisement may imply that the reader may lose a right or privilege or benefit under federal, state, or local law if he or she fails to respond to the advertisement.
An issuer, agent, broker, or other entity may not use an address so as to mislead or deceive as to the true identity, location, or licensing status of the issuer, agent, broker, or other entity.
No issuer may use, in the trade name of its insurance policy, any terminology or words so similar to the name of a governmental agency or governmental program as to have the tendency to confuse, deceive, or mislead a prospective purchaser.
All advertisements used by agents, producers, brokers, solicitors, or other persons of an issuer must have prior written approval of the issuer before they may be used.
No issuer, agent, broker, or other entity may solicit a particular class by use of advertisements which state or imply that the occupational or other status as members of the class entitles them to reduced rates on a group or other basis when, in fact, the policy being advertised is sold only on an individual basis at regular rates.
The commissioner may prescribe by regulation a standard form and the contents of an informational brochure for persons eligible for Medicare by reason of age which is intended to improve the buyer’s ability to select the most appropriate coverage and improve the buyer’s understanding of Medicare. Except in the case of direct response insurance policies, the commissioner may require by regulation that the information brochure be provided to any applicant eligible for Medicare concurrently with delivery of the outline of coverage. With respect to direct response insurance policies, the commissioner may require by regulation that the prescribed brochure be provided upon request to any applicant eligible for Medicare by reason of age, but in no event later than the time of policy delivery.
An issuer, directly or through its producers, shall do each of the following:
Establish marketing procedures to ensure that any comparison of policies by its agents or other producers will be fair and accurate.
Establish marketing procedures to ensure that excessive insurance is not sold or issued.
Display prominently by type, stamp, or other appropriate means, on the first page of the policy, the following:
“Notice to buyer: This policy may not cover all of your medical expenses.”
Inquire and otherwise make every reasonable effort to identify whether a prospective applicant for a Medicare supplement policy already has health insurance and the types and amounts of that insurance.
Establish auditable procedures for verifying compliance with this subdivision.
In addition to the practices prohibited by this code or any other law, the following acts and practices are prohibited:
Twisting, which means knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert an insurance policy or to take out a policy of insurance with another insurer.
High pressure tactics, which means employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.
Cold lead advertising, which means making use directly or indirectly of any method of marketing that fails to disclose in a conspicuous manner that a purpose of the method of marketing is the solicitation of insurance and that contact will be made by an insurance agent or insurance company.
The terms “Medicare supplement,” “Medigap,” “Medicare Wrap-Around” and words of similar import shall not be used unless the policy is issued in compliance with this article.
The commissioner each year shall prepare a rate guide for Medicare supplement insurance and Medicare supplement contracts. The commissioner each year shall make the rate guide available on or before the date of the fall Medicare annual open enrollment. The rate guide shall include all of the following for each company that sells Medicare supplemental insurance or Medicare supplement contracts in California:
For policies sold for effective dates prior to June 1, 2010, a listing of all the policies, plans A to L, inclusive, that are available from the company.
For policies sold for effective dates on or after June 1, 2010, a listing of all the policies, plans A to D, inclusive, F, high deductible F, G, and K to N, inclusive, that are available from the company.
For policies sold or issued for effective dates on or after January 1, 2020, a listing of all the policies, plans A to D, inclusive, F, high deductible F, G, high deductible G, and K to N, inclusive, that are available from the company.
For policies sold for effective dates prior to June 1, 2010, a listing of all the policies, plans A to L, inclusive, for Medicare beneficiaries under 65 years of age that are available from the company.
For policies sold for effective dates on or after June 1, 2010, a listing of all the policies, plans, A to D, inclusive, F, high deductible F, G, and K to N, inclusive, for Medicare beneficiaries under 65 years of age that are available from the company.
For policies sold or issued for effective dates on or after January 1, 2020, a listing of all the policies, plans A to D, inclusive, F, high deductible F, G, high deductible G, and K to N, inclusive, for Medicare beneficiaries under 65 years of age that are available from the company.
Sample rates for each policy listed pursuant to paragraphs (1) and (2). The sample rates shall be for ages 0–65, 65, 70, 75, and 80.
The premium rate methodology for each policy listed pursuant to paragraphs (1) and (2). “Premium rate methodology” means attained age, issue age, or community rated.
The waiting period for preexisting conditions for each policy listed pursuant to paragraphs (1) and (2).
The consumer rate guide prepared pursuant to subdivision (d) shall be distributed using all of the following methods:
Through Health Insurance Counseling and Advocacy Program (HICAP) offices.
By telephone, using the department’s consumer toll-free telephone number.
On the department’s internet website.
In addition to the distribution methods described in paragraphs (1) to (3), inclusive, each insurer that markets Medicare supplement insurance or Medicare supplement contracts in this state shall provide on the application form a statement that reads as follows: “A rate guide is available that compares the policies sold by different insurers. You can obtain a copy of this rate guide by calling the Department of Insurance’s consumer toll-free telephone number (1-800-927-HELP), by calling the Health Insurance Counseling and Advocacy Program (HICAP) toll-free telephone number (1-800-434-0222), or by accessing the Department of Insurance’s internet website (www.insurance.ca.gov).”
In recommending the purchase or replacement of any Medicare supplement policy or certificate, an agent shall make reasonable efforts to determine the appropriateness of a recommended purchase or replacement.
Any sale of a Medicare supplement policy or certificate that will provide an individual more than one Medicare supplement policy or certificate is prohibited.
An issuer shall not issue a Medicare supplement policy or certificate to an individual enrolled in Medicare Part C unless the effective date of the coverage is after the termination date of the individual’s coverage under Medicare Part C.
On or before March 1 of each year, an issuer shall report the following information for every individual resident of this state for which the issuer has in force more than one Medicare supplement policy or certificate:
Policy and certificate number.
Date of issuance.
The items set forth above must be grouped by individual policyholder.
If a Medicare supplement policy or certificate replaces another Medicare supplement policy or certificate, the replacing issuer shall waive any time periods applicable to preexisting conditions, waiting periods, elimination periods, and probationary periods in the new Medicare supplement policy or certificate for similar benefits to the extent that time was spent under the original policy.
If a Medicare supplement policy or certificate replaces another Medicare supplement policy or certificate that has been in effect for at least six months, the replacing policy shall not provide any time period applicable to preexisting conditions, waiting periods, elimination periods and probationary periods for benefits similar to those contained in the original policy or certificate.
This section applies to all policies with policy years beginning on or after May 21, 2009.
The issuer shall not deny or condition the issuance or effectiveness of the policy or certificate, including the imposition of any exclusion of benefits under the policy based on a preexisting condition, on the basis of the genetic information with respect to that individual or a family member of the individual.
The issuer shall not discriminate in the pricing of the policy or certificate, including the adjustment of premium rates, of an individual on the basis of the genetic information with respect to that individual or a family member of the individual.
Nothing in subdivision (a) shall be construed to limit the ability of an issuer, to the extent otherwise permitted by law, to do either of the following:
Deny or condition the issuance or effectiveness of the policy or certificate or increase the premium for a group based on the manifestation of a disease or disorder of an insured or applicant.
Increase the premium for any policy issued to an individual based on the manifestation of a disease or disorder of an individual who is covered under the policy. For purposes of this paragraph, the manifestation of a disease or disorder in one individual shall not also be used as genetic information about other group members and to further increase the premium for the group.
An issuer of a Medicare supplement policy or certificate shall not request or require an individual or a family member of that individual to undergo a genetic test.
Subdivision (c) shall not be construed to preclude an issuer of a Medicare supplement policy or certificate from obtaining and using the results of a genetic test in making a determination regarding payment, as defined for the purposes of applying the regulations promulgated under Part C of Title XI and Section 264 of the Health Insurance Portability and Accountability Act of 1996, as may be revised from time to time, and consistent with subdivision (a).
For purposes of carrying out subdivision (d), an issuer of a Medicare supplement policy or certificate may request only the minimum amount of information necessary to accomplish the intended purpose.
An issuer of a Medicare supplement policy or certificate shall not request, require, seek, or purchase genetic information for underwriting purposes.
An issuer of a Medicare supplement policy or certificate shall not request, require, seek, or purchase genetic information with respect to any individual or a family member of that individual prior to the individual’s enrollment under the policy in connection with that enrollment.
If an issuer of a Medicare supplement policy or certificate obtains genetic information incidental to the requesting, requiring, or purchasing of other information concerning any individual or a family member of that individual, the request, requirement, or purchase shall not be considered a violation of subdivision (g) if the request, requirement, or purchase is not in violation of subdivision (f). However, the issuer shall not use any genetic information obtained under this section for any prohibited purpose described in this section or in Sections 10140 and 10143.
For the purposes of this section, the following definitions shall apply:
“Issuer of a Medicare supplement policy or certificate” includes a third-party administrator, or other person acting for or on behalf of an issuer.
“Family member” means, with respect to an individual, any other individual who is a first-degree, second-degree, third-degree, or fourth-degree relative of the individual.
“Genetic information” means, with respect to any individual, information about the individual’s genetic tests, the genetic tests of family members of the individual, and the manifestation of a disease or disorder in family members of the individual. The term includes, with respect to any individual, any request for, or receipt of, genetic services, or participation in clinical research that includes genetic services, by the individual or any family member of the individual. Any reference to genetic information concerning an individual or family member of an individual who is a pregnant woman includes genetic information of any fetus carried by that pregnant woman, or with respect to an individual or family member utilizing reproductive technology, includes genetic information of any embryo legally held by an individual or family member. The term “genetic information” does not include information about the sex or age of any individual.
“Genetic services” means a genetic test, genetic education, or genetic counseling, including obtaining, interpreting, or assessing genetic information.
“Genetic test” means an analysis of human DNA, RNA, chromosomes, proteins, or metabolites, that detect genotypes, mutations, or chromosomal changes. The term “genetic test” does not mean an analysis of proteins or metabolites that does not detect genotypes, mutations, or chromosomal changes; or an analysis of proteins or metabolites that is directly related to a manifested disease, disorder, or pathological condition that could reasonably be detected by a health care professional with appropriate training and expertise in the field of medicine involved.
“Underwriting purposes” includes all of the following:
Rules for, or determination of, eligibility, including enrollment and continued eligibility, for benefits under the policy.
The computation of premium or contribution amounts under the policy.
The application of any preexisting condition exclusion under the policy.
Other activities related to the creation, renewal, or replacement of a policy of health insurance or health benefits.
ARTICLE 7. Preexisting Condition Provisions [10198.6. - 10198.10.]
For purposes of this article, the following definitions shall apply:
“Health benefit plan” means any group or individual policy of health insurance, as defined in Section 106. The term does not include coverage of Medicare services pursuant to contracts with the United States government or coverage that provides excepted benefits as described in Sections 2722 and 2791 of the federal Public Health Service Act, subject to Section 10198.61.
“Preexisting condition provision” means a policy provision that excludes coverage for charges or expenses incurred during a specified period following the insured’s effective date of coverage, as to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during a specified period immediately preceding the effective date of coverage.
“Creditable coverage” means:
Any individual or group policy, contract, or program, that is written or administered by a health insurer, health care service plan, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, coverage for onsite medical clinics, disability income, Medicare supplement, long-term care insurance, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers’ compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
The federal Medicare Program pursuant to Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
The Medicaid Program pursuant to Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.).
Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital, and surgical care.
10 U.S.C. Chapter 55 (commencing with Section 1071) (Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)).
A medical care program of the Indian Health Service or of a tribal organization.
A health plan offered under 5 U.S.C. Chapter 89 (commencing with Section 8901) (Federal Employees Health Benefits Program (FEHBP)).
A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(I) of the federal Public Health Service Act, as amended by Public Law 104-191, the federal Health Insurance Portability and Accountability Act of 1996.
A health benefit plan under Section 5(e) of the federal Peace Corps Act (22 U.S.C. Sec. 2504(e)).
Any other creditable coverage as defined by subsection (c) of Section 2704 of Title XXVII of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(c)).
“Waivered condition provision” means a contract provision that excludes coverage for charges or expenses incurred during a specified period of time for one or more specific, identified, medical conditions.
“Grandfathered health benefit plan” means a health benefit plan that is a grandfathered health plan, as defined in Section 1251 of PPACA.
“Nongrandfathered health benefit plan” means a health benefit plan that is not a grandfathered health plan as defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
For purposes of this article, “health benefit plan” does not include policies or certificates of specified disease or hospital confinement indemnity provided that the carrier offering those policies or certificates complies with the following:
The carrier files, on or before March 1 of each year, a certification with the commissioner that contains the statement and information described in paragraph (2).
The certification required in paragraph (1) shall contain the following:
A statement from the carrier certifying that policies or certificates described in this section (i) are being offered and marketed as supplemental health insurance and not as a substitute for coverage that provides essential health benefits as defined by the state pursuant to Section 1302 of PPACA, and (ii) the disclosure form as described in Section 10603 contains the following statement prominently on the first page: “This is a supplement to health insurance. It is not a substitute for essential health benefits or minimum essential coverage as defined in federal law.”
A summary description of each policy or certificate described in this section, including the average annual premium rates, or range of premium rates in cases where premiums vary by age, gender, or other factors, charged for the policies and certificates issued or delivered in this state.
In the case of a policy or certificate described in this section and that is offered for the first time in this state for plan years on or after January 1, 2014, the carrier files with the commissioner the information and statement required in paragraph (2) at least 30 days prior to the date such a policy or certificate is issued or delivered in this state.
As used in this section, “policies or certificates of specified disease” and “policies or certificates of hospital confinement indemnity” mean policies or certificates of insurance sold to an insured to supplement other health insurance coverage as specified in this section. An insurer issuing a “policy or certificate of specified disease” or a “policy or certificate of hospital confinement indemnity” shall require that the person to be insured is covered by an individual or group policy or contract that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans.
A health benefit plan for group coverage shall not impose any preexisting condition provision or waivered condition provision upon any individual.
A nongrandfathered health benefit plan for individual coverage shall not impose any preexisting condition provision or waivered condition provision upon any individual.
A grandfathered health benefit plan for individual coverage shall not exclude coverage on the basis of a waivered condition provision or preexisting condition provision for a period greater than 12 months following the individual’s effective date of coverage, nor limit or exclude coverage for a specific insured by type of illness, treatment, medical condition, or accident, except for satisfaction of a preexisting condition provision or waivered condition provision pursuant to this article. Waivered condition provisions or preexisting condition provisions contained in individual grandfathered health benefit plans may relate only to conditions for which medical advice, diagnosis, care, or treatment, including use of prescription drugs, was recommended or received from a licensed health practitioner during the 12 months immediately preceding the effective date of coverage.
In determining whether a preexisting condition provision or a waivered condition provision applies to an individual under this subdivision, a health benefit plan shall credit the time the individual was covered under creditable coverage, provided that the individual becomes eligible for coverage under the succeeding health benefit plan within 62 days of termination of prior coverage and applies for coverage under the succeeding plan within the applicable enrollment period.
A health benefit plan for group or individual coverage shall not impose a waiting period.
This article applies to all health benefit plans that provide benefits to residents of this state regardless of the situs of the contract or group master policyholder.
A health benefit plan for group coverage shall not establish rules for eligibility, including continued eligibility, of an individual, or dependent of an individual, to enroll under the terms of the plan based on any of the following health status-related factors:
Health status.
Medical condition, including physical and mental illnesses.
Claims experience.
Receipt of health care.
Medical history.
Genetic information.
Evidence of insurability, including conditions arising out of acts of domestic violence.
Disability.
Any other health status-related factor as determined by any federal regulations, rules, or guidance issued pursuant to Section 2705 of the federal Public Health Service Act.
This article shall become operative on January 1, 2014.
CHAPTER 1.5. Health Coverage Contract Notification [10199. - 10199.9.]
ARTICLE 1. Purpose and Title [10199. - 10199.]
The purpose of the chapter is to promote the public interest, to prevent unfair and unlawful health care business practices, and to promote adequate consumer and employer advance notice of changes in the cost and benefits of health coverage in order to allow for comparative shopping and to reduce the cost of health coverage.
ARTICLE 2. General Provisions [10199.1. - 10199.49.]
An insurer or nonprofit hospital service plan or administrator acting on its behalf shall not terminate a group master policy or contract providing hospital, medical, or surgical benefits, increase premiums or charges therefor, reduce or eliminate benefits thereunder, or restrict eligibility for coverage thereunder without providing prior notice of that action. The action shall not become effective unless written notice of the action was delivered by mail to the last known address of the appropriate insurance producer and the appropriate administrator, if any, at least 45 days prior to the effective date of the action and to the last known address of the group policyholder or group contractholder at least 60 days prior to the effective date of the action. If nonemployee certificate holders or employees of more than one employer are covered under the policy or contract, written notice shall also be delivered by mail to the last known address of each nonemployee certificate holder or affected employer or, if the action does not affect all employees and dependents of one or more employers, to the last known address of each affected employee certificate holder, at least 60 days prior to the effective date of the action.
The notice delivered pursuant to paragraph (1) for large group health insurance policies shall also include the following information:
Whether the rate proposed to be in effect is greater than the average rate increase for individual market products negotiated by the California Health Benefit Exchange for the most recent calendar year for which the rates are final.
Whether the rate proposed to be in effect is greater than the average rate increase negotiated by the Board of Administration of the Public Employees’ Retirement System for the most recent calendar year for which the rates are final.
Whether the rate change includes any portion of the excise tax paid by the health insurer.
How to obtain the rate filing required under Article 4.5 (commencing with Section 10181), including whether the rate change is attributable to changes in medical trend, utilization, or other factors.
How to apply to the department to have the proposed rate reviewed by the department if a request is made within 30 days of the notice.
A holder of a master group policy or a master group nonprofit hospital service plan contract or administrator acting on its behalf shall not terminate the coverage of, increase premiums or charges for, or reduce or eliminate benefits available to, or restrict eligibility for coverage of a covered person, employer unit, or class of certificate holders covered under the policy or contract for hospital, medical, or surgical benefits without first providing prior notice of the action. The action shall not become effective unless written notice was delivered by mail to the last known address of each affected nonemployee certificate holder or employer, or if the action does not affect all employees and dependents of one or more employers, to the last known address of each affected employee certificate holder, at least 60 days prior to the effective date of the action.
A health insurer that declines to offer coverage to or denies enrollment for a large group applying for coverage shall, at the time of the denial of coverage, provide the applicant with the specific reason or reasons for the decision in writing, in clear, easily understandable language.
For group health insurance policies, if the department determines that a rate is unreasonable or not justified consistent with Article 4.5 (commencing with Section 10181), the insurer shall notify the policyholder of this determination. This notification may be included in the notice required in subdivision (a) or (b).
The notification to the policyholder shall be developed by the department and shall include the following statements in 14-point type:
The Department of Insurance has determined that the rate for this product is unreasonable or not justified after reviewing information submitted to it by the insurer.
The policyholder has the option to obtain other coverage from this insurer or another insurer, or to keep this coverage.
Small business purchasers may want to contact Covered California at www.coveredca.com for help in understanding available options.
The development of the notification required under this subdivision shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
The insurer may include in the notification to the policyholder the internet website address at which the insurer’s final justification for implementing an increase that has been determined to be unreasonable by the commissioner may be found pursuant to Section 154.230 of Title 45 of the Code of Federal Regulations.
The notice shall also be provided to the agent of record for the policyholder, if any, so that the agent may assist the purchaser in finding other coverage.
In developing the notification, the department shall take into consideration that this notice is required to be provided to a small group applicant pursuant to subdivision (g) of Section 10181.3.
The written notice described in subdivisions (a) and (b) of Section 10199.1 shall state in italics and in 12-point type the actual dollar amount and the specific percentage of the premium rate increase. Further, the notice shall describe in plain understandable English and highlighted in italics any changes in the plan design or change in benefits with reduction in benefits, waivers, exclusions, or conditions.
The written notice shall specify in a minimum of 10-point bold typeface the reason or reasons for premium rate changes, plan design, or plan benefit changes.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, any entity required to provide the notice or its authorized representatives, or agents, for any statement made, unless shown to have been made with malice in fact, by any of them in (a) any written notice or in any other oral or written communication specifying the reasons for the notice, (b) any communication providing information pertaining to such notice, or (c) evidence submitted at any court proceeding or informal inquiry in which such notice is at issue.
Proof of mailing a notice and the reason therefor to the appropriate entity or individual at the last known mailing address shall be sufficient proof of the notice required by this chapter.
On or after January 1, 1994, every insurer issuing, amending, or renewing group disability insurance which covers hospital, medical, or surgical expenses shall notify the group policyholders in writing of the cancellation of the group policy and shall include in their contract with group policyholders, regardless of the situs of that contract, a provision requiring the group policyholder to mail promptly to each person covered under the group policy a legible, true copy of any notice of cancellation of the policy which may be received from the insurer and to provide promptly to the insurer proof of that mailing and the date thereof.
The notice of cancellation required by subdivision (a) shall include information regarding the conversion rights of persons covered under the group policy upon termination of the group policy. This information shall be in clear and easily understandable language.
On or after January 1, 1994, every nonprofit hospital service plan issued, amended, or renewed that covers hospital, medical, or surgical expenses on a group basis shall notify the group contractholders in writing of the cancellation of the plan contract and shall include in their contract with group contractholders a provision requiring the group contractholder to mail promptly to each subscriber a legible, true copy of any notice of cancellation of the plan contract which may be received from the plan and to provide promptly to the plan proof of that mailing and the date thereof.
The notice of cancellation required by subdivision (a) shall include information regarding the conversion rights of persons covered under the plan contract upon termination of the plan contract. This information shall be in clear and easily understandable language.
No health insurer shall, with regard to a group contract, change the premium rates or applicable copayments or coinsurances or deductibles for the length of the contract, except as specified in subdivision (b), during any of the following time periods:
After the group policyholder or group contractholder has delivered written notice of acceptance of the contract or policy.
After the start of the employer’s annual open enrollment period.
After the receipt of payment of the premium for the first month of coverage in accordance with the contract or policy effective date.
Changes to the premium rates or applicable copayments or coinsurances or deductibles of a contract or policy shall, subject to the insurer meeting the requirements of this chapter, be allowed in any of the following circumstances:
When authorized or required in the group contract or policy.
When the contract or policy was agreed to under a preliminary agreement that states that it is subject to execution of a definitive agreement.
When the insurer and the policyholder or contractholder mutually agree in writing.
This section shall apply to grandfathered health insurance policies and nongrandfathered health insurance policies in the individual or small group markets that are issued, amended, or renewed on or after January 1, 2017.
Notwithstanding paragraph (1) of subdivision (b) of Section 10199.48, a health insurance policy shall not change the cost-sharing design during the policy year, except when required by state or federal law.
For purposes of this section, the following definitions shall apply:
“Cost sharing” includes any copayment, coinsurance, deductible, or any other form of cost sharing by the insured other than the premium or share of premium.
“Policy year” has the meaning set forth in Section 144.103 of Title 45 of the Code of Federal Regulations. For nongrandfathered health insurance policies in the individual market, “policy year” means the calendar year.
“Cost-sharing design” means the amount or proportion of cost sharing applied to a covered benefit.
ARTICLE 3. Administration and Enforcement [10199.5. - 10199.9.]
The commissioner may, as conditions warrant, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, adopt reasonable regulations, and amendments and additions thereto, as are necessary to administer this chapter.
The commissioner shall have the administrative authority to assess penalties against insurers, nonprofit hospital service plans, administrators, and insurance producers, and other entities engaged in the business of insurance or other persons or entities for violations of this chapter.
Upon a showing of a violation of this chapter in any civil action, a court may also assess the penalties described in this chapter.
The commissioner may suspend or revoke the license or licenses issued to any production agent or administrator found, after notice and hearing, to have violated this chapter or a regulation adopted pursuant to the authority of this chapter. Notice of hearing shall be accomplished and a hearing conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted therein.
Any production agent, administrator, or other person or entity engaged in the business of insurance, other than an insurer, who violates this chapter is liable for administrative penalties of not less than two hundred fifty dollars ($250) for the first violation.
Any production agent, administrator, or other person or other entity engaged in the business of insurance, other than an insurer, who engages in practices prohibited by this chapter a second or subsequent time, or who commits a knowing violation of this chapter, is liable for administrative penalties of not less than one thousand dollars ($1,000) and not more than two thousand five hundred dollars ($2,500) for each violation.
Any insurer who violates this chapter is liable for administrative penalties of not less than two thousand five hundred dollars ($2,500) for the first violation.
Any insurer who violates this chapter with a frequency that indicates a general business practice, or commits a knowing violation of this chapter, is liable for administrative penalties of not less than ten thousand dollars ($10,000) and not more than one hundred thousand dollars ($100,000) for each violation.
In addition to any other penalty provided by law or the availability of any administrative procedure, if an insurer, after notice and hearing, is found to have violated this chapter, or regulations adopted pursuant to this chapter, or knowingly permits any person to do so, the commissioner, in accordance with the procedures provided in Section 704, may suspend the insurer’s certificate of authority to transact disability insurance. Section 740.7 shall apply in any proceeding conducted pursuant to this section.
This chapter applies to all master group policies and master group nonprofit hospital service plan contracts providing hospital, medical, or surgical benefits, regardless of policy or contract situs, coverage under which is solicited in any manner in this state.
CHAPTER 2. Group Life Policies [10200. - 10214.]
Any life insurer may issue life, disability, term, and endowment insurance on the group plan, with or without annuities, and with premium rates less than the usual rates for such insurance. Such insurance under a franchise agreement or upon a wholesale basis may be written under rates more or less than the usual rates for such insurance.
An insurer may, in the discretion of the contracting parties, enter into a contract with a group policyholder or other contracting entity under any group, selected group, or franchise policy issued by the insurer to determine the amount the insurer may retain from premiums paid or to provide for the establishment of reserves or deposits to meet future contingencies of any nature under such insurance policy. Under this section, “contracting entity” means any of the following:
The employer, association, trustee, union, or other entity to whom a group policy is issued.
The organization to which an individual policyholder must belong or be associated with to be insured under a franchise or a selected group policy.
Any entity formed and operating for purposes other than the procuring of insurance to which two or more contracting entities defined in subdivision (a) or (b) of this section belong.
The term “franchise” or “wholesale” insurance shall mean a life insurance plan under which a number of individual life insurance policies are issued at special rates to a selected group. A special rate is any rate lower than the rate shown in the issuing insurance company’s manual for individually issued policies of the same type and to insureds of the same class.
After the effective date of this section no franchise or wholesale life insurance plan shall be entered into in this State unless the individuals to whom such insurance is made available are members of a professional association, employees of a common employer or affiliated employers, or unless the insurance is made available in connection with an indebtedness or a contract of sale. The word “employees” as used in this section shall be deemed to include the individual proprietors or partners who constitute the employer or affiliated employers.
In the case of any plan existing on or before the effective date of this section, any individual plan or policy then in effect shall not be changed or affected by this section, but no individual may thereafter become insured for more than twenty-five thousand dollars ($25,000), under any such plan except those written in connection with a professional association, an indebtedness, a contract of sale, or a pension plan. Nothing herein contained shall prevent any such plan so existing at the effective date hereof from being changed or modified (a) to change the insurer or insurers underwriting said plan and, to the extent necessary without affecting benefits payable, to make the plan conform to the underwriting rules and procedures of the new insurer or insurers; (b) to change rates applicable to insurance written under said plan; or (c) to add to said plan incidental benefits providing coverage on the lives of dependents of the insured individual, accidental death benefits or waiver of premiums during periods of total disability on the insured.
For purposes of this section a professional association means an association whose membership is restricted to one or more of the licensed professions such as medicine, dentistry, pharmacy, law and accountancy.
The only forms of group life insurance are those set forth in this chapter.
Life insurance conforming to all the following conditions is one form of group life insurance:
Written under a policy covering when issued not less than two public or private employees.
Written under a policy issued to the employer, the premium on which is to be paid by the employer, by the employee, or by the employer and employees jointly, and insuring either all of the employees or all of any class or classes thereof, determined by conditions pertaining to the employment.
For amounts of insurance based upon some plan which will preclude individual selection.
For the benefit of persons other than the employer. That group insurance may be for the benefit of a trustee of a pension, welfare benefit plan, or trust established by an employer providing life, health, disability, retirement, or similar benefits to employees of the employer or its affiliates, and acting in a fiduciary capacity with respect to those employees, retired employees, or their dependents or beneficiaries, where the trustee has an insurable interest in the lives of the employees for whom those benefits are to be provided and where the employee has consented in writing to the coverage.
When the premium is to be paid by the employer and employee jointly and the benefits of the policy are offered to all eligible employees.
Terminating if, subsequent to issue, (1) the number of employees insured falls below two lives, and (2) the employee contributions, if the premiums for the insurance are on a renewable term insurance basis, exceed one dollar ($1) per month per one thousand dollars ($1,000) of insurance coverage plus an amount equal to any additional premium per one thousand dollars ($1,000) of insurance coverage charged to cover one or more hazardous occupations.
The application period and the notice requirements shall be the same for classes of former employees and retired employees as those set forth in paragraphs (2) and (4) of subdivision (a) of, and subdivision (b) of, Section 10209.
That insurance may be issued either with or without medical examinations.
The term “employees” as used in Section 10202 may include the officers, managers, and employees of subsidiary or affiliated corporations, and the individual proprietors, partners, and employees of affiliated individuals and firms, when the business of such subsidiary or affiliated corporations, firms, or individuals is controlled by the policyholder through stock ownership, contract or otherwise, or when the policyholder is controlled by affiliated corporations, firms, or individuals through stock ownership, contract or otherwise. The policy may provide that the term “employees” as used in Section 10202 may include classes of former employees, including retired employees, and may also include the individual proprietors or partners who constitute the policyholder, but limited to such individual proprietors and partners who are actively engaged in the business the employees of which are covered by the group insurance.
This section does not permit any person other than an officer, manager, or employee for compensation, or classes of former employees, including retired employees, of the policyholder or of one or more of the individuals, firms, or corporations or of the individual proprietors or partners specified in subdivision (a) to become insured under a group policy.
A group life policy conforming to all the following conditions may be issued to the trustees of a fund established by employer members of a trade association, or by a trade association maintained by contributions of such members for the sole benefit of their employees or, by one employer, or by two or more employers in the same industry, or by an association of employers in the same industry, or by one or more labor unions, or by one or more employers and one or more labor unions, or by an association of employers and one or more labor unions, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions:
The persons eligible for insurance shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both. The policy may provide that the term “employees” may include classes of former employees, including retired employees, and the individual proprietor or partners if any employer is an individual proprietor or a partnership. A director of a corporate employer is not eligible for insurance under the policy unless that person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. An individual proprietor or partner is not eligible for insurance under the policy unless the proprietor or partner is actively engaged in and devotes a substantial part of their time to the conduct of the business of the proprietor or partnership. The policy may provide that the term “employees” shall include the trustees or their employees, or both, if their duties are principally connected with such trusteeship.
The premium for the policy shall be paid by the trustees either: (a) wholly from funds contributed by the employer or employers of the insured persons, or by the union or unions, or by both; or (b) partly from such funds and partly from funds contributed by either all of the insured persons or by one or more classes thereof, or (c) wholly derived funds contributed by the insured persons.
The policy must cover at the date of issue at least 50 persons.
The amounts of insurance under the policy must be based upon some plan precluding individual selection by the insured persons or by the trustees, employers, or unions.
That insurance shall be issued with or without medical examination. For the purpose of this section the word “industry” shall include licensed professions, such as medicine, dentistry, pharmacy, law, and accountancy.
The State and any political subdivisions thereof and any municipality, may provide for the type of insurance set forth in Section 10202.8 of this code the same as any private employer and may contribute to a fund established under such section the same as any private employer.
The term “employees” as used in subdivision (a) of Section 10202.8 includes individual proprietors and partners of an employer which is an individual proprietor or partnership. The term “employer” as used in Section 10202.8 includes any self-employed member of a labor union whether or not there are persons employed by him.
Life insurance conforming to all of the following conditions is another form of group life insurance:
Written under a policy covering, when issued, not less than 25 members of any of the following:
Any labor union or unions.
The National Guard.
Any association or governmental or public employees.
Any credit union organized and operating under the Federal Credit Union Act of 1934 or Chapter 36 of the California Statutes of 1927 as amended.
Any association of private employees of a common employer, formed for purposes other than obtaining insurance and having been in existence for two years or longer prior to issuance of the policy, and having a membership not less than 75 percent of the number of employees eligible for membership in such association.
Written under a policy issued to one or more such unions, credit union or association.
The premium on the policy to be paid by the union, credit union, or association or by the union or association and the members thereof jointly or by the insured members alone. Payment of such premium by a third party on behalf of the union member shall be considered payment by the union member.
Insuring only members of such union or unions or members of such credit union or association.
Insuring for amounts of insurance based upon some plan which will preclude individual selection.
Insuring for the benefit of persons other than the union, credit union or association or its officials.
Written under a policy insuring, when issued, not less than 75 percent of all members eligible for insurance under the policy, or 75 percent of such members of any class thereof reasonably determined by conditions pertaining to employment or of any established unit thereof not formed for the purpose of procuring insurance; provided, that if a group policy is intended to insure several such classes or units it may be issued as respects any such class or unit of which 75 percent are covered and extended to other such units or classes as 75 percent thereof express the desire to be covered. In such case, when members apply and pay for additional amounts of insurance, a smaller percentage of members may be insured for such additional amounts of insurance. If any member fails to become insured under an existing policy when he becomes eligible and later wishes to become insured thereunder, the insurer may require satisfactory evidence of insurability before insurance is granted on such member.
No policy of group life insurance shall be issued to an association of private employees of a common employer unless the employer consents in writing to deduct premiums from wages or salary of insured members.
Written under a policy covering any association having a constitution and bylaws and formed and continuously maintained in good faith for purposes other than that of obtaining insurance, offering insurance to all the eligible members of such association and covering not less than 25 such members or such members together with their dependents or spouses and not less than 75 percent of all eligible members for amounts of insurance based upon some plan which will preclude individual selection by the member as to the amount of his or her insurance coverage thereunder. If the master policy is to be issued to cover members of labor unions, it may be issued to more than one such union.
Life insurance conforming to all the following conditions is another form of group life insurance:
Written under a policy covering, when issued, not less than 25 employees of the Trustees of the California State University in eligible classes as designated by the trustees pursuant to Section 89506 of the Education Code.
Written under a policy issued to the Trustees of the California State University pursuant to Section 89506 of the Education Code.
The premium on the policy is to be paid by the employees alone, or in part by the State of California, with the remainder to be paid by the employees. Payment of the premium by a third party on behalf of the employees shall be considered payment by the employees.
Insuring only the employees of the Trustees of the California State University.
Insuring for amounts of insurance based upon some plan which will preclude individual selection.
Insuring for the benefit of persons other than the Trustees of the California State University.
Written under a policy insuring, when issued, not less than 75 percent of all such employees eligible for insurance under the policy, or 75 percent of the employees of any class thereof reasonably determined by conditions pertaining to employment or of any established unit thereof not formed for the purpose of procuring insurance. However, if a group policy is intended to insure several classes or units, it may be issued as respects any class or unit, of which 75 percent are covered and extended to other units or classes as 75 percent thereof express the desire to be covered. In such case, when the employees apply and pay for additional amounts of insurance, a smaller percentage of employees may be insured for additional amounts of insurance. If any employee fails to become insured under an existing policy when he or she becomes eligible and later wishes to become insured thereunder, the insurer may require satisfactory evidence of insurability before insurance is granted on the employee.
Life insurance conforming to all the following conditions is another form of group life insurance:
Written under a policy covering, when issued, not less than 25 employees in eligible classes or positions as designated by the Department of Human Resources pursuant to Section 19849.11 of the Government Code.
Written under a policy issued to the State of California through the Department of Human Resources or its designee pursuant to Sections 19849.10 to 19849.12, inclusive, of the Government Code.
The premium on the policy is to be paid by the employees alone, by the state alone, or in part by the state with the remainder to be paid by the employees.
Insuring for amounts of insurance based upon some plan which will preclude individual selection.
Insuring for the benefit of persons other than the Department of Human Resources or its designee.
Written under a policy insuring, when issued, not less than 75 percent of all employees eligible for insurance under the policy, or 75 percent of the employees of any class or position thereof reasonably determined by conditions pertaining to employment or of any established unit thereof not formed for the purpose of procuring insurance. If a group policy is intended to insure several classes, positions, or units, it may be issued as respects the classes, positions, or units of which 75 percent are covered and extended to those other units, classes, or positions of which 75 percent express the desire to be covered. In this case, when the employees apply and pay for additional amounts of insurance, a smaller percentage of employees may be insured for the additional amounts of insurance. If any employee fails to become insured under an existing policy when he or she becomes eligible and later wishes to become insured thereunder, the insurer may require satisfactory evidence of insurability before insurance is granted on the employee.
Insurance under a group life insurance policy issued pursuant to Sections 10202, 10202.8, 10203, 10203.1, and 10203.7 may be extended to insure the dependents, or any class or classes thereof, of each insured employee who so elects, in amounts in accordance with some plan that precludes individual selection and that shall not be in excess of 100 percent of the insurance on the life of the insured employee. For dependent children over the age of majority, the group policyholder may elect coverage at age variations up to the limiting age.
“Dependent” includes the member’s spouse or a minor child, as well as a child older than the age of majority up to a maximum of 26 years of age, or any child over the age of majority who is both incapable of self-sustaining employment by reason of an intellectual disability or physical handicap and chiefly dependent upon the employee for support and maintenance if proof of the incapacity and dependency is furnished to the insurer by the employee within 31 days of the child’s attainment of the limiting age and subsequently as may be required by the insurer, but not more frequently than annually after the two-year period following the child’s attainment of the limiting age.
The premiums for the insurance on the dependents may be paid by the employer, the employee, or the employer and the employee jointly.
Life insurance conforming to all the following conditions is another form of group life insurance:
Covering one of the following groups:
All members are or become borrowers from one financial institution, including subsidiary or affiliated persons, under an agreement to repay the sum borrowed.
All members are or become purchasers of merchandise or other property, exclusive of securities, investment certificates, and bank deposits, under an agreement to pay the balance of the purchase price.
The group numbers not less than 100 new entrants yearly or, in the case of a credit union, not less than 50 borrowers yearly.
The amount insured on any one borrower or purchaser does not exceed:
The amount of the loan commitment in the case of an agricultural or horticultural loan commitment, as defined in Section 10203.55, repayable in one sum or in irregular installments within a period not in excess of 18 months from the initial date of the loan commitment.
In all other cases, the balance of the indebtedness to the financial institution or vendor.
The repayment or payment of purchase price is to be made under the agreement of loan or purchase in substantially equal installments over a period not exceeding 40 years, in installments that may vary according to the terms of a signed agreement, in payments or installments in accordance with the usual terms of the creditor in the case of an open-ended agreement to extend credit, a revolving loan, or revolving charge account, or in one sum or irregular installments within a period not in excess of 18 months from the initial date of the commitment on an agricultural or horticultural loan.
The policy is issued upon application of and made payable to the financial institution, vendor, or a creditor to whom the vendor may transfer title to the indebtedness, as beneficiary, and the premiums are paid by or through the financial institution, vendor, or creditor.
An agricultural or horticultural loan commitment as used in Section 10203.5 and in Article 5.9 (commencing with Section 779.1), Chapter 1, Part 2, Division 1 means a binding agreement to loan money up to a fixed amount as needed for agricultural or horticultural purposes, which commitment is issued by:
A national or state commercial bank; or
A federal intermediate credit bank or a production credit association organized under the Farm Credit Act of 1933, as amended;
lawfully operating in this State.
Life insurance conforming to all the following conditions is another form of group life insurance:
Written under a policy covering when issued, not less than 10 agents.
Written under a policy issued to a principal, or if such principal be a life or life and disability insurer, by or to such principal, and with whom, or with an agent of whom, each of such agents is under contract to render personal services for a commission or other fixed or ascertainable compensation, the premium on which is to be paid by the principal or by the principal and the agents jointly, and insuring either all of the agents or all of any class or classes thereof, determined by conditions pertaining to the services to be rendered by such agents, provided that if a policy is intended to insure several such classes it may be issued to insure any such class of which 75 percent are covered and extended to other classes as 75 percent thereof express the desire to be covered.
For amounts of insurance based upon some plan which will preclude individual selection.
For the benefit of persons other than the principal.
When the premium is to be paid by the principal and agents jointly, and the benefits of the policy are offered to all eligible agents, written under a policy insuring, when issued, not less than 75 percent of such agents.
Terminating, if, subsequent to issue (1) the number of agents insured falls below 10 lives or 75 percent of the number eligible, and (2) the contribution of the agents, if the premiums for the insurance are on a renewable term insurance basis, exceed one dollar ($1) per month per one thousand dollars ($1,000) of insurance coverage plus an amount equal to any additional premium per one thousand dollars ($1,000) of insurance coverage charged to cover one or more hazardous occupations.
Such insurance may be issued with or without medical examination. For the purpose of this section the term agents shall be deemed to include agents, solicitors and salesmen.
Life insurance conforming to all of the following conditions is another form of group life insurance:
Covering the lives of every eligible member of a group of persons who become or are named depositors under a savings account plan, established by a financial institution including subsidiary or affiliated persons, which plan provides for periodic deposits of like amounts.
The period during which the deposits may be made under the plan does not exceed 60 consecutive months, and the total amount of insurance under the policy on any one depositor does not exceed the difference between the amounts deposited and the maximum amount that may be deposited under the plan and does not exceed one thousand five hundred dollars ($1,500) on any one life.
The group numbers 100 new entrants yearly.
The policy is issued upon application of and made payable to the financial institution as beneficiary, and the premiums are paid by or through the financial institution.
In addition to the other specific circumstances under which a group life policy may be issued under this chapter a group life policy may be issued to an existing insured to replace an existing valid group life policy if: (1) it provides the same benefits at the same or a lesser rate as the policy to be replaced: (2) it offers such benefits to all persons covered by the policy to be replaced; and (3) 90 percent of all persons covered by the policy to be replaced become insured under the new policy.
Life insurance conforming to all of the following conditions is another form of group life insurance:
Written under a policy issued and delivered in connection with the payment of benefits against the risk of loss in the value of redeemable securities of the insured investor issued by an investment company or companies operating under the Investment Company Act of 1940, as amended, and whose redeemable securities are registered under the Securities Act of 1933, as amended. For the purposes of this section, such benefits shall be referred to as group investment return assurance.
Covering the lives of every eligible member of a group of persons who are or become investors in an investment company or companies.
The group numbers not less than 100 investors yearly.
The amount of insurance on any one investor does not exceed the amount of his investment, and does not exceed twenty thousand dollars ($20,000) on any one life.
The period of assurance for each investor shall not extend over a period exceeding the life of such investor.
The policy is issued upon the application of the investment company or companies, and the premiums are paid by the investment company, the investor, or jointly by the investment company and the investor.
Such insurance may be issued with or without medical examination.
The policy provides a benefit equal to the difference between the amount paid for such redeemable securities and the value of such redeemable securities at the earlier of either (A) the end of the certificate period, or (B) the date of death of the insured.
To protect the public and policyholders located in this state from hazardous operation by domestic, foreign, or alien companies, and to further the purpose and provision of this part, no domestic, foreign, or alien insurance company shall undertake the issuance of any policy providing for group investment return assurance until such company has satisfied the commissioner that its condition or method of operation in connection with the issuance of such policies shall not be such as to render its operation hazardous to the public, or its policyholders in this state, and, whether domestic, foreign, or alien, that it meets the conditions prescribed in Section 717 for the issuance of a certificate of authority. In the determination of the qualification of a company requesting authority to issue policies providing for group investment return assurance within this state, the commissioner shall consider, in addition to the requirements of Section 717, all of the following: (A) the history of the company, (B) the character, responsibility, and general fitness of the officers and directors of the company, (C) the regulation of a foreign company by its state of domicile, (D) the adequacy of the investment management which the company is providing, and (E) the company’s arrangements for the supervision of the marketing of such policies. No company may provide group investment return assurance in its policies unless it is an admitted insurer having and maintaining a combined capital and surplus of at least two million dollars ($2,000,000).
In addition to the requirements of paragraph (8), no admitted insurer may provide group investment return assurance in its policies unless it establishes a special contingency fund of not less than one million dollars ($1,000,000). This fund shall be deemed to constitute a reserve liability in addition to other reserves of such insurer. In the event an insurer issues both group and individual investment return assurance, such special contingency fund shall not be less than one million dollars ($1,000,000) for both group and individual assurance.
The commissioner shall require the payment of two hundred fifty dollars ($250) as a fee for the determination of qualification required by this section. Upon completion of the determination of qualification, and whether authorization to issue policies providing group investment return benefits is granted or denied, the commissioner shall require the payment of such additional amounts from the requesting insurer as may be necessary to defray all administrative costs in excess of two hundred fifty dollars ($250) incurred by the commissioner in making such determination.
On and after the effective date of this section, a group investment return assurance policy, or certificate evidencing such insurance, shall not be issued or delivered in this state until a copy of the form thereof is filed with the commissioner, the fees required by Section 12973.9 are paid, and the commissioner has given written approval of such form.
No certificate of group investment return assurance shall be delivered or issued for delivery to any person in this state unless each such certificate does all of the following:
Includes a statement on the first page thereof, in boldface type, that in the event that the value of the redeemable securities covered by the contract exceeds the amount paid for such securities, there shall be no benefit.
Provides that the reserves for all group investment return assurance policies shall be computed and maintained on a basis which shall place an actuarially sound value on the liabilities under such policies. To provide a basis for the determination of such actuarially sound values, the commissioner, from time to time, shall adopt rules requiring the use of appropriate tables of morbidity, mortality, interest rates, and valuation methods for such reserves.
In furtherance of the purpose of this section, the commissioner may make reasonable rules and regulations therefor. Such rules and regulations shall be adopted, amended or repealed in accordance with the procedure provided in Chapter 4.5 (commencing with Section 11371) of Part 1 of Division 3 of Title 2 of the Government Code.
For the purpose of this chapter, the term “employer” includes the association or union designated by Section 10203, and the institution, vendor, credit union, or creditor designated by Sections 10203.5 and 10203.6, and the principal designated by Section 10203.7, and the trustees designated by Section 10202. 8, and the term “employee” includes the members of such union, credit union or association and the debtors of or purchasers from such institution, credit union, vendor or creditor, the agents referred to in Section 10203.7, and the employees and members referred to in Section 10202.8.
In addition to the issuance of group life insurance to groups in this state as permitted elsewhere in this chapter, the commissioner may approve the issuance of group life insurance if the insurer or applicant proves to the satisfaction of the commissioner each of the following:
The policy, when issued, covers no fewer than 10 eligible group members.
There is a common enterprise or economic or social affinity or relationship among members of the group.
The premiums charged are reasonable in relation to the benefits provided under the group insurance policy.
The issuance of the policy would result in economies of acquisition or administration, would be actuarially sound, and would not be contrary to the best interests of the public.
The group was formed in good faith for purposes other than obtaining insurance.
If the group policyholder is an association, the association has a constitution and bylaws and has been in existence for more than two years.
The insurer has been actively engaged in the business of writing the types of coverage offered in the group insurance policy for insureds other than the type of group covered by the policy, and is not organized solely or principally for the purpose of furnishing coverage to groups of this type.
An insurer under a policy covered by this section may exclude or limit the coverage on any person as to whom evidence of individual insurability is not satisfactory to the insurer.
A fee of five hundred dollars ($500) shall be charged to each insurer or applicant for each filing made pursuant to this section.
A policy of group life insurance shall not be issued or delivered in this State nor, except as otherwise provided in Section 10205.5, shall an insurer provide or agree to provide group life coverage until a copy of the form of the policy is filed with the commissioner and approved by him. Except as provided in Section 10211, such policy shall not be so issued or delivered unless it contains in substance the provisions set forth in Sections 10206 to 10210 hereof.
An insurer is permitted to provide group life coverage prior to the approval of the form of the policy if all of the conditions of (a) are met prior thereto and if thereafter it acts as required by (b).
The conditions precedent are:
The group is one eligible for coverage pursuant to the provisions of this article; and
An executed memorandum of insurance has been or is concurrently delivered to the entity which is to become the policyholder containing a provision that unless a policy the form of which has been approved by the commissioner and embodying the coverage has been issued and delivered to the policyholder within 90 days after the date on which the coverage is provided or agreed to be provided, the coverage provided pursuant to such memorandum terminates 120 days after such date, and containing a specification in either complete or summary form of:
The class or classes of employees eligible for coverage;
The benefits to be provided; and
The exceptions and reductions to such benefits, if any.
An insurer providing coverage pursuant to this section shall:
Within 60 days after the date on which the coverage is provided or agreed to be provided submit to the commissioner for approval a policy form drafted to provide the coverage provided by such memorandum and in a good faith attempt to meet all requirements of law;
Make such revisions in the policy submitted as the commissioner may lawfully require; and
Terminate such coverage in accordance with the provisions of (a) (2) above if approval of such policy is not secured within the time specified therein.
Upon written request from the insurer filed within 50 days after the date on which the coverage is provided or agreed to be provided and upon proof satisfactory to him that the insurer is acting with due diligence and that hardship will result unless an extension is granted, the commissioner may extend the time set forth in (b) (1) hereof for a period of not to exceed 30 days. Upon such extension, the insurer with the consent of the policyholder may amend the memorandum of insurance referred to in (a) (2) hereof to extend the time within which the policy must be issued and delivered to the policyholder to 30 days after the date to which the commissioner has extended the time within which a policy form must be submitted to him for approval and to extend the date for termination of coverage to 30 days thereafter.
Any policy submitted to the commissioner with a letter from the insurer stating that coverage has been provided in accordance with this section shall be automatically approved unless the commissioner disapproves the same within 30 days of the date of its submission to him.
The commissioner may suspend or revoke the permission granted any insurer in Section 10205.5 if, after notice and hearing in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, he finds that the insurer has:
Misrepresented the conditional nature of the coverage;
Neglected or refused either to cancel or otherwise terminate such coverage within the time required by such section;
Delivered any such memorandum which did not comply with subsection (a) (2) of Section 10205.5;
Shown a lack of diligence in making revisions in the policy necessary to obtain its approval by the commissioner;
Failed so often in so many important respects in drafting any such policy to conform to the applicable requirements of the Insurance Code that a conclusion of lack of good faith or competency in drafting is reasonably justified;
Circulated announcements of coverage to individuals insured which failed to advise them of the conditional nature of the coverage; or
In any other manner so negligently or carelessly handled the effecting of insurance under Section 10205.5 or the administration thereof that the policyholder or the persons insured have been misled or exposed to the danger of loss.
The policy shall provide that the validity of the policy shall not be contested, except for nonpayment of premiums, after it has been in force for two years from its date of issue; and that no statement made by any employee insured under the policy relating to his or her insurability shall be used in contesting the validity of the insurance with respect to which the statement was made after the insurance has been in force prior to the contest for a period of two years during the employee’s lifetime nor unless it is contained in a written application signed by the employee.
Notwithstanding subdivision (a), if photographic identification is presented during the application or enrollment process, and if an impostor is substituted for a named insured in any part of the application or enrollment process, with or without the knowledge of the named insured, then no contract between the insurer and the named insured is formed, and any purported insurance contract is void from its inception.
As used in this subdivision:
“Application or enrollment process” means any or all of the steps required of a named insured in applying for a certificate under a group policy of life insurance, including, but not limited to, executing any part of the application or enrollment form, submitting to medical or physical examination or testing, or providing a sample or specimen of blood, urine, or other bodily substance.
“Impostor” means a person other than the named insured who participates in any manner in the application or enrollment process for a certificate under a group life insurance policy and represents himself or herself to be the named insured or represents that a sample or specimen of blood, urine, or other bodily substance is that of the named insured.
“Named insured” means the individual named in an application or enrollment form for a certificate under a group life insurance policy as the person whose life is to be insured.
The policy may provide that the insurer is not liable, or is liable only in a reduced amount, for losses arising from conditions:
Relating to war or act of war;
Relating to military or naval service;
Relating to aviation.
The commissioner may after notice and hearing prescribe reasonable rules and regulations relative to the use of provisions permitted by this section in respect to policies outstanding or hereafter issued.
The policy shall contain a provision that:
The policy, the application of the employer and the individual applications, if any, of the employees constitute the entire contract of insurance.
All statements made by the employer or by the individual employees are, in the absence of fraud, representations and not warranties.
Such statements will not be used in defense to a claim under the policy, unless contained in a written application.
The policy shall contain a provision for the equitable adjustment of the premium or the amount of insurance payable in the event of a misstatement of the age of an employee.
A statement as to the insurance protection to which the employee is entitled and to whom payable.
A provision that if the employment terminates for any reason whatsoever and the employee applies to the insurer within 31 days after the termination, paying the premium applicable to the class of risk to which he or she belongs and to the form and amount of the policy at his or her then attained age, he or she is entitled, without producing evidence of insurability, to the issue by the insurer of any individual life policy in any one of the forms, other than term insurance, customarily issued by the insurer.
A statement that the policy in lieu of group insurance will be in an amount equal to the amount of his or her protection under the group insurance at the time of the termination.
A provision that if the employee dies during the 31-day period within which he or she is entitled to have an individual policy issued to him or her in accordance with this section and before the policy shall have become effective, the amount of life insurance that the employee is entitled to have issued to him or her under the individual policy shall be payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium therefor has been made.
If any employee insured under a group life insurance policy delivered in this state becomes entitled under the terms of the policy to have an individual policy of life insurance issued to him or her without evidence of insurability, subject to making of application and payment of the first premium within the period specified in the policy, and if the employee is not given notice of the existence of the right at least 15 days prior to the expiration date of the period, the employee shall have an additional period within which to exercise the right, but nothing in this section shall be construed to continue any insurance beyond the period provided in the policy. This additional period shall expire 25 days next after the employee is given the notice but in no event shall the additional period extend beyond 60 days next after the expiration date of the period provided in the policy. Written notice presented to the employee or mailed by the policyholder to the last-known address of the employee or mailed by the insurer to the last-known address of the employee as furnished by the policyholder shall constitute notice for the purpose of this section.
Paragraphs (2) and (4) of subdivision (a), and subdivision (b), shall apply to any insurance issued pursuant to Section 10203.4 on the life of a spouse of an employee.
The contract of insurance and individual certificate may contain provisions defining the extent to which the employer acts as the agent of the employee or may act as the agent of the insurer.
An individual certificate shall be individualized, except that in the case of an individual certificate issued under a group policy which requires no regular contribution toward the payment of the premium to be made by the employees covered thereunder, such individual certificate need not be individualized if it is in a form setting forth a clear statement of the conditions of eligibility from which the employee can determine the circumstances under which he is insured under the master policy.
An individual certificate shall be deemed to be “individualized,” within the meaning of this section, if it contains either the name of the employee covered or some other means of identifying to the employee covered that it is his individual certificate.
Subject to the terms of the policy, or pursuant to an agreement between the insured, the group policyholder, and the insurer, any person insured under a group life insurance policy may make to any person, other than the policyholder, an assignment of all or any part of the incidents of ownership conferred on him or her by the policy or by law, including specifically, but not by way of limitation, the right to exercise the conversion privilege and the right to name a beneficiary.
The enactment of this section made at the 1969 Regular Session of the Legislature does not constitute a change in, but is declaratory of, the existing law.
Notwithstanding subdivision (a), any person who has been diagnosed with a terminal illness shall have the right to make an absolute assignment for value of his or her interest in a policy or certificate of life insurance.
The right of assignment in subdivision (b) shall not extend to situations in which the benefits of the policy or certificate of life insurance are used as collateral for a loan.
The viatical broker shall notify the spouse of a terminally ill viator of the viatication.
The policy shall contain a provision that to the groups or classes originally insured there will be added from time to time all new employees of the employer eligible for insurance in such groups or classes, except that the policy may provide that if the premium is paid by the employer and employees jointly any employee who fails to request insurance during the period of eligibility following his employment as prescribed by the policy shall not be insured until he has furnished evidence of insurability satisfactory to the insurer.
Whenever any provision of this chapter requires the payment of a premium by any person, such requirement relates to the responsibility for the payment of the premium and not to the transmission or collection of the premium or premium contributions. Such transmission or collection shall be performed by the policyholder, except where the policy specifies the persons other than the policyholder by whom such transmission or collection shall be made, and in one of the following situations:
If such policy covers the employees of more than one employer, the insurer may collect premium contributions from individual employers whose employees are insured or may assist the policyholder in making such collections. If the employees of more than 100 such employers are covered under such policy, it shall state as a separate part of the premium to be charged for the policy the amount to be charged by the insurer for such collection.
If the policy covers a group of governmental employees and the governmental unit paying such employees will not transmit their premium contribution after pay roll deduction, the insurer may collect from the individual employees. If more than 100 such employees are covered under such policy, it shall state as a separate part of the premium to be charged for the policy the amount to be charged by the insurer for such collection.
If individual members of the group make payment of their share of the premium contribution to the insurer without billing or solicitation by the insurer during a period of temporary absence from active work of not exceeding 90 days, such payment may be received without the necessity of any separately stated charge by the insurer.
Policies of group life insurance may conform to the following conditions, any other provisions of this chapter notwithstanding:
When issued in this State by any foreign insurer, they may contain any provision required by the law of the State under which the insurer is organized.
When issued in other States or countries by domestic insurers, they may contain any provision required by the laws of the State, or country, in which they are issued.
Except as provided in this chapter, in every group policy issued by a domestic life insurer, the employer is the policyholder for all purposes within the meaning of this code. If entitled to vote at meetings of the insurer, he shall be entitled to one vote.
If hereafter any dividend is paid or any premium refunded under any policy of group life insurance heretofore or hereafter issued, the excess, if any, of the aggregate dividends or premium refunds under such policy over the aggregate expenditures for insurance under such policy made from funds contributed by the policyholder, or by an employer of insured persons or by union or association to which such insured persons belong, including expenditures made in connection with the administration of such policy, shall be applied by the policyholder for the benefit of such insured employees generally or their dependents or insured members generally or their dependents. For the purpose of this section and at the option of the policyholder, “policy” may include all group life and disability insurance policies of the policyholder.
CHAPTER 2.5. Blanket Life Insurance [10220. - 10225.]
Any life insurer may issue policies of blanket life insurance for a term not exceeding one year with premium rates less than the usual rates for such insurance. Such policies may thereafter be renewed.
The only forms of blanket life insurance are those set forth in this chapter.
Life insurance conforming to all the following conditions is one form of blanket life insurance:
Written under a policy issued to a newspaper, farm paper, magazine, or other periodical publication;
Insuring independent contractors, such as newspaperboys, dealers, distributors, wholesalers, or other personnel, engaged in the sale, distribution, collecting for, or other activities pertaining to the marketing and delivery of publications referred to in subdivision (a), including attending coaching school or while participating in a trip organized, supervised, and sponsored as a reward for meritorious service, for amounts of insurance based upon a plan precluding individual selection;
For the benefit of persons other than the policyholder;
Where the premium is remitted by the policyholder;
Insuring persons without any requirement for individual enrollment and without individual commitment or undertaking to pay, and with either the policyholder or the insured to pay all the premium or part of the premium as a condition precedent to coverage.
Nothing in this section shall be construed to prohibit the cost of the insurance coverage being borne by the individuals insured or by their parents or guardians. When the premium for the insurance is paid by the person insured, he may, upon request, obtain from the insurer in certificate form a copy of the policy.
Coverage shall not be provided to any person who files with the entity to whom the blanket policy is to be issued, for delivery to the insurer, a written statement requesting that he not be covered. In the case of a minor, such statement may be filed by his parent or guardian. If the number of persons filing such statements exceeds ten percent (10%) of the number of persons within categories defined as covered under the policy, it shall not be put into effect, and if in effect shall not be renewed.
A blanket life insurance policy may provide that the insurer is not liable, or is liable only in a reduced amount, for losses arising from conditions:
Relating to war or acts of war;
Relating to military or naval service;
Relating to aviation.
After notice and hearing the commissioner may prescribe reasonable rules and regulations relative to the use of provisions permitted by this section in respect to policies outstanding or hereafter issued.
Policies of blanket life insurance may conform to the following conditions, any other provisions of this chapter notwithstanding:
When issued in this State by any foreign insurer, such policies may contain any provision required by the law of the state under which the insurer is organized.
When issued in other states or countries by domestic insurers, such policies may contain any provision required by the laws of the state, or country, in which they are issued.
A policy of blanket insurance shall not be delivered or issued for delivery in this State until a copy of the form of the policy is filed with and approved by the commissioner.
CHAPTER 2.6. Long-Term Care Insurance [10231. - 10237.6.]
ARTICLE 1. Definitions [10231. - 10231.8.]
Unless the context requires otherwise, the definitions in this article shall govern the construction of this chapter.
“Long-term care insurance” includes any insurance policy, certificate, or rider advertised, marketed, offered, solicited, or designed to provide coverage for diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services that are provided in a setting other than an acute care unit of a hospital. Long-term care insurance includes all products containing any of the following benefit types: coverage for institutional care including care in a nursing home, convalescent facility, extended care facility, custodial care facility, skilled nursing facility, or personal care home; home care coverage including home health care, personal care, homemaker services, hospice, or respite care; or community-based coverage including adult day care, hospice, or respite care. Long-term care insurance includes disability based long-term care policies but does not include insurance designed primarily to provide Medicare supplement or major medical expense coverage.
Long-term care policies, certificates, and riders shall be regulated under this chapter. The commissioner shall review and approve individual and group policies, certificates, riders, and outlines of coverage. Other applicable laws and regulations shall also apply to long-term care insurance insofar as they do not conflict with the provisions in this chapter. Long-term care benefits designed to provide coverage of 12 months or more that are contained in or amended to Medicare supplement or other disability policies and certificates shall be regulated under this chapter.
For the purposes of this section, the following definitions apply:
An “alternate plan of care” means a plan of care that includes a specification of long-term care services, providers, or places of care that are not specifically defined as covered services, providers, or places of care under the policy. The alternate plan of care shall be developed by a licensed health care practitioner, describe the insured’s needs, and specify the type, frequency, and providers of all formal and informal long-term care services that are required by the insured and the cost, if any. The services, providers, and places of care specified in an alternate plan of care shall include those that are specifically defined as covered services, providers, and places under the policy, as well as those that are not specifically defined as covered services, providers, and places under the policy.
An “alternate-plan-of-care provision” means a provision in a policy, rider, endorsement, or amendment that allows benefits for services, providers, and places of care that are specified in an alternate plan of care.
“Licensed health care practitioner” means a physician, registered nurse, licensed social worker, or other individual whom the United States Secretary of the Treasury may prescribe by regulation.
“Plan of care” means a written description of the insured’s needs and a specification of the type, frequency, and providers of all formal and informal long-term care services required by the insured and the cost, if any.
An alternate-plan-of-care provision shall provide for all of the following:
An alternate plan of care may be proposed by the insured or the insurer. Adoption, amendment, or replacement of an alternate plan of care shall be agreed to by the insured, the insurer, and a licensed health care practitioner that is independent of the insurer. Consent or agreement to an alternate plan of care shall be free and mutual.
The maximum benefit available under the contract shall not change based on an insured utilizing an alternate plan of care, but that benefit will be reduced by the amount of any benefits paid under an alternate plan of care.
Policy benefits are payable for all services, providers, and places of care that are specified in an alternate plan of care. Coverage for services, providers, and places of care under an alternate plan of care shall be in addition to, not in lieu of, coverage for services, providers, and places of care that are specifically defined as covered services under the policy.
If adopted, an alternate plan of care replaces any existing plan of care, including any previously adopted alternate plan of care. No benefits are payable for services provided pursuant to a plan of care after it is replaced by an alternate plan of care.
An alternate plan of care can be replaced by a new plan of care at any time.
If the new plan of care is not an alternate plan of care, the new plan of care does not need to be adopted in the manner described in paragraph (1) of this subdivision.
If the new plan of care is a new or amended alternate plan of care, the new or amended alternate plan of care shall be adopted in the manner described in paragraph (1) of this subdivision.
No benefits are payable for services provided pursuant to an alternate plan of care after it is replaced by a new plan of care.
Nothing in this section shall be construed to require an insurer to include a provision authorizing an alternate plan of care. However, an insurer and an insured may agree to use an alternate plan of care even if there is no provision in the policy that specifically authorizes one. Nothing in this section is intended to obligate either party to negotiate an alternate plan of care. If an insurer does not accept an extra-contractual request for an alternate plan of care, the rejection is not a denial of a claim.
This section shall apply to policies issued on or after January 1, 2017.
“Applicant” means either of the following:
In the case of an individual long-term care insurance policy, the person who seeks to contract for benefits.
In the case of a group long-term care insurance policy, the proposed certificate holder.
“Certificate” means any certificate issued under a group long-term care insurance policy, which policy has been delivered or issued for delivery in this state.
“Group long-term care insurance” means a long-term care insurance policy which is delivered or issued for delivery in this state and issued to any of the following:
One or more employers or labor organizations, or a trust or to the trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees or a combination thereof or for members or former members or a combination thereof, of the labor organization.
Any professional, trade, or occupational association for its members or former or retired members, or combination thereof, if that association meets both of the following:
Is composed of individuals all of whom are or were actively engaged in the same profession, trade, or occupation.
Has been maintained in good faith for purposes other than obtaining insurance.
An association or a trust or the trustees of a fund established, created, or maintained for the benefit of members of one or more associations. Prior to advertising, marketing, or offering that policy or a certificate within this state, the association or associations, or the insurer of the association or associations, shall file evidence with the commissioner that the association or associations have at the outset a minimum of 100 persons and have been organized and maintained in good faith for a primary purpose other than that of obtaining insurance, have been in active existence for at least one year, have a constitution and bylaws which provide all of the following, and provide evidence that the following have been consistently implemented:
The members have voting privileges and representation on the governing board and committees.
Thirty days after that filing the association or associations shall be deemed to satisfy these organizational requirements, unless the commissioner makes a finding that the association or associations do not satisfy those organizational requirements.
A group other than as described in subdivisions (a), (b), and (c), subject to all of the following findings by the commissioner:
The use of the true or fictitious name of the group, group master policyholder, group policy, certificate, or any trust or other entity created or used for the marketing of the group policy or certificates is not deceptive or misleading with regard to the status, character, or proprietary or representative capacity of the insurer, group, trust, or other entity.
The group’s main revenue source is not related to the marketing of insurance.
The group’s outreach method to obtain new members is not related to the solicitation of insurance.
The group provides benefits or services, other than insurance, of significant value to its members. The commissioner shall investigate the percentage of members using the other services and the monetary value of those services.
A life care contract provider which has received a certificate of authority in accordance with Chapter 10 (commencing with Section 1770) of Division 2 of the Health and Safety Code. Any life care contract provider which has not received the certificate of authority from the State Department of Social Services shall be subject to this chapter.
“Policy” means any policy, contract, subscriber agreement, rider or endorsement delivered or issued for delivery in this state by an insurer, fraternal benefit society, nonprofit hospital service plan, or any similar organization, regulated by the commissioner.
ARTICLE 3. General Provisions [10232. - 10233.8.]
No group long-term care insurance coverage may be offered or sold to a resident of this state under a group policy issued in another state to a group described in subdivision (d) of Section 10231.6, unless the commissioner has determined that the requirements imposed by subdivision (d) of Section 10231.6 have been met. At least 30 days in advance of advertising, marketing, or offering coverage within this state, an insurer issuing a policy to a group described in subdivision (d) of Section 10231.6 shall accomplish an informational filing with the commissioner which consists of the following materials:
A specimen master policy and certificate.
The corresponding outline of coverage.
Representative advertising materials to be used in this state.
At the option of the insurer, any other documentation which the insurer believes will provide information sufficient to allow the commissioner to determine that the requirements of subdivision (d) of Section 10231.6 have been met or which establishes that the insurance regulatory authority of another state has made a determination that the requirements have been met, or both.
No group long-term care insurance coverage may be offered or sold to a resident of this state under a group policy issued in another state to a group described in subdivision (c) of Section 10231.6, unless, prior to advertising, marketing, or offering that coverage within this state, the association or associations, or the insurer of the association or associations, files evidence with the commissioner that the association or associations have at the outset a minimum of 100 persons, have been organized and maintained in good faith for a primary purpose other than that of obtaining insurance, have been in active existence for at least one year, have a constitution and bylaws which provide all of the following, and provide evidence that the following have been consistently implemented:
The association or associations hold regular meetings, not less than annually, to further purposes of the members.
Except for credit unions, the association or associations collect dues or solicit contributions from members.
The members have voting privileges and representation on the governing board and committees.
Thirty days after that filing, the association or associations shall be deemed to satisfy those organizational requirements, unless the commissioner makes the finding that the association or associations do not satisfy those organizational requirements.
The association or associations, or the insurer of the association or associations, shall accompany this organizational filing with an informational filing which consists of the following materials:
Compliance with the informational filings required to be made by this section shall also constitute compliance with the filing requirements of Section 10233.9.
The materials required to be filed with the commissioner by this section shall be filed with the commissioner for informational purposes only, and not for approval purposes.
Every policy that is intended to be a qualified long-term care insurance contract as provided by Public Law 104-191 shall be identified as such by prominently displaying and printing on page one of the policy form and the outline of coverage and in the application the following words: “This contract for long-term care insurance is intended to be a federally qualified long-term care insurance contract and may qualify you for federal and state tax benefits.” Every policy that is not intended to be a qualified long-term care insurance contract as provided by Public Law 104-191 shall be identified as such by prominently displaying and printing on page one of the policy form and the outline of coverage and in the application the following words: “This contract for long-term care insurance is not intended to be a federally qualified long-term care insurance contract.”
Any policy or certificate in which benefits are limited to the provision of institutional care shall be called a “nursing facility and residential care facility only” policy or certificate and the words “Nursing Facility and Residential Care Facility Only” shall be prominently displayed on page one of the form and the outline of coverage. The commissioner may approve alternative wording if it is more descriptive of the benefits.
Any policy or certificate in which benefits are limited to the provision of home care services, including community-based services, shall be called a “home care only” policy or certificate and the words “Home Care Only” shall be prominently displayed on page one of the form and the outline of coverage. The commissioner may approve alternative wording if it is more descriptive of the benefits.
Any policy, certificate, or rider in which benefits are limited to the provision of all care settings, except nursing facility care, and that is offered under the California Partnership for Long-Term Care Program established by Section 22000 of the Welfare and Institutions Code shall be called a home care, community-based services, and residential care facility only policy, certificate, or rider and the words “Home Care, Community-Based Services, and Residential Care Facility Only” shall be prominently displayed on the first page of the form and the outline of coverage. The commissioner may approve an alternative version of those words if the alternative version is more descriptive of the benefits provided.
Only those policies or certificates providing benefits for both institutional care and home care may be called “comprehensive long-term care” insurance.
Every insurer that offers policies or certificates that are intended to be federally qualified long-term care insurance contracts, including riders to life insurance policies providing long-term care coverage, shall fairly and affirmatively concurrently file, offer, and market long-term care insurance policies or certificates not intended to be federally qualified, as described in subdivision (a) of Section 10232.1.
All long-term care insurance contracts, including riders to life insurance contracts providing long-term care coverage, approved after the effective date of this section shall meet all of the requirements of this chapter.
Until October 1, 2001, or 90 days after approval of contracts submitted for approval pursuant to subdivision (b), whichever comes first, insurers may continue to offer and market previously approved long-term care insurance contracts.
Group policies issued prior to January 1, 1997, shall be allowed to remain in force and not be required to meet the requirements of this chapter, as amended during the 1997 portion of the 1997–98 Regular Session, unless those policies cease to be treated as federally qualified long-term care insurance contracts. If a policy or certificate issued on a group policy of that type ceases to be a federally qualified long-term care insurance contract under the grandfather rules issued by the United States Department of the Treasury pursuant to Section 7702B(f) of the Internal Revenue Code, the insurer shall offer the policy and certificate holders the option to convert, on a guaranteed-issue basis, to a policy or certificate that is federally tax qualified if the insurer sells tax-qualified policies.
It is the intent of the Legislature that the commissioner approve by July 1, 2001, all accurate and complete contracts submitted for approval pursuant to subdivision (b). It is the further intent of the Legislature that insurers submit contracts for approval and resolve further outstanding issues pursuant to subdivision (b) in a timely manner in order for the commissioner to approve the contracts by July 1, 2001.
All applications for long-term care insurance except that which is guaranteed issue, shall contain clear, unambiguous, short, simple questions designed to ascertain the health condition of the applicant. Each health-related question shall contain only one health status inquiry and shall require only a “yes” or “no” answer, except that the application may include a request for the name of any prescribed medication and the name of a prescribing physician. If the application requests the name of any prescribed medication or prescribing physician, then any mistake or omission shall not be used as a basis for the denial of a claim or the rescission of a policy or certificate.
The following warning shall be printed conspicuously and in close conjunction with the applicant’s signature block:
“Caution: If your answers on this application are misstated or untrue, the insurer may have the right to deny benefits or rescind your coverage.”
Every application for long-term care insurance shall include a checklist that enumerates each of the specific documents that this chapter requires be given to the applicant at the time of solicitation. The documents and notices to be listed in the checklist include, but are not limited to, the following:
The outline of coverage pursuant to Section 10233.5.
The HICAP notice pursuant to paragraph (8) of subdivision (a) of Section 10234.93.
The long-term care insurance shoppers guide pursuant to paragraph (9) of subdivision (a) of Section 10234.93.
The “Long-Term Care Insurance Personal Worksheet” pursuant to subdivision (c) of Section 10234.95.
The “Notice to Applicant Regarding Replacement of Accident and Sickness or Long-Term Care Insurance” pursuant to Section 10235.16 if replacement is not made by direct response solicitation or Section 10235.18 if replacement is made by direct response solicitation. Unless the solicitation was made by a direct response method, the agent and applicant shall both sign at the bottom of the checklist to indicate the required documents were delivered and received.
If an insurer does not complete medical underwriting and resolve all reasonable questions arising from information submitted on or with an application before issuing the policy or certificate, then the insurer may only rescind the policy or certificate or deny an otherwise valid claim, upon clear and convincing evidence of fraud or material misrepresentation of the risk by the applicant. The evidence shall:
No long-term care policy or certificate may be field issued.
The contestability period as defined in Section 10350.2 for long-term care insurance shall be two years.
A copy of the completed application shall be delivered to the insured at the time of delivery of the policy or certificate.
Every insurer shall maintain a record, in accordance with Section 10508, of all policy or certificate rescissions, both state and countrywide, and shall annually furnish this information to the commissioner, which shall include the reason for rescission, the length of time the policy or certificate was in force, and the age and gender of the insured person, in a format prescribed by the commissioner.
The commissioner may, in his or her discretion, make public the aggregate data collected under subdivision (h), upon request.
No long-term care insurance policy or certificate other than a group policy or certificate, as described in subdivision (a) of Section 10231.6, shall use a definition of preexisting condition which is more restrictive than a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within six months preceding the effective date of coverage of an insured person.
Every long-term care insurance policy or certificate shall cover preexisting conditions that are disclosed on the application no later than six months following the effective date of the coverage of an insured, regardless of the date the loss or confinement begins.
The definition of preexisting condition does not prohibit an insurer from using an application form designed to elicit the complete health history of an applicant, and on the basis of the answers on that application, from underwriting in accordance with that insurer’s established underwriting standards. Unless otherwise provided in the policy or certificate a preexisting condition, regardless of whether it is disclosed on the application, need not be covered until the waiting period described in subdivision (b) expires. Unless a waiver or rider has been specifically approved by the commissioner, no long-term care insurance policy or certificate may exclude or use waivers or riders of any kind to exclude, limit, or reduce coverage or benefits for specifically named or described preexisting diseases or physical conditions beyond the waiting period described in subdivision (b).
On or after January 1, 1990, no long-term care insurance policy may be delivered or issued for delivery in this state which does any of the following:
Preconditions the availability of benefits on prior hospitalization.
Conditions eligibility for benefits provided in an institutional care setting on the receipt of a higher level of institutional care.
Preconditions the availability of benefits for community-based care, home health care, or home care on prior institutionalization.
Conditions eligibility for noninstitutional benefits, other than those in subdivision (c), on a prior institutional stay of more than 30 days.
The commissioner may adopt regulations establishing loss ratio standards for long-term care insurance policies provided that a specific reference to long-term care insurance policies is contained in the regulation. Any regulations adopted by the commissioner shall substantially reflect the loss ratio standards contained in Section 10 of the National Association of Insurance Commissioners Long-Term Care Insurance Model Regulations, as most recently revised.
In addition to any other requirements of law, the following shall apply to a long-term care insurance policy:
The insurer shall not require an amount greater than one month’s premium to be submitted with an application for the policy of insurance if interim coverage is not provided. If interim coverage is provided, the insurer shall not require an amount greater than two months’ premium for that purpose. No further premiums may be collected until the policy is delivered to the applicant.
The insurer shall notify the applicant within 60 days from the date the insurer or insurer’s authorized representative or producer receives the application and the amount as to whether or not the applicant will be issued a policy of insurance. If the applicant is not so notified, the insurer or insurer’s authorized representative or producer shall pay interest to the applicant on the funds that the applicant submitted with the application, at the legal rate of interest on judgments as provided in Section 685.010 of the Code of Civil Procedure, from the date the insurer or insurer’s authorized representative or producer received those funds until they are refunded to the applicant or are applied toward the premium.
An applicant for a long-term care insurance policy or a certificate, other than an applicant for a certificate issued under a group long-term care insurance policy issued to a group as described in subdivisions (a) and (b) of Section 10231.6, shall have the right to return the policy or certificate by first-class United States mail within 30 days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the applicant is not satisfied for any reason.
The return of a policy or certificate shall void the policy or certificate from the beginning and the parties shall be in the same position as if no policy, certificate, or contract had been issued. All premiums paid and any policy fee paid for the policy shall be fully refunded directly to the applicant by the insurer within 30 days after the policy or certificate is returned.
Notwithstanding Section 10276 or any other law, long-term care insurance policies or certificates to which this section applies shall have a notice prominently printed on the first page of the policy or certificate, or attached thereto, stating in substance the conditions described in subdivisions (a) and (b).
In every long-term care policy or certificate that is not intended to be a federally qualified long-term care insurance contract and provides home care benefits, the threshold establishing eligibility for home care benefits shall be at least as permissive as a provision that the insured will qualify if either one of two criteria are met:
Impairment in two out of seven activities of daily living.
Impairment of cognitive ability.
The policy or certificate may provide for lesser but not greater eligibility criteria. The commissioner, at his or her discretion, may approve other criteria or combinations of criteria to be substituted, if the insurer demonstrates that the interest of the insured is better served.
“Activities of daily living” in every policy or certificate that is not intended to be a federally qualified long-term care insurance contract and provides home care benefits shall include eating, bathing, dressing, ambulating, transferring, toileting, and continence; “impairment” means that the insured needs human assistance, or needs continual substantial supervision; and “impairment of cognitive ability” means deterioration or loss of intellectual capacity due to organic mental disease, including Alzheimer’s disease or related illnesses, that requires continual supervision to protect oneself or others.
In every long-term care policy approved or certificate issued after the effective date of the act adding this section, that is intended to be a federally qualified long-term care insurance contract as described in subdivision (a) of Section 10232.1, the threshold establishing eligibility for home care benefits shall provide that a chronically ill insured will qualify if either one of two criteria are met or if a third criterion, as provided by this subdivision, is met:
Impairment in two out of six activities of daily living.
Impairment of cognitive ability.
Other criteria shall be used in establishing eligibility for benefits if federal law or regulations allow other types of disability to be used applicable to eligibility for benefits under a long-term care insurance policy. If federal law or regulations allow other types of disability to be used, the commissioner shall promulgate emergency regulations to add those other criteria as a third threshold to establish eligibility for benefits. Insurers shall submit policies for approval within 60 days of the effective date of the regulations. With respect to policies previously approved, the department is authorized to review only the changes made to the policy. All new policies approved and certificates issued after the effective date of the regulation shall include the third criterion. A policy shall not be sold unless the policy includes the third criterion after one year beyond the effective date of the regulations. An insured meeting this third criterion shall be eligible for benefits regardless of whether the individual meets the impairment requirements in paragraph (1) or (2) regarding activities of daily living and cognitive ability.
A licensed health care practitioner, independent of the insurer, shall certify that the insured meets the definition of “chronically ill individual” as defined under Public Law 104-191. For the purposes of long-term care insurance as defined in Section 10231.2, an insurer shall not impose a certification requirement of longer than 90 days. The policy or certificate shall explain paragraphs (1) through (5) and comply with all of the following:
A licensed health care practitioner shall develop a written plan of care after personally examining the insured.
The costs to have a licensed health care practitioner certify that an insured meets, or continues to meet, the definition of “chronically ill individual,” or to prepare written plans of care shall not count against the lifetime maximum of the policy or certificate.
In order to be considered “independent of the insurer,” a licensed health care practitioner shall not be an employee of the insurer and shall not be compensated in any manner that is linked to the outcome of the certification.
It is the intent of this subdivision that the practitioner’s assessments be unhindered by financial considerations.
This subdivision shall apply only to a policy or certificate intended to be a federally qualified long-term care insurance contract.
“Activities of daily living” in every policy or certificate intended to be a federally qualified long-term care insurance contract as provided by Public Law 104-191 shall include eating, bathing, dressing, transferring, toileting, and continence; “impairment in activities of daily living” means the insured needs “substantial assistance” either in the form of “hands-on assistance” or “standby assistance,” due to a loss of functional capacity to perform the activity; “impairment of cognitive ability” means the insured needs substantial supervision due to severe cognitive impairment; “licensed health care practitioner” means a physician, registered nurse, licensed social worker, or other individual whom the United States Secretary of the Treasury may prescribe by regulation; and “plan of care” means a written description of the insured’s needs and a specification of the type, frequency, and providers of all formal and informal long-term care services required by the insured, and the cost, if any.
Until the time that these definitions may be superseded by federal law or regulation, the terms “substantial assistance,” “hands-on assistance,” “standby assistance,” “severe cognitive impairment,” and “substantial supervision” shall be defined according to the safe-harbor definitions contained in Internal Revenue Service Notice 97-31, issued May 6, 1997.
The definitions of “activities of daily living” to be used in policies and certificates that are intended to be federally qualified long-term care insurance shall be the following until the time that these definitions may be superseded by federal law or regulations:
Eating, which shall mean feeding oneself by getting food in the body from a receptacle (such as a plate, cup, or table) or by a feeding tube or intravenously.
Bathing, which shall mean washing oneself by sponge bath or in either a tub or shower, including the act of getting into or out of a tub or shower.
Continence, which shall mean the ability to maintain control of bowel and bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene (including caring for a catheter or colostomy bag).
Dressing, which shall mean putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs.
Toileting, which shall mean getting to and from the toilet, getting on or off the toilet, and performing associated personal hygiene.
Transferring, which shall mean the ability to move into or out of bed, a chair, or wheelchair.
The commissioner may approve the use of definitions of “activities of daily living” that differ from the verbatim definitions of this subdivision if these definitions would result in more policy or certificate holders qualifying for long-term care benefits than would occur by the use of the verbatim definitions of this subdivision. In addition, the following definitions may be used without the approval of the commissioner: (1) the verbatim definitions of eating, bathing, dressing, toileting, transferring, and continence in subdivision (g); or (2) the verbatim definitions of eating, bathing, dressing, toileting, and continence in this subdivision and a substitute, verbatim definition of “transferring” as follows: “transferring,” which shall mean the ability to move into and out of a bed, a chair, or wheelchair, or ability to walk or move around inside or outside the home, regardless of the use of a cane, crutches, or braces.
The definitions to be used in policies and certificates for impairment in activities of daily living, “impairment in cognitive ability,” and any third eligibility criterion adopted by regulation pursuant to subdivision (b) shall be the verbatim definitions of these benefit eligibility triggers allowed by federal regulations. In addition to the verbatim definitions, the commissioner may approve additional descriptive language to be added to the definitions, if the additional language is (1) warranted based on federal or state laws, federal or state regulations, or other relevant federal decision, and (2) strictly limited to that language that is necessary to ensure that the definitions required by this section are not misleading to the insured.
The definitions of “activities of daily living” to be used verbatim in policies and certificates that are not intended to qualify for favorable tax treatment under Public Law 104-191 shall be the following:
Eating, which shall mean reaching for, picking up, and grasping a utensil and cup; getting food on a utensil, and bringing food, utensil, and cup to mouth; manipulating food on plate; and cleaning face and hands as necessary following meals.
Bathing, which shall mean cleaning the body using a tub, shower, or sponge bath, including getting a basin of water, managing faucets, getting in and out of tub or shower, and reaching head and body parts for soaping, rinsing, and drying.
Dressing, which shall mean putting on, taking off, fastening, and unfastening garments and undergarments and special devices such as back or leg braces, corsets, elastic stockings or garments, and artificial limbs or splints.
Toileting, which shall mean getting on and off a toilet or commode and emptying a commode, managing clothing and wiping and cleaning the body after toileting, and using and emptying a bedpan and urinal.
Transferring, which shall mean moving from one sitting or lying position to another sitting or lying position; for example, from bed to or from a wheelchair or sofa, coming to a standing position, or repositioning to promote circulation and prevent skin breakdown.
Continence, which shall mean the ability to control bowel and bladder as well as use ostomy or catheter receptacles, and apply diapers and disposable barrier pads.
Ambulating, which shall mean walking or moving around inside or outside the home regardless of the use of a cane, crutches, or braces.
Every long-term care policy, certificate, or rider that purports to provide benefits of home care, community-based services, and residential care facility services under the California Partnership for Long-Term Care Program established by Section 22000 of the Welfare and Institutions Code shall provide at least the following:
Care in a residential care facility.
Home health care.
Adult day care.
Personal care.
Homemaker services.
Hospice services.
Respite care.
Every long-term care policy or certificate that purports to provide benefits of home care or community-based services, shall provide at least the following:
Home health care.
Adult day care.
Personal care.
Homemaker services.
Hospice services.
Respite care.
For purposes of this section, policy definitions of these benefits may be no more restrictive than the following:
“Home health care” is skilled nursing or other professional services in the residence, including, but not limited to, part-time and intermittent skilled nursing services, home health aid services, physical therapy, occupational therapy, or speech therapy and audiology services, and medical social services by a social worker.
“Adult day care” is medical or nonmedical care on a less than 24-hour basis, provided in a licensed facility outside the residence, for persons in need of personal services, supervision, protection, or assistance in sustaining daily needs, including eating, bathing, dressing, ambulating, transferring, toileting, and taking medications.
“Personal care” is assistance with the activities of daily living, including the instrumental activities of daily living, provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction. “Instrumental activities of daily living” include using the telephone, managing medications, moving about outside, shopping for essentials, preparing meals, laundry, and light housekeeping.
“Homemaker services” is assistance with activities necessary to or consistent with the insured’s ability to remain in his or her residence, that is provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction.
“Hospice services” are outpatient services not paid by Medicare, that are designed to provide palliative care, alleviate the physical, emotional, social, and spiritual discomforts of an individual who is experiencing the last phases of life due to the existence of a terminal disease, and to provide supportive care to the primary care giver and the family. Care may be provided by a skilled or unskilled person under a plan of care developed by a physician or a multidisciplinary team under medical direction.
“Respite care” is short-term care provided in an institution, in the home, or in a community-based program, that is designed to relieve a primary care giver in the home. This is a separate benefit with its own conditions for eligibility and maximum benefit levels.
Home care benefits shall not be limited or excluded by any of the following:
Requiring “medical necessity” or similar standard as a criteria for benefits.
Every comprehensive long-term care policy or certificate that provides for both institutional care and home care and that sets a daily, weekly, or monthly benefit payment maximum, shall pay a maximum benefit payment for home care that is at least 50 percent of the maximum benefit payment for institutional care, and in no event shall home care benefits be paid at a rate less than fifty dollars ($50) per day. Insurance products approved for residents in continuing care retirement communities are exempt from this provision.
Every such comprehensive long-term care policy or certificate that sets a durational maximum for institutional care, limiting the length of time that benefits may be received during the life of the policy or certificate, shall allow a similar durational maximum for home care that is at least one-half of the length of time allowed for institutional care.
Every long-term care policy or certificate covering confinement in a nursing facility shall also include a provision with the following features:
Care in a residential care facility must be covered. “Residential care facility” means a facility licensed as a residential care facility for the elderly or a residential care facility as defined in the Health and Safety Code. Outside California, eligible providers are facilities that meet applicable licensure standards, if any, and are engaged primarily in providing ongoing care and related services sufficient to support needs resulting from impairment in activities of daily living or impairment in cognitive ability and which also provide care and services on a 24-hour basis, have a trained and ready-to-respond employee on duty in the facility at all times to provide care and services, provide three meals a day and accommodate special dietary needs, have agreements to ensure that residents receive the medical care services of a physician or nurse in case of emergency, and, have appropriate methods and procedures to provide necessary assistance to residents in the management of prescribed medications.
The benefit amount payable for care in a residential care facility shall be no less than 70 percent of the benefit amount payable for institutional confinement.
All expenses incurred by the insured while confined in a residential care facility, for long-term care services that are necessary diagnostic, preventative, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, needed to assist the insured with the disabling conditions that cause the insured to be a chronically ill individual as authorized by Public Law 104-191 and regulations adopted pursuant thereto, shall be covered and payable, up to but not to exceed the maximum daily residential care facility benefit of the policy or certificate. There shall be no restriction on who may provide the service or the requirement that services be provided by the residential care facility, as long as the expenses are incurred while the insured is confined in a residential care facility, the reimbursement does not exceed the maximum daily residential care facility benefit of the policy or certificate, and the services do not conflict with federal law or regulation for purposes of qualifying for favorable tax consideration provided by Public Law 104-191.
In policies or certificates that are not intended to be federally qualified, the threshold establishing eligibility for care in a residential care facility shall be no more restrictive than that for home care benefits, as defined in subdivision (a) of Section 10232.8, and the definitions of impairment in activities of daily living and impairment of cognitive ability shall be the same as for home care benefits, as defined in subdivisions (a) and (g) of Section 10232.8. In policies or certificates that are intended to be federally qualified, the threshold establishing eligibility for care in a residential care facility shall be no more restrictive than that for home care benefits, as defined in subdivision (b) of Section 10232.8, and the definitions of impairment in activities of daily living and impairment in cognitive ability shall be the same as those for home care benefits as defined in subdivisions (b), (c), (d), (e), and (f) of Section 10232.8.
Every long-term care policy or certificate shall define the maximum lifetime benefit as a single dollar amount that may be used interchangeably for any home- and community-based services defined in Section 10232.9, assisted living benefit defined in Section 10232.92, or institutional care covered by the policy or certificate. There shall be no limit on any specific covered benefit except for a daily, weekly, or monthly limit set for home- and community-based care and for assisted living care, and for the limits for institutional care. Nothing in this section shall be construed as prohibiting limitations for reimbursement of actual expenses and incurred expenses up to daily, weekly, and monthly limits.
Every long-term care policy or certificate that provides reimbursement for care in a nursing facility shall cover and reimburse for per diem expenses, as well as the costs of ancillary supplies and services, up to but not to exceed the maximum lifetime daily facility benefit of the policy or certificate.
When a policy or certificate holder of an insurance contract issued prior to December 31, 1996, requests a material modification to the contract as defined by federal law or regulations, the insurer, prior to approving such a request, shall provide written notice to the policy or certificate holder that the contract change requested may constitute a material modification that jeopardizes the federal tax status of the contract and appropriate tax advice should therefore be sought.
In every long-term care policy or certificate that covers care in a nursing facility, the threshold establishing eligibility for nursing facility care shall be no more restrictive than a provision that the insured will qualify if either one of two criteria are met:
Impairment in two activities of daily living.
Impairment in cognitive ability.
Precedent to the payment of benefits for any care covered by the terms of the policy, any insurer offering long-term care insurance as described in Section 10231.2 may obtain a written declaration by a physician, independent needs assessment agency, or any other source of independent judgment suitable to the insurer that services are necessary.
Long-term care insurance may not:
Be canceled, nonrenewed, or otherwise terminated on the grounds of the age or the deterioration of the mental or physical health of the insured individual or certificate holder.
Contain a provision establishing a new waiting period in the event existing coverage is converted to, or replaced by, a new or other form within the same insurer, except with respect to an increase in benefits voluntarily selected by the insured individual or group policyholder.
Provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care.
Provide for payment of benefits based on a standard described as “usual and customary,” “reasonable and customary,” or words of similar import.
Terminate a policy, certificate, or rider, or contain a provision that allows the premium for an in-force policy, certificate, or rider, to be increased due to the divorce of a policyholder or certificate holder.
Include an additional benefit for a service with a known market value other than the statutorily required home- and community-based service benefits in Section 10232.9, the assisted living benefit in Section 10232.92, or a nursing facility benefit, unless the additional benefit provides for the payment of at least five times the daily benefit and the dollar value of the additional benefit is disclosed in the schedule page of the policy.
No long-term care policy or certificate that is issued, amended, renewed, or delivered on and after January 1, 2002, shall contain a provision that prohibits or restricts any health facilities’ compliance with the requirements of Section 1262.5 of the Health and Safety Code.
If a policy or certificate replaces another long-term care policy or certificate, the replacing insurer shall waive any time periods applicable to preexisting conditions and probationary periods to the extent that similar exclusions have been satisfied under the original policy or certificate.
No long-term care insurance benefits may be reduced because of out-of-pocket expenditures by the insured or on behalf of the insured by a family member of the insured or by any other individual.
An outline of coverage shall be delivered to a prospective applicant for long-term care insurance at the time of initial solicitation through means which prominently direct the attention of the recipient to the document and its purpose.
In the case of agent solicitations, an agent shall deliver the outline of coverage prior to the presentation of an application or enrollment form.
In the case of direct response solicitations, the outline of coverage shall be presented in conjunction with any application or enrollment form.
The outline of coverage shall be a freestanding document, using no smaller than 10-point type.
The outline of coverage shall contain no material of an advertising nature.
Use of the text and sequence of the text of the outline of coverage set forth in this section is mandatory, unless otherwise specifically indicated.
Text which is capitalized or underscored in the outline of coverage may be emphasized by other means which provide prominence equivalent to capitalization or underscoring.
The outline of coverage shall be in the following form:
“(COMPANY NAME) (ADDRESS—CITY AND STATE) (TELEPHONE NUMBER)LONG-TERM CARE INSURANCE OUTLINE OF COVERAGE (Policy Number or Group Master Policy and Certificate Number)
1. This policy is (an individual policy of insurance) ((a group policy) which was issued in the (indicate jurisdiction in which group policy was issued)).
2. PURPOSE OF OUTLINE OF COVERAGE. This outline of coverage provides a very brief description of the important features of the policy. You should compare this outline of coverage to outlines of coverage for other policies available to you. This is not an insurance contract, but only a summary of coverage. Only the individual or group policy contains governing contractual provisions. This means that the policy or group policy sets forth in detail the rights and obligations of both you and the insurance company. Therefore, if you purchase this coverage, or any other coverage, it is important that you READ YOUR POLICY (OR CERTIFICATE) CAREFULLY!
3. TERMS UNDER WHICH THE POLICY OR CERTIFICATE MAY BE RETURNED AND PREMIUM REFUNDED.
A certificate issued pursuant to a group long-term care insurance policy, which policy is delivered or issued for delivery in this state, shall include all of the following:
A description of the principal benefits and coverage provided in the policy.
A statement of the principal exclusions, reductions, and limitations contained in the policy.
A statement of the terms under which the policy or certificate, or both, may be continued in force or discontinued, including any reservation in the policy of a right to change premiums.
A statement that the group master policy determines governing contractual provisions.
An explanation of the insured’s rights regarding continuation, conversion, and replacement.
No policy may be advertised, marketed, or offered as long-term care or nursing home insurance unless it complies with this chapter.
A long-term care insurance policy or certificate issued, amended, renewed, or delivered on or after January 1, 2020, shall not do any of the following based solely and without any additional actuarial risks upon the status of a person as a living organ donor:
Refuse to insure, or refuse to continue to insure, the person under a long-term care insurance policy or certificate.
Limit the amount, extent, or kind of coverage available to the person under a long-term care insurance policy or certificate.
Charge the person a different rate for the same coverage under a long-term care insurance policy or certificate.
Otherwise discriminate in the offering, issuance, cancellation, amount of coverage, price, or any other condition of a long-term care insurance policy or certificate for the person.
With respect to any health condition other than being a living organ donor, a person who is a living organ donor shall be subject to the same standards of sound actuarial principles or actual or reasonably anticipated experience as persons who are not living organ donors.
For purposes of this section, “living organ donor” means an individual who has donated all or part of an organ and is not deceased.
ARTICLE 3. Administration and Enforcement [10234. - 10234.7.]
The commissioner shall, as required by this chapter, or from time to time as conditions warrant, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, adopt reasonable regulations, and amendments and additions thereto, as are necessary to administer this chapter.
In addition to all other powers and remedies vested in the commissioner by law, the commissioner shall have administrative authority to assess the penalties prescribed in this article for violation of any provision in this chapter against insurers, brokers, agents, and other entities which have been determined by the commissioner to be engaged in the business of insurance.
Upon a showing of a violation of this chapter in any civil action, a court may also assess the penalties prescribed in this article. The court shall award reasonable attorney’s fees and costs to a prevailing plaintiff who establishes a violation of this chapter.
Actions for injunctive relief, penalties prescribed in this article, damages, restitution, and all other remedies in law or equity, may be brought in superior court by the Attorney General, a district attorney, or city attorney on behalf of the people of the State of California for violation of any provision in this chapter. The court shall award reasonable attorney’s fees and costs to a prevailing plaintiff who establishes a violation of this chapter.
Any broker, agent, or other entity determined by the commissioner to engage in the business of insurance, other than an insurer, who violates this chapter is liable for an administrative penalty of not less than two hundred fifty dollars ($250) for each first violation. The penalty for committing a subsequent or a knowing violation of this chapter shall be not less than one thousand dollars ($1,000) and not more than twenty-five thousand dollars ($25,000) for each violation. The penalty for inappropriate replacement of long-term care coverage shall be not more than five thousand dollars ($5,000) for each violation.
Any insurer that violates this chapter is liable for an administrative penalty of not less than five thousand dollars ($5,000) for each first violation. The penalty for committing a subsequent or knowing violation shall be not less than ten thousand dollars ($10,000) for each violation. The penalty for violating this chapter in a manner indicating a general business practice shall reflect the magnitude of the violation against the public interest and shall be not less than ten thousand dollars ($10,000) and not more than five hundred thousand dollars ($500,000).
Penalties shall be paid to the Insurance Fund.
In addition to the assessment of penalties and other applicable remedies, the commissioner may take the following actions upon determination that a violation of this chapter, or a regulation adopted pursuant to this chapter, has occurred:
Suspend or revoke the license of any broker, agent, or other producer licensed by the department.
Suspend an insurer’s certificate of authority to transact disability insurance.
Order any broker, agent, insurer, or other entity determined by the commissioner to be engaged in the business of insurance, to cease marketing in California a particular policy form of long-term care insurance, to cease marketing any long-term care insurance, or to take such actions as are necessary to comply with this chapter.
Any broker, agent, insurer, or other entity within the jurisdiction of the department who is charged with a violation of this chapter shall be afforded due process through proper notice and public hearing, if requested, before a penalty may be assessed under Section 10234.3, an order issued under Section 10234.4, or other remedy imposed by the commissioner.
Written notice, served by registered mail, shall include:
A summary of the facts establishing reasonable cause that a violation has occurred.
Citation of the code section or other standard allegedly violated.
A statement of the commissioner’s intent to assess a penalty including the amount of the penalty, or to seek another remedy.
A statement of the respondent’s right to elect any of the following:
To accept assessment of the penalty or other remedy as stated in the notice.
To respond to the charge in writing, after which the commissioner may issue a final order or set a hearing.
To request, within 10 days of receipt of the notice, a public hearing.
If timely requested by the respondent or ordered by the commissioner, a public hearing before the Administrative Law Bureau of the department shall be held within 30 days after the notice is served. Within 20 days after the hearing, the administrative law judge shall issue findings of fact and a proposed order. The commissioner shall issue his or her final order or the proposed order shall become the final order of the commissioner within 30 working days after the hearing unless reconsideration is granted for good cause by the administrative law judge. If the notice issued to the respondent assessed a penalty of one hundred thousand dollars ($100,000) or more and the respondent has timely requested, the hearing shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The final order of the commissioner may contain one or more of the remedies set forth in this article. The amount of any penalty assessed need not be limited to the amount stated in the notice to the respondent.
In addition to the penalties set forth in this section and any other penalties provided by law, the commissioner may suspend an insurer’s certificate of authority under Section 704 or assess a penalty under Section 704.7 if the commissioner finds, after notice and hearing, that the insurer has violated this chapter or regulations adopted pursuant to this chapter or that the insurer has knowingly permitted any person or entity to do so.
The commissioner shall, by June 1 of each year, jointly design the format and content of a consumer rate guide for long-term care insurance with a working group that includes representatives of the Health Insurance Counseling and Advocacy Program, the insurance industry, and insurance agents. The commissioner shall annually prepare the consumer rate guide for long-term care insurance that shall include, but not be limited to, the following information:
A comparison of the different types of long-term care insurance and coverages available to California consumers and a specimen outline of coverage for each product currently marketed by each insurer listed in the rate guide.
A premium history of each insurer that writes long-term care policies for all the types of long-term care insurance and coverages issued by the insurer in California.
The consumer rate guide to be prepared by the commissioner shall consist of two parts: a history of the rates for all policies issued in California for the current year and for nine preceding years, and a comparison of the policies, benefits, and sample premiums for all policies currently being issued for delivery in California.
For the rate history portion of the rate guide required by this section, the department shall collect, and each insurer shall provide to the department, all of the following information for each long-term care policy, including all policies, whether issued by the insurer or purchased or acquired from another insurer, issued in California for the current year and for nine preceding years:
Company name.
Policy type.
Policy form identification.
Dates sold.
Date acquired (if applicable).
Premium rate increases requested.
Premium rate increases approved.
Dates of premium rate increase approvals.
Any other information requested by the department.
For the policy comparison portion of the rate guide required by this section, the department shall collect, and each insurer shall provide to the department, the information needed to complete the following form, along with any other information requested by the department, for each long-term care policy currently issued for delivery in California, including all policies, whether issued by the insurer or purchased or acquired from another insurer:
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
NOTICE OF INCOMPLETE TEXT: The Insurance Company Policy Information form appears in the hard-copy publication of the chaptered bill. See Sec. 12, Chapter 304 (p. 13), Statutes of 2016.
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If an insurer does not offer a policy for sale that fits the criteria set forth in the sample premium portion of the policy comparison section of the rate guide, the department shall include in that section of the form for that policy a statement explaining that a policy fitting that criteria is not offered by the insurer and that the consumer may seek, from an agent, sample premium information for the insurer’s policy that most closely resembles the policy in the sample.
The department shall use the format set forth in this section for the policy comparison portion of the rate guide, unless the working group convened pursuant to subdivision (a) designs an alternative format and agrees that it should be used instead.
In compiling the policy comparison portion of the rate guide, the department shall separate the group policies from the individual policies available for sale so that group policies for all insurers appear together in the guide and individual policies for all insurers appear together in the guide.
The policy comparison portion of the rate guide shall contain a cross-reference for each policy form listed indicating the page in the rate guide where rate information on the policy form can be found.
The department shall publish, on the department’s Internet Web site, a premium history of each insurer that writes long-term care policies for all the types of long-term care insurance and coverages issued by the insurer in each state. Each insurer shall provide to the department all of the information listed in paragraph (1) of subdivision (b) for each long-term care policy, including all policies, whether issued by the insurer or purchased or acquired from another insurer, issued in the United States for the current year and for the nine preceding years.
Insurers shall provide the information required pursuant to subdivisions (b) and (c) no later than July 31 of each year, commencing in 2000.
The consumer rate guide shall be published no later than December 1 of each year commencing in 2000, and shall be distributed using all of the following methods:
Through Health Insurance Counseling and Advocacy Program (HICAP) offices.
By telephone using the department’s consumer toll-free telephone number.
On the department’s Internet Web site.
A notice in the Long-Term Care Insurance Personal Worksheet required by Section 10234.95.
Notwithstanding any other provision of law, the data submitted by insurers to the department pursuant to this section are public records, and shall be open to inspection by members of the public pursuant to the procedures of the California Public Records Act. However, a trade secret, as defined in subdivision (d) of Section 3426.1 of the Civil Code, is not subject to this subdivision.
The commissioner’s annual report to the Legislature, as required by Section 10234.6, shall be compiled in consultation with a task force designated by the commissioner for this purpose, which shall include insurance industry representatives, other individuals deemed appropriate by the commissioner, and one or more representatives from each of the following:
The Health Insurance Counseling and Advocacy Program.
The California Health Policy and Data Advisory Commission.
The commissioner shall have the responsibility, in consultation with the task force, to develop analytic methods and to select indicators for evaluation of the impact of long-term care insurance on the public share of costs for long-term care.
ARTICLE 3.7. Consumer Protection [10234.8. - 10234.97.]
With regard to long-term care insurance, all insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing.
Conduct of an insurer, broker, or agent during the offer and sale of a policy previous to the purchase is relevant to any action alleging a breach of the duty of honesty, and a duty of good faith and fair dealing.
No insurer, broker, agent, or other person shall cause a policyholder to replace a long term care insurance policy unnecessarily. Nothing in this section shall be construed to allow an insurer, broker, agent, or other person to cause a policyholder to replace a long term care insurance policy that will result in a decrease in benefits and an increase in premium.
It shall be presumed that any third or greater policy sold to a policyholder in any 12-month period is unnecessary within the meaning of this section. This section shall not apply to those instances in which a policy is replaced solely for the purpose of consolidating policies with a single insurer.
Every insurer shall maintain records for each agent of that agent’s amount of replacement sales as a percent of the agent’s total annual sales and the amount of lapses of long-term care insurance policies sold by the agent as a percent of the agent’s total annual sales.
Every insurer shall report annually by June 30, the 10 percent of its agents in the state with the greatest percentage of lapses and replacements as measured by subdivision (a).
Every insurer shall report annually by June 30, the number of lapsed policies as a percent of its total annual sales in the state, as a percent of its total number of policies in force in the state, and as a total number of each policy form in the state, as of the end of the preceding calendar year.
Every insurer shall report annually by June 30, the number of replacement policies sold as a percent of its total annual sales in the state and as a percent of its total number of policies in force in the state as of the end of the preceding calendar year.
Reported replacement and lapse rates do not alone constitute a violation of insurance laws or imply wrongdoing. The reports are for the purpose of reviewing more closely agent activities regarding the sale of long-term care insurance.
If an insurer replaces a policy or certificate that it has previously issued, the insurer shall recognize past insured status by granting premium credits toward the premiums for the replacement policy or certificate. The premium credits shall equal five percent of the annual premium of the prior policy or certificate for each full year the prior policy or certificate was in force. The premium credit shall be applied toward all future premium payments for the replacement policy or certificate, but the cumulative credit allowed need not exceed 50 percent. No credit need be provided if a claim has been filed under the original policy or certificate.
The cumulative credits allowed need not reduce the premium for the replacement policy or certificate to less than the premium of the original policy or certificate.
This section shall not apply to life insurance policies that accelerate benefits for long-term care.
Every insurer providing long-term care coverage in California shall provide a copy of any advertisement intended for use in California to the commissioner for review at least 30 days before dissemination. The advertisement shall comply with all laws in California. In addition, the advertisement shall be retained by the insurer in accordance with Section 10508 for at least three years.
An advertisement designed to produce leads must prominently disclose that “an insurance agent will contact you” if that is the case.
An agent, broker, or other person who contacts a consumer as a result of receiving information generated by a cold lead device, shall immediately disclose that fact to the consumer.
Every insurer of long-term care in California shall:
Establish marketing procedures to ensure that any comparison of policies by its agents or other producers will be fair and accurate.
Establish marketing procedures to ensure excessive insurance is not sold or issued.
Submit to the commissioner within six months of the effective date of this act, a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submissions shall be updated at least semiannually.
Provide the following training and require that each agent or other insurer representative authorized to solicit individual consumers for the sale of long-term care insurance shall satisfactorily complete the following training requirements that, for resident licensees, shall count toward the licensee’s continuing education requirement, but may still result in completing more than the minimum number of continuing education hours set forth in this section:
For licensees issued a license after January 1, 1992, eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter eight hours of training prior to each license renewal.
For licensees issued a license before January 1, 1992, eight hours of training prior to each license renewal.
For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4.
Licensees shall complete the initial training requirements of this section prior to being authorized to solicit individual consumers for the sale of long-term care insurance.
The training required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. On or before July 1, 1998, the following additional training topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines.
Display prominently on page one of the policy or certificate and the outline of coverage: “Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations.”
Inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance.
Every insurer or entity marketing long-term care insurance shall establish auditable procedures for verifying compliance with this subdivision.
Every insurer shall provide to a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge. Every agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222.
Provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.
Clearly post on its Internet Web site and provide written notice at the time of solicitation that a specimen individual policy form or group master policy and certificate form for each policy form offered in this state is available to a prospective applicant upon request. The individual specimen policy form or group master policy and certificate form shall be provided to a requesting party within 15 calendar days of receipt of a request.
In addition to other unfair trade practices, including those identified in this code, the following acts and practices are prohibited:
Twisting. Knowingly making any misleading representation, incomplete, or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer.
High pressure tactics. Using any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.
Cold lead advertising. Making use directly or indirectly of any method of marketing that fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.
Every insurer or other entity marketing long-term care insurance shall:
Develop and use suitability standards to determine whether the purchase or replacement of long-term care insurance is appropriate for the needs of the applicant.
Train its agents in the use of its suitability standards.
Maintain a copy of its suitability standards and make them available for inspection upon request by the commissioner.
The agent and insurer shall develop procedures that take into consideration, when determining whether the applicant meets the standards developed by the insurer, the following:
The ability to pay for the proposed coverage and other pertinent financial information related to the purchase of the coverage.
The applicant’s goals or needs with respect to long-term care and the advantages and disadvantages of insurance to meet these goals or needs.
The value, benefits, and costs of the applicant’s existing insurance, if any, when compared to the values, benefits, and costs of the recommended purchase or replacement.
A copy of the issuer’s personal worksheet shall be filed and approved by the commissioner. A new personal worksheet shall be filed and approved by the commissioner each time a rate is increased in California and each time a new policy is filed for approval by the commissioner. The new personal worksheet shall disclose the amount of the rate increase in California and all prior rate increases for the nine preceding years in California as well as all prior rate increases and rate increase requests or filings in any other state for the nine preceding years. The new personal worksheet shall be used by the insurer within 60 days of approval by the commissioner in place of the previously approved personal worksheet.
A completed personal worksheet shall be returned to the issuer prior to the issuer’s consideration of the applicant for coverage, except the personal worksheet need not be returned for sale of employer group long-term care insurance to employees and their spouses and dependents.
The sale or dissemination outside the company or agency by the issuer or agent of information obtained through the personal worksheet is prohibited.
The issuer shall use the suitability standards it has developed pursuant to this section in determining whether issuing long-term care insurance coverage to an applicant is appropriate.
Agents shall use the suitability standards developed by the insurer in marketing long-term care insurance.
If the issuer determines that the applicant does not meet its financial suitability standards, or if the applicant has declined to provide the information, the issuer may reject the application. Alternatively, the issuers shall send the applicant a letter similar to the “Long-Term Care Insurance Suitability Letter” contained in the Long-Term Care Model Regulations of the National Association of Insurance Commissioners. However, if the applicant has declined to provide financial information, the issuer may use some other method to verify the applicant’s intent. Either the applicant’s returned letter or a record of the alternative method of verification shall be made part of the applicant’s file.
The insurer shall report annually to the commissioner the total number of applications received from residents of this state, the number of those who declined to provide information on the personal worksheet, the number of applicants who did not meet the suitability standards, and the number who chose to conform after receiving a suitability letter.
This section shall not apply to life insurance policies that accelerate benefits for long-term care.
Any time long-term care coverage is replaced, the sales commission that is paid by the insurer and that represents the percentage of the sale normally paid for first year sales of long-term care policies or certificates shall be calculated based on the difference between the annual premium of the replacement coverage and that of the original coverage. If the premium on the replacement product is less than or equal to the premium for the product being replaced, the sales commission shall be limited to the percentage of sale normally paid for renewal of long-term care policies or certificates. Replacement shall be contingent upon the insurer’s declaration that the replacement policy materially improves the position of the insured, pursuant to Section 10235.16. This provision does not apply to replacement coverage which is group insurance as described in subdivision (a) of Section 10231.6.
For purposes of this section, “commission or other compensation” includes pecuniary or nonpecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate including, but not limited to, bonuses, gifts, prizes, awards, and finder’s fees.
Every long-term care insurer shall file with the commissioner within six months of the effective date of this section, its commission structure or an explanation of the insurer’s compensation plan. Any amendments to the commission structure shall be filed with the commissioner before implementation.
ARTICLE 4. Implementation [10235. - 10236.15.]
Except as provided in Section 10235.95, this article applies to all long-term care insurance policies delivered or issued for delivery in this state on or after January 1, 1990.
No long-term care insurance policy delivered or issued for delivery in this state shall use the terms set forth below, unless the terms are defined in the policy and the definitions satisfy the following requirements:
“Medicare” shall be defined as the “Health Insurance for the Aged Act,” Title XVIII of the Social Security Amendments of 1965 as then constituted or later amended, or Title I, Part I of Public Law 89-97, as enacted by the 89th Congress of the United States of America and popularly known as the Health Insurance for the Aged Act, as then constituted and any later amendments or substitutes thereof, or words of similar import.
“Skilled nursing care,” “intermediate care,” “home health care,” and other services shall be defined in relation to the level of skill required, the nature of the care and the setting in which care is required to be delivered.
All providers of services, including, but not limited to, skilled nursing facilities, intermediate care facilities, and home health agencies shall be defined in relation to the services and facilities required to be available and the licensure or degree status of those providing or supervising the services. The definition may require that the provider be appropriately licensed or certified.
No policy may be delivered or issued for delivery in this state as long-term care insurance if the policy limits or excludes coverage by type of illness, treatment, medical condition, or accident, except as to the following:
Preexisting conditions or diseases.
Alcoholism and drug addiction.
Illness, treatment, or a medical condition arising out of any of the following:
War or act of war, whether declared or undeclared.
Participation in a felony, riot, or insurrection.
Service in the Armed Forces or units auxiliary thereto.
Suicide, whether or not the person had mental capacity to control what he or she was doing, attempted suicide, or intentionally self-inflicted injury.
Aviation in the capacity of a non-fare-paying passenger.
Treatment provided in a government facility, unless otherwise required by law, services for which benefits are available under Medicare or other governmental programs (except Medi-Cal or medicaid), state or federal workers’ compensation, employer’s liability or occupational disease law, or a motor vehicle no fault law, services provided by a member of the covered person’s immediate family, and services for which no charge is normally made in the absence of insurance.
This section does not prohibit exclusions and limitations by type of provider or territorial limitations.
Every insurer shall report annually by June 30 the total number of claims denied by each class of business in the state and the number of these claims denied for failure to meet the waiting period or because of a preexisting condition as of the end of the preceding calendar year.
The insurer shall provide every policyholder or certificate holder whose claim is denied a written notice within 40 days of the date of denial of the reasons for the denial and all information directly related to the denial. Insurers shall annually report to the department the number of denied claims.
The department shall make available to the public, upon request, the denial rate of claims by insurer.
For policies or certificates issued on or after January 1, 2017, that contain an alternate plan of care provision pursuant to Section 10231.3, if an insurer and insured cannot agree on the terms of an alternate plan of care, the insurer shall provide a written explanation to the policyholder or certificate holder as to the specific reason or reasons why the agreement cannot be reached. The insurer shall provide the written explanation within 60 days of the insurer’s determination that an agreement cannot be reached.
Termination of long-term care insurance shall be without prejudice to any benefits payable for institutionalization if that institutionalization began while the long-term care insurance was in force and continues without interruption after termination. This extension of benefits beyond the period the long-term care insurance was in force may be limited to the duration of the benefit period, if any, or to payment of the maximum benefits and may be subject to any policy waiting period, and all other applicable provisions of the policy.
Individual long-term care insurance policies shall contain a renewability provision. This provision shall be appropriately captioned, shall appear on the first page of the policy, and shall clearly disclose the term of coverage for which the policy is initially issued, the terms and conditions under which the policy may be renewed, and whether or not the issuer has the right to change the premium. If this right exists, the policy provisions shall clearly and concisely describe each circumstance under which the premium may change.
Except for riders or endorsements by which the insurer effectuates a request made in writing by the insured under an individual long-term care insurance policy, all riders or endorsements added to an individual long-term care insurance policy after date of issue or at reinstatement or renewal which reduce or eliminate benefits or coverage in the policy shall require signed acceptance by the individual insured. After the date of policy issue, any rider or endorsement which increases benefits or coverage with a concomitant increase in premium during the policy term shall be agreed to in writing signed by the insured, unless the increased benefits or coverage are required by law. If a separate additional premium is charged for benefits provided in connection with riders or endorsements, that premium charge shall be set forth in the policy, rider, or endorsement.
If a long-term care insurance policy or certificate contains any limitations with respect to preexisting conditions, those limitations shall appear as a separate paragraph of the policy or certificate and shall be labeled as “preexisting condition limitations.”
A long-term care insurance policy or certificate containing any limitations or conditions for eligibility shall set forth in a separate paragraph of the policy or certificate a description of those limitations or conditions, including any required number of days of confinement, and shall label that paragraph “Limitations or Conditions on Eligibility for Benefits.”
Long-term care insurance application forms shall include a question designed to elicit information as to whether the proposed insurance is intended to replace any other accident and sickness or long-term care insurance presently in force. A supplementary application or other form to be signed by the applicant containing such a question may be used.
Upon determining that a sale will involve replacement, an insurer, other than an insurer using direct response solicitation methods, or its agent shall furnish the applicant, prior to issuance or delivery of a policy or certificate, a notice regarding replacement of accident and sickness or long-term care coverage. One copy of this notice shall be retained by the applicant and an additional copy signed by the applicant shall be retained by the insurer. The required notice shall be provided in the following form:
“NOTICE TO APPLICANT REGARDING REPLACEMENT OF ACCIDENT AND SICKNESS OR LONG-TERM CARE INSURANCE
According to (your application) (information you have furnished), you intend to lapse or otherwise terminate existing accident and sickness or long-term care insurance and replace it with long-term care insurance coverage to be issued by (company name) Insurance Company. Your new coverage provides thirty (30) days within which you may decide, without cost, whether you desire to keep the coverage. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new coverage.
Health conditions which you may presently have (preexisting conditions), may not be immediately or fully covered under the new coverage. This could result in denial or delay in payment of benefits under the new coverage, whereas a similar claim might have been payable under your present coverage.
You may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present coverage. This is not only your right, but it is also in your best interest to make sure you understand all the relevant factors involved in replacing your present coverage.
If, after due consideration, you still wish to terminate your present coverage and replace it with new coverage, be certain to truthfully and completely answer all questions on the application concerning your medical health history. Failure to include all material medical information on an application may provide a basis for the company to deny any future claims and to refund your premium as though your coverage had never been in force. After the application has been completed and before you sign it, reread it carefully to be certain that all the information has been properly recorded.
The above “Notice to Applicant” was delivered to me on:
For group coverage not subject to the 30-day return provision of Section 10232.7, the notice shall be modified to reflect the appropriate time period in which the policy may be returned and premium refunded.
The replacement notice shall include the following statement except when the replacement coverage is group insurance as described in subdivision (a) of Section 10231.6:
COMPARISON TO YOUR CURRENT COVERAGE: I have reviewed your current long-term care coverage. To the best of my knowledge, the replacement of insurance involved in this transaction materially improves your position for the following reasons:
____ Additional or different benefits
(please specify) ______.
____ No change in benefits, but lower premiums.
____ Fewer benefits and lower premiums.
____ Other (please specify) ______.
For purposes of this chapter, the commissioner shall define inappropriate replacement of long-term care insurance in consultation with other interested parties.
Insurers using direct response solicitation methods shall deliver a notice regarding replacement of accident and sickness or long-term care coverage to the applicant upon issuance of the policy or certificate. The required notice shall be provided in the following form: “NOTICE TO APPLICANT REGARDING REPLACEMENT OF ACCIDENT AND SICKNESS OR LONG-TERM CARE INSURANCE
According to (your application) (information you have furnished), you intend to lapse or otherwise terminate existing accident and sickness or long-term care insurance and replace it with the long-term care insurance coverage delivered herewith issued by (company name) Insurance Company. Your new coverage provides thirty (30) days within which you may decide, without cost, whether you desire to keep the policy or certificate. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new coverage.
Health conditions which you may presently have (preexisting conditions), may not be immediately or fully covered under the new coverage. This could result in denial or delay in payment of benefits under the new coverage, whereas a similar claim might have been payable under your present coverage.
You may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present policy coverage. This is not only your right, but it is also in your best interest to make sure you understand all the relevant factors involved in replacing your present coverage.
(To be included only if the application is attached to the policy or certificate). If, after due consideration, you still wish to terminate your present coverage and replace it with new coverage, read the copy of the application attached to your new coverage and be sure that all questions are answered fully and correctly. Omissions or misstatements in the application could cause an otherwise valid claim to be denied. Carefully check the application and write to (company name and address) within thirty (30) days if any information is not correct and complete, or if any past medical history has been left out of the application.
For group coverage not subject to the 30-day return provision of Section 10232.7, the notice shall be modified to reflect the appropriate time period in which the policy may be returned and premium refunded.
The commissioner may waive a specific provision or provisions of this article with respect to a specific long-term care insurance policy or certificate upon making written findings specified in subdivisions (a), (b), and (c), as follows:
The waiver would be in the best interest of the insureds.
The underlying purposes of this article could not be effectively or efficiently achieved without the waiver.
Any of the following:
The waiver is necessary to the development of an innovative and reasonable approach for insuring long-term care.
The policy or certificate is to be issued to residents of a life care or continuing care retirement community or some other residential community for the elderly and the waiver is reasonably related to the special needs or nature of such a community.
The waiver is necessary to permit long-term care insurance to be sold as part of, or in conjunction with, another insurance product.
The commissioner may condition any waiver upon compliance with alternative requirements to achieve the purposes of this article.
No insurer may deliver or issue for delivery a long-term care policy in this state unless the insurer offers at the time of application an option to purchase a shortened benefit period nonforfeiture benefit with the following features:
Eligibility begins no later than after 10 years of premium payments.
The lifetime maximum benefit is no less than the dollar equivalent of three months of care at the nursing facility per diem benefit contained in the policy or the amount of the premiums paid, whichever is greater.
The same benefits covered in the policy and any riders at the time eligibility begins are payable for a qualifying claim.
The lifetime maximum benefit may be reduced by the amount of any claims already paid.
Cash back, extended term, and reduced paid-up forms of nonforfeiture benefits shall not be allowed.
The lifetime maximum benefit amount increases proportionally with the number of years of premium payment.
This section shall not apply to life insurance policies that accelerate benefits for long-term care.
Notwithstanding any other law, the commissioner may require the administration by an insurer of the contingent benefit upon lapse, as described in Section 28 (A), (D) (3), (E), (F), (G), and (J) of the Long-Term Care Insurance Model Regulation promulgated by the National Association of Insurance Commissioners, as adopted in September 2014, as a condition of approval or acknowledgment of a rate adjustment for a block of business for which the contingent benefit upon lapse is not otherwise available.
The insurer shall notify policyholders and certificate holders of the contingent benefit upon lapse when required by the commissioner in conjunction with the implementation of a rate adjustment. The commissioner may require an insurer who files for such a rate adjustment to allow policyholders and certificate holders to reduce coverage pursuant to Section 10235.50 to avoid an increase in the policy’s premium amount.
The commissioner may also approve any other alternative mechanism filed by the insurer in lieu of the contingent benefit upon lapse.
When a shortened benefit period nonforfeiture benefit, as described in Section 10235.30, or a contingent benefit upon lapse, as described in Section 10235.35, is conferred, the insurer shall mail to and receive from each policyholder or certificate holder an election form which allows the policyholder or certificate holder to elect one of the following:
A written designation listing the name, address, and telephone number of at least one individual, in addition to the policyholder or certificate holder, who is to receive the annual notice as described in subdivision (c).
A confirmation that the policyholder or certificate holder designates the same person previously designated in Section 10235.40 to receive the annual notice as described in subdivision (c).
A waiver signed and dated by the policyholder or certificate holder electing not to designate additional persons to receive the annual notice as described in subdivision (c). The required waiver shall read as follows:
“I understand that I have the right to designate at least one person other than myself to receive annual notification related to the benefit retained under this long-term care insurance policy. I elect not to designate any person other than myself to receive the notice.
________________________________________________ ___________
Signature of Policyholder or Certificate Holder Date”
The insurer shall notify all holders of a shortened benefit period nonforfeiture benefit or a contingent benefit upon lapse at the time of the annual notice as described in subdivision (c), of the right to change the election described in subdivision (a).
At the time a shortened benefit period nonforfeiture benefit or contingent benefit upon lapse is conferred and annually thereafter the insurer shall notify all holders of the benefit and, if elected, at least one individual designated pursuant to paragraph (1) or (2) of subdivision (a) by first-class United States mail, postage prepaid, of all of the following:
The availability of the shortened benefit period nonforfeiture benefit or contingent benefit upon lapse.
The dollar amount of the shortened benefit period nonforfeiture benefit or contingent benefit upon lapse calculated up to 60 days prior to the date of the annual notice. The notice shall state that the amount may have been reduced if benefits were paid in the period subsequent to the date on which that amount was calculated.
The name, address, and telephone number of the insurer for questions about the shortened benefit period nonforfeiture benefit or contingent benefit upon lapse.
For individuals who hold contingent benefits upon lapse as of the effective date of this section, the insurer shall send the election form required in subdivision (a) by July 1, 2016.
If, upon proper mailing by the insurer, the policyholder or certificate holder fails to return the election form described in subdivision (a) within 90 days, the failure will be deemed a waiver as provided in paragraph (3) of subdivision (a).
An individual long-term care policy or certificate shall not be issued until the applicant has been given the right to designate at least one individual, in addition to the applicant, to receive notice of lapse or termination of a policy or certificate for nonpayment of premium. The insurer shall receive from each applicant one of the following:
A written designation listing the name, address, and telephone number of at least one individual, in addition to the applicant, who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium.
A waiver signed and dated by the applicant electing not to designate additional persons to receive notice. The required waiver shall read as follows:“Protection Against Unintended Lapse.I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until 30 days after a premium is due and unpaid. I elect not to designate any person to receive the notice.
The insurer shall notify the insured of the right to change the written designation, no less often than once every two years.
If the policyholder or certificate holder pays the premium for a long-term care insurance policy or certificate through a payroll or pension deduction plan, the requirements contained in subdivision (a) need not be met until 60 days after the policyholder or certificate holder is no longer on that deduction payment plan. The application or enrollment form for a certified long-term care insurance policy or certificate shall clearly indicate the deduction payment plan selected by the applicant.
An individual long-term care policy or certificate shall not lapse or be terminated for nonpayment of premium unless the insurer, at least 30 days before the effective date of the lapse or termination, gives notice to the insured and to the individual or individuals designated pursuant to subdivision (a), at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice shall be given by first-class United States mail, postage prepaid, not less than 30 days after a premium is due and unpaid.
A long-term care insurance policy or certificate shall include a provision that, in the event of lapse, provides for reinstatement of coverage, if the insurer is provided with proof of the insured’s cognitive impairment or the loss of functional capacity. This option shall be available to the insured if requested within five months after termination and shall allow for the collection of a past due premium, if appropriate. The standard of proof of cognitive impairment or loss of functional capacity shall not be more stringent than the benefit eligibility criteria on cognitive impairment or the loss of functional capacity contained in the policy certificate.
If a universal life insurance policy includes coverage for long-term care and may lapse due to insufficient account value even if all scheduled premiums are paid on time and no loans or withdrawals are taken, then an applicant shall receive the disclosure below or a substantially similar disclosure that contains all of the information below. The disclosure shall be submitted to the commissioner for approval. The disclosure shall be signed and dated by the applicant and the agent. One copy of the disclosure shall be retained by the applicant and an additional copy shall be retained by the insurer. The disclosure shall be in the following form:
If a life insurance policy contains long-term care benefits and permits policy loans or cash withdrawals, then access to those loans or withdrawals shall not be prohibited or limited due to the payment of long-term care benefits, except as provided in paragraphs (1) and (2).
Payment of an accelerated death benefit for long-term care shall result in no more than a pro rata reduction in the cash value of the life insurance policy. A reduction in cash value shall be proportionally equal to the percentage of death benefits accelerated to produce the accelerated death benefit payment. Future access to policy loans and cash withdrawals may be limited to the remaining cash value.
Notwithstanding paragraph (1), payment of an accelerated death benefit for long-term care may be considered a lien against the death benefit of the life insurance policy, and access to the cash value of the life insurance policy may be restricted to the excess of the cash value over the sum of outstanding policy loans and the lien. Future access to policy loans and cash withdrawals may also be limited to the excess of the cash value over the sum of outstanding policy loans and the lien.
This subdivision applies only to policies issued on or after January 1, 2021.
If payment of an accelerated death benefit for long-term care results in a pro rata reduction in the cash value of the life insurance policy, the payment may be applied toward repayment of a pro rata portion of outstanding policy loans. The amount of the loan repayment shall be proportionally equal to the percentage of death benefits accelerated to produce the accelerated death benefit payment.
At least 30 days before the expected first payment of an accelerated death benefit for long-term care, the insurer shall provide the policyholder or certificate holder with a statement that includes the information described in this subdivision. Alternatively, an insurer may provide the statement at the time of payment, but only if the insurer allows cancellation of the payment for at least 30 days after it is made.
The statement shall be dated and shall include all of the following:
An explanation of changes to the policy that have occurred as a result of the payment, or would occur as a result of the estimated payment, including, but not limited to, a prohibition or limitation of access to loans or cash withdrawals.
A numerical demonstration of the estimated effect of the payment on any applicable remaining policy values. The demonstration shall include, if applicable, impact to the death benefit, cash value or accumulation amount, policy loan value, outstanding policy loan amount, no-lapse guarantee, policy lien, premium payments or cost of insurance charges, and any other values impacted by the payment.
A notice stating: “WARNING: Payment of an accelerated death benefit for long-term care will reduce and may potentially eliminate your death benefit. Receipt of an accelerated death benefit for long-term care may be taxable and may also adversely affect your eligibility for Medicaid or other government entitlements. Please consult a financial advisor.”
If the statement is provided before the payment date, it shall also include all of the following:
The expected payment date.
An explanation that the policyholder or certificate holder may request payment before the expected payment date.
Notice that the policyholder or certificate holder may cancel the payment by contacting the insurer at the insurer’s address or telephone number at any time before the expected payment date.
If the statement is provided at the time of payment, it shall also include notice that the policyholder or certificate holder may cancel the payment by contacting the insurer at the insurer’s address or telephone number within the cancellation period and returning the payment.
The statement required by subdivision (c) is required only once per policyholder for an individual policy, or once per certificate holder for a group policy, and does not need to be provided for later accelerated death benefit claims by the same policyholder or certificate holder.
No later than 30 days after every payment of an accelerated death benefit for long-term care, or 45 days after the first payment of an accelerated death benefit for long-term care, the insurer shall provide the policyholder or certificate holder with a statement summarizing the effect of the payment on the remaining policy values. The statement shall include all of the following:
The accelerated death benefits paid out during the prior month.
An explanation of changes, if applicable, to the remaining death benefit, cash value or accumulation account, policy loan value, outstanding policy loan amount, no-lapse guarantee, policy lien, premium payments or cost of insurance charges, and any other values impacted by the payment.
The amount of the remaining benefits that can be accelerated.
If a policyholder or certificate holder initiates a request to take a loan or withdrawal from the cash value of a life insurance policy that accelerates benefits for long-term care, the insurer shall provide the policyholder or certificate holder with a statement that includes the information described in paragraph (3).
Except for a loan that is immediately approved pursuant to paragraph (2), a request to take a loan or withdrawal shall be deemed incomplete, and the insurer shall not approve the loan or withdrawal, until the information has been provided and the policyholder or certificate holder submits a response that finalizes the request for the loan or withdrawal.
The insurer may immediately approve a loan and provide the statement at the time of payment, but only if the loan is not treated as a taxable distribution for federal income tax purposes and the insurer permits cancellation of the loan for at least 30 days after the loan payment has been made.
The insurer shall provide notice that the policyholder or certificate holder may cancel the loan by contacting the insurer at the insurer’s address or telephone number within the cancellation period and returning the loan payment.
At the time the loan is requested, the insurer shall provide an option to receive the statement before the loan request is finalized. If the policyholder or certificate holder elects this option, the loan request shall be deemed incomplete, and the insurer shall not approve the loan, until the statement has been provided and the policyholder or certificate holder submits a response that finalizes the request for the loan.
The statement shall be dated and shall include all of the following:
An explanation of changes to the policy that would occur as a result of the loan or withdrawal.
A numerical demonstration of the estimated effect of the payment on any applicable remaining policy values. The demonstration shall include, if applicable, impact to the death benefit, cash value or accumulation amount, policy loan value, outstanding policy loan amount, no-lapse guarantee, policy lien, premium payments or cost of insurance charges, daily, monthly, or lifetime long-term care benefits, and any other values impacted by the payment.
If a policyholder or certificate holder is initiating a request for a loan, a notice stating: “WARNING: Loans may reduce and potentially eliminate your death benefit and your long-term care benefits. Receipt of a loan may adversely affect your eligibility for Medicaid or other government entitlements, and loan proceeds may be taxable if the loan is not repaid and the policy is surrendered or lapses. Please consult a financial advisor.”
If a policyholder or certificate holder is initiating a request for a withdrawal, a notice stating: “WARNING: Cash withdrawals may reduce and potentially eliminate your death benefit and your long-term care benefits. Receipt of a cash withdrawal may be taxable and may also adversely affect your eligibility for Medicaid or other government benefits or entitlements. Please consult a financial advisor.”
A description of circumstances in which a loan or withdrawal may result in or contribute to the lapse of the policy.
If applicable, a hypothetical demonstration of how loan repayment may be deducted from a future payment of an accelerated death benefit for long-term care.
If applicable, a notice explaining the rate at which the loan will accrue interest and stating the projected outstanding loan amount after five years, assuming that the interest rate does not change, no loan repayments are made, and no additional loans are taken.
The statements and notices required by this section shall be in at least 12-point type.
A policy or certificate shall include a provision that gives the policyholder or certificate holder the right, exercisable any time after the first year, to retain the policy or certificate while reducing coverage and lowering the premium.
The policyholder or certificate holder shall have the option to reduce coverage and lower the premium in the following ways:
Reducing the lifetime maximum benefit.
Reducing the daily, weekly, or monthly benefit amounts.
Converting a “comprehensive long-term care” policy or certificate to a “Nursing Facility and Residential Care Facility Only” or a “Home Care Only” policy or certificate, if the insurer issues those policies or certificates for sale in the state.
Reducing or eliminating the benefit adjustments provided by an inflation protection provision.
Subparagraph (D) of paragraph (1) shall apply to a policy issued or delivered on or after January 1, 2020.
The insurer may offer other reduction options in addition to those required by paragraph (1).
For a policy issued or delivered on or after January 1, 2020, the provision shall include a description of the process for requesting and implementing a reduction in coverage. For a policy issued or delivered before January 1, 2020, an insurer shall notify the policyholder or certificate holder of the process to request and implement a reduction in coverage.
The premium for a policy or certificate that is reduced in coverage shall be both of the following:
Based on the issue age and underwriting class used to determine the premium for the coverage currently in force.
Consistent with the policy’s approved rate table.
This subdivision shall apply to any reduction in coverage, regardless of the original policy issue date.
If a policy or certificate is about to lapse, the insurer shall provide written notice to the insured of the options in subdivision (a) to lower the premium by reducing coverage and of the premiums applicable to the reduced coverage options. The insurer may include in the notice additional options to those required in subdivision (a). The notice shall provide the insured at least 30 days in which to elect to reduce coverage and the policy shall be reinstated without underwriting if the insured elects the reduced coverage.
If a premium increases, the policyholder or certificate holder shall have the right to retain the policy or certificate while reducing coverage and lowering the premium.
The policyholder or certificate holder shall be offered the option to reduce coverage as provided in subparagraphs (A), (B), and (D) of paragraph (1) of subdivision (a).
At least one option to reduce coverage shall allow the policyholder or certificate holder to retain the policy for a premium reasonably equivalent to the one that was in effect before the rate increase.
An insurer may offer other reduction options in addition to the option required by paragraph (1).
An insurer’s offer shall include a disclosure stating that all of the reduction options may not be of equal value.
The policyholder or certificate holder of a policy or certificate offered under the California Partnership for Long-Term Care Program shall be offered options to reduce coverage that would maintain certification under the program, as described in subdivision (d) of Section 22005.1 of the Welfare and Institutions Code. The insurer may also offer other reduction options that may result in a loss of partnership status, but shall disclose that the options may result in a loss of partnership status and explain that loss of partnership status may reduce or eliminate policyholder or certificate holder protections.
This subdivision shall apply to any premium rate increase, regardless of the original policy issue date.
Every policy or certificate shall include a provision that gives the insured the option to elect, no less frequently than on each anniversary date after the policy or certificate is issued, to pay an extra premium for one or more riders that increase coverage in any of the following ways:
Increase the amount of the per diem benefits.
Increase the lifetime maximum benefit.
Increase the amount of both the nursing facility per diem benefit and the home- and community-based care benefits of a comprehensive long-term care insurance policy or certificate.
The premiums for the riders to increase coverage may be based on the attained age of the insured. The premium for the original policy or certificate will not be changed and will continue to be based on the insured’s age when the original policy or certificate was issued.
The insurer may require the insured to undergo new underwriting, in addition to the payment of an additional premium, to qualify for the additional coverage. The insurer may restrict the age for issuance of additional coverage and restrict the aggregate amount of additional coverage an insured may acquire to the maximum age and coverage the insurer allows when issuing a new policy or certificate.
Each policy shall contain a provision that, if the insurer develops new benefits or benefit eligibility or new policies with new benefits or benefit eligibility not included in the previously issued policy, the insurer shall grant current holders of its policies who are not in benefit or within the elimination period all of the following rights:
The insurer shall notify the policyholder of the availability of the new benefits or benefit eligibility or new policy within 12 months of the date that the new policy series is made available for sale in this state. The insurer shall file the notice with the department at the same time as the new policy or rider.
The insurer shall offer the policyholder new benefits or benefit eligibility in one of the following ways:
By adding a rider to the existing policy and paying a separate premium for the new benefits or benefit eligibility based on the insured’s attained age. The premium for the existing policy shall remain unchanged based on the insured’s age at issuance.
By replacing the existing policy or certificate in accordance with Section 10234.87.
By replacing the existing policy or certificate with a new policy or certificate, in which case consideration for past insured status shall be recognized by setting the premium for the replacement policy or certificate at the issue age of the policy or certificate being replaced.
The insured may be required to undergo new underwriting, but the underwriting can be no more restrictive than if the policyholder or certificate holder were applying for a new policy or certificate.
The insurer of a group policy as defined under subdivisions (a) to (c), inclusive, of Section 10231.6 shall offer the group policyholder the opportunity to have coverage for the new benefits and provisions extended to existing certificate holders, but the insurer is relieved of the obligations imposed by this section if the holder of the group policy declines the issuer’s offer.
For purposes of this section, new benefits means coverage for new long-term care services or providers that are material in nature. New benefits that are material in nature do not include changes to policy structure, benefits, or provisions that are minor in nature. Changes that are minor in nature include, but are not limited to, changes in elimination periods, benefit periods, and benefit amounts.
In the event a non-medicaid national or state long-term care program is created through public funding that substantially duplicates benefits covered by the policy or certificate, the policyholder or certificate holder will be entitled to select either a reduction in future premiums or an increase in future benefits. An actuarial method for determining the premium reductions and increases in future benefits will be mutually agreed upon by the department and insurers. The amount of the premium reductions and future benefit increases to be made by each insurer will be based on the extent of the duplication of covered benefits, the amount of past premium payments, and claims experience. Each insurer’s premium reduction and benefit increase plans shall be filed and approved by the department.
Every policy or certificate shall include a provision giving the policyholder or certificate holder the right to appeal decisions regarding benefit eligibility, care plans, services and providers, and reimbursement payments.
Notwithstanding Section 10235, this section applies to all long-term care policies in force, regardless of their dates of issuance.
Interest shall accrue and shall be payable to the claimant at the rate of 10 percent per annum on the amount of any accepted claim beginning on the first calendar day after the day that the payment of the accepted claim is due pursuant to Section 2695.7 of Title 10 of the California Code of Regulations or any successor to that provision, provided that the claim is accepted on or after December 1, 2008.
Every individual and group long-term care policy and certificate under a group long-term care policy shall be either guaranteed renewable or noncancelable.
“Guaranteed renewable” means that the insured has the right to continue coverage in force if premiums are timely paid during which period the insurer may not unilaterally change the terms of coverage or decline to renew, except that the insurer may, in accordance with provisions in the policy, and in accordance with Section 10236.1, change the premium rates to all insureds in the same class. The “class” is determined by the insurer for the purpose of setting rates at the time the policy is issued.
“Noncancelable” means the insured has the right to continue the coverage in force if premiums are timely paid during which period the insurer may not unilaterally change the terms of coverage, decline to renew, or change the premium rate.
Every long-term care policy and certificate shall contain an appropriately captioned renewability provision on page one, which shall clearly describe the initial term of coverage, the conditions for renewal, and, if guaranteed renewable, a description of the class and of each circumstance under which the insurer may change the premium amount.
Benefits under individual long-term care insurance policies issued before new premium rate schedules are approved under Section 10236.11 shall be deemed reasonable in relation to premiums if the expected loss ratio is at least 60 percent, calculated in a manner that provides for adequate reserving of the long-term care insurance risk.
For individual long-term care insurance policies issued before new premium rate schedules are approved under Section 10236.11, and for which rate revisions are filed on or after January 1, 2010, benefits shall be deemed reasonable in relation to the premium if the premium rate schedules have a lifetime expected loss ratio of at least 60 percent of the premium scale in effect on December 31, 2009, plus 70 percent of premium increases filed on or after January 1, 2010, calculated in a manner that provides for adequate reserving of the long-term care insurance risk. The lifetime expected loss ratio shall be calculated using the discount rate defined in paragraph (9) of subdivision (c).
However, if the premiums in any rate revision filing calculated in the manner provided in paragraph (1) produce a lifetime expected loss ratio that is less than the highest lifetime expected loss ratio for this policy form in the initial filing or that for requested premium rates in any filing made after January 1, 2013, the insurer shall reduce the premiums in the filing so that the current lifetime expected loss ratio is equal to or greater than the highest initially filed loss ratio or that for requested premium rates filed after January 1, 2013. In the determination of a lifetime expected loss ratio, a margin may reflect changes in the manner in which risks are shared between the insurer and a block of policies due to changes in this law effective January 1, 2013, and that margin shall not be increased unless the manner in which risks are shared between the insurer and the block of policies is changed further by law or regulation. The determination of the lifetime expected loss ratio shall be based on the actual distribution of policies in force at the time of the first filing after January 1, 2013, and not any prior assumed distribution.
In evaluating the expected loss ratio, due consideration shall be given to all relevant factors, including the following:
Experienced and projected trends.
Concentration of experience within early policy duration.
Expected claim fluctuation.
Experience refunds, adjustments, or dividends.
Renewability features.
All appropriate expense factors.
The discount rate used in the calculation of lifetime expected loss ratios. All present and accumulated values used to determine rate increases should use the maximum valuation interest rate for contract reserves. If one rate increase filing includes policy forms with different discount rates, separate projections for each discount rate should be prepared and then combined to create the total projection for the filings.
Experimental nature of the coverage.
Policy reserves.
Mix of business by risk classification.
Product features, such as long elimination periods, high deductibles, and high maximum limits.
Asset investment yield rate changes may not be used to justify a rate increase unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies or the commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in this state.
The experience on all similar long-term care policy forms issued in this state by an insurer and its affiliates and retained within the affiliated group shall be pooled together and the combined experience shall be used as the basis for assumptions that satisfy the requirements in subdivisions (a) and (b). Those assumptions and requested rate increases may vary by policy form if actuarially appropriate. Similar long-term care policy forms shall be classified into one of the following benefit classifications: nursing facility and residential care facility only, home care only, or comprehensive long-term care benefits.
Notwithstanding any other provision of this section, for rate revisions filed on or after January 1, 2010, the commissioner may approve an application for a rate revision based on less than a 70 percent loss ratio, but not less than a 60 percent loss ratio, for the portion attributable to the rate increase if an insurer can demonstrate that the rates are necessary to protect the financial condition of the insurer, including avoidance of further reductions in capital and surplus.
This section applies only to long-term care insurance policies issued before the approval of rate schedules under Section 10236.11.
Every certificate of group insurance issued or delivered in California shall provide for continuation or conversion coverage for the certificate holder if the group coverage terminates for any reason except the following reasons:
The termination of group coverage resulted from the insured’s failure to make any required payment of premium or contribution when due.
The terminating coverage is replaced not later than 31 days after termination by new group coverage effective on the day following the termination and the replacement coverage meets both of the following criteria:
The replacement coverage provides benefits identical to, or benefits determined by the commissioner to be substantially equivalent to or in excess of, those provided by the terminating coverage.
The premium for the replacement coverage is calculated on the insured’s age at the time of issue of the group certificate for the coverage which is being replaced. If the coverage being replaced has itself replaced previous group coverage, the premium for the newest replacement coverage is calculated on the insured’s age at the time the previous group certificate was issued.
“Continuation coverage” means the maintenance of coverage under an existing group policy when that coverage would be or has been terminated and which is subject only to continued timely payment of the premium.
Any insured individual whose eligibility for group coverage is based on his or her relationship to another person, shall be entitled to continuation coverage under the group policy if the qualifying relationship terminates by dissolution of marriage or death.
“Conversion coverage” means an individual policy of long-term care insurance, issued by the insurer of the terminating group coverage, without considering insurability, containing benefits which are identical, or which have been determined by the commissioner to be at least substantially equivalent, to the group coverage which would be or has been terminated for any reason.
In determining whether benefits are substantially equivalent, the commissioner shall consider, if applicable, the relative advantages of managed care plans which use restricted provider networks, considering items such as service availability, benefit levels, and administrative complexity.
The premium for the converted policy shall be calculated on the insured’s age at the time the group certificate was issued. If the terminating group coverage replaced previous group coverage, the premium for the converted policy shall be calculated on the insured’s age at the time the previous group certificate was issued.
Before issuing conversion coverage, the insurer may require, if adequate notice is provided to certificate holders in the certificate, that:
The individual must have been continuously insured under the group policy, or any group policy which it replaced, for at least six months immediately prior to termination in order to be entitled to conversion coverage.
The insured must submit written application for a conversion policy within a reasonable period after termination of the group coverage, and the premium paid as directed by the insurer, in order that the conversion policy be issued effective on the day following termination of group coverage.
The conversion policy contains a provision for a reduction of benefits if the insured has existing long-term care insurance, payable on an expense-incurred basis, which, together with the conversion policy, would result in payment of more than 100 percent of incurred expenses. This provision shall not be included in the conversion policy unless the reduction in benefits is reflected in a premium decrease or refund.
The conversion policy contains a provision limiting the payment for a single claim, spell of illness, or benefit period occurring at the time of conversion, to the amount that would have been payable had the group coverage remained in effect.
If a group long-term care policy is replaced by another policy to the same master policyholder issued, the replacing insurer shall do all of the following:
Provide benefits identical to the terminating coverage or benefits determined by the commissioner to be at least substantially equivalent to the terminating coverage. Lesser or greater benefits may be provided if the commissioner determines the replacement coverage is the most advantageous choice for the beneficiaries.
Calculate the premium on the insured’s age at the time of issue of the group certificate for the coverage which is being replaced. If the coverage being replaced has itself replaced previous group coverage, the premium for the newest replacement coverage shall be calculated on the insured’s age at the time the previous group certificate was issued. If the replacement coverage adds new or increased benefits, the premium for the new or increased benefits may be calculated on the insured’s age at the time of replacement.
Offer coverage to all persons covered under the replaced group policy on its date of termination.
Not exclude coverage for preexisting conditions if the terminating group coverage would provide benefits for those preexisting conditions.
Not require new waiting periods, elimination periods, probationary periods, or similar preconditions related to preexisting conditions. The insurer shall waive any such time periods applicable to preexisting conditions to the extent that similar preconditions have been satisfied under the terminating group coverage.
Not vary the benefits or the premium based on the insured’s health, disability status, claims experience, or use of long-term care services.
The premium rate schedules for all individual and group long-term care insurance policies issued in this state shall be filed with and receive the prior approval of the commissioner before the policy may be offered, sold, issued, or delivered to a resident of this state.
All initial rate filings shall be subject to the following:
An approval for an initial premium schedule shall not be granted unless the actuary performing the review for the commissioner certifies that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated. The certification may rely on supporting data in the filing. The actuary performing the review may request an actuarial demonstration that the assumptions the insurer has used are reasonable. The actuarial demonstration shall include either premium and claim experience on similar policy forms, adjusted for any premium or benefit differences, relevant and creditable data from other studies, or both.
The insurer shall submit to the commissioner for approval a rate filing for each policy form that includes at least all of the following information:
An actuarial memorandum that describes the assumptions the insurer used to develop the premium rate schedule. The actuarial assumptions shall include, but not be limited to, a sufficiently detailed description of morbidity assumptions, voluntary lapse rates, mortality assumptions, asset investment yield rates, a description of all expense components, and plan and option mix assumptions. The memorandum shall also include the expected lifetime loss ratio and projections of yearly earned premiums, incurred claims, incurred claim loss ratios, and changes in contract reserves.
An actuarial certification consisting of at least all of the following:
A statement that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated.
A statement that the policy design and coverage provided have been reviewed and taken into consideration.
A statement that the underwriting and claims adjudication processes have been reviewed and taken into consideration.
A complete description of the basis for contract reserves that are anticipated to be held under the form, to include all of the following:
Sufficient detail or sample calculations provided so as to have a complete depiction of the reserve amounts to be held.
A statement that the assumptions used for reserves contain reasonable margins for adverse experience.
A statement that the net valuation premium for renewal years does not increase.
A statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses, or if that statement cannot be made, a complete description of the situations in which this does not occur and the type and level of change in the reserve assumptions that would be necessary for the difference to be sufficient. An aggregate distribution of anticipated issues may be used as long as the underlying gross premiums maintain a reasonably consistent relationship. If the gross premiums for certain age groups appear to be inconsistent with this requirement, the commissioner may request a demonstration under subdivision (a) based on a standard age distribution.
A statement that the premium rate schedule is not less than the premium rate schedule for existing similar policy forms also available from the insurer except for reasonable differences attributable to benefits or a comparison of the premium schedules for similar policy forms that are currently available from the insurer with an explanation of the differences.
Premium rate schedules and new policy forms shall be filed by January 1, 2002, for all group long-term care insurance policies that an insurer will offer, sell, issue, or deliver on or after January 1, 2003, and for all previously approved individual long-term care insurance policies that an insurer will offer, sell, issue, or deliver on or after January 1, 2003, unless the January 1, 2002, deadline is extended by the commissioner. Insurers may continue to offer and market long-term care insurance policies approved before January 1, 2002, until the earlier of (1) 90 days after approval of both the premium rate schedules and new policy forms filed pursuant to this section or (2) January 1, 2003. Insurers that have filed premium rate schedules and new policy forms by March 1, 2002, may continue to offer and market long-term care insurance policies approved before January 1, 2002, until the earlier of (1) 90 days after approval of both the premium rate schedules and new policy forms filed pursuant to this section or (2) June 30, 2003.
This section shall not be construed as prohibiting an insurer from filing new group and individual policy forms, or from relieving an insurer of the obligation to file these forms, with the commissioner after January 1, 2003, if the policy form meets all the requirements of this chapter.
The commissioner shall not approve an initial premium rate schedule that includes scheduled rate increases based on the attained age of the insured or the duration of the policy.
On and after January 1, 2021, a long-term care policy shall not be issued using a premium rate schedule that includes scheduled rate increases based on the attained age of the insured or the duration of the policy.
Notwithstanding paragraphs (1) and (2), this subdivision does not prohibit or impact the pricing of benefits that allow for the purchase of additional coverage if the cost of the additional coverage is based on the insured’s attained age at the time the additional coverage is added.
All actuaries used by the commissioner to review rate applications submitted by insurers pursuant to this chapter who are employees of the department shall be members of the American Academy of Actuaries, with at least five years’ relevant experience in long-term care insurance industry pricing or alternatively shall meet the professional requirements to issue a “statement of actuarial opinion” as required by subdivision (a) of Section 10236.13.
If the department does not have sufficient employees who are actuaries meeting the requirements of this section to perform the volume of work required by this chapter, the commissioner may contract, as necessary, with independent actuaries who shall be members of the American Academy of Actuaries with at least five years’ relevant experience in long-term care insurance industry pricing.
If the department has employees who are actuaries, and independent actuaries under contract to the department, both meeting the requirements of this section to review rate applications, an insurer may generally choose between having the rate application reviewed by either employees or independent actuaries under contract to the department. The costs and expenses of reviews by independent actuaries under contract to the department shall be charged to the insurer. However, the department shall have the discretion to require a review by independent actuaries.
Employees of the department who are actuaries and who are otherwise qualified to review rate applications but who do not meet the requirements of this section may assist an independent actuary under contract to the department.
If the commissioner contracts with independent actuaries for purposes of this section, the commissioner shall promulgate regulations to maintain the confidentiality of rate filings and proprietary insurer information and to avoid conflicts of interest.
No insurer may increase the premium for an individual or group long-term care insurance policy or certificate approved for sale under this chapter unless the insurer has received prior approval for the increase from the commissioner.
The insurer shall submit to the commissioner for approval all proposed premium rate schedule increases, including at least all of the following information:
Certification by an actuary, who is a member of the American Academy of Actuaries and who meets the qualification standards of that organization, that:
If the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated.
The premium rate filing is in compliance with the provisions of this section.
An actuarial memorandum justifying the rate schedule change request that includes all of the following:
Lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase, and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale.
Annual values for the five years preceding and the three years following the valuation date shall be provided separately.
The projections shall include the development of the lifetime loss ratio. The lifetime expected loss ratio shall be calculated using the discount rate provided by subdivision (c) of Section 10236.14.
If the commissioner determines that a premium rate increase is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in this state, then:
The projected experience should be limited to the increases in claims expenses attributable to the changes in law or regulations.
If the commissioner determines that potential offsets to higher claims costs may exist, the insurer shall be required to use appropriate net projected experience.
Disclosure of how reserves have been incorporated in this rate increase.
Disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary.
A statement that policy design, underwriting, and claims adjudication practices have been taken into consideration.
A statement that asset investment yield rate changes have not been used to justify the rate increase unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies or the commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in this state.
If it is necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase, the insurer shall file composite rates reflecting projections of new certificates.
A statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commissioner.
Sufficient information for approval of the premium rate schedule increase by the commissioner.
The insurer, at its discretion, may request a premium rate schedule increase that is lower than the rate increase necessary to provide the certification required by subdivision (a) or a series of premium rate schedule increases with a present value of not more than the rate increase necessary to provide the certification required by subdivision (a). The commissioner may accept the premium rate schedule increase or series of increases without submission of the certification required by subdivision (a) if all of the following apply:
In the opinion of the commissioner, accepting the lower premium rate schedule increase or increases is in the best interest of California policyholders.
The actuarial memorandum discloses to the commissioner the rate increase necessary to provide the certification required by subdivision (a).
The rate increase filing satisfies all other requirements of this section.
The insurer discloses to policyholders affected by the approved increases the filed increase, the approved premium rate schedule increase or increases, and the amount and timing of any subsequent rate schedule increases included in the rate increase filing whether those subsequent rate schedule increases are approved or not approved by the commissioner.
The commissioner may approve a lower requested premium rate schedule increase and may approve the initial increase or more than just the initial increase requested pursuant to paragraph (1).
If the amount of increase after all increases disclosed pursuant to subparagraph (D) of paragraph (1), whether the increase or increases are approved or not approved by the commissioner, triggers the contingent benefit upon lapse, the commissioner shall require the administration by an insurer of the contingent benefit upon lapse as a condition of approval of a premium rate schedule increase that is lower than the amount necessary to provide the certification required by paragraph (1) of subdivision (a) or with the initial increase and each subsequent increase in a series of premium rate schedule increases. The commissioner may waive this condition of approval if an insurer demonstrates that the waiver is necessary to protect the financial condition of the insurer, including avoidance of further reductions in capital and surplus.
For purposes of paragraph (2) of subdivision (a) of Section 10236.14, the loss ratio calculation shall assume future premiums are based on the total filed rate schedule increase or series of increases disclosed pursuant to subparagraph (D) of paragraph (1), whether the increase or increases are approved or not approved by the commissioner.
The provisions of this section are applicable to all individual and group policies issued in this state on or after July 1, 2002.
Approval of all premium rate schedule increases shall be subject to the following requirements:
Premium rate schedule increases shall demonstrate that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:
The accumulated value of the initial earned premium times the maximum of both of the following:
58 percent.
The lifetime expected loss ratio calculated using the initial pricing assumption, actual distribution of policies issued, and the discount rate provided by subdivision (c).
Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis.
The present value of future projected initial earned premiums times the maximum of both of the following:
58 percent.
The lifetime expected loss ratio calculated using the initial pricing assumption, actual distribution of policies issued, and the discount rate provided by subdivision (c).
Eighty-five percent of the present value of future projected premiums not in subparagraph (C) on an earned basis.
However, if the premiums in any rate revision filing calculated in this manner produce a lifetime expected loss ratio that is less than the highest lifetime expected loss ratio for this policy form in the initial filing or that for requested premium rates in any filing made after January 1, 2013, the insurer shall reduce the premiums in the filing so that the current lifetime expected loss ratio is equal to or greater than the highest initially filed loss ratio or that for requested premium rates filed after January 1, 2013. In the determination of a lifetime expected loss ratio, the margin for moderately adverse experience shall be reflected and shall not be increased unless the manner in which risks are shared between the insurer and block of policies has been changed by this law or any future law or regulation. The determination of the lifetime expected loss ratio shall be based on the actual distribution of policies issued and not any assumed distribution prior to actual sales.
In the event the commissioner determines that a premium rate increase is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in this state, a premium rate schedule increase may be approved if the increase provides that 70 percent of the present value of projected additional premiums shall be returned to policyholders in benefits and the other requirements applicable to other premium rate schedule increases are met.
All present and accumulated values used to determine rate increases should use the maximum valuation interest rate for contract reserves. If one rate increase filing includes policy forms with different discount rates, separate projections for each discount rate should be prepared and then combined to create the total projection for the filing.
No request for a rate increase on any policy form approved under Section 10236.11 shall be approved by the commissioner except as follows: the experience on all similar long-term care policy forms issued in this state by the insurer and its affiliates and retained by the affiliated group that have been approved either prior to approval under, or pursuant to, Section 10236.11 shall be pooled together and the combined experience shall be used as the basis for assumptions that satisfy the requirements in subdivision (a). Those assumptions and requested rate increases may vary by policy form if actuarially appropriate. Similar long-term care policy forms shall be classified into one of the following benefit classifications: nursing facility and residential care facility only, home care only, or comprehensive long-term care benefits. An insurer is not precluded from filing requests for premium rate schedule increases on all of its policy forms if the combined experiences after pooling all applicable policy forms satisfies the requirements of subdivision (a).
Notwithstanding any other provision of this section, for applications for rate revisions filed on or after January 1, 2013, the commissioner may approve the application if an insurer demonstrates that the rates are necessary to protect the financial condition of the insurer, including avoidance of further reductions in capital and surplus.
The provisions of this section are applicable to all individual and group policies issued in this state on or after July 1, 2002.
Premium rate schedule increases that have been approved shall be subject to the following:
For each rate increase that is implemented, the insurer shall file for approval by the commissioner updated projections, as defined in paragraph (1) of subdivision (b) of Section 10236.13, annually for the next three years and include a comparison of actual results to projected values. The commissioner may extend the period to greater than three years.
If the commissioner has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in subdivision (a), the commissioner may require the insurer to implement any of the following:
Premium rate schedule adjustments.
Other measures to reduce the difference between the projected and actual experience.
In determining whether the actual experience adequately matches the projected experience, consideration should be given to paragraph (6) of subdivision (b) of Section 10236.13, if applicable.
If the commissioner demonstrates, based upon credible evidence, that an insurer has engaged in a persistent practice of filing inadequate premium schedules, the commissioner may, in addition to any other authority of the commissioner under this chapter, and after the insurer is afforded proper notice and due process, prohibit the insurer from filing and marketing comparable coverage for a period of up to five years or from offering all other similar coverages, and may limit marketing of new applications to the products subject to recent premium rate schedule increases.
This section shall not apply to life insurance policies and certificates that accelerate benefits for long-term care.
The provisions of this section are applicable to all individual and group policies issued in this state on or after July 1, 2002.
ARTICLE 5. Inflation Escalator and Benefit Increases [10237. - 10237.6.]
This article applies to all long-term care insurance policies delivered or issued for delivery in this state on or after January 1, 1991.
No insurer may deliver or issue for delivery a long-term care insurance policy or certificate in this state unless the insurer offers to each policyholder and certificate holder, in addition to any other inflation protection, the option to purchase a long-term care insurance policy or certificate that provides for benefit levels and benefit maximums to increase to account for reasonably anticipated increases in the costs of long-term care services covered by the policy. Insurers shall offer to each policyholder and certificate holder, at the time of purchase, the option to purchase a long-term care insurance policy or certificate containing an inflation protection feature which is no less favorable than one that does one or more of the following:
Increases benefit levels annually in a manner so that the increases are compounded annually at a rate of not less than 5 percent.
Guarantees the insured individual the right to periodically increase benefit levels without providing evidence of insurability or health status and without regard to claim status or history so long as the option for the previous period has not been declined. The amount of the additional benefit shall be no less than the difference between the existing policy benefit and that benefit compounded annually at a rate of at least 5 percent for the period beginning with the purchase of the existing benefit and extending until the year in which the offer is made.
Covers a specified percentage of actual or reasonable charges and does not include a maximum specified indemnity amount limit.
The insurer of a group long-term care insurance policy as defined in subdivision (a), (b), or (c) of Section 10231.6, shall offer the holder of the group policy the opportunity to have the inflation protection pursuant to this section extended to existing certificate holders, but the insurer is relieved of the obligations imposed by this section if the holder of the group policy declines the insurer’s offer.
If the policy is issued to a group, the required offering in Section 10237.1 shall be made to the group policyholder; except that if the policy is issued to a group as defined in subdivision (d) of Section 10231.6, other than to a continuing care retirement community, the offering shall be made to each proposed certificate holder.
The offer in Section 10237.1 shall not be required of any of the following:
Life insurance policies or riders containing accelerated long-term care benefits.
Expense incurred long-term care insurance policies. For purposes of this subdivision, “expense incurred” does not include policies paying a certain percentage of reasonable and customary charges up to a specified, indemnity-type maximum amount.
Inflation protection benefit increases under a policy that contains these benefits shall continue without regard to an insured’s age, claim status or claim history, or the length of time the person has been insured under the policy.
An offer of inflation protection that provides for automatic benefit increases shall include an offer of a premium which the insurer expects to remain constant. The offer shall disclose in a conspicuous manner that the premium may change in the future unless the premium is guaranteed to remain constant.
The inflation protection benefit increases under a policy or certificate that contains an inflation protection feature shall not be reduced due to the payment of claims.
An inflation protection provision that increases benefit levels annually in a manner so that the increases are compounded annually at a rate not less than 5 percent shall be included in a long-term care insurance policy unless an insurer obtains a rejection of inflation protection signed by the policyholder.
The rejection, to be included in the application or on a separate form, shall state: “I have reviewed the outline of coverage and the graphs that compare the benefits and premiums of this policy with and without inflation protection. Specifically, I have reviewed the plan, and I reject 5 percent annual compound inflation protection.
An insurer shall include the following information in or with the outline of coverage:
A graphic comparison of the benefit levels of a policy that increases benefits at a compounded annual rate of not less than 5 percent over the policy period with a policy that does not increase benefits. The graphic comparison shall show benefit levels over at least a 20-year period.
Any expected premium increases or additional premiums to pay for automatic or optional benefit increases.
An insurer may use a reasonable hypothetical or graphic demonstration for purposes of this disclosure.
CHAPTER 3. Burial Contracts [10240. - 10252.]
A “funeral insurance contract” is a life policy embodying an agreement, for a valuable consideration, to embalm or dispose of, or expressly to procure or pay or to provide funds for, in whole or in part, the embalming or disposal of the remains of any person living at the time of the issuance of such policy.
The provisions of this chapter shall apply to all funeral insurance contracts issued or delivered in this State upon the life of any person in this State and to any insurer issuing or delivering such contracts in this State upon the life of any person in this State.
Anything in this code or elsewhere to the contrary notwithstanding, no funeral insurance contract shall be issued or delivered in this State upon the life of any person in this State unless it contains in substance the following provisions:
A provision that the insured, after three months’ premiums have been paid, is entitled to a period of grace not less than 30 days within which to make payment of any subsequent premium, subject to the option of the insurer to make an interest charge, not in excess of 6 percent per annum, for the number of days of grace elapsing before the payment of the premium; during said period of grace the policy shall continue in full force. But in case the policy becomes a claim during the said period, the amount of such unpaid premiums, with interest thereon, may be deducted from the amount payable under the policy in settlement thereof.
A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue or from the date of any reinstatement thereof except for suicide, nonpayment of premiums or the violation of the conditions of the policy relating to military or naval service in time of war.
A provision that the policy, the application therefor and any rider attached to the policy, shall constitute the entire contract between the parties; a copy of such application shall be endorsed upon or attached to the policy when issued. An application for reinstatement, if any, shall be a part of said contract even though not attached thereto. Such policy shall not incorporate therein, by reference or otherwise, the constitution, by-laws, or rules or regulations of any organization whatsoever. No insurer or society, including any society operating under Chapter 10 of Part 2 of Division 2 of this code, operating under any law which requires such incorporation shall issue or deliver funeral insurance contracts in this State.
A provision that all statements made by the insured in his application for the policy or reinstatement thereof, shall, in the absence of fraud, be deemed representations and not warranties.
A provision that if the age of the insured has been misstated in the policy or application thereof, the amount payable under the policy shall be such as the premium provided for therein would have purchased at the correct age.
A provision that before the insurer may pay the proceeds of such policy or any portion thereof to any undertaker or funeral director designated in the policy for funeral services or miscellaneous expenses in connection therewith, the insurer shall require proof satisfactory to it that the services and expenses have been rendered and if proof of rendition of services and expenses is not furnished within 30 days after demand is made upon the insurer for such payment and in any event within one year from the date of the insured’s death, the insurer shall pay the proceeds of such insurance to the beneficiary designated in the policy, and if no beneficiary is so designated, to the estate of the insured or to any person, other than to such undertaker or funeral director, appearing to the insurer to be equitably entitled to all or any portion of the proceeds by reason of having incurred expense or furnished funeral services for the insured, to the extent of the expense incurred or services furnished.
A provision granting the insured the right at any time during his lifetime to change the funeral director designated in the policy, if one be designated.
If an insurer issuing any such funeral insurance contract is subject to a provision in the laws under which it operates or in its constitution or charter, to the effect that any person purchasing such contract would be subject to additional assessments, premiums or calls other than the premium stated in the contract, then that fact shall be prominently displayed on the application for, and in such contract when issued.
Limited death benefit insurance contracts may be issued and delivered in this state upon the life of any person in this state who makes premium payments over a period of time to purchase a funeral insurance policy. Those policies shall be subject to the disclosure requirements of this chapter.
Except as permitted in Section 10247, no funeral insurance contract issued or delivered in this state upon the life of any person in this state shall contain any provision scaling down or reducing the benefits payable below the face amount of the policy. The provisions of this section, however, shall not apply to a reduction of the benefit payable because of a misstatement of the age in the policy or application therefor, nor to the suicide, military or naval service or war provisions of the policy, if any, nor to contestability of the policy, nor to a policy issued on the life of a juvenile.
If a limited death benefit insurance contract is issued under Section 10247, the limited death benefit period shall not exceed two years.
No funeral insurance contract shall be issued or delivered in this State except by an admitted insurer issuing policies on a legal reserve basis.
No person shall sell or offer for sale any such funeral insurance contract in this state unless he or she is licensed as a life agent pursuant to the provisions of Chapter 5 (commencing with Section 1621).
CHAPTER 4. Standard Provisions in Disability Policies [10270. - 10402.1.]
ARTICLE 1. Scope of Chapter and Definitions [10270. - 10279.]
This chapter shall not apply to workers’ compensation insurance, any policy of liability insurance with or without supplementary coverage, or any policy or contract of reinsurance.
This chapter shall apply to each of the types of insurance enumerated in this subdivision that insure more than one person, except to the extent that the type of insurance may be exempted from compliance with particular portions of this chapter by the provisions of this chapter relating to that type of insurance.
The types of insurance that insure more than one person and that are hereby exempted from subdivision (c) of Section 10320 (but family expense disability insurance only to the extent therein provided), and Section 10401 (but only to the extent in this chapter provided) are:
Blanket insurance, as defined in subdivision (a) of Section 10270.2.
Tuition refund insurance, as defined in Section 10270.1.
Family expense disability insurance, as defined in Section 10270.7.
Unemployment compensation disability insurance, as defined in paragraph (6) of subdivision (a) of Section 10270.2.
As used in this section:
“Institution” means any school, college or other institution of learning or the principal or head thereof.
“Camp” means one or more tents, vehicles, buildings or structures together with the tract of land appertaining thereto, established or maintained as living quarters for temporary occupancy by 10 or more people, and shall include the principal or head thereof.
“Student” means any student or pupil or his parent, guardian or other person who pays or becomes obligated to pay the tuition or fee required for registration or attendance at the institution.
“Camper” means any person or his parent, guardian or other person who pays or becomes obligated to pay the tuition or fee required for registration or attendance at the camp.
“Tuition refund insurance” means any policy which, because of a student’s or camper’s absence from, or inability to register at or attend, an institution or camp, as the case may be, provides for the indemnification of the student or camper for his loss of tuition or fee, or if he has been previously indemnified therefor by the institution or camp, for its reimbursement.
Except to the extent provided herein, the other sections of this chapter shall not apply to tuition refund insurance providing coverage for ten (10) or more students or campers.
No policy of tuition refund insurance shall be delivered or issued for delivery to any person in this State unless approved as to substance and form by the commissioner. The commissioner may, after notice and hearing, promulgate such reasonable rules and regulations, relating to the substance, form and issuance of such policies, as are necessary or desirable to preserve, insofar as applicable, standards as respects substance, form and issuance comparable to the standards in such respects prescribed by this chapter and applicable to disability policies, and to further the purpose or purposes for which such policies are to be issued.
Tuition refund insurance may be issued only to an institution or camp which does not have a similar policy in effect, but its cost may be borne by the student or camper, as the case may be, in which event he may, upon request, obtain from the insurer a copy of the policy.
Blanket insurance is that form of insurance providing coverage for specified circumstances and insuring by description all or nearly all persons within a class of persons defined in a policy issued to a master policyholder, and not by specifically naming the persons covered, by certificate or otherwise, although a statement of the coverage provided may be given, or required by the policy to be given, to eligible persons. The permitted types of blanket insurance are those where the blanket policy is issued to any of the following:
A volunteer or governmental fire department, emergency medical services company, or similar volunteer or governmental organization providing benefits to members or participants only in the event of accident incurred while performing actions incident to an activity or operation sponsored or supervised by the department, company, or organization.
A college, school, or other institution of learning, a school district or districts or school jurisdictional unit, or to the head, principal, or governing board of an educational unit who or which shall be deemed the policyholder; providing benefits to students without necessarily any restriction as to activity, time, or place, or to teachers, employees, or volunteers, while performing actions incident to special duties, such as at camps, at summer playgrounds, or during tours or excursions; and providing benefits to students, teachers, employees, or volunteers, and spouses and dependents of students, teachers, and employees, for death or dismemberment resulting from accident, or for hospital, medical, surgical, drug, or nursing expenses resulting from accident or sickness.
A sports team, camp, sponsor, or proprietor thereof, who shall be deemed the policyholder, providing benefits to sports team participants, campers, employees, officials, supervisors, volunteers, or persons responsible for their support, for death or dismemberment resulting from accident, or for hospital, medical, surgical, or nursing expenses resulting from accident, to those participants, campers, employees, officials, supervisors, volunteers, or persons responsible for their support, or arising out of sickness of those participants, campers, employees, officials, supervisors, volunteers, or persons responsible for their support, provided the accident or the first manifestation of sickness occurs while those participants, campers, employees, officials, supervisors, volunteers, or persons responsible for their support are in or on the buildings or premises of the sports team or camp, being transported between their homes and the sports team or camp, or while at any other place as an incident to sports team- or camp-sponsored activities or while being transported to, from, or between those places.
A newspaper, farm paper, magazine, or other periodical publication, which shall be deemed the policyholder, providing benefits for independent contractors, such as carriers, newsboys, dealers, distributors, wholesalers, or others engaged in the sale, distribution, collecting for, or other activities pertaining to the marketing and delivery of the publication, including attendance at a coaching school or participation as a member of a trip organized, supervised, and sponsored as a reward for meritorious service, on account of loss resulting from accident or sickness, the benefit to be payable to the independent contractors or to their parents, guardians, or other persons responsible for their support.
When the premium for the insurance is paid by the person insured, the person may, upon request, obtain from the insurer in certificate form a copy of the policy.
Any religious, charitable, recreational, educational, athletic, civic organization, or branch thereof, which shall be deemed the policyholder, providing benefits to any group of members, employees, or participants for death or dismemberment or for hospital, medical, surgical, or nursing expenses resulting from accident incurred incident to specific hazards pertaining to any activity or activities or operations sponsored or supervised by, or on the premises of, the policyholder.
An employer, a majority of the employees in this state of an employer, or both, upon application, to pay the benefits afforded by a voluntary plan of unemployment compensation disability insurance. Notwithstanding the provisions of Section 10113, the policy may incorporate by reference any of the appropriate provisions of Part 2 (commencing with Section 2601) of Division 1 of the Unemployment Insurance Code and the authorized regulations of the Director of Employment Development.
An employer, who shall be deemed the policyholder, providing benefits to any group of workers, dependents, or guests, limited by reference to specified hazards incident to activities or operations of the policyholder, for death or dismemberment, or for hospital, medical, surgical, or nursing expenses, resulting from accident. When the premium for the insurance is paid by the person insured, the person may, upon request, obtain from the insurer in certificate form a copy of the policy.
Any common carrier or any operator, owner, or lessor of a means of transportation, who shall be deemed the policyholder, providing benefits to any group of persons who may become lessees or passengers, limited by reference to their travel status on that common carrier or that means of transportation, for death or dismemberment, or for hospital, medical, surgical, or nursing expenses, resulting from accident. When the premium for the insurance is paid by the person insured, the person may, upon request, obtain from the insurer in certificate form a copy of the policy.
An entertainment production company, who shall be deemed the policyholder, providing benefits to any group of participants, volunteers, audience members, contestants, or workers for death or dismemberment, or for hospital, medical, surgical, or nursing expenses, resulting from accident while engaged in any activity or operation of the policyholder. When the premium for the insurance is paid by the person insured, the person may, upon request, obtain from the insurer in certificate form a copy of the policy.
A “blanket policy” is any disability policy of the nature herein described sold to any of the entities described in paragraphs (1) to (9), inclusive, of subdivision (a) that provides coverage for any group of persons within permitted categories defined in the policy. Policies referred to in paragraph (6) of subdivision (a) shall comply with the provisions of this section specifically referring thereto. Policies referred to in paragraphs (1) to (5), inclusive, or (7) to (9), inclusive, of subdivision (a) may provide that the cost of the insurance coverage shall be borne by either the policyholder, or the individuals insured or their parents or guardians, payable through the policyholder. In the absence of a policy provision excluding coverage for otherwise covered individuals who have not individually enrolled with the policyholder and undertaken to pay all or a specified portion of the premium allocable to the individual, the policy shall provide the described insurance for all who fall within the categories of covered individuals defined in the policy. The policy may, but is not required to, contain provisions requiring a minimum number of participating persons or a minimum percentage of participation before the policy is effective. In the absence of such a provision, coverage shall not be denied any individual otherwise eligible on those grounds.
A policy described in paragraphs (1) to (5), inclusive, or (7) to (9), inclusive, of subdivision (a) shall not be issued until approved as to substance and form by the commissioner. The commissioner may, after notice and hearing, promulgate reasonable rules and regulations relating to the substance, form, and issuance of the policies that are necessary or desirable to preserve, insofar as applicable, standards of substance, form, and issuance comparable to the standards prescribed by this chapter that are applicable to other types of disability policies, and to further the purposes for which the policies are issued.
A policy described in paragraph (6) of subdivision (a) shall not be issued until approved as to form by the commissioner. The commissioner may, after notice and hearing, promulgate reasonable rules and regulations relating to the form and issuance of the policies that do not affect the substance of the coverage, and that are necessary or desirable to preserve, insofar as applicable, standards of form and issuance comparable to the standards prescribed by this chapter that are applicable to other types of disability policies, and to further the purposes for which the policies are issued. Notwithstanding the provisions of Section 10113, the policy may incorporate by reference any of the appropriate provisions of Part 2 (commencing with Section 2601) of Division 1 of the Unemployment Insurance Code and the authorized regulations of the Director of Employment Development.
A policy described in this section shall not constitute workers’ compensation insurance, as defined in Section 109. A policy described in paragraphs (3), (5), (7), (8), or (9) of subdivision (a) shall not be marketed or sold as a substitute for health insurance coverage compliant with the requirements of the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152).
An insurer that intends to issue a policy of blanket insurance authorized by the amendments to this section pursuant to the act adding this subdivision, or authorized pursuant to Section 10270.2.5, using a policy form previously approved by the commissioner, where the only new language in the policy is the specification of the policyholder, covered persons, or the hazards or activities insured, shall file that new language with the commissioner prior to issuance of the policy. Submissions of documents containing variable text or blanks shall include complete lists of the variable wording or accurate descriptions of the material to be inserted in lieu of the variable wording or in the blanks of these documents.
A policy using the new language shall not be issued until either 30 days expires without notice from the commissioner after the new language is filed, or the commissioner gives their written approval prior to that time. If the commissioner at any time notifies the insurer, in writing and specifying the reasons for the opinion, that the filed new language does not comply with the requirements of law, the insurer shall not issue any policy containing that language.
This subdivision shall not be construed to provide separate authority for the commissioner to reopen review of previously approved policy forms.
In addition to the permitted types of blanket insurance issued to entities described in Section 10270.2, the commissioner may, in his or her discretion, add other entities that may be eligible to purchase blanket insurance for any class of risks relating to benefits for death or dismemberment, or for hospital, medical, surgical, or nursing expenses, resulting from accident which may be properly eligible for blanket insurance.
The commissioner may issue a letter order, and shall post the letter order on the Internet Web site of the Department of Insurance, any time he or she exercises discretion pursuant to subdivision (a) to add other entities that may be eligible to purchase blanket insurance. These letter orders shall not be subject to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
The commissioner may withdraw a letter order issued pursuant to this section in the manner described in subdivision (f) of Section 10291.5. A proceeding under this subdivision shall not be subject to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
A blanket disability policy of a type permitted under paragraph (2) or (5) of subdivision (a) of Section 10270.2 may include either a coordination of benefits policy provision or a nonduplication of benefits policy provision, at the option of the policyholder.
The essential features of any policy under paragraph (2) or (5) of subdivision (a) of Section 10270.2 shall be disclosed to the insured, or the parent or legal guardian of the insured, prior to enrollment in that policy. All disclosures shall state whether or not the benefits payable under the blanket insurance policy are subject to reduction, to the extent provided in the policy, if an individual insured thereunder is entitled to benefits, whether on an indemnity basis or on a provision-of-service basis, for hospital, medical, dental, or surgical expenses under any other valid and collectible individual, group, or blanket insurance policy or contract, hospital or medical service program, or group-practice prepayment plan, except for automobile medical payments insurance.
The disclosure material shall be submitted to the commissioner for review with the blanket insurance policy.
Any disability insurer may issue policies of group disability insurance and family expense disability insurance as defined in this article but shall not issue any form of policy of group disability insurance, or family expense disability insurance except as prescribed in this article and except as provided in Article 6.7 of Chapter 1 of Part 2 of Division 1. Provided, however, that during the calendar years of 1952 to 1956, inclusive, a policy of family expense disability insurance as defined in Section 10270.7 may either (1) contain the provisions required by Section 10270.8 and those promulgated by the commissioner pursuant to Sections 10270.9 and 10270.93 and be subject to this article and to Section 10291.5 or (2) be filed and approved under Article 2 of this chapter and be subject to such article and to Articles 3a, 4a and 5a of this chapter and contain the provision required by Section 10270.8(b). On and after January 1, 1957 the provisions of this article shall no longer relate to such policies except Section 10270.7 and subdivision (b) of Section 10270.8 and all of such policies shall be subject to the provisions set forth in alternative (2) above, except that such policies need not comply with subsection (c) of Section 10320 if they comply with Section 10270.7.
Group disability insurance is that form of disability insurance which conforms to all of the following conditions:
Written under a master policy, issued to any of the following:
The federal or state government, any federal or state agency, political subdivision or district, any public, governmental, or municipal corporation, any unit, agency, or department thereof, any corporation, copartnership or individual employer, or to the trustee of any association of employers, offering insurance to all the employees of the employer or of the employer members of the association or to all of any class or classes thereof determined by conditions pertaining to employment and covering not less than two such employees or those employees together with their dependents or spouses for amounts of insurance based upon some plan which will preclude individual selection by the employee as to the amount of his or her insurance coverage thereunder.
A principal eligible to have issued to him or her a policy of group life insurance under the provisions of Section 10203.7 and insuring not less than two agents as defined in that section and eligible thereunder to be insured, or those agents together with their dependents or spouses.
Any association having a constitution and bylaws and formed and continuously maintained in good faith for purposes other than that of obtaining insurance, offering insurance to all the eligible members, or class of members, of the association and covering not less than two such members or those members together with their dependents or spouses and not less than 25 percent of all eligible members, or class of members, for amounts of insurance based upon some plan which will preclude individual selection by the member as to the amount of his or her insurance coverage thereunder. If the master policy is to be issued to cover members of labor unions, it may be issued to more than one such union.
An association or a trust, or the trustees of a fund established, created, or maintained for the benefit of members of one or more associations. The association or associations shall have at the outset a minimum membership of 100 persons, and shall be organized and maintained in good faith for purposes other than that of obtaining insurance. The association or associations shall have been in active existence for at least two years, and shall have a constitution and bylaws which require regular meetings not less than annually to further purposes of the members. The members shall have voting privileges and representation on the governing board or boards and committees. The policy shall be subject to the following requirements:
The policy may insure members of the association or associations, and employees thereof.
The premium for the policy shall be paid from funds contributed by the association or associations, or by members, or by both, or from funds contributed by the covered persons, or from both the covered persons and the association.
A policy on which no part of the premium is to be derived from funds contributed by the covered persons specifically for the insurance shall insure all eligible persons, except those who, in writing, reject the coverage.
Any trustees eligible to have issued to them a policy of group life insurance under the provisions of Section 10202.8 and insuring not less than two employees or members eligible thereunder to be insured or those employees or members together with their dependents or spouses.
A school district or districts, the governing board of any school district or districts, a private or parochial school or schools, or the governing board or person in charge of the operation of any private or parochial school or schools, insuring not less than 50 pupils of the school or district and providing benefits to pupils or persons responsible for their support for death or dismemberment resulting from accident or for hospital, medical and surgical expenses resulting from accident to those pupils while they are in or on buildings or premises of the schools or districts during the time the pupils are required to be therein or thereon by reason of their attendance upon a college or a regular day school or any regular day school of a school district or districts or while being transported by the school or schools or district or districts to and from school or other place of instruction or while at any other place as an incident to school-sponsored activities and while being transported to, from and between these places.
Transmission or collection of all premiums or premium contributions shall be performed by the policyholder, except where the policy specifies the persons other than the policyholder by whom the transmission or collection shall be made, and in one of the following situations:
If the policy covers the employees of more than one employer, the insurer may collect premium contributions from individual employers whose employees are insured or may assist the policyholder in making these collections. If the employees of more than 100 such employers are covered under that policy, it shall state as a separate part of the premium to be charged for the policy the amount to be charged by the insurer for the collection.
If the policy covers a group of governmental employees and the governmental unit paying those employees will not transmit their premium contribution after payroll deduction, the insurer may collect from the individual employees. If more than 100 of these employees are covered under that policy, it shall state as a separate part of the premium to be charged for the policy the amount to be charged by the insurer for the collection.
If individual members of the group make payment of their share of the premium contribution to the insurer with or without billing or solicitation by the insurer during a period of temporary absence from active work of not exceeding 90 days, the payment may be received without the necessity of any separately stated charge by the insurer.
If the policy covers the members of an association, the insurer may collect premium contributions from individual members or may assist the policyholder in making these collections. If more than 100 such members are covered under that policy, it shall state as a part of the premium to be charged for the policy the amount to be charged by the insurer for the collection.
There is issued and delivered in accordance with the policy provision required by subdivision (b) of Section 10270.6 an individual certificate setting forth the benefits and the exceptions under, and referring to, the master policy under which the certificate is issued.
Those certificates are not subject to the provisions of this chapter relating to the master policy, but the forms thereof shall be submitted to the commissioner for his or her approval and shall not be issued without approval of the forms in the manner provided in the case of the master policy.
Another permitted form of group disability insurance is that which conforms to all of the following conditions.
Covering debtors who are or become obligated to repay an indebtedness in substantially equal installments, or to repay a portion of an indebtedness in substantially equal installments over a year or more and repay a final balance in any amount on a date certain thereafter, to one creditor, as “creditor” is defined in subdivision (3) of Section 779.2.
The group numbers not less than 10 new entrants yearly.
The amounts insured on any one debtor do not exceed those permitted by Section 779.4.
The policy is issued upon application of and made payable to the creditor or his successor in interest and such alternate beneficiaries as are required by Article 5.9 (commencing with Section 779.1) of Chapter 1 of Part 2 of Division 1, and the premiums are paid by or through the creditor.
A policy issued under this section shall conform to all applicable provisions of this code.
Except as provided in Section 10195 with respect to regulation of group Medicare supplemental insurance, and provisions of law regulating group long-term care insurance, no certificate of group disability insurance advertised or marketed to persons in this state shall be issued or delivered on or after January 1, 1989, to any person 55 years of age or older in this state pursuant to a group master insurance policy issued or delivered in another state unless the certificate and master policy have been filed with, and approved by, the commissioner.
This section does not apply to policies issued to one or more employers or labor organizations, or to the trustees of funds established by one or more employers or labor organizations, or combination thereof, for employees or former employees, or combination thereof, or for members or former members, or combination thereof, of the labor organization.
The commissioner shall adopt regulations necessary to interpret and implement this section.
The state and any political subdivisions thereof and any municipality, may provide for the type of insurance set forth in Section 10270.5 of this code the same as any private employer and may contribute to a fund established under such section the same as any private employer.
A county may include as persons eligible under its master policy issued pursuant to Section 10270.5, employees of a district located wholly or partially within the county. Such inclusion of district employees is subject to Section 53200.4 of the Government Code.
With respect to a policy issued to a corporation, copartnership or individual employer eligible for group insurance pursuant to Section 10270.5, the term “employees” may be deemed to include the officers, managers and employees of subsidiary or affiliated corporations, and the individual proprietors, partners and employees of affiliated individuals and firms, when the business of such subsidiary or affiliated corporations, firms or individuals is controlled by the policyholder through stock ownership, contract or otherwise, or when the policyholder is controlled by affiliated corporations, firms or individuals through stock ownership, contract or otherwise.
With respect to a policy issued to a copartnership or individual employer pursuant to Section 10270.5, the term “employees” may be deemed to include the individual proprietor or partners of the policyholder.
With respect to a policy issued to a trust pursuant to subdivisions (1) or (4) of subsection (a) of Section 10270.5 the term “employees” may be deemed to include (1) the individual proprietors and partners of any employers which are individual proprietors or partnerships, (2) the employees of an association and (3) the trustee, or trustees, or the employees of the trustee, or trustees, or both, if their duties are principally connected with such trusteeship.
With respect to a policy issued to an association pursuant to subdivision (3) of subsection (a) of Section 10270.5 the term “members” may be deemed to include the employees of the association.
Nothing contained herein shall permit a director of a corporate employer to become insured under a group policy unless such person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director.
Nothing contained herein shall permit an individual proprietor or partner to become insured under a group policy unless he is actively engaged in and devotes a substantial part of his time to the conduct of the business of the proprietor or partnership.
Nothing contained herein shall permit any employee to become insured under a group policy unless he is an officer, manager, or employee for compensation of the employer to whom a group policy is issued, or of one or more of the individuals, firms, or corporations specified in subdivision (a), or of the association or trustee or trustees specified in subdivision (c), or of the association specified in subdivision (d).
Officers, managers, and employees of a public agency who receive no compensation may be insured under a group policy purchased pursuant to the provisions of Article 1 (commencing with Section 53200) of Chapter 2, Part 1, Division 2, Title 5 of the Government Code.
Another form of group disability insurance is that form of disability insurance conforming to the following conditions:
Written under a master policy issued to the trustee of any self-employed individuals, whether or not they have any employees, all of whom have contracts with the same publisher of a newspaper, for the performance of services for such publisher as independent contractors, offering insurance to such self-employed individuals and to all the employees of any such persons and covering not less than 10 such self-employed individuals and their employees or such individuals and their employees together with their dependents or spouses for amounts of insurance based upon some plan which will preclude individual selection by the eligible person as to the amount of his insurance coverage thereunder;
For delivery to each person insured thereunder, other than dependents or spouses of an insured employee or person, there is issued to the holder of the master policy by the insurer an individual certificate setting forth the benefits and the exceptions under, and referring to, the master policy under which the certificate is issued.
Such certificates are not subject to the provisions of this chapter relating to the master policy, but the forms thereof shall be submitted to the commissioner for his approval and shall not be issued without such approval of such forms in the manner provided in the case of the master policy.
Every group disability master policy shall contain the following provisions:
A provision that the policy, the application of the policyholder, and the individual applications, if any, of the individuals insured shall constitute the entire contract between the parties, and that all statements made by the policyholder, or by the individuals insured shall, in the absence of fraud, be deemed representations and not warranties, and that no such statement shall be used in defense to a claim under the policy, unless it is contained in a written application;
A provision that the insurer will issue to the policyholder for delivery to the individuals insured under such policy, an individual certificate setting forth a statement as to the insurance protection to which he or she is entitled and to whom payable;
A provision that to the group or class thereof originally insured shall be added from time to time all new employees, members, or pupils of the policyholder eligible to and applying for insurance in such group or class;
A statement that such policy is not in lieu of and does not affect any requirement for coverage by workers’ compensation insurance.
An individual certificate shall be individualized, except that in the case of an individual certificate under a group policy which requires no regular contribution toward the payment of the premium to be made by the individuals covered thereunder, such individual certificate need not be individualized if it is in a form setting forth a clear statement of the conditions of eligibility from which the person covered can determine the circumstances under which he is insured under the master policy.
An individual certificate shall be deemed to be “individualized,” within the meaning of this section, if it contains either the name of the person covered or some other means of identifying to the individual covered that it is his individual certificate.
If hereafter any dividend is paid or any premium refunded under any policy of group disability insurance heretofore or hereafter issued, the excess, if any, of the aggregate dividends or premium refunds under such policy over the aggregate expenditures for insurance under such policy made from funds contributed by the policyholder, or by an employer of such insured persons or by union or association to which insured persons belong, including expenditures made in connection with the administration of such policy, shall be applied by the policyholder for the benefit of such insured employees generally or their dependents or insured members generally or their dependents. For the purpose of this section and at the option of the policyholder, “policy” may include all group life and disability insurance policies of the policyholder.
Family expense disability insurance is that form of disability insurance insuring more than one person and issued to the head of a family or his spouse indemnifying him, or his spouse, or both, against loss due to disability of one or more persons dependent at the time of issuance upon him, or his spouse, or both, and may include indemnification on account of his own disability and disability of his spouse whether or not either is dependent on the other.
Where such a policy provides for payment for expenses incurred, expenses incurred by or upon behalf of any person covered by the policy shall be deemed incurred by the person to whom or at whose direction benefits are payable under the policy.
No question as to whether or not any person is the head of the family or his spouse, or is a child or dependent of either shall relieve the insurer of any liability it otherwise would have under the policy.
Where such a policy indemnifies a spouse alone or a spouse and the head of the family, references in the policy to the head of the family shall be deemed to refer to or include the spouse.
Family expense disability policies shall also contain the following provisions:
A provision that the policy and the application, if any, of the head of the family shall constitute the entire contract between the parties, and that all statements made by the head of the family shall, in the absence of fraud, be deemed representations and not warranties, and that no statement shall be used in defense to a claim under the policy, unless it is contained in a written application;
A provision that to the family originally insured may be added from time to time all new members of the family eligible for insurance in such family; and that the head of the family shall give the insurer notice of the addition to the family of any person eligible for coverage under the policy.
No group disability policy shall be issued or delivered in this state nor, except as otherwise provided in Sections 10270.91 and 10270.98, shall an insurer provide or agree to provide group disability coverage until a copy of the form of the policy is filed with the commissioner and approved by him in accordance with Article 2 of this chapter as meeting in substance the reasonably applicable provisions and requirements of either Articles 3, 4 and 5 of this chapter or Articles 3a, 4a and 5a of this chapter; provided, however, that the insurer may, at its option, substitute for one or more of such provisions of Articles 4a and 5a corresponding provisions of different wording approved by the commissioner which are in each instance not less favorable in any respect to the policyholder, the certificate holder or the beneficiary. On and after January 1, 1957, no group disability policy shall be issued or delivered in this state unless the form thereof has been approved, as required by this section, as meeting in substance the provisions and requirements of Articles 3a, 4a and 5a of this chapter which are reasonably applicable; provided, however, that the insurer may, at its option, substitute for one or more of such provisions of Articles 4a and 5a corresponding provisions of different wording approved by the commissioner which are in each instance not less favorable in any respect to the policyholder, the certificate holder or the beneficiary.
Except as provided by Section 10314, no group disability policy shall be issued or delivered to any person in this state nor shall any endorsement for any such policy be issued which contains any provision contradictory, in whole or in part, of any of the provisions promulgated by the commissioner as being required or optional or alternative provisions to be incorporated into such policy in accordance with the rules promulgated by him for their use.
An insurer is permitted to provide group disability coverage prior to the approval of the form of the policy if all of the conditions of (a) are met prior thereto and if thereafter it acts as required by (b).
The conditions precedent are:
The group is one eligible for coverage pursuant to the provisions of this article; and
An executed memorandum of insurance has been or is concurrently delivered to the entity which is to become the policyholder containing a provision that unless a policy the form of which has been approved by the commissioner and embodying the coverage has been issued and delivered to the policyholder within 90 days after the date on which the coverage is provided or agreed to be provided, the coverage provided pursuant to such memorandum terminates 120 days after such date, and containing a specification in either complete or summary form of:
The class or classes of employees eligible for coverage;
The benefits to be provided; and
The exceptions and reductions to such benefits, if any.
An insurer providing coverage pursuant to this section shall:
Within 60 days after the date on which the coverage is provided or agreed to be provided submit to the commissioner for approval a policy form drafted to provide the coverage provided by such memorandum and in a good faith attempt to meet all requirements of law;
Make such revisions in the policy submitted as the commissioner may lawfully require; and
Terminate such coverage in accordance with the provisions of (a) (2) above if approval of such policy is not secured within the time specified therein.
Upon written request from the insurer filed within 50 days after the date on which the coverage is provided or agreed to be provided and upon proof satisfactory to him that the insurer is acting with due diligence and that hardship will result unless an extension is granted, the commissioner may extend the time set forth in (b) (1) hereof for a period of not to exceed 30 days. Upon such extension, the insurer with the consent of the policyholder may amend the memorandum of insurance referred to in (a) (2) hereof to extend the time within which the policy must be issued and delivered to the policyholder to 30 days after the date to which the commissioner has extended the time within which a policy form must be submitted to him for approval and to extend the date for termination of coverage to 30 days thereafter.
Any policy submitted to the commissioner with a letter from the insurer stating that coverage has been provided in accordance with this section shall be automatically approved unless the commissioner disapproves the same within 30 days of the date of its submission to him.
The commissioner may suspend or revoke the permission granted any insurer in Section 10270.91 if, after notice and hearing in accordance with Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code, he finds that the insurer has:
Misrepresented the conditional nature of the coverage;
Neglected or refused either to cancel or otherwise terminate such coverage within the time required by such section;
Delivered any such memorandum which did not comply with subsection (a) (2) of Section 10270.91;
Shown a lack of diligence in making revisions in the policy necessary to obtain its approval by the commissioner;
Failed so often in so many important respects in drafting any such policy to conform to the applicable requirements of the Insurance Code that a conclusion of lack of good faith or competency in drafting is reasonably justified;
Circulated announcements of coverage to individuals insured which failed to advise them of the conditional nature of the coverage; or
In any other manner so negligently or carelessly handled the effecting of insurance under Section 10270.91 or the administration thereof that the policyholder or the persons insured have been misled or exposed to the danger of loss.
No family expense disability policy shall be issued or delivered in this State unless a copy of the form thereof is filed with the commissioner and approved by him in accordance with Article 2 of this chapter as meeting in substance either the provisions and requirements of Articles 3, 4 and 5 of this chapter which are reasonably applicable, or the provisions and requirements of Articles 3a, 4a and 5a of this chapter which are reasonably applicable; provided, however, that the insurer may, at its option, substitute for one or more of such provisions of Articles 4a and 5a corresponding provisions of different wording approved by the commissioner which are in each instance not less favorable in any respect to the insured or the beneficiary.
Except as provided by Section 10314, no family expense disability policy shall be issued or delivered to any person in this State nor shall any endorsement for any such policy be issued which contains any provision contradictory, in whole or in part, of any of the provisions promulgated by the commissioner as being required or optional or alternative provisions to be incorporated into such policy, except a policy or endorsement which has been approved by the commissioner under Article 2 of this chapter as meeting the applicable requirements of Articles 2, 3a, 4a and 5a of this chapter and as containing the provisions or substitute provisions as required by Articles 4a and 5a of this chapter modified in such manner as to make the provisions consistent with family expense coverage and the coverage provided in the policy and endorsement, if any. On and after January 1, 1957, no family expense disability policy shall be delivered or issued for delivery to any person in this State unless it complies with Articles 2, 3a, 4a and 5a of this chapter.
The commissioner shall promulgate forms of provisions which incorporate in substance the applicable provisions set forth in Articles 4 (commencing with Section 10329), 4a (commencing with Section 10350), 5 (commencing with Section 10359), and 5a (commencing with Section 10369.1), and shall promulgate rules governing the use of those provisions, incorporating the substance, insofar as applicable, of the corresponding rules contained in this chapter for the use of the provisions set forth in Articles 4, 4a, 5, and 5a. However, as of January 1, 1957, the promulgation of provisions and rules governing their use incorporating in substance the applicable provisions of Articles 3 (commencing with Section 10309), 4 (commencing with Section 10329), and 5 (commencing with Section 10359) shall cease to be effective, and on and after January 1, 1957, only the promulgation of provisions and rules governing their use incorporating in substance the applicable provisions of Articles 3a (commencing with Section 10320), 4a (commencing with Section 10350), and 5a (commencing with Section 10369.1) shall be effective. The commissioner may from time to time thereafter change any such provisions or rules governing their use previously promulgated by him or her. The promulgation of any such provisions or rules governing their use and of any changes or amendments thereof shall be in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
Without affecting the applicability or degree of applicability of other sections of this chapter, it is hereby specified that the provisions of Sections 10321, 10325, 10401, of subdivisions (a), (c), (e), (h) and (i) of Section 10320, of subdivision (a) of Section 10290, of paragraphs (2), (3), (4), (5), (6), (7), (8), (9), (10), (11) and (12) of subdivision (b) and subdivisions (e), (f), (g), (h), (i), and (k) of Section 10291.5 and of Section 10291.6, shall not apply to group disability insurance. The provisions of Section 10401 shall not apply to family expense disability insurance; provided, there is no discrimination between families of the same class.
Selected group disability insurance is that form of disability insurance conforming to the following conditions:
Written under individual policies
Issued to not less than three employees of the federal or state government, or of any federal or state agency, political subdivision or district, or of any public, governmental, or municipal corporation, or of any unit, agency, or department thereof, or of any corporation, copartnership or individual employer; or
Issued to not less than three members of any association, which shall have been in existence for at least two years, having a constitution and bylaws and formed and continuously maintained in good faith for purposes other than that of obtaining insurance; and
For amounts of insurance based upon individual selection by the insured employee or member, as the case may be.
Notwithstanding the provisions of Section 10401 insurers may be permitted to file (for use in connection with selected group disability insurance), rate schedules that reflect a differential from the rates charged for identical policies issued on the individual basis, provided they do not make or permit any discrimination between selected groups.
Group disability policies may provide, among other things, that the benefits payable thereunder are subject to reduction if the individual insured has any other coverage (other than individual policies or contracts) providing hospital, surgical or medical benefits, whether on an indemnity basis or a provision of service basis, resulting in such insured being eligible for more than 100 percent of the covered expenses.
Except as permitted by this section and by Section 10323, 10369.5, 10369.6, or 11515.5, and except in the case of group practice prepayment plan contracts which do not provide for coordination of benefits, to the extent they provide for a reduction of benefits on account of other coverage with respect to emergency services that are not obtained from providers that contract with the plan, no group or individual disability insurance policy or service contract issued by nonprofit hospital service plans operating under Chapter 11A (commencing with Section 11491) of Part 2 of Division 2 shall limit payment of benefits by reason of the existence of other insurance or service coverage.
The policy provisions authorized by this section shall contain a provision that payments of funds may be made directly between insurers and other providers of benefits. Such policy provisions shall also contain a provision that if benefits are provided in the form of services rather than cash payments the reasonable cash value of each service rendered shall be deemed to be both an allowable expense and a benefit paid. The reasonable cash value of any contractual benefit provided to the insured in the form of service rather than cash payment by or through any hospital service organization or medical service organization or group-practice prepayment plan shall be deemed an expense incurred by the insured for such service, whether or not actually incurred, and the liability of the insurer shall be the same as if the insured had not been entitled to any such service benefit, unless the policy contains a provision authorized by Section 10323, 10369.5 or 10369.6 in the case of an individual disability policy, or by this section, in the case of a group disability policy.
This section shall not be construed to require that benefits payable under group disability policies be subject to reduction by the benefit amounts payable under Chapter 3 (commencing with Section 2800) of Part 2 of Division 1 of the Unemployment Insurance Code.
The provisions of this section, and all regulations adopted pursuant thereto pertaining to coordination of benefits with other group disability benefits, shall apply to all employers, labor-management trustee plans, union welfare plans (including those established in conformity with 29 U.S.C. Sec. 186), employer organization plans or employee benefit organization plans, health care service plan contracts, pursuant to regulations adopted by the Director of the Department of Managed Health Care which shall be uniform with those issued under this section for those plans that elect to coordinate benefits, group practice, individual practice, any other prepayment coverage for medical or dental care or treatment, and administrators, within the meaning of Section 1759 not otherwise subject to the provisions of this section whenever such plan, contract or practice provides or administers hospital, surgical, medical or dental benefits to employees or agents who are also covered under one or more additional group disability policies which are subject to this section or health care service plans.
The term “individual policies or contracts,” as used in the first paragraph of Section 10270.98, does not include selected group disability policies or contracts, unless those policies or contracts are noncancelable or guaranteed renewable and solely provide hospital confinement indemnity or specified disease coverage.
Except as set forth in this section and in Sections 10271.1, 10292, and 10295 to 10295.19, inclusive, this chapter does not apply to, or in any way affect, provisions in life insurance, endowment, or annuity contracts, or contracts supplemental thereto, that provide additional benefits in case of death or dismemberment or loss of sight by accident, or that operate to safeguard those contracts against lapse, as described in subdivision (a) of Section 10271.1, or give a special surrender benefit, as defined in subdivision (b) of Section 10271.1, a terminal illness benefit, as defined in subdivision (d) of Section 10271.1, or an accelerated death benefit, as defined in Article 2.1 (commencing with Section 10295), in the event that the owner, insured, or annuitant, as applicable, meets the benefit triggers specified in the life insurance or annuity contract or supplemental contract.
For the purposes of this section, “supplemental benefit” means a rider to or provision in a life insurance policy, certificate, or annuity contract that provides a benefit as set forth in subdivision (a).
A supplemental benefit described in subdivision (a) shall contain all of the following provisions. However, an insurer, at its option, may substitute for one or more of the provisions a corresponding provision of different wording approved by the commissioner that is not less favorable in any respect to the owner, insured, or annuitant, as applicable. The required provisions shall be preceded individually by the appropriate caption, or, at the option of the insurer, by the appropriate individual or group captions or subcaptions as the commissioner may approve.
A life insurance policy or annuity contract that contains a supplemental benefit shall provide that the contract, supplemental contract, and papers attached thereto by the insurer, including the application if attached, constitute the entire insurance or annuity contract and shall also provide that an agent does not have the authority to change the contract or to waive its provisions. This provision shall be preceded individually by a caption stating “ENTIRE CONTRACT; CHANGES:” or other appropriate caption as the commissioner may approve.
The supplemental benefit shall provide that reinstatement of the supplemental benefit shall be on the same or more favorable terms as reinstatement of the underlying life insurance policy or annuity contract. Following reinstatement, the insured and insurer shall have the same rights under reinstatement as they had under the supplemental benefit immediately before the due date of the defaulted premium, subject to the provisions endorsed in the rider or endorsement or attached to the rider or endorsement in connection with the reinstatement. This reinstatement provision shall be preceded individually by a caption stating “REINSTATEMENT:” or other appropriate caption as the commissioner may approve.
A supplemental benefit subject to underwriting shall include an incontestability statement that provides that the insurer shall not contest the supplemental benefit after it has been in force during the lifetime of the insured for two years from its date of issue, and that the supplemental benefit may only be contested based on a statement made in the application for the supplemental benefit, if the statement is attached to the contract and if the statement was material to the risk accepted or the hazard assumed by the insurer. This provision shall be preceded individually by a caption stating “INCONTESTABILITY:” or other appropriate caption as the commissioner may approve.
A supplemental benefit shall contain the provision in subparagraph (A), except that an accelerated death benefit as defined in Article 2.1 (commencing with Section 10295) shall contain the provision in subparagraph (B).
The supplemental benefit shall provide either that the insurer may accept written notice of claim at any time or that the insurer may require that written notice of claim be submitted by a due date that is no less than 20 days after an occurrence covered by the supplemental benefit, or commencement of a loss covered by the supplemental benefit, or as soon after the due date as is reasonably possible. Notice given by or on behalf of the insured or the beneficiary, as applicable, to the insurer at the insurer’s address or telephone number, or to an authorized agent of the insurer, with information sufficient to identify the insured, shall be deemed notice to the insurer. This provision shall be preceded individually by a caption stating “NOTICE OF CLAIM:” or other appropriate caption as the commissioner may approve.
The accelerated death benefit shall provide either that the insured may give notice of claim at any time or that the insured shall give notice of claim by a due date that is at least 20 days after the insured receives documentation that establishes the occurrence of a qualifying event, or as soon after the due date as is reasonably possible. Notice given by or on behalf of the insured or the beneficiary, as applicable, to the insurer at the insurer’s address or telephone number, or to an authorized agent of the insurer, with information sufficient to identify the insured, shall be deemed notice to the insurer. This provision shall be preceded individually by a caption stating “NOTICE OF CLAIM:” or other appropriate caption as the commissioner may approve.
A supplemental benefit shall contain the provision in subparagraph (A), except that an accelerated death benefit as defined in Article 2.1 (commencing with Section 10295) shall contain the provision in subparagraph (B).
The supplemental benefit shall provide that the insurer, upon receipt of a notice of claim, shall furnish to the claimant those forms as are usually furnished by it for filing a proof of occurrence or a proof of loss. If the forms are not furnished within 15 days after giving notice, the claimant shall be deemed to have complied with the requirements of the supplemental benefit as to proof of occurrence or proof of loss upon submitting, within the time fixed by the supplemental benefit for filing proof of occurrence or proof of loss, written proof covering the character and the extent of the occurrence or loss. This provision shall be preceded individually by a caption stating “CLAIM FORMS:” or other appropriate caption as the commissioner may approve.
The accelerated death benefit shall provide that the insurer, upon receipt of a notice of claim, shall furnish to the claimant any forms required for filing proof of loss. If the forms are not furnished within 15 days after notice of claim is given to the insurer, the claimant shall be deemed to have provided proof of loss upon sending, within the time fixed by the supplemental benefit for filing proof of loss, documentation that establishes the occurrence of a qualifying event. This provision shall be preceded individually by a caption stating “CLAIM FORMS:” or other appropriate caption as the commissioner may approve.
A supplemental benefit shall contain the provision in subparagraph (A), except that an accelerated death benefit as defined in Article 2.1 (commencing with Section 10295) shall contain the provision in subparagraph (B).
The supplemental benefit shall provide that the insurer may require, in the case of a claim for which the supplemental benefit provides a periodic payment contingent upon continuing occurrence or loss, that the insured provide written proof of occurrence or proof of loss no less than 90 days after the termination of the period for which the insurer is liable, and, in the case of claim for any other occurrence or loss, that the insured provide written proof of occurrence or proof of loss within 90 days after the date of the occurrence or loss. Failure to furnish proof within the time required shall not invalidate or reduce the claim if it was not reasonably possible to give proof within the time, provided proof is furnished as soon as reasonably possible and, except in the absence of legal capacity, no later than one year from the time proof is otherwise required. This provision shall be preceded individually by a caption stating “PROOF OF LOSS:” or other appropriate caption as the commissioner may approve.
The accelerated death benefit shall provide that the insured shall send completed claim forms and documentation that establishes the occurrence of a qualifying event within 90 days of receiving that documentation. Failure to send proof within the time required shall not invalidate or reduce the claim as long as proof is sent as soon as reasonably possible and, except in the absence of legal capacity, no later than one year from the time proof is otherwise required. This provision shall be preceded individually by a caption stating “PROOF OF LOSS:” or other appropriate caption as the commissioner may approve.
The supplemental benefit shall provide that the insurer, at its own expense, shall have the right and opportunity to examine the person of the insured when and as often as the insurer may reasonably require during the pendency of a claim and to make an autopsy in case of death where it is not forbidden by law. This provision shall be preceded individually by a caption stating “PHYSICAL EXAMINATIONS:” or other appropriate caption as the commissioner may approve.
The commissioner shall not approve a contract or supplemental contract for issuance or delivery in this state if the commissioner finds that the contract or supplemental contract does any of the following:
A supplemental benefit described in subdivision (a) shall not contain a title, description, or any other indication that would describe or imply that the supplemental benefit provides long-term care coverage.
Commencing two years from the date of the issuance of the supplemental benefit, no claim for loss incurred or disability, as defined by the supplemental benefit, may be reduced or denied on the grounds that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed before the effective date on the coverage of the supplemental benefit.
With regard to supplemental benefits set forth in subdivision (a), the supplemental benefit shall specify any applicable exclusions, which shall be limited to the following:
Condition or loss caused or substantially contributed to by any attempt at suicide or intentionally self-inflicted injury, while sane or insane.
Condition or loss caused or substantially contributed to by war or an act of war, as defined in the exclusion provisions of the contract.
Condition or loss caused or substantially contributed to by active participation in a riot, insurrection, or terrorist activity.
Condition or loss caused or substantially contributed to by committing or attempting to commit a felony.
Condition or loss caused or substantially contributed to by voluntary intake of either:
A drug, unless prescribed or administered by a physician and taken in accordance with the physician’s instructions.
Poison, gas, or fumes, unless they are the direct result of an occupational accident.
Condition or loss in consequence of the insured being intoxicated, as defined by the jurisdiction where the condition or loss occurred.
Condition or loss caused or substantially contributed to by engaging in an illegal occupation.
Condition or loss caused or substantially contributed to by engaging in aviation, other than as a fare-paying passenger.
If the commissioner notifies the insurer, in writing, that the filed form or actuarial information does not comply with the law and specifies the reasons for the commissioner’s opinion, it is unlawful for an insurer to issue a policy in that form.
Supplemental benefits that operate to safeguard life insurance contracts against lapse are defined as a waiver of premium benefit or a waiver of monthly deduction benefit, as applicable, in which the insurer waives the premium or monthly deduction for a life insurance contract when the insured becomes totally disabled, as defined by the supplemental benefit, and where the waiver continues until the end of the insured’s disability, or for the period specified by the supplemental benefit, consistent with paragraph (5).
For purposes of this subdivision, total disability shall not be less favorable to the insured than the following:
During the first 24 months of total disability, the insured is unable to perform with reasonable continuity the substantial and material duties of their job due to sickness or bodily injury.
After the first 24 months of total disability, the insured, due to sickness or bodily injury, is unable to engage with reasonable continuity in any other job in which they could reasonably be expected to perform satisfactorily in light of their age, education, training, experience, station in life, or physical and mental capacity.
The definition of total disability may also include presumptive total disability, such as the insured’s total and permanent loss of sight of both eyes, hearing of both ears, speech, the use of both hands, both feet, or one hand and one foot.
The insurer may require total disability to continue for an uninterrupted period of time specified by the supplemental benefit, or the insurer may allow separate periods of disability to be combined.
The waiver of premium or monthly deduction benefit shall continue for the period specified by the supplemental benefit, but shall not be less favorable to the insured than the following:
If the insured’s total disability begins before the insured attains 60 years of age, the insurer shall waive all premiums or monthly deductions due for the period that the insured continues to be totally disabled, except as follows:
For group life insurance policies, if the insured’s total disability begins before the insured attains 60 years of age, the insurer shall waive all premiums or monthly deductions due for the period of total disability up to 65 years of age. This subdivision does not preclude the insurer from extending a supplemental benefit for longer periods.
When a renewal is offered for a group life insurance policy that was issued prior to January 1, 2017, and contains a supplemental benefit described in this subparagraph, the insurer shall offer to renew the policy with a continuation of the in-force supplemental benefit, and may concurrently offer the group policyholder the option to change the supplemental benefit as described in clause (i).
If the insured’s total disability begins after the age specified in subparagraph (A), the insurer shall waive all premiums or monthly deductions due for the period that the insured continues to be totally disabled up to 65 years of age, except as follows:
For group life insurance policies, if the insured’s total disability begins on or after the date the insured attains 60 years of age, the insurer is not required to waive premiums or monthly deductions. This subdivision does not preclude the insurer from extending a supplemental benefit for longer periods.
When a renewal is offered for a group life insurance policy that was issued prior to January 1, 2017, and contains a supplemental benefit described in this subparagraph, the insurer shall offer to renew the policy with a continuation of the in-force supplemental benefit, and may concurrently offer the group policyholder the option to change the supplemental benefit as described in clause (i).
In addition to the permissible exclusions listed in subdivision (g) of Section 10271, the insurer may exclude a total disability occurring after the policy anniversary or supplemental contract anniversary, as applicable and as defined by the supplemental benefit, on which the insured attains a specified age of no less than 65 years.
“Special surrender benefit” means a “waiver of surrender charge benefit” wherein the insurer waives the surrender charge usually charged for a withdrawal of funds from the cash value of a life insurance contract or the account value of an annuity contract if the owner, insured, or annuitant, as applicable, meets any of the following criteria:
The individual develops a terminal illness, as defined in subdivision (d).
The individual is receiving, as prescribed by a physician, registered nurse, or licensed social worker, home care or community-based services, as defined in subdivision (a) of Section 10232.9, or is confined in a skilled nursing facility, convalescent nursing home, or extended care facility, which shall not be defined more restrictively than as in the Medicare program, or is confined in a residential care facility or residential care facility for the elderly, as defined in the Health and Safety Code. Out-of-state providers of services shall be defined as comparable in licensure and staffing requirements to California providers.
The individual has any medical condition that would, in the absence of treatment, result in death within a limited period of time, as defined by the supplemental benefit, but that shall not be restricted to a period of less than six months.
The individual is totally disabled, as follows:
During the first 24 months of total disability, the owner, insured, or annuitant, as applicable, is unable to perform with reasonable continuity the substantial and material duties of their job due to sickness or bodily injury.
After the first 24 months of total disability, the owner, insured, or annuitant, as applicable, due to sickness or bodily injury, is unable to engage with reasonable continuity in any other job in which they could reasonably be expected to perform satisfactorily in light of their age, education, training, experience, station in life, or physical and mental capacity.
The definition of total disability may also include presumptive total disability, such as the insured’s total and permanent loss of sight of both eyes, hearing of both ears, speech, the use of both hands, both feet, or one hand and one foot.
The insurer may require the total disability to continue for an uninterrupted period of time specified by the supplemental benefit, or the insurer may allow separate periods of disability to be combined.
The individual has a chronic illness as defined in either subparagraph (A) or (B):
Either of the following:
Impairment in performing two out of seven activities of daily living, as set forth in subdivisions (a) and (g) of Section 10232.8, meaning the insured needs human assistance, or needs continual substantial supervision.
The insured has an impairment of cognitive ability, meaning a deterioration or loss of intellectual capacity due to mental illness or disease, including Alzheimer’s disease or related illnesses, that requires continual supervision to protect oneself or others.
Either of the following:
Impairment in performing two out of six activities of daily living as described in subdivisions (b), (d), (e), and (f) of Section 10232.8 due to a loss of functional capacity to perform the activity.
Impairment of cognitive ability, meaning the insured needs substantial supervision due to severe cognitive impairment, as described in subdivisions (b), (d), and (e) of Section 10232.8.
The individual has become involuntarily or voluntarily unemployed.
“Supplemental benefit” means a rider to or provision in a life insurance policy, certificate, or annuity contract that provides a benefit as set forth in subdivision (a) of Section 10271.
“Terminal illness benefit” means a provision, endorsement, or rider added to a life insurance policy that provides for the advance payment of any part of the death proceeds, payable upon the occurrence of a terminal illness. For the purposes of this chapter, “terminal illness” means a medical condition in which the owner’s, insured’s, or annuitant’s life expectancy is expected to be less than or equal to a limited period of time that shall not be restricted to a period of less than 12 months or greater than 24 months.
The term “indemnity,” as used in this chapter means benefits promised.
The term “noncancelable policy” or “noncancelable and guaranteed renewable policy” as used in this chapter means a policy which the insured has the right to continue in force subject to its terms by the timely payment of premiums in the amount originally set forth in the policy (a) until at least age 50, or (b) in the case of a policy issued after age 44, for at least five years from its date of issue, during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force. Such a policy may use any of the provisions in Section 10291.6, 10350.2, 10350.4 or 10369.7, which may be used in noncancelable policies.
The term “guaranteed renewable policy” as used in this chapter (commencing with Section 10270) means a policy which the insured has the right to continue in force subject to its terms by the timely payment of premium (a) until at least age 50, or (b) in the case of a policy issued after age 44, for at least five years from its date of issue during which period the insurer has no right to make unilaterally any change in any provision of the policy while the policy is in force, except that the insurer may, in accordance with the provisions of the policy, make changes in premium rates as to all insureds who were placed in the same class for purposes of rate determination in the process of issuance of the policy or making it guaranteed renewable. Such a policy may use any of the provisions in Section 10291.6, 10350.2, 10350.4 or 10369.7, which may be used in noncancelable policies.
All disability insurers writing, issuing, or administering group health benefit plans shall make all of these health benefit plans renewable with respect to the policyholder, contractholder, or employer except in case of the following:
Nonpayment of the required premiums by the policyholder, contractholder, or employer if the policyholder, contractholder, or employer has been duly notified and billed for the premium and at least a 30-day grace period has elapsed since the date of notification or, if longer, the period of time required for notice and any other requirements pursuant to Section 2703, 2712, or 2742 of the federal Public Health Service Act (42 U.S.C. Secs. 300gg-2, 300gg-12, and 300gg-42) and any subsequent rules or regulations has elapsed.
Pursuant to paragraph (1), the disability insurer shall continue to provide coverage as required by the policyholder’s, certificate holder’s, or other insured’s policy during the period described in paragraph (1).
The insurer demonstrates fraud or an intentional misrepresentation of material fact under the terms of the policy by the policyholder, contractholder, or employer.
Violation of a material contract provision relating to employer or other group contribution or group participation rates by the contractholder or employer.
The insurer ceases to provide or arrange for the provision of health care services for new group health benefit plans in this state, provided that the following conditions are satisfied:
Notice of the decision to cease writing, issuing, or administering new or existing group health benefit plans in this state is provided to the commissioner and to either the policyholder, contractholder, or employer at least 180 days prior to discontinuation of that coverage.
Group health benefit plans shall not be canceled for 180 days after the date of the notice required under paragraph (1) and for that business of a plan that remains in force, any disability insurer that ceases to write, issue, or administer new group health benefit plans shall continue to be governed by this section with respect to business conducted under this section.
Except as provided under subdivision (h) of Section 10705, or unless the commissioner had made a determination pursuant to Section 10712, a disability insurer that ceases to write, issue, or administer new group health benefit plans in this state after the effective date of this section shall be prohibited from writing, issuing, or administering new group health benefit plans to employers in this state for a period of five years from the date of notice to the commissioner.
The disability insurer withdraws a group health benefit plan from the market; provided, that the plan notifies all affected contractholders, policyholders, or employers and the commissioner at least 90 days prior to the discontinuation of the health benefit plans, and that the insurer makes available to the contractholder, policyholder, or employer all health benefit plans that it makes available to new employer business without regard to the claims experience of health-related factors of insureds or individuals who may become eligible for the coverage.
If the coverage is offered through a network plan, there is no longer any covered individual in connection with the plan who lives, resides, or works in the service area of the disability insurer.
If coverage is made available in the individual market through a bona fide association, the membership of the individual in the association on the basis of which the coverage is provided, ceases, but only if that coverage is terminated under this subdivision uniformly without regard to any health status-related factor of covered individuals.
For the purposes of this section, “eligible employee” shall have the same meaning as in Section 10700, except that it applies to all health benefit plans issued to employer groups of two or more employees.
No person shall cause or permit to be issued, circulated or used any representation that a policy defined in Section 10273.3 is “non-can,” noncancelable (not cancelable) or noncancelable and guaranteed renewable.
No person shall cause or permit to be issued, circulated or used any representation concerning the right to continue a policy such as is defined in Section 10273.3 unless such representation contains a declaration of the terms under which the insurer has reserved the right to change the premium in a manner which shall not minimize or obscure the same.
Any person knowingly violating any provision of this section shall be subject to the penalties provided for misrepresentation by this code.
All individual health benefit plans shall be renewable with respect to all eligible individuals or dependents at the option of the individual except as follows:
Except as otherwise specified in paragraph (3), for nonpayment of the required premiums by the individual if the individual has been duly notified and billed for the premium and at least a 30-day grace period has elapsed since the date of notification or, if longer, the period of time required for notice and any other requirements pursuant to Section 2703, 2712, or 2742 of the federal Public Health Service Act (42 U.S.C. Secs. 300gg-2, 300gg-12, and 300gg-42) and subsequent rules or regulations has elapsed.
Pursuant to paragraph (1), the disability insurer shall continue to provide coverage as required by the policyholder’s, certificate holder’s, or other insured’s policy during the period described in paragraph (1).
For nonpayment of the required premiums by an individual who receives advance payments of the premium tax credit authorized by Section 36B of the Internal Revenue Code or advanced premium assistance subsidy authorized by Section 100800 of the Government Code, or both, if the individual has been duly notified and billed for the charge and a grace period of three consecutive months has elapsed since the last day of paid coverage.
During the first month of the three-month grace period described in paragraph (3), an insurer shall continue to do both of the following:
Collect advance payments of the federal premium tax credit or state advanced premium assistance subsidy, or both, on behalf of the insured.
Provide coverage as required by the individual’s policy.
If the individual exhausts the three-month grace period described in paragraph (3) without paying all outstanding premiums due, the insurer shall return both of the following:
Advance payments of the premium tax credit paid on behalf of the individual for the second and third months of the three-month grace period described in paragraph (3), pursuant to Section 156.270(e)(2) of Title 45 of the Code of Federal Regulations.
The advanced premium assistance subsidy paid on behalf of the individual for the second and third months of the three-month grace period described in paragraph (3), pursuant to subdivision (a) of Section 100805 of the Government Code.
An insurer shall comply with all federal and state laws and regulations relating to cancellations, terminations, or nonrenewals of coverage due to nonpayment of premiums by individuals who receive advance payments of the federal premium tax credit or state advanced premium assistance subsidy. For a health insurance contract issued, amended, or renewed on or after January 1, 2020, all requirements applicable to cancellations, terminations, or nonrenewals of coverage due to nonpayment of premiums by individuals who receive advance payments of premium tax credit authorized by Section 36B of the Internal Revenue Code shall apply to cancellations, terminations, or nonrenewals of coverage due to nonpayment of premiums by individuals who receive premium assistance subsidy authorized by Section 100800 of the Government Code.
The insurer demonstrates fraud or intentional misrepresentation of material fact under the terms of the policy by the individual.
Movement of the individual contractholder outside the service area, but only if coverage is terminated uniformly without regard to a health status-related factor of covered individuals.
If the disability insurer ceases to provide or arrange for the provision of health care services for new individual health benefit plans in this state, as long as the following conditions are satisfied:
Notice of the decision to cease new or existing individual health benefit plans in this state is provided to the commissioner and to the individual policy or contractholder at least 180 days before discontinuation of that coverage.
Individual health benefit plans shall not be canceled for 180 days after the date of the notice required under paragraph (1) and for that business of a disability insurer that remains in force, a disability insurer that ceases to offer for sale new individual health benefit plans shall continue to be governed by this section with respect to business conducted under this section.
A disability insurer that ceases to write new individual health benefit plans in this state after the effective date of this section shall be prohibited from offering for sale individual health benefit plans in this state for a period of five years from the date of notice to the commissioner.
If the disability insurer withdraws an individual health benefit plan from the market, as long as the disability insurer notifies all affected individuals and the commissioner at least 90 days before the discontinuation of these plans, and the disability insurer makes available to the individual all health benefit plans that it makes available to new individual businesses without regard to a health status-related factor of enrolled individuals or individuals who may become eligible for the coverage.
If coverage is made available in the individual market through a bona fide association, and the membership of the individual in the association on the basis of which the coverage is provided ceases, but only if that coverage is terminated under this subdivision uniformly without regard to a health status-related factor of covered individuals.
A policyholder, certificate holder, or other insured who alleges that a policy or coverage has been or will be canceled, rescinded, or not renewed in violation of Section 10713, 10273.4, 10273.6, 10384.17, or 10384, or any regulations promulgated thereunder, may request a review by the commissioner.
If the commissioner determines that a proper complaint exists, the commissioner shall notify the insurer and the policyholder, certificate holder, or other insured. The insurer shall either request a hearing or reinstate the policyholder, certificate holder, or other insured.
If, after review, the commissioner determines that the cancellation, rescission, or failure to renew is contrary to existing law, the commissioner shall order the insurer to reinstate the policyholder, certificate holder, or other insured. Within 15 days after receipt of that order, the insurer shall either request a hearing or reinstate the policyholder, certificate holder, or other insured.
If a policyholder, certificate holder, or other insured requests a review of the insurer’s determination to cancel, rescind, or failure to renew the policyholder’s, certificate holder’s, or other insured’s policy or coverage pursuant to subdivision (a), the insurer shall continue to provide coverage to the policyholder, certificate holder, or other insured under the terms of the contract or policy until a final determination of the policyholder, certificate holder, or other insured’s request for review has been made by the commissioner. This subdivision shall not apply if the insurer cancels the policy or coverage for nonpayment of premiums pursuant to Section 10713, 10273.4, 10273.6, 10384.17, or 10384, or any regulations promulgated thereunder.
A reinstatement pursuant to this section shall be retroactive to the time of cancellation, rescission, or failure to renew and the insurer shall be liable for the expenses incurred by the policyholder, certificate holder, or other insured for covered health care services from the date of cancellation, rescission, or nonrenewal to and including the date of reinstatement. The insurer shall reimburse the policyholder, certificate holder, or insured for any expenses incurred pursuant to this subdivision within 30 days of receipt of the completed claim.
This section shall not abrogate any preexisting contracts or policies entered into prior to January 1, 2011, between a policyholder, certificate holder, or other insured and an insurer, except that each insurer shall, if directed to do so by the commissioner, exercise its authority, if any, under any such preexisting contracts or policies to conform them to the provisions of existing law.
On or before July 1, 2011, the commissioner may issue guidance regarding compliance with this section and Sections 10713, 10273.4, 10273.6, 10384.17, and 10384, or any regulations promulgated under those provisions. The guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The guidance shall only be effective through December 31, 2013, or until the commissioner adopts and effects regulations pursuant to the Administrative Procedure Act, whichever occurs first.
To the extent required by Section 2719 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-19) and any subsequent rules or regulations, there shall be an independent external review pursuant to the standards required by the United States Secretary of Health and Human Services of an insurer’s cancellation, rescission, or nonrenewal of a policyholder’s, certificate holder’s, or other insured’s coverage.
The term “endorsement” as used in this chapter means any amendment, change, limitation, alteration or restriction of the printed text of a policy by a rider upon a separate piece of paper made a part of such policy.
The term “policy of accident and sickness insurance” as used in this chapter includes any policy or contract covering the kind or kinds of insurance described in Section 106.
Every individual accident and health policy or contract, except single premium nonrenewable policies or contracts, issued for delivery in this state on or after July 1, 1962, by an insurance company, nonprofit hospital service plan or medical service corporation, shall have printed thereon or attached thereto a notice stating that the person to whom the policy or contract is issued shall be permitted to return the policy or contract after its delivery to the purchaser and to have the premium paid refunded if, after examination of the policy or contract, the purchaser is not satisfied with it for any reason. The period time set forth by the insurer, nonprofit hospital service plan or medical service corporation for return of the policy or contract shall be clearly stated on the notice and such period shall not be less than 10 days nor more than 30 days. The policyholder or purchaser may return the policy or contract to the insurer, plan or corporation at any time during the period specified in the notice. If a policyholder or purchaser pursuant to such notice, returns the policy or contract to the company or association at its home or branch office or to the agent through whom it was purchased, it shall be void from the beginning and the parties shall be in the same position as if no policy or contract had been issued.
This section shall apply to all policies or contracts subject to this section and issued, amended, delivered, or renewed in this state on or after January 1, 1981. All policies or contracts subject to this section which are in effect on January 1, 1981, shall be construed to be in compliance with this section, and any provision in any such policy or contract which is in conflict with this section shall be of no force or effect.
A group health insurance policy that provides that coverage of a dependent child of an employee or other member of the covered group shall terminate upon attainment of the limiting age for dependent children specified in the policy, shall also provide that attainment of the limiting age shall not operate to terminate the coverage of the child while the child is and continues to meet both of the following criteria:
Incapable of self-sustaining employment by reason of a physically or mentally disabling injury, illness, or condition.
Chiefly dependent upon the employee or member for support and maintenance.
The insurer shall notify the employee or member that the dependent child’s coverage will terminate upon attainment of the limiting age unless the employee or member submits proof of the criteria described in paragraphs (1) and (2) of subdivision (a) to the insurer within 60 days of the date of receipt of the notification. The insurer shall send this notification to the employee or member at least 90 days prior to the date the child attains the limiting age. Upon receipt of a request by the employee or member for continued coverage of the child and proof of the criteria described in paragraphs (1) and (2) of subdivision (a), the insurer shall determine whether the dependent child meets that criteria before the child attains the limiting age. If the insurer fails to make the determination by that date, it shall continue coverage of the child pending its determination.
The insurer may subsequently request information about a dependent child whose coverage is continued beyond the limiting age under subdivision (a), but not more frequently than annually after the two-year period following the child’s attainment of the limiting age.
If the employee or member changes carriers to another insurer or to a health care service plan, the new insurer or plan shall continue to provide coverage for the dependent child. The new plan or insurer may request information about the dependent child initially and not more frequently than annually thereafter to determine if the child continues to satisfy the criteria in paragraphs (1) and (2) of subdivision (a). The employee or member shall submit the information requested by the new plan or insurer within 60 days of receiving the request.
If a group health insurance policy provides coverage for a dependent child who is over 26 years of age and enrolled as a full-time student at a secondary or postsecondary educational institution, the following shall apply:
Any break in the school calendar shall not disqualify the dependent child from coverage.
If the dependent child takes a medical leave of absence, and the nature of the dependent child’s injury, illness, or condition would render the dependent child incapable of self-sustaining employment, the provisions of subdivision (a) shall apply if the dependent child is chiefly dependent on the policyholder for support and maintenance.
If the dependent child takes a medical leave of absence from school, but the nature of the dependent child’s injury, illness, or condition does not meet the requirements of paragraph (2), the dependent child’s coverage shall not terminate for a period not to exceed 12 months or until the date on which the coverage is scheduled to terminate pursuant to the terms and conditions of the policy, whichever comes first. The period of coverage under this paragraph shall commence on the first day of the medical leave of absence from the school or on the date the physician determines the illness prevented the dependent child from attending school, whichever comes first. Any break in the school calendar shall not disqualify the dependent child from coverage under this paragraph.
Documentation or certification of the medical necessity for a leave of absence from school shall be submitted to the insurer at least 30 days prior to the medical leave of absence from the school, if the medical reason for the absence and the absence are foreseeable, or 30 days after the start date of the medical leave of absence from school and shall be considered prima facie evidence of entitlement to coverage under this paragraph.
This subdivision shall not apply to a policy of specialized health insurance, Medicare supplement insurance, CHAMPUS-supplement or TRICARE-supplement insurance policies, or to hospital-only, accident-only, or specified disease insurance policies that reimburse for hospital, medical, or surgical benefits.
Except as set forth in paragraph (2), under no circumstances shall the limiting age under a group or individual health insurance policy that provides coverage of a dependent child be less than 26 years of age with respect to policy years beginning on or after September 23, 2010.
For policy years beginning before January 1, 2014, a group health insurance policy that qualifies as a grandfathered health plan under Section 1251 of the federal Patient Protection and Affordable Care Act (Public Law 111-148) and that makes available dependent coverage of children may exclude from coverage an adult child who has not attained the age of 26 years only if the adult child is eligible to enroll in an eligible employer-sponsored health plan, as defined in Section 5000A(f)(2) of the Internal Revenue Code, other than a group health plan or policy of a parent.
With respect to a child (i) whose coverage under a group or individual health insurance policy ended, or who was denied or not eligible for coverage under a group or individual health insurance policy, because under the terms of the policy the availability of dependent coverage of children ended before the attainment of 26 years of age, and (ii) who becomes eligible for that coverage by reason of the application of this subdivision, the health insurer shall give the child an opportunity to enroll that shall continue for at least 30 days. This opportunity and the notice described in subparagraph (B) shall be provided not later than the first day of the first policy year beginning on or after September 23, 2010, consistent with the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any additional federal guidance or regulations issued by the United States Secretary of Health and Human Services.
The health insurer shall provide written notice stating that a dependent described in subparagraph (A) who has not attained the age of 26 years is eligible to apply for coverage. This notice may be provided to the dependent’s parent on behalf of the dependent. If the notice is included with enrollment materials for a group policy, the notice shall be prominent.
In the case of an individual who enrolls under this paragraph, coverage shall take effect no later than the first day of the first policy year beginning on or after September 23, 2010.
A dependent enrolling in coverage under a group policy pursuant to this paragraph shall be treated as a special enrollee as provided under the rules of Section 146.117(d) of Title 45 of the Code of Federal Regulations. The health insurer shall offer the recipient of the notice all of the benefit packages available to similarly situated individuals who did not lose coverage by reason of cessation of dependent status. Any difference in benefit or cost-sharing requirements shall constitute a different benefit package. A dependent enrolling in coverage under a group policy pursuant to this paragraph shall not be required to pay more for coverage than similarly situated individuals who did not lose coverage by reason of cessation of dependent status.
Nothing in this section shall require a health insurer to make coverage available for a child of a child receiving dependent coverage. Nothing in this section shall be construed to modify the definition of “dependent” as used in the Revenue and Taxation Code with respect to the tax treatment of the cost of coverage.
An individual health insurance policy that provides that coverage of a dependent child shall terminate upon attainment of the limiting age for dependent children specified in the policy, shall also provide that attainment of the limiting age shall not operate to terminate the coverage of the child while the child is and continues to meet both of the following criteria:
Incapable of self-sustaining employment by reason of a physically or mentally disabling injury, illness, or condition.
Chiefly dependent upon the policyholder or subscriber for support and maintenance.
The insurer shall notify the policyholder or subscriber that the dependent child’s coverage will terminate upon attainment of the limiting age unless the policyholder or subscriber submits proof of the criteria described in paragraphs (1) and (2) of subdivision (a) to the insurer within 60 days of the date of receipt of the notification. The insurer shall send this notification to the policyholder or subscriber at least 90 days prior to the date the child attains the limiting age. Upon receipt of a request by the policyholder or subscriber for continued coverage of the child and proof of the criteria described in paragraphs (1) and (2) of subdivision (a), the insurer shall determine whether the dependent child meets that criteria before the child attains the limiting age. If the insurer fails to make the determination by that date, it shall continue coverage of the child pending its determination.
The insurer may subsequently request information about a dependent child whose coverage is continued beyond the limiting age under subdivision (a), but not more frequently than annually after the two-year period following the child’s attainment of the limiting age.
If the subscriber or policyholder changes carriers to another insurer or to a health care service plan, the new insurer or plan shall continue to provide coverage for the dependent child. The new plan or insurer may request information about the dependent child initially and not more frequently than annually thereafter to determine if the child continues to satisfy the criteria in paragraphs (1) and (2) of subdivision (a). The subscriber or policyholder shall submit the information requested by the new plan or insurer within 60 days of receiving the request.
If an individual health insurance policy provides coverage for a dependent child who is over 18 years of age and enrolled as a full-time student at a secondary or postsecondary educational institution, the following shall apply:
Any break in the school calendar shall not disqualify the dependent child from coverage.
If the dependent child takes a medical leave of absence, and the nature of the dependent child’s injury, illness, or condition would render the dependent child incapable of self-sustaining employment, the provisions of subdivision (a) shall apply if the dependent child is chiefly dependent on the policyholder for support and maintenance.
If the dependent child takes a medical leave of absence from school, but the nature of the dependent child’s injury, illness, or condition does not meet the requirements of paragraph (2), the dependent child’s coverage shall not terminate for a period not to exceed 12 months or until the date on which the coverage is scheduled to terminate pursuant to the terms and conditions of the policy, whichever comes first. The period of coverage under this paragraph shall commence on the first day of the medical leave of absence from the school or on the date the physician determines the illness prevented the dependent child from attending school, whichever comes first. Any break in the school calendar shall not disqualify the dependent child from coverage under this paragraph.
Documentation or certification of the medical necessity for a leave of absence from school shall be submitted to the insurer at least 30 days prior to the medical leave of absence from the school, if the medical reason for the absence and the absence are foreseeable, or 30 days after the start date of the medical leave of absence from school and shall be considered prima facie evidence of entitlement to coverage under this paragraph.
This subdivision shall not apply to a policy of specialized health insurance, Medicare supplement insurance, CHAMPUS-supplement, or TRICARE-supplement insurance policies, or to hospital-only, accident-only, or specified disease insurance policies that reimburse for hospital, medical, or surgical benefits.
An individual health insurance policy issued, amended, or renewed on or after January 1, 2023, that provides dependent coverage shall make dependent coverage available to a parent or stepparent who meets the definition of a qualifying relative under Section 152(d) of Title 26 of the United States Code and who lives or resides within the health insurer’s service area.
It is the intent of the Legislature to ensure that individuals who are seeking to add to their policy a dependent parent or stepparent who is eligible for or enrolled in Medicare are informed of and understand their specific rights and health care options before enrolling them in an individual health insurance policy, including the potential benefits, financial assistance, and tax liability under those options.
If an applicant is seeking to add to their policy a dependent parent or stepparent who is eligible for or enrolled in Medicare:
A health insurer shall provide, at the time of solicitation and on the application, to an applicant who does not apply through the California Health Benefit Exchange written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge, including the name, address, and telephone number of the local HICAP program and the statewide HICAP telephone number, 1-800-434-0222.
The California Health Benefit Exchange shall provide to an applicant who applies through the California Health Benefit Exchange written notice that HICAP provides health insurance counseling to senior California residents free of charge, including the name, address, and telephone number of the local HICAP program and the statewide HICAP telephone number, 1-800-434-0222.
An agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP telephone number, 1-800-434-0222, at the time of solicitation.
This section does not apply to specialized health insurance, Medicare supplement insurance, CHAMPUS supplement insurance, or TRICARE supplement insurance, or to hospital-only, accident-only, or specified disease insurance policies that reimburse for hospital, medical, or surgical benefits.
Every disability insurer that provides group or individual policies of disability, or both, that provides, operates, or contracts for, telephone medical advice services to its insureds shall do all of the following:
Ensure that the in-state or out-of-state telephone medical advice service complies with the requirements of Chapter 15 (commencing with Section 4999) of Division 2 of the Business and Professions Code.
Ensure that the staff providing telephone medical advice services for the in-state or out-of-state telephone medical advice service hold a valid California license as a registered nurse or a valid license in the state within which they provide telephone medical advice services as a physician and surgeon or physician assistant and are operating consistent with the laws governing their respective scopes of practice.
Ensure that a physician and surgeon is available on an on-call basis at all times the service is advertised to be available to enrollees and subscribers.
Ensure that the in-state or out-of-state telephone medical advice service designates an agent for service of process in California and files this designation with the commissioner.
Require that the in-state or out-of-state telephone medical advice service makes and maintains records for a period of five years after the telephone medical advice services are provided, including, but not limited to, oral or written transcripts of all medical advice conversations with the disability insurer’s insureds in California and copies of all complaints. If the records of telephone medical advice services are kept out of state, the insurer shall, upon the request of the director, provide the records to the director within 10 days of the request.
Ensure that the telephone medical advice services are provided consistent with good professional practice.
The commissioner shall forward to the Department of Consumer Affairs, within 30 days of the end of each calendar quarter, data regarding complaints filed with the department concerning telephone medical advice services.
ARTICLE 2. Approval of Commissioner [10290. - 10293.]
A disability policy shall not be issued or delivered to any person in this state until both of the following conditions are met:
A copy of the form thereof and, if more than one class of risks is written, of the classification of risks, and the premium rates pertaining thereto are filed with the commissioner.
Either of the following occurs:
One hundred twenty calendar days expire without notice from the commissioner after the copy is filed.
The commissioner gives his or her written approval prior to that time.
If the commissioner notifies the insurer, in writing, that the filed form does not comply with the requirements of law, specifying the reasons for his opinion, it is unlawful thereafter for any such insurer to issue any policy in such form.
The purpose of this section is to achieve both of the following:
Prevent, in respect to disability insurance, fraud, unfair trade practices, and insurance economically unsound to the insured.
Assure that the language of all insurance policies can be readily understood and interpreted.
The commissioner shall not approve a disability policy for issuance or delivery in this state in any of the following circumstances:
If the commissioner finds that it contains a provision, or has a label, description of its contents, title, heading, backing, or other indication of its provisions that is unintelligible, uncertain, ambiguous, or abstruse, or likely to mislead a person to whom the policy is offered, delivered or issued.
If it contains a provision for payment at a rate, or in an amount (other than the product of rate times the periods for which payments are promised) for loss caused by particular event or events (as distinguished from character of physical injury or illness of the insured) more than triple the lowest rate, or amount, promised in the policy for the same loss caused by another event or events (loss caused by sickness, loss caused by accident, and different degrees of disability each being considered, for the purpose of this paragraph, a different loss); or if it contains a provision for payment for a confining loss of time at a rate more than six times the least rate payable for a partial loss of time or more than twice the least rate payable for a nonconfining total loss of time; or if it contains a provision for payment for any nonconfining total loss of time at a rate more than three times the least rate payable for any partial loss of time.
If it contains a provision for payment for disability caused by particular event or events (as distinguished from character of physical injury or illness of the insured) payable for a term more than twice the least term of payment provided by the policy for the same degree of disability caused by another event or events; or if it contains a benefit for total nonconfining disability payable for lifetime or for more than 12 months and a benefit for partial disability, unless the benefit for partial disability is payable for at least three months; or if it contains a benefit for total confining disability payable for lifetime or for more than 12 months, unless it also contains benefit for total nonconfining disability caused by the same event or events payable for at least three months, and, if it also contains a benefit for partial disability, unless the benefit for partial disability is payable for at least three months. This paragraph shall apply separately to accident benefits and to sickness benefits.
If it contains a provision or provisions that would have the effect, upon termination of the policy, of reducing or ending the liability as the insurer would have, but for the termination, for loss of time resulting from accident occurring while the policy is in force or for loss of time commencing while the policy is in force and resulting from sickness contracted while the policy is in force or for other losses resulting from accident occurring or sickness contracted while the policy is in force, and also contains provision or provisions reserving to the insurer the right to cancel or refuse to renew the policy, unless it also contains other provision or provisions the effect of which is that termination of the policy as the result of the exercise by the insurer of that right shall not reduce or end the liability in respect to the hereinafter specified losses as the insurer would have had under the policy, including its other limitations, conditions, reductions, and restrictions, had the policy not been terminated.
The specified losses referred to in the preceding paragraph are:
Loss of time that begins while the policy is in force and results from sickness contracted while the policy is in force.
Loss of time that begins within 20 days following and results from accident occurring while the policy is in force.
Losses that result from accident occurring or sickness contracted while the policy is in force and arise out of the care or treatment of illness or injury and which occur within 90 days from the termination of the policy or during a period of continuous compensable loss or losses which period commences before the end of those 90 days.
Losses other than those specified in clause (i), (ii), or (iii) that result from accident occurring or sickness contracted while the policy is in force and which losses occur within 90 days following the accident or the contraction of the sickness.
If a caption, label, title, or description of contents the policy states, implies, or infers without reasonable qualification that it provides loss of time indemnity for lifetime, or for a period of more than two years, if the loss of time indemnity is made payable only when house confined or only under special contingencies not applicable to other total loss of time indemnity.
If it contains a benefit for total confining disability payable only upon condition that the confinement be of an abnormally restricted nature unless the caption of the part containing that benefit is accurately descriptive of the nature of the confinement required and unless, if the policy has a description of contents, label, or title, at least one of them contain reference to the nature of the confinement required.
If, irrespective of the premium charged therefor, a benefit of the policy is, or the benefits of the policy as a whole are, not sufficient to be of real economic value to the insured.
In determining whether benefits are of real economic value to the insured, the commissioner shall not differentiate between insureds of the same or similar economic or occupational classes and shall give due consideration to all of the following:
The right of insurers to exercise sound underwriting judgment in the selection and amounts of risks.
Amount of benefit, length of time of benefit, nature or extent of benefit, or any combination of those factors.
The relative value in purchasing power of the benefit or benefits.
Differences in insurance issued on an industrial or other special basis.
To be of real economic value, it shall not be necessary that any benefit or benefits cover the full amount of a loss which might be suffered by reason of the occurrence of a hazard or event insured against.
If it substitutes a specified indemnity upon the occurrence of accidental death for a benefit of the policy, other than a specified indemnity for dismemberment, that would accrue before that death or if it contains a provision that has the effect, other than at the election of the insured exercisable within not less than 20 days in the case of benefits specifically limited to the loss by removal of one or more fingers or one or more toes or within not less than 90 days in all other cases, of doing any of the following:
Of substituting, upon the occurrence of the loss of both hands, both feet, one hand and one foot, the sight of both eyes or the sight of one eye and the loss of one hand or one foot, some specified indemnity for any or all benefits under the policy unless the indemnity so specified is equal to or greater than the total of the benefit or benefits for which that specified indemnity is substituted and which, assuming in all cases that the insured would continue to live, could possibly accrue within four years from the date of that dismemberment under all other provisions of the policy applicable to the particular event or events (as distinguished from character of physical injury or illness) causing the dismemberment.
Of substituting, upon the occurrence of any other dismemberment some specified indemnity for any or all benefits under the policy unless the indemnity so specified is equal to or greater than one-fourth of the total of the benefit or benefits for which the specified indemnity is substituted and which, assuming in all cases that the insured would continue to live, could possibly accrue within four years from the date of the dismemberment under all other provisions of the policy applicable to the particular event or events (as distinguished from character of physical injury or illness) causing the dismemberment.
Of substituting a specified indemnity upon the occurrence of a dismemberment for a benefit of the policy which would accrue before the time of dismemberment.
As used in this section, loss of a hand shall be severance at or above the wrist joint, loss of a foot shall be severance at or above the ankle joint, loss of an eye shall be the irrecoverable loss of the entire sight thereof, loss of a finger shall mean at least one entire phalanx thereof and loss of a toe the entire toe.
If it contains a provision, other than as provided in Section 10369.3, reducing an original benefit more than 50 percent on account of age of the insured.
If the insuring clause or clauses contain no reference to the exceptions, limitations, and reductions (if any) or no specific reference to, or brief statement of, each abnormally restrictive exception, limitation, or reduction.
If it contains benefit or benefits for loss or losses from specified diseases only unless:
All of the diseases so specified in each provision granting the benefits fall within some general classification based upon the following:
The part or system of the human body principally subject to all those diseases.
The similarity in nature or cause of those diseases.
In case of diseases of an unusually serious nature and protracted course of treatment, the common characteristics of all those diseases with respect to severity of affliction and cost of treatment.
The policy is entitled and each provision granting the benefits is separately captioned in clearly understandable words so as to accurately describe the classification of diseases covered and expressly point out, when that is the case, that not all diseases of the classification are covered.
If it does not contain provision for a grace period of at least the number of days specified below for the payment of each premium falling due after the first premium, during which grace period the policy shall continue in force provided, that the grace period to be included in the policy shall be not less than seven days for policies providing for weekly payment of premium, not less than 10 days for policies providing for monthly payment of premium and not less than 31 days for all other policies.
If it fails to conform with a law of this state.
The commissioner shall not approve a disability policy covering hospital, medical, or surgical expenses unless the commissioner finds that the application conforms to both of the following requirements:
This section does not authorize the commissioner to establish or require a single or standard application form for application questions.
The commissioner may, from time to time as conditions warrant, after notice and hearing, promulgate reasonable rules and regulations, and amendments and additions thereto, as are necessary or convenient, to establish, in advance of the submission of policies, the standard or standards conforming to subdivision (b), by which the commissioner shall disapprove or withdraw approval of a disability policy.
In promulgating a rule or regulation the commissioner shall give consideration to the criteria established in this section and to the desirability of approving for use in policies in this state uniform provisions, nationwide or otherwise, and is hereby granted the authority to consult with insurance authorities of any other state and their representatives individually or by way of convention or committee, to seek agreement upon those provisions.
A rule or regulation shall be promulgated in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
The commissioner may withdraw approval of filing of any policy or other document or matter required to be approved by the commissioner, or filed with the commissioner, by this chapter when the commissioner would be authorized to disapprove or refuse filing of the same if originally submitted at the time of the action of withdrawal.
A withdrawal pursuant to paragraph (1) shall be in writing and shall specify reasons. An insurer adversely affected by a withdrawal may, within a period of 30 days following mailing or delivery of the writing containing the withdrawal, by written request secure a hearing to determine whether the withdrawal should be annulled, modified, or confirmed. Unless, at any time, it is mutually agreed to the contrary, a hearing shall be granted and commenced within 30 days following filing of the request and shall proceed with reasonable dispatch to determination. Unless the commissioner in writing in the withdrawal, or subsequent thereto, grants an extension, a withdrawal shall, in the absence of a hearing request, be effective, prospectively and not retroactively, on the 91st day following the mailing or delivery of the withdrawal, and, if request for the hearing is filed, on the 91st day following mailing or delivery of written notice of the commissioner’s determination.
A proceeding under this section is not subject to Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
Except as provided in subdivision (k), an action taken by the commissioner under this section is subject to review by the courts of this state and proceedings on review shall be in accordance with the Code of Civil Procedure.
Notwithstanding any other law, a petition for review may be filed at any time before the effective date of the action taken by the commissioner. No action of the commissioner shall become effective before the expiration of 20 days after written notice and a copy thereof are mailed or delivered to the person adversely affected, and an action so submitted for review shall not become effective for a further period of 15 days after the filing of the petition in court. The court may stay the effectiveness thereof for a longer period.
This section shall be liberally construed to effectuate the purpose and intentions of this section, but shall not be construed to grant the commissioner power to fix or regulate rates for disability insurance or prescribe a standard form of disability policy, except that the commissioner shall prescribe a standard supplementary disclosure form for presentation with all disability insurance policies, pursuant to Section 10603.
This section shall be effective on and after July 1, 1950, as to all policies thereafter submitted and on and after January 1, 1951, the commissioner may withdraw approval pursuant to subdivision (d) of a policy thereafter issued or delivered in this state irrespective of when its form may have been submitted or approved, and before those dates the law in effect on January 1, 1949, shall apply to those policies.
A policy issued by an insurer to an insured on a form approved by the commissioner before July 1, 1950, and in accordance with the conditions, if any, contained in the approval, at a time when that approval is outstanding shall, as between the insurer and the insured, or a person claiming under the policy, be conclusively presumed to comply with, and conform to, this section.
Insofar as the reduction of any original benefit on account of age of the insured is concerned, a noncancellable policy may be approved if such reduction does not exceed that permitted by Section 10291.5(b)(9), or if the only such reduction is one having the effect of reducing the limit of the period for which benefits for loss of time resulting from total disability will be paid to a period ending on the date on which the insured’s right to continue the policy in force expires and if the policy also provides that such limit shall not in any case be less than 12 months.
A supplemental benefit described in subdivision (a) of Section 10271 shall not be delivered or issued for delivery to any person in this state until a copy of the form thereof is submitted to, and approved by, the commissioner. If the supplemental benefit is an integral part of a contract of life insurance or annuity, the entire contract shall be submitted to the commissioner, but his or her power of approval or disapproval, unless it is otherwise authorized, is limited to the supplemental portion and any other portions that relate to the supplemental portion.
A supplemental benefit described in subdivision (a) of Section 10271 shall be considered an integral part of a contract for purposes of this section. To facilitate the review of a supplemental benefit, the insurer shall submit, for informational purposes, a sample copy of the life insurance or annuity contract with which the supplemental benefit will be used. To facilitate the location of the required provisions as stated in subdivision (c) of Section 10271, the insurer shall provide the sample copy page reference for the provisions that appear in the contract.
The commissioner shall, after notice and hearing, withdraw approval of an individual or mass-marketed policy of disability insurance if after consideration of all relevant factors the commissioner finds that the benefits provided under the policy are unreasonable in relation to the premium charged. The commissioner shall, from time to time as conditions warrant, after notice and hearing, promulgate such reasonable rules and regulations, and amendments and additions thereto, as are necessary to establish the standard or standards by which the commissioner shall withdraw approval of any such policy. Any such rule or regulation shall be promulgated in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, and shall be effective 90 days after adoption by the commissioner.
Unless the commissioner specifies otherwise in writing in the withdrawals, or subsequent thereto, grants an extension, any such withdrawal shall be effective prospectively and not retroactively on the 91st day following the mailing or delivery of the withdrawal.
As used in this section:
“Mass-marketed policy” means any group or blanket disability insurance policy which is offered by means of direct response solicitation through a sponsoring organization, or through the mails or other mass communications media and under which a person insured pays all or substantially all of the cost of his or her insurance.
“Direct response solicitation” means any offer by an insurer to persons in this state, either directly or through a third party, to effect health insurance coverage which enables the individual to apply or enroll for the insurance on the basis of the offer. It shall not include solicitation for insurance through an employer benefit plan which is defined in Public Law 93-406, nor shall it include such a solicitation through the individual’s creditor with respect to credit health insurance.
ARTICLE 2.1. Accelerated Death Benefits [10295. - 10295.19.]
An accelerated death benefit, as described in this section, shall not be offered, sold, issued, or marketed as health, accident, or long-term care insurance. An accelerated death benefit shall not reimburse or provide specific coverage for any health, accident, or long-term care insurance benefits.
For the purposes of this article, an “accelerated death benefit” means a provision, endorsement, or rider added to a life insurance policy that provides for the advance payment of any part of the death proceeds, payable upon the occurrence of a qualifying event in accordance with Section 10295.1.
For the purposes of this article, “qualifying event” means that subparagraph (A) or (B) applies.
The insured has a medical condition that would, in the absence of treatment, result in death within a limited period of time, as defined by the supplemental benefit, but that shall not be restricted to a period of less than six months.
The insured has a chronic illness as defined in subparagraph (B) of paragraph (5) of subdivision (b) of Section 10271.1.
For policies intended to be federally tax qualified, the insurer shall require that a licensed health care practitioner, independent of the insurer, certifies that the insured meets the definition of “chronically ill individual” as defined under the federal Health Insurance Portability and Accountability Act (Public Law 104-191). The accelerated death benefit shall explain subclauses (I) through (IV) and comply with all of the following:
An insured has the option of submitting a certification to the insurer or submitting a notice of claim and requesting that the insurer conduct the assessment. If the insured requests that the insurer conduct the assessment, the insurer shall provide an independent licensed health care practitioner to conduct the assessment. If a health care practitioner makes a determination, pursuant to this clause, that an insured does not meet the definition of “chronically ill individual,” the insurer shall notify the insured that the insured shall be entitled to a second assessment by a licensed health care practitioner, upon request, who shall personally examine the insured. The requirement for a second assessment shall not apply if the initial assessment was performed by a practitioner who otherwise meets the requirements of this clause and who personally examined the insured.
(II) The assessments conducted pursuant to this clause shall be performed promptly with the certification completed as quickly as possible to ensure that an insured’s benefits are not delayed. The written certification shall be renewed every 12 months.
(III) The costs to have a licensed health care practitioner certify that an insured meets, or continues to meet, the definition of “chronically ill individual,” shall not count against the lifetime maximum of the policy or certificate.
(IV) In order to be considered “independent of the insurer,” a licensed health care practitioner shall not be an employee of the insurer and shall not be compensated in any manner that is linked to the outcome of the certification.
It is the intent of the Legislature in enacting this clause that the practitioner’s assessments be unhindered by financial considerations.
(VI) This clause shall apply only to a policy or certificate intended to be federally tax qualified.
For the purposes of this article, “applicant” means any of the following:
In the case of an individual life insurance policy with an accelerated death benefit, the person who seeks to contract for benefits.
In the case of a group life insurance policy with an accelerated death benefit, the proposed certificate holder.
“Certificate” means any certificate issued under a group life insurance policy that includes an accelerated death benefit.
For the purposes of this article, “supplemental benefit” means a rider to or provision in a life insurance policy, certificate, or annuity contract that provides a benefit as set forth in subdivision (a) of Section 10271.
A life insurance policy that accelerates death benefits if the insured is chronically ill and requires that the insured receives long-term care services described in Section 10231.2, shall not be considered an accelerated death benefit for the purposes of this article.
This section does not prohibit an insurer from including other riders to a life insurance policy, such as a terminal illness rider, that are not subject to this article.
An accelerated death benefit as defined in paragraph (1) of subdivision (b) of Section 10295 shall comply with, and shall explain all of, the following:
That the accelerated death benefit is fixed at the time the insurer approves the request for the accelerated death benefit.
That the payment of the accelerated death benefit is not conditioned on the receipt of long-term care or medical services.
That the insured shall have the option to take the accelerated death benefit in a lump sum on the occurrence of a qualifying event, as well as an option to receive the benefit in periodic payments for a certain period only. The insured shall have the choice of requesting a lump sum that is equal to the maximum amount of the accelerated death benefit, or requesting a lump sum that is less than the maximum amount. For purposes of this paragraph, “lump sum” shall mean that a claim is paid in a single payment.
That the accelerated death benefit may not restrict the insured’s use of the proceeds.
That the payment of the accelerated death benefit is due immediately upon receipt of the due written proof of eligibility.
That, prior to the payment of the accelerated death benefit, the insurer is required to obtain from an assignee or irrevocable beneficiary, if any, a signed acknowledgment of concurrence for payout. If the insurer making the accelerated death benefit is itself the assignee under the policy, the acknowledgment is not required.
That if any death benefit remains after payment of an accelerated death benefit, the accidental death benefit provision, if any, in the policy shall not be affected by the payment of the accelerated death benefit.
The accelerated death benefit shall also provide for all of the following:
A maximum amount that may be accelerated.
An explanation that the insured may accelerate more than once on a qualifying event up to the maximum amount.
An explanation that the insured may accelerate on more than one of the qualifying events specified in the supplemental provision up to the maximum amount.
A statement that the policy, rider, endorsement, or certificate pays proceeds that are or are not intended for favorable tax treatment under Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec. 101(g)), if applicable.
The insurer shall advise the policyholder or certificate holder that there may be tax consequences of accepting an amount above the amount that would be tax qualified under the Internal Revenue Code.
The accelerated death benefit shall not contain any preexisting condition limitation and shall not contain any requirement that acceleration be conditioned on a prior hospitalization or institutionalization.
The accelerated death benefit shall contain an explanation of how the insured will pay for the accelerated death benefit, whether by paying a portion of the premium for the life insurance policy, by paying a fee at the time of the acceleration, by paying the cost of insurance charge, or by paying the administrative expense charge, together with an illustration. If there is a premium or cost of insurance charge, or a charge imposed upon the acceleration, a generic illustration numerically demonstrating any effect of the payment of a benefit on the policy’s cash value, accumulation account, death benefit, premium, policy loans, and policy liens shall suffice for this purpose.
Every accelerated death benefit that pays proceeds intended for favorable tax treatment under Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec. 101(g)) shall be identified as such by prominently displaying and printing that intention on page one of the accelerated benefit policy provision, rider, endorsement, or certificate.
Every accelerated death benefit that pays proceeds that are not intended for favorable tax treatment under Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec. 101(g)) shall be identified as such by prominently displaying and printing that intention on page one of the accelerated death benefit policy provision, rider, endorsement, or certificate.
A life insurance contract with an accelerated death benefit or an accelerated death benefit in the form of a rider or endorsement shall be submitted for the approval of the commissioner in the same manner as required under Section 10292 and shall be submitted with the following additional information:
The term “accelerated death benefit” shall be included in the descriptive title of the filing.
A statement of the specific policy forms with which this accelerated death benefit will be offered, any underwriting restrictions involving face amount or age, and whether the accelerated death benefit is intended for use with new issues or in force business, or both.
An insurer that requires certification that a chronic illness is expected to last longer than 90 days shall include in its filing a legal memorandum from outside tax counsel that the certification would allow for preferable tax treatment under Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec. 101(g)).
A written disclosure, as set forth below, shall be included with the filing for the commissioner’s approval, and shall be given to each applicant. The same written disclosure shall be attached to the policy or certificate delivered to the insured.
The required written disclosure shall be in the following form:
“IMPORTANT NOTICE TO APPLICANT/BUYER REGARDING ACCELERATED DEATH BENEFITS”
“The benefits provided by this accelerated death benefit are not intended to provide, and will never provide, long-term care insurance, nursing home insurance, or home care insurance. If you are interested in long-term care or nursing home or home care insurance, you should consult with an insurance agent licensed to sell that insurance, inquire with the insurance company offering the accelerated death benefits, or visit the California Department of Insurance Internet Web site (www.insurance.ca.gov) section regarding long-term care insurance.
If you choose to accelerate a portion of your death benefit, doing so will reduce the amount that your beneficiary will receive upon your death.
Receipt of accelerated death benefits may be taxable. Prior to electing to buy the accelerated death benefit, you should seek assistance from a qualified tax adviser.
Receipt of accelerated death benefits may affect eligibility for public assistance programs, such as Medi-Cal or Medicaid. Prior to electing to buy the accelerated death benefit, you should consult with the appropriate social services agency concerning how receipt of accelerated death benefits may affect that eligibility.”
In the case of agent-solicited life insurance, the agent shall provide the disclosure form to the applicant prior to, or concurrently with, the application. Acknowledgment of the applicant’s receipt of the disclosure shall be signed by the applicant and the writing agent.
In the case of a solicitation by direct response methods, the insurer shall provide the disclosure form to the applicant together with the application. The form shall include a statement that a full premium refund shall be provided to the insured if the policy is returned to the company within the free look period, pursuant to Section 10295.8.
In the case of group insurance policies, the disclosure form shall be delivered together with the application for the certificate, or with the certificate of coverage or any related document furnished by the insurer for the certificate holder.
An insurer shall file with the commissioner an actuarial memorandum prepared, dated, and signed by a member of the American Academy of Actuaries that includes all of the following information:
A description of the accelerated death benefit, including the effects of payment of the accelerated death benefit on all life insurance policy benefits and any subsequent accelerated death benefits, premium payments, cost of insurance rates, and values, including any outstanding loan, if applicable, for all types of forms with which the accelerated death benefit will be used.
A description of, and justification for, expense charges associated with the accelerated death benefit and the maximum expense charges.
A description of the interest rate or interest rate methodology used in any present value calculation or in accruing interest on the amount of the accelerated death benefit, which shall not exceed the greater of the current yield on 90-day treasury bills, or a variable rate determined in accordance with the National Association of Insurance Commissioners (NAIC) Model Policy Loan Interest Rate Bill No. 590.
A description of the mortality basis and methodology, including the period of time applicable to any mortality discount, used in any present value calculation of the accelerated death benefit.
A description of the mortality and morbidity basis and methodology used in the determination of any separate premium or costs of insurance for the accelerated death benefit.
The formula used to determine the accelerated death benefit, including any limitations on the amount of the benefit, and the formula used to determine the postacceleration premium for the accelerated death benefit as well as the life insurance policy.
A sample calculation of the accelerated death benefit. If the life insurance policy contains a loan provision, the example shall assume that there is an outstanding loan on the date of acceleration. All policy and accelerated death benefit benefits, premium payments, cost of insurance charges and values, including the outstanding loan, if applicable, immediately before and immediately after acceleration shall be shown in the example.
If an accelerated death benefit will be paid in installments, the actuarial memorandum shall explain the basis used in the calculation of the minimum periodic payment for the payment period and a sample calculation of a minimum periodic payment, and the basis used, and a sample calculation of the lump sum payable if the insured dies before all periodic payments for the payment period are made.
For any accelerated death benefit subject to this article, a certification that the value and premium of the accelerated death benefit is 10 percent or less of the total value of the benefits over the life of the policy. These values shall be measured as of the date of issue.
The certification shall be in the following form:
“I,____________________of ___________________________ am a Member in good standing of the American Academy of Actuaries and am qualified to provide this Certification with respect to the accelerated death benefit described in the Actuarial Memorandum to which this Certification is attached.
I certify that:
In developing the assumptions, other than the interest assumption, used in calculating NSP1 and NSP2, I have complied with all applicable laws, regulations, and Actuarial Standards of Practice (ASOPs). The assumptions used represent anticipated experience factors, as defined in actuarial literature and by generally accepted actuarial practice.
The assumptions, other than the interest assumption, used in calculating NSP1 and NSP2 will be reviewed at least annually by the Company to ensure that the value of the accelerated death benefit provided, as defined in (1) above, continues to be incidental. If, after such review and while this accelerated death benefit is being actively issued, the value of the benefits provided by this benefit are no longer incidental based on then current anticipated experience factors, the Company will discontinue offering the accelerated death benefit which is no longer incidental.
If a separate premium or cost of insurance (COI) charge is being charged for the accelerated death benefit provided, the ratio of the present value of the accelerated death benefit premiums or COI charges over the life of the policy to the present value of the policy premiums or COI charges exclusive of any riders, does not exceed 10%. The present values in this item (4) are determined using an effective annual interest rate of 6%.”
Applications, if any, or forms supporting an application, if any, for accelerated death benefits shall contain clear, unambiguous, short, and simple questions designed to ascertain the health condition of the applicant. Each health-related question shall contain only one health status inquiry and shall require only a “yes” or “no” answer, except that the application may include a request for the name of any prescribed medication and the name of the prescribing physician. If the application requests the name of any prescribed medication or the prescribing physician, then any mistake or omission shall not be used as a basis for the denial of a claim or the rescission of the accelerated death benefit or life insurance policy or certificate.
The following warning shall be printed conspicuously and in close conjunction with the applicant’s signature block:
“Caution: If your answers on this application are misstated or untrue, the insurer may have the right to deny benefits or rescind your accelerated death benefit coverage.”
If an insurer does not complete medical underwriting for the accelerated death benefit separate from underwriting for the life insurance policy and resolve all reasonable questions arising from information submitted on or with an application before issuing the accelerated death benefit, then the insurer may only rescind the accelerated death benefit or life insurance policy or certificate or deny an otherwise valid claim upon clear and convincing evidence of fraud or material misrepresentation of the risk by the applicant. The evidence shall do all of the following:
Pertain to the condition for which benefits are sought.
Involve a chronic condition or involve dates of treatment before the date of application.
Be material to the acceptance for coverage.
An accelerated death benefit may not be field issued.
The contestability period for a life insurance policy or certificate that contains an accelerated death benefit shall comply with paragraph (3) of subdivision (c) of Section 10271.
A copy of the completed application shall be delivered to the insured at the time of delivery of the life insurance policy or certificate that contains an accelerated death benefit.
When a policyholder or certificate holder requests an acceleration of death benefits, the insurer shall send a statement to the policyholder or certificate holder and irrevocable beneficiary showing any effect that the payment of the accelerated death benefit would have on the policy’s cash value, accumulation account, death benefit, premium, policy loans, and policy liens. The statement shall disclose that receipt of accelerated death benefit payments may adversely affect the recipient’s eligibility for Medicaid or other government benefits or entitlements. In addition, receipt of an accelerated death benefit payment may be taxable and assistance should be sought from a personal tax adviser. When a previous disclosure statement becomes invalid as a result of an acceleration of the death benefit, the insurer shall send a revised disclosure statement to the policyholder or certificate holder and irrevocable beneficiary.
The accelerated death benefit shall be effective not more than 30 days following the effective date of the policy provision, rider, endorsement, or certificate.
If the insurer charges a separate premium for the accelerated death benefit, then the insurer may also offer a waiver of premium benefit as defined in subdivision (a) of Section 10271.1. At the time the waiver of the accelerated death benefit premium benefit is claimed, the insurer shall explain any continuing premium requirement to keep the underlying policy in force.
An insurer shall not unfairly discriminate among insureds with different qualifying events covered under the policy or among insureds with similar qualifying events covered under the policy. An insurer shall not apply further conditions on the payment of the accelerated death benefits other than those conditions specified in the accelerated death benefit.
No later than one month after payment of an accelerated death benefit, the insurer shall provide the policyholder or certificate holder with a report of any accelerated death benefits paid out during the prior month, an explanation of any changes to the policy or certificate, death benefits, and cash values on account of the benefits being paid out, and the amount of the remaining benefits that can be accelerated at the end of the prior month. The insurer may use a calendar month or policy or certificate month.
The conversion benefit available to group certificate holders on termination of employment pursuant to paragraph (2) of subdivision (a) of Section 10209 shall include a benefit comparable to the accelerated death benefit. This requirement may be satisfied by an individual policy or certificate. This requirement, subject to the approval of the commissioner, may be satisfied by arrangement with another insurer to provide the required coverage.
When payment of an accelerated death benefit results in a pro rata reduction in cash value, the payment may be applied toward repaying a portion of the loan equal to a pro rata portion of any outstanding policy loans if disclosure of the effect of acceleration upon any remaining death benefit, cash value or accumulation account, policy loan, and premium payments, including a statement of the possibility of termination of any remaining death benefit, is provided to the policyholder or certificate holder. The policyholder or certificate holder shall provide written consent authorizing any other arrangement for the repayment of outstanding policy loans.
The insurer may require a premium charge or cost of insurance charge for the accelerated death benefit. This charge shall be based on sound actuarial principles. In the case of group insurance, the additional cost may also be reflected in the experience rating.
The insurer may pay a present value of the face amount. The calculation shall be based on any applicable actuarial discount appropriate to the policy design. The interest rate or interest rate methodology used in the calculation shall be based on sound actuarial principles and disclosed in the contract or actuarial memorandum required in Section 10295.4. The maximum interest rate used shall be no greater than the greater of one of the following:
The current yield on 90-day treasury bills.
The current maximum statutory adjustable policy loan interest rate.
The interest rate accrued on the portion of the lien that is equal in amount to the cash value of the life insurance policy at the time of the supplemental benefit acceleration shall be not more than the policy loan interest rate stated in the contract.
When payment of an accelerated death benefit results in a pro rata reduction in the cash value of the life insurance policy, the payment shall not be applied toward repaying an amount greater than a pro rata portion of any outstanding policy loans.
An applicant for an accelerated death benefit shall have the right to return the accelerated death benefit policy or certificate by first-class United States mail within 30 days of its delivery and to have the premium refunded if, after examination of the policy or certificate, the applicant is not satisfied for any reason. If the accelerated death benefit is purchased as an endorsement or rider at the same time as the base life insurance policy, then the endorsement or rider may be returned within 30 days. The underlying life insurance policy shall be otherwise subject to this code.
The return of a life insurance policy or certificate that contains an accelerated death benefit, or the return of an accelerated death benefit rider or endorsement, shall void the life insurance policy, certificate, rider, or endorsement from the beginning, and the parties shall be in the same position as if no policy, certificate, rider, or endorsement had been issued. All premiums paid and any policy fee paid for the accelerated death benefit shall be fully refunded directly to the applicant by the insurer within 30 days after the policy, rider, endorsement, or certificate is returned.
Policies, certificates, riders, or endorsements to which this section applies shall have a notice prominently printed, or attached thereto, stating in substance the conditions described in subdivisions (a) and (b).
Application forms for accelerated death benefits shall include a question designed to elicit information as to whether the accelerated death benefit is intended to replace any long-term care insurance presently in force. A supplementary application or other form to be signed by the applicant containing that question may be used.
An insurer, broker, agent, or other person shall not cause a policyholder to replace a long-term care insurance policy unnecessarily. This section shall not be construed to allow an insurer, broker, agent, or other person to cause a policyholder to replace a long-term care insurance policy or life insurance policy subject to this section that will result in a decrease in benefits and an increase in premium.
It shall be presumed that any third or greater policy sold to a policyholder in any 12-month period is unnecessary within the meaning of this section. This section shall not apply to those instances in which a policy is replaced solely for the purpose of consolidating policies with a single insurer.
Upon determining that a sale will involve a replacement of a life insurance policy subject to this section or replacement of a long-term care insurance policy, an insurer or its agent shall furnish the applicant, prior to issuance or delivery of a policy, certificate, rider, or endorsement, a notice regarding replacement of life insurance that includes an accelerated death benefit, or long-term care insurance coverage with a life insurance policy or certificate that contains an accelerated death benefit. One copy of this notice shall be retained by the applicant and an additional copy signed by the applicant shall be retained by the insurer. The required notice shall be provided in the following form:
“NOTICE TO APPLICANT REGARDING REPLACEMENT OF LONG-TERM CARE INSURANCE OR LIFE INSURANCE INCLUDING ACCELERATED DEATH BENEFITS
According to (your application) (information you have furnished), you intend to lapse or otherwise terminate existing life insurance or long-term care insurance and replace it with a life insurance policy with an accelerated death benefit to be issued by (company name) Insurance Company. Your new accelerated death benefit coverage provides 30 days within which you may decide, without cost, whether you desire to keep the coverage. Please note that your underlying life insurance policy may only provide for a 10-day period during which you may decide, without cost, whether you will keep the coverage. For your own information and protection, you should be aware of, and seriously consider, certain factors that may affect the insurance protection available to you under the new coverage.
This accelerated death benefit is NOT Nursing Home, Home Care, or Long-Term Care Insurance, and it is not intended or designed to eliminate your need for that coverage. There are no restrictions or limitations on the use of the accelerated death benefit proceeds.
If you want long-term care insurance, you should consult with an insurance agent licensed to sell that insurance, inquire with the insurance company offering the accelerated death benefits, or visit the California Department of Insurance Internet Web site (www.insurance.ca.gov) that provides information regarding long-term care insurance.
If you want to replace existing coverage with life insurance that includes an accelerated death benefit, you should note the following:
The replacement notice shall include the following statement except when the replacement coverage is group insurance:
“COMPARISON TO YOUR CURRENT COVERAGE: I have reviewed your current coverage. To the best of my knowledge, the replacement of insurance involved in this transaction materially improves your position for the following reasons:
____ Additional or different benefits
(please specify) ______.
____ No change in benefits, but lower premiums.
____ Fewer benefits and lower premiums.
____ Other (please specify) ______.
(Signature of Agent and Name of Insurer)
(Signature of Applicant)
(Date)
In recommending the purchase or replacement of any policy or certificate issued under this section, an agent shall make reasonable efforts to determine the appropriateness of a recommended purchase or replacement.
The replacing policy or certificate shall not contain a provision establishing a new waiting period in the event existing coverage is converted to, or replaced by, a new or other form within the same insurer, except with respect to an increase in benefits voluntarily selected by the insured individual or group policyholder.
An insurer may not:
Cancel, nonrenew, or otherwise terminate an accelerated death benefit on the grounds of the age or the deterioration of the mental or physical health of the insured individual or certificate holder.
Terminate a policy, certificate, or rider, or contain a provision that allows the premium for an in-force policy, certificate, or rider, to be increased due to the divorce of a policyholder or certificate holder.
An accelerated death benefit shall not be advertised or marketed as long-term care insurance, nursing home insurance, or home care insurance. Any advertisement, description, comparison, marketing material, or illustration shall state in bold type:
“This is a life insurance benefit that also gives you the option to accelerate some or all of the death benefit in the event that you meet the criteria for a qualifying event described in the policy. This policy or certificate does not provide long-term care insurance subject to California long-term care insurance law. This policy or certificate is not a California Partnership for Long-Term Care program policy. This policy or certificate is not a Medicare supplement (policy or certificate).”
An insurer shall also include in any advertisement or marketing materials for these insurance policies all of the following:
A statement that the policy or certificate pays proceeds that are or are not intended to receive favorable tax treatment under Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec. 101(g)).
A description of the accelerated death benefits provided by the policy, including a description of the acceleration of the death benefit to pay an unrestricted cash benefit when the insured has become chronically ill or otherwise eligible for benefits from a qualified event.
A comparison between the benefits provided by life insurance policies, riders, or endorsements that contain accelerated death benefits and the benefits provided by long-term care insurance.
Advertising for term life insurance policies or certificates that contain an accelerated death benefit to be attached to an existing term life policy shall include a prominent statement that the accelerated death benefit will terminate with the policy.
On or after January 1, 2014, every insurer offering accelerated death benefits shall file with the commissioner copies of all advertising for accelerated death benefits that the insurer proposes to disseminate in the state prior to use of that material. The commissioner shall have the authority to disapprove any advertising that does not meet the requirements of this code. If the commissioner disapproves the advertising, the insurer shall not use and shall stop using the disapproved advertising. Nothing in this subdivision shall be construed as requiring prior approval of advertising prior to dissemination in this state.
Insurers shall ensure that agents offering, marketing, or selling accelerated death benefits on their behalf are able to describe the differences between benefits provided under an accelerated death benefit and benefits provided under long-term care insurance, as follows:
The difference between the benefits afforded to an insured through an accelerated death benefit and a long-term care insurance policy or rider.
The differences between benefit eligibility criteria.
Whether an elimination period applies to either an accelerated death benefit or long-term care insurance and a description of the elimination period.
The benefits under the accelerated death benefit or long-term care insurance if benefits are never needed.
The benefits under the accelerated death benefit or long-term insurance if benefits are needed.
Restrictions on benefit amounts.
Tax treatment of benefits.
Income and death benefit considerations.
Completion of California agent education or continuing education for long-term care insurance shall meet the requirements of this section.
In addition to other unfair trade practices described in this code, the following acts and practices in the sale of insurance under this article are prohibited:
Twisting. Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on or convert any insurance policy, or to take out a policy of insurance with another insurer.
High pressure tactics. Employing any method of marketing having the effect of, or tending to, induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.
Cold lead advertising. Making use directly or indirectly of any method of marketing that fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.
Every insurer offering term life insurance with accelerated death benefits or any rider that provides for accelerated death benefits described in Section 10295 shall also offer a waiver of premium benefit for the life insurance premium and any premium charged for the accelerated death benefit as described in Section 10271.1.
Every insurer offering a cash value life insurance policy or rider offering accelerated death benefits described in Section 10295 shall disclose all premium default protection options in the policy and at the time of the application, including waiver of premium options available under Section 10271.1 and automatic premium loans.
Except at the request of the policyholder or contractholder, all accelerated death benefit provisions or supplemental contracts shall be renewable for the life of the underlying life insurance policy, provided the premiums are timely paid. The statement shall be prominently displayed on the first page of the accelerated death benefit policy or rider.
If an accelerated death benefit is offered with an underlying term life insurance policy, the accelerated death benefit shall include a prominent statement on page one that the accelerated death benefit terminates with the policy.
Termination of an accelerated death benefit shall not prejudice the payment of benefits for any qualifying event that occurred while the accelerated death benefit was in force.
An insurer that fails to conform to the requirements provided under this article shall be subject to Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1.
Accelerated death benefits shall not limit or exclude coverage by type of illness, treatment, medical condition, or accident, except under the circumstances described in paragraphs (1) to (4), inclusive, of subdivision (g) of Section 10271.
A policy, certificate, rider, or endorsement shall include a provision giving the policyholder or certificate holder the right to appeal to the insurer a decision regarding benefit eligibility.
ARTICLE 3. Policy Form Generally—Uniform Provisions [10320. - 10328.]
No policy of accident and sickness insurance shall be delivered or issued for delivery to any person in this state unless all of the following apply:
The entire money and other considerations therefor are expressed therein.
The time at which the insurance takes effect and terminates is expressed therein.
It purports to insure only one person, except that a policy may insure, originally or by subsequent amendment, upon the application of the head of a family who shall be deemed the policyholder, any two or more eligible members of that family, including spouse, dependent children, or any children under a specified age which shall not exceed 19 years of age and any other person dependent upon the policyholder.
The style, arrangement and over-all appearance of the policy give no undue prominence to any portion of the text, and unless every printed portion of the text of the policy and of any endorsements or attached papers is plainly printed in light-faced type of a style in general use, the size of which shall be uniform and not less than 10-point with a lower case unspaced alphabet length not less than 120-point (the “text” shall include all printed matter except the name and address of the insurer, name or title of the policy, the brief description, if any, and captions and subcaptions).
The exceptions and reductions of indemnity are set forth in the policy and, except those which are set forth in Article 4a or 5a of this chapter, are printed, at the insurer’s option, either included with the benefit provision to which they apply, or under an appropriate caption such as “Exceptions,” or “Exceptions and Reductions”; provided, that if an exception or reduction specifically applies only to a particular benefit of the policy, a statement of such exception or reduction shall be included with the benefit provision to which it applies.
Each such form, including riders and endorsements, shall be identified by a form number in the lower left-hand corner of the first page thereof.
It contains no provision purporting to make any portion of the charter, rules, constitution, or bylaws of the insurer a part of the policy unless such portion is set forth in full in the policy, except in the case of the incorporation of, or reference to, a statement of rates or classification of risks, or short-rate table filed with the commissioner.
If the policy contains amendment, change, limitation, alteration, or restriction of the printed text by endorsement, or by any means other than rider upon a separate piece of paper made a part of such policy.
If any portion of such policy purports to reduce benefits by reason of age of the insured and such reduction, in accordance with the age of the insured as stated in his or her application, would be effective on the issue date of the policy.
After issuance a disability policy shall not be amended, changed, limited, altered, or restricted by any means other than rider upon a separate piece of paper.
If any disability policy is issued by an insurer domiciled in this State for delivery to a person residing in another state, and if the official having responsibility for the administration of the insurance laws of such other state shall have advised the commissioner that any such policy is not subject to approval or disapproval by such official, the commissioner may by ruling require that such policy meet the standards set forth in Section 10320 and in Articles 4a and 5a of this chapter.
If any provision set forth in Article 4a or 5a of this chapter is in whole or in part inapplicable to or inconsistent with the coverage provided by a particular form of policy the insurer, with the approval of the commissioner, shall omit from such policy any inapplicable provision or part of a provision, and shall modify any inconsistent provision or part of the provision in such manner as to make the provision as contained in the policy consistent with the coverage provided by the policy.
The provisions which are the subject of Article 4a or 5a of this chapter or any corresponding provisions which are used in lieu thereof in accordance with such articles, shall be printed in the consecutive order of the provisions in such articles or, at the option of the insurer, any such provision may appear as a unit in any part of the policy, with other provisions with which it may be logically related, providing the resulting policy shall not be in whole or in part unintelligible, uncertain, ambiguous, abstruse, or likely to mislead a person to whom the policy is offered, delivered or issued.
The word “insured,” as used in this chapter, shall not be construed as preventing a person other than the insured with a proper insurable interest from making application for and owning a policy covering the insured or from being entitled under such a policy to any indemnities, benefits and rights provided therein.
Any disability policy of a foreign or alien insurer, when delivered or issued for delivery to any person in this State, may contain any provision which is not less favorable to the insured or the beneficiary than the provisions of this chapter and which is prescribed or required by the law of the state under which the insurer is organized.
Any disability policy of a domestic insurer may, when issued for delivery in any other state or country, contain any provision permitted or required by the laws of such other state or country.
The commissioner may make such reasonable rules and regulations concerning the procedure for the filing or submission of policies subject to this chapter as are necessary, proper or advisable to its administration. This provision shall not abridge any other authority granted the commissioner by law.
No policy provision which is not subject to Article 4a or 5a of this chapter shall make a policy or any portion thereof less favorable in any respect to the insured or the beneficiary than the provisions thereof which are subject to such articles.
ARTICLE 4. Compulsory Standard Provisions—Uniform Provisions [10350. - 10354.]
Except as provided in Section 10323, each disability policy delivered or issued for delivery to any person in this State shall contain the provisions specified in Sections 10350.1 to 10350.12, inclusive, in the words in which the same appear in such sections; provided, however, that the insurer may, at its option, substitute for one or more of such provisions corresponding provisions of different wording approved by the commissioner which are in each instance not less favorable in any respect to the insured or the beneficiary. Such provisions shall be preceded individually by the caption appearing in each section or, at the option of the insurer, by such appropriate individual or group captions or subcaptions as the commissioner may approve.
A disability policy shall contain a provision which shall be in the form set forth herein.
Entire Contract; Changes: This policy, including the endorsements and the attached papers, if any, constitutes the entire contract of insurance. No change in this policy shall be valid until approved by an executive officer of the insurer and unless such approval be endorsed hereon or attached hereto. No agent has authority to change this policy or to waive any of its provisions.
A disability policy shall contain a provision that shall be in one of the two forms set forth in this section. Policies other than noncancellable policies shall use Form A. Noncancellable policies shall use either Form A or Form B. In Form B, the clause in parentheses in paragraph (a) may be omitted at the insurer’s option. Paragraph (a) in Form A shall not be so construed as to affect any legal requirement for avoidance of a policy or denial of a claim during the initial two-year period, nor to limit the application of Sections 10369.2 to 10369.6, inclusive, in the event of misstatement with respect to age or occupation or other insurance.
Form A.
Time Limit on Certain Defenses: (a) After two years from the date of issue of this policy, no misstatements, except fraudulent misstatements, made by the applicant in the application for the policy shall be used to void the policy or to deny a claim for loss incurred or disability (as defined in the policy) commencing after the expiration of the two-year period.
No claim for loss incurred or disability (as defined in the policy) commencing after two years from the date of issue of this policy shall be reduced or denied on the ground that a disease or physical condition not excluded from coverage by name or specific description effective on the date of loss had existed prior to the effective date of coverage of this policy.
Form B.
Incontestable: (a) After this policy has been in force for a period of two years during the lifetime of the insured (excluding any period during which the insured is disabled), it shall become incontestable as to the statements contained in the application.
A disability policy shall contain a provision which shall be in one of the two forms set forth herein. Form A shall be used in a policy in which the insurer does not reserve the right to refuse any renewal. Form B shall be used in a policy in which an insurer reserves the right to refuse any renewal. The clause in parentheses may only be added if the policy contains a cancellation provision. In the blank in each such form shall be inserted a number; not less than “7” for weekly premium policies, “10” for monthly premium policies, and “31” for all other policies.Form A.
Grace Period: A grace period of __ days will be granted for the payment of each premium falling due after the first premium, during which grace period the policy shall continue in force (subject to the right of the insurer to cancel in accordance with the cancellation provision hereof).Form B.
Grace Period: Unless not less than five days prior to the premium due date the insurer has delivered to the insured or has mailed to his last address as shown by the records of the insurer written notice of its intention not to renew this policy beyond the period for which the premium has been accepted, a grace period of __ days will be granted for the payment of each premium falling due after the first premium, during which grace period the policy shall continue in force (subject to the right of the insurer to cancel in accordance with the cancellation provision hereof).
A disability policy shall contain a provision which shall be in the form set forth herein. The last sentence of such provision may be omitted from a noncancellable policy.
Reinstatement: If any renewal premium be not paid within the time granted the insured for payment, a subsequent acceptance of premium by the insurer or by any agent duly authorized by the insurer to accept such premium, without requiring in connection therewith an application for reinstatement, shall reinstate the policy; provided, however, that if the insurer or such agent requires an application for reinstatement and issues a conditional receipt for the premium tendered, the policy will be reinstated upon approval of such application by the insurer or, lacking such approval, upon the forty-fifth day following the date of such conditional receipt unless the insurer has previously notified the insured in writing of its disapproval of such application. The reinstated policy shall cover only loss resulting from such accidental injury as may be sustained after the date of reinstatement and loss due to such sickness as may begin more than 10 days after such date. In all other respects the insured and insurer shall have the same rights thereunder as they had under the policy immediately before the due date of the defaulted premium, subject to any provisions endorsed hereon or attached hereto in connection with the reinstatement. Any premium accepted in connection with a reinstatement shall be applied to a period for which premium has not been previously paid, but not to any period more than 60 days prior to the date of reinstatement.
A disability policy shall contain a provision which shall be in one of the two forms set forth herein. Form A may be used in any policy. Form B may be used by an insurer, at its option, in a policy providing a loss of time benefit which may be payable for at least two years. In the blank space of such provision shall be inserted the location of such office or offices as the insurer may designate for the purpose of giving notice of claim.Form A.
Notice of Claim: Written notice of claim must be given to the insurer within 20 days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible. Notice given by or on behalf of the insured or the beneficiary to the insurer at ____, or to any authorized agent of the insurer, with information sufficient to identify the insured, shall be deemed notice to the insurer.Form B.
Notice of Claim: Written notice of claim must be given to the insurer within 20 days after the occurrence or commencement of any loss covered by the policy, or as soon thereafter as is reasonably possible. Subject to the qualifications set forth below, if the insured suffers loss of time on account of disability for which indemnity may be payable for at least two years, he shall, at least once in every six months after having given notice of claim, give to the insurer notice of continuance of said disability, except in the event of legal incapacity. The period of six months following any filing of proof by the insured or any payment by the insurer on account of such claim or any denial of liability in whole or in part by the insurer shall be excluded in applying this provision. Delay in the giving of such notice shall not impair the insured’s right to any indemnity which would otherwise have accrued during the period of six months preceding the date on which such notice is actually given. Notice given by or on behalf of the insured or the beneficiary to the insurer at ____, or to any authorized agent of the insurer, with information sufficient to identify the insured, shall be deemed notice to the insurer.
A disability policy shall contain a provision which shall be in the form set forth herein.
Claim Forms: The insurer, upon receipt of a notice of claim, will furnish to the claimant such forms as are usually furnished by it for filing proofs of loss. If such forms are not furnished within 15 days after the giving of such notice the claimant shall be deemed to have complied with the requirements of this policy as to proof of loss upon submitting, within the time fixed in the policy for filing proofs of loss, written proof covering the occurrence, the character and the extent of the loss for which claim is made.
A disability policy shall contain a provision which shall be in the form set forth herein.
Proofs of Loss: Written proof of loss must be furnished to the insurer at its said office in case of claim for loss for which this policy provides any periodic payment contingent upon continuing loss within 90 days after the termination of the period for which the insurer is liable and in case of claim for any other loss within 90 days after the date of such loss. Failure to furnish such proof within the time required shall not invalidate nor reduce any claim if it was not reasonably possible to give proof within such time, provided such proof is furnished as soon as reasonably possible and in no event, except in the absence of legal capacity, later than one year from the time proof is otherwise required.
A disability policy shall contain a provision which shall be in the form set forth herein. In the blank of such provision will be inserted the period for payment which must not be less frequently than monthly.
Time of Payment of Claim: Indemnities payable under this policy for any loss other than loss for which this policy provides any periodic payment will be paid immediately upon receipt of due written proof of such loss. Subject to due written proof of loss, all accrued indemnities for loss for which this policy provides periodic payment will be paid ____ and any balance remaining unpaid upon the termination of liability will be paid immediately upon receipt of due written proof.
A disability policy shall contain a provision which shall include the following first paragraph and which may, at the option of the insurer, include either or both of the following second and third paragraphs. If the provision contains the second paragraph, there shall be inserted in the blank an amount which shall not exceed one thousand dollars ($1,000).
Payment of Claims: Indemnity for loss of life will be payable in accordance with the beneficiary designation and the provisions respecting such payment which may be prescribed herein and effective at the time of payment. If no such designation or provision is then effective, such indemnity shall be payable to the estate of the insured. Any other accrued indemnities unpaid at the insured’s death may, at the option of the insurer, be paid either to such beneficiary or to such estate. All other indemnities will be payable to the insured.
If any indemnity of this policy shall be payable to the estate of the insured, or to an insured or beneficiary who is a minor or otherwise not competent to give a valid release, the insurer may pay such indemnity, up to an amount not exceeding $____, to any relative by blood or connection by marriage of the insured or beneficiary who is deemed by the insurer to be equitably entitled thereto. Any payment made by the insurer in good faith pursuant to this provision shall fully discharge the insurer to the extent of such payment.
Subject to any written direction of the insured in the application or otherwise all or a portion of any indemnities provided by this policy on account of hospital, nursing, medical, or surgical services may, at the insurer’s option and unless the insured requests otherwise in writing not later than the time of filing proofs of that loss, be paid directly to the person or persons having paid for the hospitalization or medical or surgical aid, or to the hospital or person rendering those services; but it is not required that the service be rendered by a particular hospital or person.
A disability policy shall contain a provision which shall be in the form set forth herein.
Physical Examinations and Autopsy: The insurer at its own expense shall have the right and opportunity to examine the person of the insured when and as often as it may reasonably require during the pendency of a claim hereunder and to make an autopsy in case of death where it is not forbidden by law.
A disability policy shall contain a provision which shall be in the form set forth herein.
Legal Actions: No action at law or in equity shall be brought to recover on this policy prior to the expiration of 60 days after written proof of loss has been furnished in accordance with the requirements of this policy. No such action shall be brought after the expiration of three years after the time written proof of loss is required to be furnished.
A disability policy shall contain a provision which shall be in the form set forth herein. At the insurer’s option, the clause of such provision which precedes the first comma may be omitted.
Change of Beneficiary: Unless the insured makes an irrevocable designation of beneficiary, the right to change of beneficiary is reserved to the insured and the consent of the beneficiary or beneficiaries shall not be requisite to surrender or assignment of this policy or to any change of beneficiary or beneficiaries, or to any other changes in this policy.
Each policy of disability insurance issued or renewed on or after the effective date of this section, shall provide, where feasible, that benefits for confinement in an extended care facility, as defined in subsection (j) of Section 1395x of Title 42 of the United States Code, may be provided under such terms and conditions as may be agreed upon between the insured, or group policyholder, and the insurer.
Nothing in this section shall preclude a disability insurance policy from providing benefits for confinement in institutions other than extended care facilities as defined in this section.
Every policy of disability insurance issued, amended, or renewed on or after January 1, 1992, that offers coverage for perinatal services shall contain a provision providing for direct reimbursement to certified nurse-midwives and nurse practitioners for perinatal services. The certified nurse-midwife or nurse practitioner may collect payment for any unpaid portion of his or her fee, as provided for under the plan for other providers.
For purposes of this section, “direct reimbursement” means that after the enrollee files a claim for the perinatal service provided by the certified nurse-midwife or nurse practitioner, the plan pays the certified nurse-midwife or nurse practitioner directly.
Every policy of disability insurance issued, amended, or renewed on or after January 1, 1994, that offers coverage for perinatal services shall contain a provision for direct reimbursement to licensed midwives for perinatal services rendered under terms and conditions as may be agreed upon between the policyholder and the insurer.
The licensed midwife may collect payment for any unpaid portion of his or her fee, as provided under the policy for other providers.
Reasonable consideration shall be given to licensed midwives by disability insurers contracting for services at alternative rates. For the purposes of this section, “reasonable consideration” shall have the meaning provided in Section 10180.
For purposes of this section, “direct reimbursement” means that after the policyholder files a claim for the perinatal service provided under those terms and conditions as may be agreed upon between the policyholder and the insurer, the insurer pays the licensed midwife directly.
ARTICLE 5. Optional Standard Provisions and Special Provisions—Uniform Provisions [10369.1. - 10369.12.]
Except as provided in Section 10323, no disability policy delivered or issued for delivery to any person in this State shall contain provisions respecting the matters set forth in Sections 10369.2 to 10369.12, inclusive, unless such provisions are in the words in which the same appear in such sections; provided, however, that the insurer may, at its option, use in lieu of any such provision a corresponding provision of different wording approved by the commissioner, which is not less favorable in any respect to the insured or the beneficiary. Any such provision contained in the policy shall be preceded individually by the appropriate caption appearing in each of such sections or, at the option of the insurer, by such appropriate individual or group captions or subcaptions as the commissioner may approve.
A disability policy may contain a provision in the form set forth herein.
Change of Occupation: If the insured be injured or contract sickness after having changed his occupation to one classified by the insurer as more hazardous than that stated in this policy or while doing for compensation anything pertaining to an occupation so classified, the insurer will pay only such portion of the indemnities provided in this policy as the premium paid would have purchased at the rates and within the limits fixed by the insurer for such more hazardous occupation. If the insured changes his occupation to one classified by the insurer as less hazardous than that stated in this policy, the insurer, upon receipt of proof of such change of occupation, will reduce the premium rate accordingly, and will return the excess pro-rata unearned premium from the date of change of occupation or from the policy anniversary date immediately preceding receipt of such proof, whichever is the more recent. In applying this provision, the classification of occupational risk and the premium rates shall be such as have been last filed by the insurer prior to the occurrence of the loss for which the insurer is liable or prior to date of proof of change in occupation with the state official having supervision of insurance in the state where the insured resided at the time this policy was issued; but if such filing was not required, then the classification of occupational risk and the premium rates shall be those last made effective by the insurer in such state prior to the occurrence of the loss or prior to the date of proof of change in occupation.
A disability policy may contain a provision in the form set forth herein.
Misstatement of Age: If the age of the insured has been misstated, all amounts payable under this policy shall be such as the premium paid would have purchased at the correct age.
A disability policy may contain a provision which shall, at the option of the insurer, be in one of the two forms set forth herein. If Form A is used, there shall be inserted in the first blank the type of coverage or coverages and in the second blank the maximum limit of indemnity or indemnities.
Form A.
Other Insurance in This Insurer: If an accident or sickness or accident and sickness policy or policies previously issued by the insurer to the insured be in force concurrently herewith, making the aggregate indemnity for ____ in excess of $____, the excess insurance shall be void and all premiums paid for such excess shall be returned to the insured or to his estate.
Form B.
Other Insurance in This Insurer: Insurance effective at any one time on the insured under a like policy or policies in this insurer is limited to the one such policy elected by the insured, his beneficiary or his estate, as the case may be, and the insurer will return all premiums paid for all other such policies.
A disability policy may contain a provision in the form set forth in this section. If the provision also contains the provision set forth in Section 10369.6, there shall be added to its caption the phrase, “* * * expense incurred benefits.” The insurer may, at its option, include in this provision a definition of “other valid coverage,” approved as to form by the commissioner. The definition shall be limited in subject matter to coverage provided by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, or by hospital or medical service organizations, and to any other coverage, the inclusion of which may be approved by the commissioner. In the absence of that definition, the terms shall not include group insurance, automobile medical payments insurance, or coverage provided by hospital or medical service organizations or by union welfare plans or employer or employee benefit organizations. For the purpose of applying this policy provision with respect to any insured, any amount of benefit provided for the insured pursuant to any compulsory benefit statute, including any workers’ compensation or employers’ liability statute, whether provided by a governmental agency or otherwise, shall in all cases be deemed to be “other valid coverage” of which the insurer has had notice. In applying this provision, no third party liability coverage shall be included as “other valid coverage.”
Insurance With Other Insurers: If there is other valid coverage, not with this insurer, providing benefits for the same loss on a provision of service basis or on an expense incurred basis and of which this insurer has not been given written notice prior to the occurrence or commencement of loss, the only liability under any expense incurred coverage of this policy shall be for the proportion of the loss as the amount which would otherwise have been payable under this policy plus the total of the like amounts under all the other valid coverages for the same loss of which this insurer had notice bears to the total like amounts under all valid coverages for the loss, and for the return of the portion of the premiums paid as shall exceed the pro-rata portion for the amount so determined. For the purpose of applying this provision when other coverage is on a provision of service basis, the “like amount” of the other coverage shall be taken as the amount which the services rendered would have cost in the absence of the coverage.
A disability policy may contain a provision in the form set forth in this section. If the provision is included in a policy which also contains the provision set forth in Section 10369.5, there shall be added to its caption the phrase, “* * * other benefits.” The insurer may, at its option, include in this provision a definition of “other valid coverage,” approved as to form by the commissioner. The definition shall be limited in subject matter to coverage provided by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, and to any other coverage the inclusion of which may be approved by the commissioner. In the absence of that definition the terms shall not include group insurance, or benefits provided by union welfare plans or by employer or employee benefit organizations. For the purpose of applying this policy provision with respect to any insured, any amount of benefit provided for the insured pursuant to any compulsory benefit statute, including any workers’ compensation or employers’ liability statute, whether provided by a governmental agency or otherwise, shall in all cases be deemed to be “other valid coverage” of which the insurer has had notice. In applying this provision, no third party liability coverage shall be included as “other valid coverage.”
Insurance With Other Insurers: If there is other valid coverage, not with this insurer, providing benefits for the same loss on other than an expense incurred basis and of which this insurer has not been given written notice prior to the occurrence or commencement of loss, the only liability for the benefits under this policy shall be for the proportion of the indemnities otherwise provided under this policy for the loss as the like indemnities of which the insurer had notice, including the indemnities under this policy, bear to the total amount of all like indemnities for the loss, and for the return of the portion of the premium paid as shall exceed the pro rata portion for the indemnities thus determined.
A noncancellable disability policy may contain a provision in the form set forth herein. The insurer may, at its option, include in this provision a definition of “valid loss of time coverage,” approved as to form by the commissioner, which definition shall be limited in subject matter to coverage provided by governmental agencies or by organizations subject to regulation by insurance law or by insurance authorities of this or any other state of the United States or any province of Canada, or to any other coverage the inclusion of which may be approved by the commissioner or any combination of such coverages. In the absence of such definition such term shall not include any coverage provided for such insured pursuant to any compulsory benefit statute (including any workmen’s compensation or employers’ liability statute), or benefits provided by union welfare plans or by employer or employee benefit organizations.
Relation of Earnings to Insurance: If the total monthly amount of loss of time benefits promised for the same loss under all valid loss of time coverage upon the insured, whether payable on a weekly or monthly basis, shall exceed the monthly earnings of the insured at the time disability commenced or his average monthly earnings for the period of two years immediately preceding a disability for which claim is made, whichever is the greater, the insurer will be liable only for such proportionate amount of such benefits under this policy as the amount of such monthly earnings or such average monthly earnings of the insured bears to the total amount of monthly benefits for the same loss under all such coverage upon the insured at the time such disability commences and for the return of such part of the premiums paid during such two years as shall exceed the pro-rata amount of the premiums for the benefits actually paid hereunder; but this shall not operate to reduce the total monthly amount of benefits payable under all such coverage upon the insured below the sum of two hundred dollars ($200) or the sum of the monthly benefits specified in such coverages, whichever is the lesser, nor shall it operate to reduce benefits other than those payable for loss of time.
A disability policy may contain a provision in the form set forth herein.
Unpaid Premium: Upon the payment of a claim under this policy, any premium then due and unpaid or covered by any note or written order may be deducted therefrom.
A disability policy may contain a provision in the form set forth herein.
Cancellation: The insurer may cancel this policy at any time by written notice delivered to the insured, or mailed to his last address as shown by the records of the insurer, stating when, not less than five days thereafter, such cancellation shall be effective; and after the policy has been continued beyond its original term the insured may cancel this policy at any time by written notice delivered or mailed to the insurer, effective upon receipt or on such later date as may be specified in such notice. In the event of cancellation, the insurer will return promptly the unearned portion of any premium paid. If the insured cancels, the earned premium shall be computed by the use of the short-rate table last filed with the state official having supervision of insurance in the state where the insured resided when the policy was issued. If the insurer cancels, the earned premium shall be computed pro rata. Cancellation shall be without prejudice to any claim originating prior to the effective date of cancellation.
A disability policy may contain a provision in the form set forth herein.
Conformity With State Statutes: Any provision of this policy which, on its effective date, is in conflict with the statutes of the state in which the insured resides on such date is hereby amended to conform to the minimum requirements of such statutes.
A disability policy may contain a provision in the form set forth herein.
Illegal Occupation: The insurer shall not be liable for any loss to which a contributing cause was the insured’s commission of or attempt to commit a felony or to which a contributing cause was the insured’s being engaged in an illegal occupation.
A disability policy may contain a provision in the form set forth herein.
Intoxicants and controlled substances: The insurer shall not be liable for any loss sustained or contracted in consequence of the insured’s being intoxicated or under the influence of any controlled substance unless administered on the advice of a physician.
Subdivision (a) shall not apply to a health insurance policy.
ARTICLE 6. Interpretation of Policy [10380. - 10390.]
The falsity of any statement in the application for any policy covered by this chapter shall not bar the right to recovery under the policy unless such false statement was made with actual intent to deceive or unless it materially affected either the acceptance of the risk or the hazard assumed by the insurer.
The following shall not operate as a waiver of any of the rights of the insurer in defense of any claim arising under such disability policy:
The acknowledgment by any insurer of the receipt of notice given under any policy covered by this chapter.
The furnishing of forms for filing proofs of loss.
The acceptance of such proofs.
The investigation of any claim thereunder.
The insured shall not be bound by any statement made in an application for a policy unless a copy of such application is attached to or endorsed on the policy when issued as a part thereof. If any such policy delivered or issued for delivery to any person in this State shall be reinstated or renewed, and the insured or the beneficiary or assignee of such policy shall make written request to the insurer for a copy of the application, if any, for such reinstatement or renewal, the insurer shall within 15 days after the receipt of such request at its home office or any branch office of the insurer, deliver or mail to the person making such request, a copy of such application. If such copy shall not be so delivered or mailed, the insurer shall be precluded from introducing such application as evidence in any action or proceeding based upon or involving such policy or its reinstatement or renewal.
No alteration of any written application for any disability policy shall be made by any person other than the applicant without his written consent except that insertions may be made by the insurer, for administrative purposes only, in such manner as to indicate clearly that such insertions are not to be ascribed to the applicant. The making of any other alteration without the consent of the applicant is a misdemeanor. If such alteration is made by any officer of the insurer, or by any employee of the insurer with the insurer’s knowledge or consent, such alteration is deemed to be performed by the insurer issuing the policy upon such altered application.
If any disability policy contains a provision establishing, as an age limit or otherwise, a date after which the coverage provided by the policy will not be effective, and if such date falls within a period for which premium is accepted by the insurer or if the insurer accepts a premium after such date, the coverage provided by the policy will continue in force subject to any right of cancellation until the end of the period for which premium has been accepted. In the event the age of the insured has been misstated and if, according to the correct age of the insured, the coverage provided by the policy would not have become effective, or would have ceased prior to the acceptance of such premium or premiums, then the liability of the insurer shall be limited to the refund, upon request, of all premiums paid for the period not covered by the policy.
No insurer issuing or providing any policy of disability insurance covering hospital, medical, or surgical expenses shall engage in the practice of postclaims underwriting. For purposes of this section, “postclaims underwriting” means the rescinding, canceling, or limiting of a policy or certificate due to the insurer’s failure to complete medical underwriting and resolve all reasonable questions arising from written information submitted on or with an application before issuing the policy or certificate.
A health insurer shall not rescind a health insurance policy, or limit any provisions of a health insurance policy, once an insured is covered under the policy unless the insurer can demonstrate that the insured has performed an act or practice constituting fraud or made an intentional misrepresentation of material fact as prohibited by the terms of the policy.
If a health insurer intends to rescind a health insurance policy pursuant to subdivision (a), the insurer shall send a notice to the policyholder or insured via regular certified mail at least 30 days prior to the effective date of the rescission explaining the reasons for the intended rescission and notifying the policyholder or insured of his or her right to appeal that decision to the commissioner pursuant to subdivision (b) of Section 10273.4.
Notwithstanding subdivision (a) of Section 10273.4 or any other provision of law, after 24 months following the issuance of a health insurance policy, a health insurer shall not rescind the policy for any reason, and shall not cancel the policy, limit any of the provisions of the policy, or raise premiums on the policy due to any omissions, misrepresentations, or inaccuracies in the application form, whether willful or not. Nothing in this subdivision shall be construed to alter existing law that otherwise applies to a health insurer within the first 24 months following the issuance of a health insurance policy.
Compensation of a person or entity employed by, or contracted with, a disability insurer shall not be based on, or related in any way to, the number of policies or certificates for health insurance that the person or entity has caused or recommended to be rescinded, canceled, or limited, or the resulting cost savings to the insurer. A disability insurer shall not set performance goals or quotas, or provide compensation to any person or entity employed by, or contracted with, the insurer, based on the number of persons whose health insurance coverage is rescinded or any financial savings to the insurer associated with rescission of coverage.
A policy delivered or issued for delivery to any person in this State in violation of this chapter shall be held valid but shall be construed as provided in this chapter. When any provision in such a policy is in conflict with any provision of this chapter, the rights, duties and obligations of the insurer, the insured and the beneficiary shall be governed by this chapter.
ARTICLE 7. Exemption [10395. - 10395.]
ARTICLE 8. Penalties [10400. - 10402.1.]
Any person willfully violating any provision of this chapter or order of the commissioner made in accordance therewith shall forfeit to the people of this state a sum not to exceed one hundred eighteen dollars ($118) for each such violation, which sum may be recovered by civil action. The commissioner may also suspend or revoke the license of an insurer or agent for any such willful violation.
Any incorporated insurer admitted for disability insurance and any agent of such insurer, that makes or permits any discrimination between insureds of the same class in any manner whatsoever with relation to such insurance, is guilty of a misdemeanor.
The payment to insureds by an insurer of alternative rates of payment negotiated and contracted for with institutional providers shall not constitute a violation of this section.
On and after July 1, 1983, the amendments made to this section during the 1982 portion of the 1981–82 Regular Session, shall also be applicable with respect to both professional and institutional providers.
Any person who, without the prior authorization of an insurer or plan solicits a provider to enter into a contract for alternative rates under Section 10133 or 11512 of this code on behalf of such insurer or plan shall be guilty of a misdemeanor.
An insurer or plan which contracts for, or authorizes another person to, solicit or contract for alternative rates with providers on its behalf other than in the name of such insurer or plan shall be guilty of a misdemeanor.
An insurer or plan which accepts or ratifies a contract for alternative rates known by it to have been executed by a provider prior to the insurer’s or plan’s authorization, in reliance on the representation that it was authorized by such insurer or plan, shall be guilty of a misdemeanor.
ARTICLE 2.5. Transportation Ticket Policies [ - ]
CHAPTER 4.1. General Regulation of Health Insurers [10403. - 10403.]
A health insurer that is subject to the requirements of Chapter 8.5 (commencing with Section 127671) of Part 2 of Division 107 of the Health and Safety Code and that fails to comply with the data submission requirements of that chapter is subject to a civil penalty not to exceed five thousand dollars ($5,000) for each 30-day period in which the insurer fails to comply. If the failure to comply is willful, the insurer is subject to a civil penalty not to exceed ten thousand dollars ($10,000) for each 30-day period in which the person fails to comply. The aggregate penalty for each instance of noncompliance shall not exceed one hundred thousand dollars ($100,000). In determining the penalty, the commissioner shall consider the good faith of the insurer and any similar prior violations by the insurer.
CHAPTER 5. General Regulation of Life Insurers [10430. - 10509.946.]
ARTICLE 1. Restrictions on Business [10430. - 10436.]
An admitted life insurer shall not issue or deliver in this State, any securities or any special or advisory board or other contracts of any kind promising returns and profits as an inducement to insurance nor shall it permit its agents, officers or employees to do so.
A life insurer which, as an inducement to insurance, issues or permits its agents, officers, or employees to issue any such securities or contracts in this State or any other State shall not be admitted.
A corporation or stock company, acting as agent of a life insurer and its agents, officers, or employees shall not sell, agree or offer to sell, or give or offer to give, directly or indirectly, any such securities or contracts as an inducement to insurance or in connection therewith.
An admitted life insurer shall not pay or contract to pay, directly or indirectly, to any of the parties specified in subdivision (b) any commission or other compensation contingent upon any of the following acts:
The writing or procuring of any policy of life, disability or both classes of insurance issued by the insurer.
Procuring an application therefor by any person.
The payment of any renewal premium or the assumption of any life, disability or both of these classes of insurance by the insurer.
It shall not pay this compensation to:
Its president.
Its vice president.
Its secretary.
Its treasurer.
Its actuary.
Its medical director or other physician charged with the duty of examining risks or applications for any of these classes of insurance.
Any member of its board of directors, except when that compensation to be paid to the director would be less than the lesser of 1 percent of the insurer’s statutory net gain from operations or 1 percent of commissions on premiums and annuity considerations for the preceding calendar year. This exception shall not apply when more than two of the members of the board of directors of the insurer, when the total number of board members is more than 10, or more than one of the members of the board of directors of the insurer, when the total number of board members is less than 10, would receive that compensation, nor shall this exception apply to any director who has served more than two years as a director. Any director receiving compensation pursuant to this paragraph shall be ineligible to vote on all matters directly relating to that compensation and shall not be counted for purposes of a quorum as to those matters.
Any officer of the insurer other than its agent or solicitor.
Nothing in this article shall prevent the payment of compensation to an officer of the insurer based upon the aggregate amounts of insurance issued by the insurer, or issued and in force, during any specified period if the officer is not directly responsible for recommending, underwriting, rating, or otherwise approving the acceptability of insurance risks.
Whenever any insurer violates Section 10434, the commissioner may revoke its certificate of authority or refuse to issue a certificate of authority to that insurer.
An admitted life insurer may issue a rider to a policy of life insurance for the purpose of providing coverage for long-term care, if the rider has been reviewed and approved, in a manner similar to that of other long-term care insurance products, by the commissioner.
ARTICLE 1a. Regulation of Internal Affairs of Mutual Insurers [10440. - 10442.]
In any meeting of members of a domestic mutual insurer writing classes of insurance which include life or disability insurance, the presence in person or by proxy or written vote of 5 percent of the members entitled to vote shall constitute a quorum for the transaction of business unless a higher percentage is required by this code or by the by-laws or articles of incorporation of the insurer.
Except as otherwise provided in this article or in the other provisions of this code, the internal affairs of every domestic mutual insurer writing classes of insurance which include life or disability insurance shall be governed by Division 1 of Title 1 of the Corporations Code.
For the purpose of applying the provisions of Division 1 of Title 1 of the Corporations Code, the provisions thereof referring to shareholders or members shall be applied as though such provisions referred to the policyholders or members of a mutual insurer.
ARTICLE 2. Registration of Life Policies [10450. - 10463.]
Any insurer transacting life insurance in this State on September 30, 1939, may register its policies with the commissioner in the manner and subject to the restrictions set forth in this article.
An insurer which is not registering its policies pursuant to the provisions of this article on September 30, 1939, shall not thereafter be permitted to register its policies.
Any insurer registering its policies pursuant to this article on June 30, 1939, which fails prior to September 1, 1941, to file with the commissioner an election to cease such registration on or before December 31, 1941, shall thereafter continue to register all life policies issued by it. Whenever it fails to continue such registration thereafter, the commissioner shall revoke its certificate of authority, and its condition shall thereupon conclusively be deemed to be such that its further transaction of business will be hazardous to its policyholders, or creditors, or to the public, within the meaning of subdivision (d) of section 1011 of this code.
When an insurer elects to register any of its policies, it shall register every policy thereafter issued by it until it discontinues registration.
Such registration shall in each case show the name and age of the insured, number and date of the policy and the kind and amount of insurance.
The commissioner shall give his receipt for the securities and the State shall be responsible for the custody and safe return of any securities so deposited.
Such deposit shall be maintained in an amount equal to the full net value of all policies registered up to the time of making the deposit, less the amount loaned on such registered policies.
Such insurer may at any time withdraw any excess of such securities above the required amount upon satisfying the commissioner by written proof that such excess exists. It may receive the interest on all securities deposited, and exchange such securities by substituting other securities of the required character.
If such insurer owns the building in which it has its principal office and the land upon which it stands, or if it owns other real property located in this State and requisite for its accommodation in the convenient transaction of its business, it may, with the permission of the commissioner, mortgage such property to the commissioner for such sum, not exceeding the market value thereof, as he determines.
Such mortgage may be deposited in the State treasury as part of the securities required by this article. Such mortgage is withdrawable in like manner with other securities in the deposit. The commissioner shall require the mortgage to be recorded before acceptance for deposit.
The commissioner may release any such mortgage or may foreclose it in case such foreclosure becomes necessary.
Should any insurer thus registering policies become insolvent, the commissioner may reinsure all or any part of such registered policies, using the securities thus deposited for that purpose.
The commissioner shall require in advance, in lawful money of the United States, as a fee for registering each policy as provided by this article, twenty-five cents.
ARTICLE 3. Valuation of Life Policies [10478. - 10489.]
This article is applicable only to policies and contracts issued prior to the operative date as to such policies or contracts of Article 3a, Chapter 1, Part 2, Division 2.
The commissioner shall annually value, or cause to be valued, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every admitted life insurer, except that in the case of an alien insurer such valuation shall be limited to its insurance transactions in the United States, and may certify the amount of any such reserves, specifying the mortality table or tables, rate or rates of interest and methods (net level premium method or other) used in the calculation of such reserves. In calculating such reserves, he or she may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves herein required of any foreign or alien insurer, he or she may accept any valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when such valuation complies with the minimum standard herein provided and if the official of such state or jurisdiction accepts as sufficient and valid for all legal purposes the certificate of valuation of the commissioner when such certificate states the valuation to have been made in a specified manner according to which the aggregate reserves would be at least as large as if they had been computed in the manner prescribed by the law of that state or jurisdiction.
When the commissioner has valued the reserve liabilities of an insurer as provided by this article, he or she may upon request of the insurer issue his or her official certificate or certificates describing the reserve liability and the valuation thereof as he or she has determined. For issuing an original certificate, the commissioner shall require, in advance, a fee of forty-seven dollars ($47), plus the actual cost to the department of making the valuation on which the certificate is based including, but not limited to, the aggregate salaries computed on an hourly basis for the time actually spent thereon by all of the department personnel.
On or before the first day of March of each year every domestic incorporated life insurer shall furnish the commissioner the necessary data for determining the valuation of all its policies outstanding on the last preceding thirty-first of December.
Every admitted foreign life insurer shall, upon the written demand of the commissioner, furnish him or her, at such time as he designates, the requisite data for determining the valuation of all its policies then outstanding.
When the laws of any other State require a valuation of the outstanding policies of a domestic life insurer by any standard of valuation different from that named in this article, the commissioner may make such valuation for use in such other State, and issue his certificate in accordance therewith.
In the case of insurance issued by a domestic insurer authorized to do business in a foreign country upon the lives of residents of that country, the commissioner may vary the mortality standard to a standard applicable to that country.
Any life insurer issuing policies of group life insurance may value such policies on any accepted table of mortality with interest assumption adopted by the insurer for that purpose if such standard is not lower than the American Men Ultimate Table of Mortality with interest assumption at three and one-half per cent per annum.
All policies of group insurance shall be segregated by the insurer into a separate class and the mortality experience kept separate. The number of policies, amount of insurance, reserves, premiums and payments to policyholders thereunder, together with the mortality table and interest assumption adopted by the insurer, shall be reported separately in its annual financial statement.
As prescribed in subdivision (b), an insurer may maintain reserves on a one year preliminary term basis on a life, term or endowment policy if by its terms such policy expressly provides that the first year’s insurance under such policy is term insurance purchased by part or the whole of the premium to be received during the first year.
If the actuarial net preliminary term renewal premium in the case of
insurance under a limited-payment life preliminary term policy providing for the payment of all premiums thereon within less than 20 years from the date thereof; or
endowment insurance under an endowment preliminary term policy,
exceeds the actuarial net preliminary term renewal premium, calculated on the same table of mortality and rate of interest, for a 20-payment life policy, the reserve on such policy specified under (1) or (2) of this subdivision (b), as the case may be, at the end of any year, including the first, shall not be less than the sum of the reserve on a 20-payment life preliminary term policy issued at the same time on a life of the same age, and the actuarial net level premium reserve for a pure endowment maturing at the end of the premium payment period, equal to the excess of the full net level premium reserve, at the end of such premium payment period, on such policy specified under (1) or (2) of this subdivision (b), as the case may be, over the reserve, at the end of such premium payment period, of such 20-payment life preliminary term policy.
The premium payment period herein referred to is 20 years or the period, if less, during which premiums are actually payable under such policy specified in (1) or (2) of this subdivision (b), as the case may be.
As used in this section, the term “20-payment life preliminary term policy” means a life insurance policy embodying all of the following attributes:
The first year’s insurance is term insurance purchased by the whole or part of the premium to be received during the first contract year.
Reserves for all policies and contracts to which this article applies may be calculated, at the option of the insurer, according to any standards which produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by this article.
Any insurer which at any time shall have adopted any standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided in this article or Article 3a of this chapter may, with the approval of the commissioner, adopt any lower standard of valuation, but not lower than the minimum therein provided.
ARTICLE 3a. Standard Valuation Law [10489.1. - 10489.992.]
This article shall be known as the Standard Valuation Law.
For the purposes of this article, the following definitions shall apply:
“Accident and health insurance” means contracts that incorporate morbidity risk and provide protection against economic loss resulting from accident, sickness, or medical conditions and as may be specified in the valuation manual.
“Company” means an entity that (A) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state and has at least one policy in force or on claim or (B) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in this state.
“Deposit-type contract” means contracts that do not incorporate mortality or morbidity risks and as may be specified in the valuation manual.
“Life insurance” means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the valuation manual.
“NAIC” means the National Association of Insurance Commissioners.
“Principle-based valuation” means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with Section 10489.97, as specified in the valuation manual.
“Valuation manual” means the manual of valuation instructions adopted by the NAIC as specified in this article or as subsequently amended.
For the purposes of this article, the following definitions shall apply on and after the operative date of the valuation manual:
This article and Sections 10480, 10481, 10483, 10484, and 10486 shall apply (1) to the valuation of policies and contracts subject to this article issued on or after the operative date of the valuation manual and (2) as provided in Section 10489.3 as to the valuation of benefits purchased under group annuity and pure endowment contracts issued prior to that operative date.
For policies and contracts issued prior to the operative date of the valuation manual, both of the following shall be satisfied:
The commissioner shall annually value, or cause to be valued, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in this state issued prior to the operative date of the valuation manual. In calculating reserves, the commissioner may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves required of a foreign or alien company, the commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this article.
Sections 10489.2, 10489.3, 10489.4, 10489.5, 10489.6, 10489.7, 10489.8, 10489.9, 10489.93, and 10489.95 shall apply to all appropriate policies and contracts subject to this article and issued prior to the operative date of the valuation manual. Sections 10489.96 and 10489.97 shall not apply to any of those policies and contracts.
For policies and contracts issued on or after the operative date of the valuation manual, both of the following shall be satisfied:
The commissioner shall annually value, or cause to be valued, the reserves for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts of every company issued on or after the operative date of the valuation manual. In lieu of the valuation of the reserves required of a foreign or alien company, the commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this article.
Each of the following shall apply to actuarial opinions submitted prior to the operative date of the valuation manual:
For an actuarial opinion, every life insurance company doing business in this state shall annually submit the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the commissioner by regulation are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of this state. The commissioner shall define by regulation the specifics of this opinion and add any other items deemed to be necessary to its scope.
For an actuarial analysis of reserves and assets supporting reserves, every life insurance company, except as exempted by regulation, shall also annually include in the opinion required by paragraph (1), an opinion of the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by the commissioner by regulation, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company’s obligations under the policies and contracts, including, but not limited to, the benefits under and expenses associated with the policies and contracts.
The commissioner may provide by regulation for a transition period for establishing any higher reserves that the qualified actuary may deem necessary in order to render the opinion required by this section.
An opinion required by paragraphs (1) and (2) shall be governed by the following:
A memorandum, in form and substance acceptable to the commissioner as specified by regulation, shall be prepared to support each actuarial opinion.
If the insurance company fails to provide a supporting memorandum at the request of the commissioner within a period specified by regulation, or the commissioner determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the regulations or is otherwise unacceptable to the commissioner, the commissioner may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the commissioner.
Every opinion required by this subdivision shall be governed by the following provisions:
The opinion shall be submitted with the annual statement reflecting the valuation of the reserve liabilities for each year ending on or after December 31, 1992.
The opinion shall apply to all business in force, including individual and group health insurance plans, in form and substance acceptable to the commissioner as specified by regulation.
The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board and on any additional standards as the commissioner may by regulation prescribe.
In the case of an opinion required to be submitted by a foreign or alien company, the commissioner may accept the opinion filed by that company with the insurance supervisory official of another state if the commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.
For the purposes of this paragraph, “qualified actuary” means a member in good standing of the American Academy of Actuaries who meets the requirements set forth in the regulation.
The qualified actuary shall be liable for the actuary’s negligence or other tortious conduct.
Disciplinary action by the commissioner against the company or the qualified actuary may be defined in regulations by the commissioner.
Except as provided in subparagraphs (L), (M), and (N), documents, materials, or other information in the possession or control of the Department of Insurance that are a memorandum in support of the opinion, and any other material provided by the company to the commissioner in connection with the memorandum, shall be confidential by law and privileged, shall not be subject to disclosure pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), and shall not be subject to subpoena or discovery or admissible in evidence in any private civil action. However, the commissioner is authorized to use those documents, materials, or other information in the furtherance of any regulatory or legal action brought as a part of the commissioner’s official duties.
The commissioner, any person who received documents, materials, or other information while acting under the authority of the commissioner, or any person with whom those documents, materials, or other information are shared pursuant to clause (i) of subparagraph (J), shall not be permitted or required to testify in any private civil action concerning those confidential documents, materials, or information subject to subparagraph (H).
In order to assist in the performance of the commissioner’s duties, the commissioner:
May share documents, materials, or other information, including the confidential and privileged documents, materials, or information subject to subparagraph (H), with other state, federal, and international regulatory agencies, with the NAIC and its affiliates and subsidiaries, and with state, federal, and international law enforcement authorities, provided that the recipient agrees to maintain the confidentiality and privileged status of the document, material, or other information.
May receive documents, materials, or information, including otherwise confidential and privileged documents, materials, or information, from the NAIC and its affiliates and subsidiaries, and from regulatory and law enforcement officials of other foreign or domestic jurisdictions, and shall maintain as confidential or privileged any document, material, or information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or information.
Enter into agreements governing sharing and use of information consistent with subparagraphs (H) to (J), inclusive.
No waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information shall occur as a result of disclosure of the documents, materials, or information to the commissioner under this section or as a result of sharing as authorized in subparagraph (J).
A memorandum in support of the opinion, and any other material provided by the company to the commissioner in connection with the memorandum, may be subject to subpoena for the purpose of defending an action seeking damages from the actuary submitting the memorandum by reason of an action required by this section or by regulations promulgated pursuant to this section.
The memorandum or the other material may otherwise be released by the commissioner with the written consent of the company or to the American Academy of Actuaries upon request stating that the memorandum or other material is required for the purpose of professional disciplinary proceedings and setting forth procedures satisfactory to the commissioner for preserving the confidentiality of the memorandum or the other material.
Once any portion of the confidential memorandum is cited by the company in its marketing efforts or is cited before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of the confidential memorandum shall no longer be confidential.
Each of the following shall apply to actuarial opinions submitted after the operative date of the valuation manual:
For an actuarial opinion, every company with outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state and subject to regulation by the commissioner shall annually submit the opinion of the appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of this state. The valuation manual shall prescribe the specifics of this opinion, including any items deemed to be necessary to its scope.
For an actuarial analysis of reserves and assets supporting reserves, every company with outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this state and subject to regulation by the commissioner, except as exempted in the valuation manual, shall also annually include in the opinion required by paragraph (1) an opinion of the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the valuation manual, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, adequately provide for the company’s obligations under the policies and contracts, including, but not limited to, the benefits under and expenses associated with the policies and contracts.
Every opinion required by this subdivision shall be governed by both of the following provisions:
A memorandum, in form and substance as specified in the valuation manual, and acceptable to the commissioner, shall be prepared to support each actuarial opinion.
If the insurance company fails to provide a supporting memorandum at the request of the commissioner within a period specified in the valuation manual, or the commissioner determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the valuation manual or is otherwise unacceptable to the commissioner, the commissioner may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the commissioner.
Every opinion subject to this subdivision shall be governed by the following provisions:
The opinion shall be in form and substance as specified in the valuation manual and acceptable to the commissioner.
The opinion shall be submitted with the annual statement reflecting the valuation of the reserve liabilities for each year ending on or after the operative date of the valuation manual.
The opinion shall apply to all policies and contracts subject to paragraph (2), plus other actuarial liabilities as may be specified in the valuation manual.
The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board or its successor, and on such additional standards as may be prescribed in the valuation manual.
If an opinion is required to be submitted by a foreign or alien company, the commissioner may accept the opinion filed by that company with the insurance supervisory official of another state if the commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this state.
The qualified actuary shall be liable for the actuary’s negligence or other tortious conduct.
Disciplinary action by the commissioner against the company or the appointed actuary may be defined in regulations by the commissioner.
Nothing in this section shall be construed to limit the right of access to, or prohibit the admissibility as evidence in a private civil action of, any information, documents, data, or other materials not held for the purposes of this article by the commissioner or a person acting under the authority of the commissioner, including nondepartment actuaries and other consultants hired to implement this article, or a person with whom the commissioner has shared confidential information pursuant to clause (i) of subparagraph (J) of paragraph (4) of subdivision (a).
For a computation of minimum standard, except as provided in Sections 10489.3, 10489.4, and 10489.95, the minimum standard for the valuation of policies and contracts issued prior to the effective date of the amendments to this section shall be that provided by the laws in effect immediately prior to that date. Except as otherwise provided in Sections 10489.3, 10489.4, and 10489.95, the minimum standard for the valuation of those policies and contracts shall be the commissioners reserve valuation methods defined in Sections 10489.5, 10489.6, 10489.9, and 10489.95, 312 percent per annum interest, or in the case of life insurance policies and contracts, other than certain annuity and pure endowment contracts, issued on or after January 1, 1970, 4 percent per annum interest for policies issued prior to January 1, 1980, 512 percent per annum interest may be used for single premium life insurance policies, and 412 percent per annum interest for all other policies issued on or after January 1, 1980, and the following tables:
For ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in those policies—the Commissioners 1941 Standard Ordinary Mortality Table for policies issued prior to the operative date of subdivision (a) of Section 10163.1, and the Commissioners 1958 Standard Ordinary Mortality Table for policies issued on or after the operative date of subdivision (a) of Section 10163.1, as amended by Chapter 940 of the Statutes of 1982, and prior to the operative date of Section 10163.2, as amended by Chapter 28 of the Statutes of 1997, provided that for any category of policies issued on female risks, all modified net premiums and present values referred to in this article may be calculated according to an age not more than six years younger than the actual age of the insured. For policies issued on or after the original operative date of Section 10163.2, as amended by Chapter 28 of the Statutes of 1997, the following apply:
The Commissioners 1980 Standard Ordinary Mortality Table.
At the election of the company for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors.
Any ordinary mortality table, adopted after 1980 by the NAIC, or its successor, that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such policies.
For industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in the policies, the 1941 Standard Industrial Mortality Table for policies issued prior to the operative date of subdivision (b) of Section 10163.1, of the Standard Nonforfeiture Law for Life Insurance as amended, and for policies issued on or after the operative date the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for the policies.
For individual annuity and pure endowment contracts issued prior to the compliance date of Section 10489.3, excluding any disability and accidental death benefits in the policies: 1937 Standard Annuity Mortality Table or, at the option of the company, the Annuity Mortality Table for 1949, Ultimate, or any modification of these tables approved by the commissioner. However, the minimum standard for such contracts issued from January 1, 1968, through December 31, 1968, with commencement of benefits deferred not more than one year from date of issue, may be, at the option of the company, 4 percent per annum interest, and for contracts issued from January 1, 1969, to the compliance date of Section 10489.3, with commencement of benefits deferred not more than 10 years from the date of issue and with premiums payable in one sum may be, at the option of the company, 5 percent per annum interest.
For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies: the Group Annuity Mortality Table for 1951, a modification of the table approved by the commissioner, or, at the option of the company, any of the tables or modifications of the tables specified for individual annuity and pure endowment contracts. However, the minimum standard for annuities and pure endowments purchased or to be purchased prior to the compliance date of Section 10489.3, under group annuity and pure endowment contracts with considerations received on or after January 1, 1968, through December 31, 1968, may be, at the option of the company, 4 percent per annum interest, and for annuities and pure endowments purchased or to be purchased prior to the compliance date of Section 10489.3, under group annuity and pure endowment contracts with considerations received from January 1, 1969, to the compliance date of Section 10489.3, may be at the option of the company, 5 percent per annum interest.
For total and permanent disability benefits in or supplementary to ordinary policies or contracts: for policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit or any tables of disablement rates and termination rates, adopted after 1980 by the NAIC that are approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for those policies; for policies or contracts issued on or after January 1, 1961, and prior to January 1, 1966, either those tables or, at the option of the company, the Class (3) Disability Table (1926); and for policies issued prior to January 1, 1961, the Class (3) Disability Table (1926). Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies.
For accidental death benefits in or supplementary to policies issued on or after January 1, 1966: the 1959 Accidental Death Benefits Table or any accidental death benefits table, adopted after 1980 by the NAIC that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for those policies, for policies issued on or after January 1, 1961, and prior to January 1, 1966, either that table or, at the option of the company, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table for calculating the reserves for life insurance policies.
For group life insurance, life insurance issued on the substandard basis and other special benefits: tables approved by the commissioner.
The commissioner may by bulletin withdraw approval to use tables that have been replaced by newly adopted tables.
Except as provided in Section 10489.4, the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the operative date of this section and for annuities and pure endowments purchased on or after that operative date under group annuity and pure endowment contracts, shall be the commissioners reserve valuation methods defined in Sections 10489.5 and 10489.6 and the following tables and interest rates:
For individual annuity and pure endowment contracts issued prior to January 1, 1980, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the commissioner, and 6 percent per annum interest rate for all contracts with commencement of benefits deferred not more than 10 years from the date of issue and with premiums payable in one sum and 4 percent per annum interest for all other individual annuity and pure endowment contracts.
For individual single premium immediate annuity contracts issued on or after January 1, 1980, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for these contracts, or any modification of these tables approved by the commissioner, and 712 percent per annum interest.
For individual annuity and pure endowment contracts issued on or after January 1, 1980, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in those contracts, the 1971 Individual Annuity Mortality Table or any individual annuity mortality table, adopted after 1980 by the NAIC that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for those contracts, or any modification of these tables approved by the commissioner, and 512 percent per annum interest for single premium deferred annuity and pure endowment contracts, and 412 percent per annum interest for all other individual annuity and pure endowment contracts.
For annuities and pure endowments purchased prior to January 1, 1980, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table or any modification of this table approved by the commissioner, and 6 percent per annum interest.
For annuities and pure endowments purchased on or after January 1, 1980, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table, or any group annuity mortality table adopted after 1980 by the NAIC that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for annuities and pure endowments, or any modification of these tables approved by the commissioner, and 712 percent interest.
All individual annuity and pure endowment contracts entered into prior to January 1, 1980, and all annuities and pure endowments purchased prior to January 1, 1980, under group annuity and pure endowment contracts shall remain subject to the provisions of Article 3A (commencing with Section 10489.1) as it existed prior to January 1, 1980.
The commissioner may, by bulletin, withdraw approval to use tables that have been replaced by newly adopted tables.
The interest rates used in determining the minimum standard for the valuation of the following shall be the calendar year statutory valuation interest rates as defined in this section:
Life insurance policies issued in a particular calendar year, on or after the operative date of Section 10163.2 as amended by Section 28 of the Statutes of 1997.
Individual annuity and pure endowment contracts issued in a particular calendar year on or after January 1, 1982.
Annuities and pure endowments purchased in a particular calendar year on or after January 1, 1982, under group annuity and pure endowment contracts.
The net increase, if any, in a particular calendar year after January 1, 1982, in amounts held under guaranteed interest contracts.
The calendar year statutory valuation interest rates, expressed in the following formulas as “I,” shall be determined as follows and the results rounded to the nearest one-fourth of 1 percent:
For life insurance:
For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options:
For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in subparagraph (B), the formula for life insurance stated in subparagraph (A) shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of 10 years and the formula for single premium immediate annuities stated in subparagraph (B) shall apply to annuities and guaranteed interest contracts with guarantee duration of 10 years or less.
For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities stated in subparagraph (B) shall apply.
For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities stated in subparagraph (B) shall apply.
However, if the calendar year statutory valuation interest rate for a life insurance policy issued in any calendar year determined without reference to this sentence differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one-half of 1 percent, the calendar year statutory valuation interest rate for the life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980 (using the reference interest rate defined in 1979) and shall be determined for each subsequent calendar year regardless of when Section 10163.2, as amended, becomes operative.
The weighting factors referred to in the formulas stated above are given in the following tables:
Weighting factors for other annuities and for guaranteed interest contracts, except as stated in paragraph (2), shall be as specified in subparagraphs (A), (B), and (C), according to the rules and definitions in subparagraphs (D), (E), and (F):
For annuities and guaranteed interest contracts valued on an issue year basis:
Guarantee Duration (Years)Weighting Factor for Plan TypeABC5 or less:.80.60.50More than 5, but not more than 10:.75.60.50More than 10, but not more than 20:.65.50.45More than 20:.45.35.35
For annuities and guaranteed interest contracts valued on a change in fund basis, the factors shown in subparagraph (A) increased by:
For annuities and guaranteed interest contracts valued on an issue year basis, other than those with no cash settlement options, that do not guarantee interest on considerations received more than one year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis that do not guarantee interest rates on considerations received more than 12 months beyond the valuation date, the factors shown in subparagraph (A) or derived in subparagraph (B) increased by:
For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of 20 years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guaranteed duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.
Plan type as used in the above tables is defined as follows:
For Plan Type A: At any time a policyholder may withdraw funds only (I) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, (II) without an adjustment but installments over five years or more, (III) as an immediate life annuity, or (IV) no withdrawal is permitted.
For Plan Type B: Before expiration of the interest rate guarantee, a policyholder may withdraw funds only (I) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, (II) without an adjustment but in installments over five years or more, or (III) no withdrawal is permitted. At the end of the interest rate guarantee, funds may be withdrawn without an adjustment in a single sum or installments over less than five years.
For Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five years either (I) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (II) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.
A company may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options shall be valued on an issue year basis. As used in this section, an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change in fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.
The reference interest rate referred to in subdivision (b) shall be defined as follows:
For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subparagraph (B) of paragraph (1) of subdivision (c), with guarantee duration of 10 years or less, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.
For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.
For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except as stated in subparagraph (B) of paragraph (1) of subdivision (c), the average over a period of 12 months, ending on June 30 of the calendar year of the change in the fund, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.
If the monthly average of the composite yield on seasoned corporate bonds is no longer published by Moody’s Investors Service, Inc., or in the event that the NAIC determines that the monthly average of the composite yield on seasoned corporate bonds as published by Moody’s Investors Service, Inc., is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate adopted by the NAIC and approved by regulation promulgated by the commissioner may be substituted.
This section shall apply to all certificates and contracts issued by a fraternal benefit society.
Except as otherwise provided in Sections 10489.6, 10489.9, and 10489.95, reserves according to the commissioners reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums shall be the excess, if any, of the present value, at the date of valuation, of the future guaranteed benefits provided for by those policies, over the then present value of any future modified net premiums therefor. The modified net premiums for a policy shall be the uniform percentage of the respective contract premiums for the benefits such that the present value, at the date of issue of the policy, of all modified net premiums shall be equal to the sum of the then present value of the benefits provided for by the policy and the excess of paragraph (1) over paragraph (2), as follows:
A net level annual premium equal to the present value, at the date of issue of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of the policy.
A net one-year term premium for the benefits provided for in the first policy year.
For a life insurance policy issued on or after January 1, 1986, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and that provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the reserve according to the commissioners reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined herein as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than the excess premium shall, except as otherwise provided in Section 10489.9, be the greater of the reserve as of the policy anniversary calculated as described in subdivision (a) and the reserve as of the policy anniversary calculated as described in subdivision (a), but with (1) the value defined in paragraph (1) of subdivision (a) being reduced by 15 percent of the amount of the excess first year premium, (2) all present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date, (3) the policy being assumed to mature on that date as an endowment, and (4) the cash surrender value provided on that date being considered as an endowment benefit. In making the above comparison, the mortality and interest bases stated in Sections 10489.2 and 10489.4 shall be used.
Reserves according to the commissioners reserve valuation method shall be calculated by a method consistent with subdivisions (a) and (b) for paragraphs (1) to (4), inclusive. However, any extra premiums charged because of impairments or special hazards shall be disregarded in the determination of modified net premiums.
Life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums.
Group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities pursuant to Section 408 of the Internal Revenue Code, as now or hereafter amended.
Disability and accidental death benefits in all policies and contracts.
All other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts.
This section shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities pursuant to Section 408 of the Internal Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in the contracts, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable prior to the end of the respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in the contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values.
A company’s aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, shall not be less than the aggregate reserves calculated in accordance with the methods set forth in Sections 10489.5, 10489.6, 10489.9, and 10489.93 and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for the policies.
The aggregate reserves for all policies, contracts, and benefits shall not be less than the aggregate reserves determined by the appointed actuary to be necessary to render the opinion required by Section 10489.15.
Reserves for any category of policies, contracts, or benefits established by the commissioner may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for the category than those calculated according to the minimum standard provided in this article, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be greater than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided in the policies or contracts.
A company, which adopts at any time a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this article, may adopt a lower standard of valuation with the approval of the commissioner, but not lower than the minimum provided in this article. However, for the purposes of this section, the holding of additional reserves previously determined by a qualified actuary to be necessary to render the opinion required by Section 10489.15 shall not be deemed to be the adoption of a higher standard of valuation.
If in any contract year the gross premium charged by any life insurer on any policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for such policy or contract, or the reserve calculated by the method actually used for such policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this section are those standards stated in Sections 10489.2, 10489.3, and 10489.4.
For a life insurance policy issued on or after January 1, 1986, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for such excess and that provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than such excess premium, the foregoing provisions of this section shall be applied as if the method actually used in calculating the reserve for such policy were the method described in Section 10489.5, ignoring the second paragraph of Section 10489.5. The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with Section 10489.5, including the second paragraph of that section, and the minimum reserve calculated in accordance with this section.
In the case of a plan of life insurance that provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of a plan of life insurance or annuity that is of a nature that the minimum reserves cannot be determined by the methods described in Sections 10489.5, 10489.6, and 10489.9, the reserves that are held under the plan shall:
Be appropriate in relation to the benefits and the pattern of premiums for that plan; and
Be computed by a method that is consistent with the principles of this Standard Valuation Law, as determined by regulations promulgated by the commissioner.
The commissioner may issue a bulletin to provide tables of select mortality factors and rules for their use, rules concerning a minimum standard for the valuation of plans with nonlevel premiums of benefits, and rules concerning a minimum standard for the valuation of plans with secondary guarantees. The bulletin authorized by this subdivision shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree, as regulations issued by the commissioner. The commissioner may also adopt regulations to implement this section.
It is the intent of the Legislature that the bulletin described in subdivision (a) and the superseding regulations shall contain the provisions of the NAIC Valuation of Life Insurance Policies Model Regulation Number 830.
For accident and health insurance contracts issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subdivision (b) of Section 10489.12. For disability and accident and health insurance contracts issued prior to the operative date of the valuation manual, the minimum standard of valuation is the standard adopted by the commissioner by regulation.
For policies issued on or after the operative date of the valuation manual, the standard prescribed in the valuation manual is the minimum standard of valuation required under subdivision (b) of Section 10489.12, except as provided under subdivision (e) or (g).
The operative date of the valuation manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:
The valuation manual has been adopted by the NAIC by an affirmative vote of at least 42 members, or three-fourths of the members voting, whichever is greater.
The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than 75 percent of the direct premiums written as reported in the following annual statements submitted for 2008: life, accident, and health annual statements, health annual statements, or fraternal annual statements.
The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least 42 of the following 55 jurisdictions: The 50 states of the United States, American Samoa, the United States Virgin Islands, the District of Columbia, Guam, and Puerto Rico.
Notwithstanding paragraph (1), the valuation manual shall not become operative until the commissioner certifies that adequate funding has been appropriated by the Legislature, and that all other necessary resources, including, but not limited to, adequate staff, are available and sufficient to enable the commissioner to carry out the duties required pursuant to Section 10489.992, and all other duties imposed on the commissioner pursuant to Senate Bill 696 of the 2015–16 Regular Session. The commissioner shall make that certification by submitting a letter to the Chairs of the Assembly Committee on Insurance and the Senate Committee on Insurance stating that the funding and other necessary resources are available and sufficient to carry out those duties. The commissioner shall post a notice on the department’s Internet Web site immediately after submitting that certification letter stating that the certification letter has been submitted and that the provisions of the valuation manual are in effect.
Unless a change in the valuation manual specifies a later effective date, changes to the valuation manual shall be effective on January 1 following the date when all of the following have occurred:
The valuation manual shall specify all of the following:
For policies and contracts subject to a principle-based valuation under Section 10489.97:
Requirements for the format of reports to the commissioner under paragraph (3) of subdivision (b) of Section 10489.97, which shall include information necessary to determine if the valuation is appropriate and in compliance with this article.
Assumptions for risks over which the company does not have significant control or influence.
Procedures for corporate governance and oversight of the actuarial function, and a process for appropriate waiver or modification of those procedures.
For policies not subject to a principle-based valuation under Section 10489.97, the minimum valuation standard that shall either:
Be consistent with the minimum standard of valuation prior to the operative date of the valuation manual.
Develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring.
Other requirements, including, but not limited to, those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandums, transition rules, and internal controls.
The data and form of the data required pursuant to Section 10489.98, with whom the data is required to be submitted, and may specify other requirements including data analyses and reporting of analyses.
In the absence of a specific valuation requirement or if a specific valuation requirement in the valuation manual is not, in the opinion of the commissioner, in compliance with, or conflicts with, this code, then the company shall, with respect to those requirements, comply with the minimum valuation standards prescribed by the code or by the commissioner by regulation or bulletin.
The commissioner may engage a qualified actuary, at the expense of the company, to perform an actuarial examination of the company and opine on the appropriateness of any reserve assumption or method used by the company, or to review and opine on a company’s compliance with any requirement set forth in this article. The commissioner may rely upon the opinion, regarding the provisions contained within this article, of a qualified actuary engaged by the commissioner of another state, district, or territory of the United States. As used in this subdivision, the term “engage” includes employment and contracting.
The commissioner may require a company to change any assumption or method that in the opinion of the commissioner is necessary in order to comply with the requirements of the valuation manual or this article, and the company shall adjust the reserves as required by the commissioner. The commissioner may take other disciplinary action as permitted pursuant to all other applicable law.
A company shall establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the valuation manual:
Quantify the benefits, guarantees, and the funding associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk.
Incorporate assumptions, risk analysis methods, and financial models and management techniques that are consistent with, but not necessarily identical to, those utilized within the company’s overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods.
Incorporate assumptions that are derived in one of the following manners:
The assumption is prescribed in the valuation manual.
For assumptions that are not prescribed, the assumptions shall:
Be established utilizing the company’s available experience, to the extent it is relevant and statistically credible.
To the extent that company data is not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience.
Provide margins for uncertainty, including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.
A company using a principle-based valuation for one or more policies or contracts subject to this section as specified in the valuation manual shall do the following:
Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual.
Provide to the commissioner and the board of directors of the company an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. The controls shall be designed to ensure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification shall be based on the controls in place as of the end of the preceding calendar year.
Develop, and file with the commissioner upon request, a principle-based valuation report that complies with standards prescribed in the valuation manual.
A principle-based valuation may include a prescribed formulaic reserve component.
A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the valuation manual.
For purposes of this section, “confidential information” means:
A memorandum in support of an opinion submitted pursuant to Section 10489.15 and any other documents, materials, and other information, including, but not limited to, all working papers, and copies thereof, created, produced, or obtained by or disclosed to the commissioner or any other person in connection with the memorandum.
All documents, materials, and other information, including, but not limited to, all working papers, and copies thereof, created, produced, or obtained by or disclosed to the commissioner or any other person in the course of an examination made under subdivision (f) of Section 10489.96. However, if an examination report or other material prepared in connection with an examination made under Article 4 (commencing with Section 729) of Chapter 1 of Part 2 of Division 1 is not held as private and confidential information under that article, an examination report or other material prepared in connection with an examination made under subdivision (f) of Section 10489.96 shall not be “confidential information” to the same extent as if the examination report or other material had been prepared under Article 4 (commencing with Section 729) of Chapter 1 of Part 2 of Division 1.
Any reports, documents, materials, and other information developed by a company in support of, or in connection with, an annual certification by the company under paragraph (2) of subdivision (b) of Section 10489.97 evaluating the effectiveness of the company’s internal controls with respect to a principle-based valuation and any other documents, materials, and other information, including, but not limited to, all working papers, and copies thereof, created, produced, or obtained by or disclosed to the commissioner or any other person in connection with those reports, documents, materials, and other information.
Any principle-based valuation report developed under paragraph (3) of subdivision (b) of Section 10489.97 and any other documents, materials, and other information, including, but not limited to, all working papers, and copies thereof, created, produced, or obtained by or disclosed to the commissioner or any other person in connection with the report.
All of the following:
Any documents, materials, data, and other information submitted by a company pursuant to Section 10489.98, to be known collectively, as “experience data.”
Experience data plus any other documents, materials, data, and other information, including, but not limited to, all working papers, and copies thereof, created or produced in connection with the experience data, in each case that includes any potentially company-identifying or personally identifiable information, that is provided to or obtained by the commissioner, to be known, collectively, as “experience materials.”
Any other documents, materials, data, and other information, including, but not limited to, all working papers, and copies thereof, created, produced, or obtained by or disclosed to the commissioner or any other person in connection with the experience materials.
Except as provided in this section, a company’s confidential information shall be confidential by law and privileged, shall not be subject to disclosure pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), and shall not be subject to subpoena or discovery or admissible in evidence in any private civil action. However, the commissioner is authorized to use the confidential information in a regulatory or legal action brought against the company as a part of the commissioner’s official duties.
The commissioner, any person who received confidential information while acting under the authority of the commissioner, or any person with whom those documents, materials, or other information are shared pursuant to paragraph (3), shall not be permitted or required to testify in a private civil action concerning any confidential information.
In order to assist in the performance of the commissioner’s duties, the commissioner may share confidential information with the following recipients, provided that the recipient agrees, and has the legal authority to agree, to maintain the confidentiality and privileged status of the documents, materials, data, and other information in the same manner and to the same extent as required for the commissioner:
Other state, federal, and international regulatory agencies and with the NAIC and its affiliates and subsidiaries.
In the case of confidential information specified in paragraphs (1) and (4) of subdivision (a) of Section 10489.99 only, with the Actuarial Board for Counseling and Discipline or its successor upon request stating that the confidential information is required for the purpose of professional disciplinary proceedings and with state, federal, and international law enforcement officials.
The commissioner may receive documents, materials, data, and other information, including otherwise confidential and privileged documents, materials, data, or information, from the NAIC and its affiliates and subsidiaries, from regulatory or law enforcement officials of other foreign or domestic jurisdictions, and from the Actuarial Board for Counseling and Discipline or its successor and shall maintain as confidential or privileged any document, material, data, or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or other information.
The commissioner may enter into agreements governing sharing and use of information consistent with this subdivision.
A waiver of any applicable privilege or claim of confidentiality in the information shall not occur as a result of disclosure to the commissioner under this section or as a result of sharing as authorized in paragraph (3).
A privilege established under the law of any state or jurisdiction that is substantially similar to the privilege established under this subdivision shall be available and enforced in any proceeding in, and in any court of, this state.
For purposes of this section, “regulatory agency,” “law enforcement agency,” and the “NAIC” include, but are not limited to, their employees, agents, consultants, and contractors.
Notwithstanding subdivision (b), any confidential information specified in paragraphs (1) and (4) of subdivision (a):
This section shall not be construed to limit the right of access to, or prohibit the admissibility as evidence in a private civil action of, any information, documents, data, or other materials not held for the purposes of this article by the commissioner or a person acting under the authority of the commissioner, including nondepartment actuaries and other consultants hired to implement this article, or a person with whom the commissioner has shared confidential information pursuant to paragraph (3) of subdivision (b).
The commissioner may hire and assign department staff, and retain nondepartment actuaries and other consultants, to assist the commissioner with preparing to implement and implementing, directly or indirectly, principle-based valuation.
There is in state government the Office of Principle-Based Reserving within the department. The commissioner may select, for the Governor’s appointment, a person to serve as the head of the office, who is an expert in preparing to implement and implementing, directly or indirectly, principle-based valuation. The position occupied by that person shall be an exempt gubernatorial appointment within the department exempt from the state civil service system within the meaning of Section 4 of Article VII of the California Constitution. The person’s salary or compensation shall be fixed by the commissioner and effective and payable without approval of the Department of Human Resources, pursuant to Section 19825 of the Government Code.
Notwithstanding any other law, the commissioner may annually assess all companies that are subject to this article to defray costs the department incurs preparing to implement and implementing, directly or indirectly, principle-based valuation, including, but not limited to, department salaries and overhead, and actuary and consultant fees and expenses.
The commissioner shall annually set an “aggregate assessment amount” and an assessment amount for each tier listed in paragraph (4). The aggregate assessment amount shall be the amount necessary to provide sufficient moneys to carry out the projected workload to implement, directly or indirectly, principle-based valuation. The annual aggregate assessment amount shall be no less than one million dollars ($1,000,000).
At least 90 days before finalizing the annual aggregate assessment amount and assessment amount for the tiers listed in paragraph (4), the commissioner shall provide notice of the commissioner’s preliminary determination of those amounts. The notice shall explain how the commissioner derived the amounts and provide no less than 45 days for interested parties to provide comments.
Not less than 45 days after the due date for comments specified in paragraph (3), the commissioner shall by bulletin establish the annual aggregate assessment amount according to the company’s annual premium based on the below tiers. For purposes of this section, “annual premium” shall mean the gross annual life insurance premium written by a company in California during the immediately preceding year as reported in its annual statutory financial statement. The commissioner may adjust the initial assessment amount for each tier to ensure a sufficient annual aggregate assessment amount as defined in paragraph (2) if he or she adopts a change to the valuation manual pursuant to paragraph (2) of subdivision (c) of Section 10489.96 that warrants the adjustment, and provides an accounting explaining the need for the adjustment.Annual PremiumInitial Annual Assessment Per Company$500,000,001 +$75,000$400,000,001 - $500,000,000$50,000$300,000,001 - $400,000,000$40,000$200,000,001 - $300,000,000$30,000$150,000,001 - $200,000,000$20,000$100,000,001 - $150,000,000$10,000$50,000,001 - $100,000,000$5,000
Before retaining an independent actuary or consultant under paragraph (1) of subdivision (a), the commissioner shall require a written declaration by the actuary or consultant that:
Before retaining an independent actuary or consultant under paragraph (1) of subdivision (a), the commissioner shall require a written declaration by the actuary or consultant that:
The actuary’s or consultant’s ability to perform the services fairly is unimpaired.
There has been disclosure of the conflict to all present, or known prospective, clients or employers of the actuary or consultant whose interests would be affected by the conflict.
All present, or known prospective, clients or employers of the actuary or consultant have expressly agreed to the performance of the services by the actuary or consultant.
The commissioner may develop and amend regulations to implement or modify subdivisions (c) and (d). The initial adoption of the regulations shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare. Any emergency regulation adopted or amended by the commissioner pursuant to this section shall be adopted or amended in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code and shall remain in effect for 180 days.
ARTICLE 4. Qualifications and Exemptions [10490. - 10505.1.]
This article is applicable only to life and disability insurance. Except as otherwise expressly permitted by this code or when transacted pursuant to or expressly exempted by this article, life or disability insurance shall not be transacted in this State by any person other than a corporation. A person shall not transact life or disability insurance in this State except pursuant to a valid and unrevoked certificate of authority issued by the commissioner or, after registration with the commissioner, under a valid and unrevoked certificate of exemption issued by the commissioner pursuant to this article. Any person subject to or exempted from Chapter 10 of this part is also exempted from this article.
Any nonprofit incorporated or unincorporated mutual benefit association in existence prior to January 1, 1945, which confines its membership to officers and employees of a common employer or group of affiliated or related employers including persons who were such officers or employees at the time of becoming members and which pays death benefits only to nominees or the estates of deceased members, or pays disability benefits in amounts not exceeding (except in the case of unemployment compensation disability benefits under the provisions of the Unemployment Insurance Act) one thousand five hundred dollars ($1,500) in the aggregate in any one calendar year on account of the disability of any one person, or which pays both such benefits is exempt from the provisions of this code relating to such life insurance in respect to such members and to such disability insurance in respect to such members and their dependents.
If an association described in Section 10490.1 has operated pursuant thereto since January 1, 1945, it may procure a certificate of exemption from the commissioner upon meeting all of the requirements of this article relating thereto except those of Section 10494. Thereafter such association shall be subject to:
All of the requirements of this article relating to an association holding a certificate of exemption except Section 10494, and
The limitations of Section 10490.1, except that it may pay disability benefits in amounts not exceeding three thousand six hundred dollars ($3,600) in the aggregate in any one calendar year on account of the disability of any one person.
Persons possessing a valid and unrevoked certificate of authority to transact life or disability or life and disability insurance issued by the commissioner are not subject to this article.
Any incorporated or unincorporated benefit and relief association organized on or after January 15, 1951, of either nonprofit or charitable character may, if it complies with the requirements of Section 10493 (c) (1), (2), (3), or (6) and the other requirements of this article, procure a certificate of exemption from the commissioner.
An incorporated or unincorporated benefit and relief association organized before January 15, 1951, may procure a certificate of exemption from the commissioner if it complies with all of the following:
All of the other requirements of this article.
As respects life or disability or life and disability insurance transacted by it, it is of an entirely nonprofit nature.
Any one of the following requirements as to membership and purpose:
It is composed of and its membership limited to the appointive officers, employees, and pupils of a public school district or of the appointive officers, employees, and pupils of any private school.
It is composed of and its membership limited to the appointive officers and employees of a municipal playground system, or the systems of two or more municipalities united in a league, federation, or other association for the purpose of promoting intercity competitions or other activities, or the participants in dancing, recreational, sporting, educational, social or theatrical activities sponsored or directed by that system or systems and carried on through the use of any of the facilities of that system or systems.
Its membership in this state is 1,000 or more and it is either an organization of a purely religious or benevolent character or its membership is limited to the members of that organization.
It is composed of and its membership is limited to the members of another organization and that other organization is of a purely religious or benevolent character and has a total membership in this state of not less than 1,000.
It is a domestic organization, lodge, society, or order that before September 19, 1947, provided life or disability benefits or both of those benefits to its members and is both of the following:
It is of a charitable, benevolent, or beneficent character or becomes so within one year from September 4, 1951, and in both instances is thereafter of that character.
It operates in a manner so that the payment of the benefits even though it be one of the express purposes of that organization, lodge, or order, is as a matter of fact incidental to its charitable, benevolent, or beneficent purposes or within one year from September 4, 1951, operates in that manner and in both instances thereafter operates in that manner.
Officers and employees of a common employer, and related dependents of those officers and employees, comprising spouses and dependent children who are not married or in registered domestic partnerships and are under 19 years of age, and living in the same household.
Pays a filing fee in the amount of one thousand six hundred ninety-three dollars ($1,693).
Such a benefit and relief association shall not provide for payment of a death benefit of more than two thousand dollars ($2,000) or for disability benefits of more than five hundred dollars ($500) to any one person in any one period of 12 consecutive months and shall not issue to its members a policy or benefit certificate or any other evidence of benefits except that found in the articles of the association or the bylaws thereof. However, a benefit and relief association described in paragraph (1) of subdivision (c) of Section 10493 may provide for a death benefit up to two thousand dollars ($2,000), disability benefits up to one thousand dollars ($1,000) or insurance protection for medical and hospital expenses up to one thousand five hundred dollars ($1,500), or any combination or all thereof.
Any incorporated or unincorporated benefit and relief association, the membership and insurance in which are restricted to the ministers, priests, rabbis, rectors, vicars, pastors, or readers of any conference, presbytery, diocese, convention or synod or any other similar body of a religious organization (a portion of whose territory is located in the State of California) and the employees of such religious body may procure a certificate of exemption from the commissioner if it does not provide for a death benefit (life and/or accidental death insurance) greater than two thousand dollars ($2,000) or a disability benefit greater than two thousand dollars ($2,000), payable in any 12-month period; provided it complies with all applicable provisions of this article.
Any employer maintaining a plan for furnishing disability insurance benefits to his employees for nonindustrial and nonoccupational injuries or sickness, under which plan the employer defrays 50 percent or more of the expense of such benefits, may secure a certificate of exemption from the commissioner under this article if such employer in respect to such plan otherwise complies with and is subject to the requirements of this article. Such compliance with this article need be only with respect to such plan and not in respect to other business of the employer.
Any employer who qualifies for a certificate of exemption under Section 10494.5 by virtue of which certificate he or she maintains a plan for furnishing disability benefits to his or her employees may, if he or she elects, make available for the related dependents of his or her employees, comprising spouses and dependent children who are not married or in registered domestic partnerships living in the same household, a supplemental plan of disability benefits containing any or all of the following benefits, hospital, surgical and medical; provided, that as to the supplemental plan the Insurance Commissioner finds that all of the following exist:
The supplemental plan shall be separately stated, setting out all of the provisions of coverage.
The plan shall set out the respective contributions of the employer and employees. All contributions of employees received or retained by the employer shall be trust funds and shall be separately accounted for by the employer and may not inure to the benefit of the employer in any manner whatsoever.
The plan permits the disabled individual a free choice of physician and surgeon, or podiatrist in the case of those services that are within the scope of practice of podiatric medicine, as defined in Section 2472 of the Business and Professions Code, and hospital.
The employer agrees to assume 50 percent of the cost of maintaining the plan, and he or she further agrees to guarantee the benefits if the contributions required for the supplementary benefits are not sufficient to pay the cost of same. The funds necessary to discharge the employer’s 50 percent assumption shall be trust funds and shall be separately accounted for by him or her.
With respect to the supplemental plan described in Section 10494.6, the commissioner may, in addition to the regulations permitted by Section 10498.6, promulgate other reasonable regulations covering all matters set forth in Section 10494.6 and this section. The commissioner shall require each employer making available such supplemental plan to post with him security in the form of a bond of an admitted surety insurer conditioned on the payment by the employer of his obligations under the entire plan or of deposits with the commissioner of securities approved by him to secure the payment of such obligations. Such security shall be equal to the greater of (a) twenty-five thousand dollars ($25,000), (b) the estimated contributions of the employees under the entire plan for the ensuing year, (c) the contributions paid by the employees under the entire plan during the preceding year, or (d) one-half of all of the amounts of benefit either paid or incurred by the employer under the entire plan during the preceding year.
If, on examination or investigation of any plan which includes benefits for dependents, the commissioner finds that the aggregate of the trust funds separately held for the supplemental plan and the security in the form hereinabove described may not, in his judgment, be adequate to guarantee the payment of outstanding and incurred liabilities of the entire plan, he may require the employer to post such additional security as will, in his judgment, be adequate to guarantee the payment of all outstanding and incurred liabilities of the entire plan, and, if the employer fails to post such additional security, he may revoke the employer’s certificate of exemption.
A certificate of exemption may be procured from the commissioner by filing with him or her certified copies of the articles of incorporation, association, bylaws, rules and regulations, or other organization or governing documents of the applicant together with certified copies of any evidences of insurance which it may issue and a statement of the operations of the applicant. There shall also be filed with the application a statement of the financial condition and income and disbursement exhibit of the applicant in such form as the commissioner may, in his or her discretion, find necessary in order to determine whether the applicant complies with the applicable requirements of this article. The commissioner may, pursuant to Article 4 (commencing with Section 730) of Chapter 1 of Part 2 of Division 1, require from any person transacting life or disability insurance, whether or not an applicant for a certificate of exemption, such information as will enable him or her to determine whether or not the person is transacting life or disability insurance in conformity with or in violation of this code.
Any person transacting life or disability insurance without a certificate of authority so to do issued by the commissioner shall not give, allow, or promise to give or allow any compensation for procuring new members. “Compensation”, as used herein, is confined to a payment, percentage, bonus, or monetary credit given, promised, or allowed for the securing of new members which, directly or by any arrangement, understanding, or device, is based, in whole or in part, upon the number of new members or reinstatements procured, or the nominal or contingent value of their certificates or policies, or the net or gross amount of dues or premiums paid or payable by them or upon any other variable result or contingency.
If the commissioner finds that an applicant for a certificate of exemption meets the applicable requirements of this article and those requirements of this code, made applicable to such an applicant by this article, and that the applicant is not formed, conducted or operated for profit or as a commercial insurance enterprise for the benefit of any group or person rather than the relatively equal benefit of its members, he shall register the applicant and issue to it a certificate of exemption.
An applicant for a certificate of exemption must comply with, and the possessor of a certificate of exemption is subject to, the following provisions of this code:
Chapter 1, Part 1, Division 1;
Chapter 2, Part 1, Division 1;
Article 1, Chapter 6, Part 1, Division 1;
Article 3, Chapter 6, Part 1, Division 1;
Chapter 9, Part 1, Division 1;
Sections 10110, 10111, 10112 and 10114;
Article 4, Chapter 1, Part 2, Division 1;
Article 6, Chapter 1, Part 2, Division 1;
Article 8, Chapter 1, Part 2, Division 1;
Article 9, Chapter 1, Part 2, Division 1;
Article 14, Chapter 1, Part 2, Division 1;
Article 15, Chapter 1, Part 2, Division 1;
Article 17, Chapter 1, Part 2, Division 1;
Article 1, Chapter 2, Part 2, Division 1;
Article 2, Chapter 2, Part 2, Division 1;
Article 3, Chapter 2, Part 2, Division 1;
Article 4, Chapter 2, Part 2, Division 1;
Article 7, Chapter 2, Part 2, Division 1;
Article 2, Chapter 1, Part 2, Division 2;
Article 4, Chapter 1, Part 2, Division 2;
Article 5, Chapter 1, Part 2, Division 2;
Section 10270.98;
Chapter 3, Part 2, Division 2;
Article 1, Chapter 5, Part 2, Division 2;
Division 3.
Applicants for and possessors of certificates of exemption not organized or incorporated under the laws of this State in lieu of meeting the requirements of Article 7, Chapter 2, Part 2, Division 1, and Articles 1, 2, 4, 5, Chapter 1, Part 2, Division 2, shall conform to such reasonable investment standards as the commissioner prescribes.
If a holder of a certificate of exemption receives or maintains funds for any purpose other than administering and providing the benefits that make it subject to this article, it shall segregate and maintain separately all funds received by it for the purpose of administering and providing such benefits.
When so segregated and maintained separately such benefit funds are not subject to enforcement of a money judgment or other process by or on behalf of creditors of the holder of a certificate of exemption, except that such funds are subject to enforcement of a claim for benefits.
The commissioner may from time to time issue regulations which shall govern persons holding certificates of exemption under this article, setting forth financial and other standards which, in his opinion, are required to avoid a condition of hazard, and further specifying the requirements of submission of statements of financial condition.
The commissioner may at any time notify any person possessing a certificate of exemption that the commissioner has grounds to believe that it is violating any of the applicable provisions of this code or is not operating in strict conformity with the documents filed with the commissioner as a basis of its application for the certificate of exemption. The notice shall fix the time and place for hearing at which the person notified may appear and show cause why the commissioner should not revoke its certificate of exemption. The time fixed shall not be less than 15 nor more than 60 days after date of the notice.
At the time and place specified in the notice and order to show cause, the commissioner shall hold a hearing at which the possessor of a certificate of exemption may present evidence to show that it is not violating any applicable provision of this code, and that it is operating in conformity with the documents which were filed as a basis for the certificate of exemption. If after the hearing the commissioner finds the evidence shows that the operations of the person are in violation of any of the applicable provisions of this code, or are in violation of the documents upon which its application for certificate of exemption was based, the commissioner shall revoke the certificate of exemption and the person whose certificate of exemption is thus revoked shall cease the transaction of life and disability insurance until it procures a new certificate of exemption or a certificate of authority under other provisions of this code.
This article does not prevent the commissioner from acting and bringing proceedings under Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1, if grounds exist for the institution of such proceedings with respect to any person transacting life or disability insurance either with or without a certificate of exemption.
Every person not expressly exempted by the provisions of this code that transacts life or disability insurance without a valid and unrevoked certificate of authority or without a valid and unrevoked certificate of exemption issued pursuant to this article is guilty of a misdemeanor. Every employee, officer, or agent of any person who knowingly assists any person in the transaction of insurance in violation of the provisions of this code, is guilty of a misdemeanor.
Any person subject to this article who upon January 1, 1943, was paying, allowing, or promising to pay benefits in the event of death or disability, or otherwise transacting life or disability insurance without a valid and unrevoked certificate of authority so to do, may apply for a certificate of exemption under this article.
After filing such application, or if such application has heretofore been filed, such person may continue to transact such insurance until the application is denied or such certificate of exemption is issued.
A labor union having all of the following characteristics is exempt from the provisions of this code relating to life and disability insurance in respect to the benefits herein specified and transactions connected therewith:
It is organized for the purpose of collective bargaining concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work and for the mutual benefit of its members and not for profit.
Either (A) it does not issue policies but provides for payment of those benefits in its bylaws, constitution, or rules and regulations; or (B) it is composed of members of one craft or industry or allied craft or industries.
The payment of those benefits is incidental to the purposes of that union.
Any incorporated organization, the membership and insurance in which are restricted to members of that labor union and the officers of which are members of the labor union, is likewise exempt from this code to the same extent as that labor union.
Any organization described in either subdivision (a) or (b) is also exempt from all provisions of this code relating to insurance protecting against wage losses from any cause in respect to the benefits promised.
Any nonprofit cooperative assessment association, the membership and insurance in which are restricted to members of a labor union, is exempt from the provisions of this code relating to the supervision or regulation of insurance with respect to the provision of job protection benefits, including any accidental death benefits, to its members. A nonprofit cooperative assessment association established pursuant to this section is not, and shall not be, a member of the California Insurance Guarantee Association under Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1, or any other insurance guaranty association in this state.
Each policy issued in this state pursuant to this section shall contain, in at least 10-point typeface on the front page and the declaration page, the following notice:
“NOTICE
This policy is issued by a nonprofit cooperative assessment association that is not subject to CALIFORNIA insurance laws and regulation and is not admitted in California. California insurance guaranty funds are not available for your nonprofit cooperative assessment association.”
“Job protection insurance” means the business of providing indemnity to conductors, engineers, motormen, brakemen, switchmen, firemen, dispatchers, clerks, operators, trackmen, signalmen, and maintenance of way personnel of steam and electric railways and to busdrivers and truckdrivers employed by common carriers for loss of position arising from discharge or suspension, which indemnity is payable in installments that do not exceed the average monthly wage of the insured. “Job protection insurance” may include accidental death coverage insuring the member. Nothing in this section is intended to regulate or define any benefit delivery system which provides indemnity, as defined in this section, in any manner other than the sale of insurance. Labor unions providing the type of indemnity defined in this section, shall be expressly exempt from any regulation by any state agency.
ARTICLE 5. Pension Funds, Separate Accounts [10506. - 10506.5.]
Any domestic life insurance company may, after adoption of a resolution by its board of directors, allocate to one or more separate accounts, in accordance with the terms of a written agreement, any amounts which are paid to the company in connection with a pension, retirement, retirement medical benefits, or profit-sharing plan, or program for one or more persons, or with an individual or group variable life insurance policy, and which are to be, or may be, applied in payment or in making provision for payment of proceeds or benefits under the company’s policies, contracts, or agreements of retirement benefits, and other benefits incidental thereto, in fixed or variable dollar amounts, or both. The income, if any, and gains or losses, realized or unrealized, on each account shall be credited to or charged against the amount allocated to the account in accordance with the agreement, without regard to the other income, gains or losses of the company. The amounts allocated to the accounts and accumulations thereon, by any life insurance company shall be invested and reinvested as specified in the policy, contract, or agreement without regard to any requirements or limitations prescribed by the laws of this state governing the investments of insurance companies, provided that the amounts allocated to separate accounts for which the insurer has issued guarantees of benefits as to dollar amount and duration or of funds as to all or part of the principal amount thereof or stated rate of interest, and the accumulations thereon pursuant to Section 10506.4, shall be invested in the types of investments permitted to life insurance companies for investments held in the insurer’s general account as described in Article 3 (commencing with Section 1170), Article 4 (commencing with Section 1190), and Article 4.6 (commencing with Section 1211) of Chapter 2 of Part 2 of Division 1 (excluding Section 1212 thereof), except that the approved method of operations and applicable policy, contract, or agreement provisions shall govern the amount of these investments held in the separate account. However, with regard to variable life insurance separate accounts and accumulations thereon, the separate accounts shall have sufficient net investment income and readily marketable assets to meet anticipated obligations under policies funded by the account. The limitations contained in Sections 1192.4 and 1198 are not applicable to these investments. These investments shall not be included in determining the propriety of other investments of the company. The liability of the company with respect thereto, but only to the extent prescribed in the agreement, shall be shown on the statement of the company in the manner prescribed by the commissioner. Amounts allocated by an insurance company to separate accounts in the exercise of the power granted by this section shall be owned by the company, but shall not be chargeable with liabilities arising out of any other business the company may conduct except and to the extent provided in the policy, contract, or agreement. The company shall not hold itself out to be a trustee in respect to these amounts.
In addition to amounts otherwise allocated to separate accounts, a domestic life insurer may allocate to the account or accounts amounts which otherwise would be subject to investment in accordance with Article 4 (commencing with Section 1190) of Chapter 2 of Part 2 of Division 1. The aggregate of these additional amounts shall not, however, exceed 1 percent of its admitted assets as of the preceding December 31, or 5 percent of the excess of its admitted assets over its liabilities and required reserves as of the preceding December 31, whichever is the smaller. The company shall be entitled to withdraw at any time, in whole or in part, its participation in any separate account to which funds have been allocated as provided in this subdivision and to receive, upon withdrawal, its proportionate share of the value of the assets of the separate account at the time of withdrawal.
In addition to the allocations to separate accounts provided for in subdivision (a), a domestic insurer may, at the request of a policyholder or contractholder or the beneficiary of a policy or contract, allocate to any separate account or accounts, death payments, proceeds of matured endowments, dividends, or surrender values.
Except as otherwise provided in Section 10506.4, or with the approval of the commissioner, and under conditions as to investments and other matters as he or she may prescribe, which shall recognize the guaranteed nature of the benefits provided, reserves for (1) benefits guaranteed as to dollar amount and duration and (2) funds guaranteed as to principal amount or stated rate of interest shall not be maintained in a separate account that, as provided under applicable policy, contract, or agreement, is or is not chargeable with liabilities arising out of any other business the company may conduct.
Unless otherwise approved by the commissioner, assets allocated to a separate account shall be valued at their market value, or at amortized cost if it approximates market value within the limits and constraints imposed by the United States Securities and Exchange Commission, on the date of valuation, or, if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to the separate account. Unless otherwise approved by the commissioner, the portion of any of the assets of the separate account equal to the company’s reserve liability, with regard to the guaranteed benefits and funds referred to in subdivision (d), shall be valued in accordance with the rules otherwise applicable to the company’s assets.
Except as provided in paragraph (2) of subdivision (f), a sale, exchange, or other transfer of assets may not be made by a company between any of its separate accounts, or between any other of its investment accounts and one or more of its separate accounts unless, in case of a transfer into a separate account, the transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless the transfer, whether into or from a separate account is made (1) by a transfer of cash, or (2) by a transfer of securities having a readily determinable market value, and the transfer of securities is approved by the commissioner. The commissioner may approve other transfers among the accounts if, in his or her opinion, the transfer would not be inequitable.
Transfers from an insurer’s general account to one or more of its separate accounts to establish and maintain reserves for the guarantees authorized by Section 10506.4 shall only be made in cash in accordance with methods of operations approved pursuant to subdivision (c) of Section 10506.4. A transfer shall not operate to increase the amounts permitted to be allocated by an insurer to the separate accounts pursuant to this subdivision or by subdivision (b) of Section 10506, and the provisions of that subdivision shall not limit these transfers.
Any domestic life insurance company which establishes one or more separate accounts pursuant to this section may provide for special voting rights and procedures for participants in the separate account relating to investment policy, investment advisory services, and selection of certified public accountants in relation to the administration of the assets in any separate account. The voting rights shall be in addition to, and shall not affect, voting rights of mutual insurers.
The purpose and intent of this section is to permit the issuance and delivery of policies or contracts, in connection with a pension, retirement, retirement medical benefits, or profit-sharing plan, or program for one or more persons, or policies of variable life insurance, providing for the payment of benefits in fixed or variable amounts, or both, and the establishment of separate accounts by domestic companies for the administration of and investments under these agreements. To protect the public and policyholders located in this state from hazardous operation by domestic and foreign companies, and to further the purpose and provision of this section, no domestic or foreign life insurance company shall undertake the issuance of any contract providing for variable benefits until the company has satisfied the commissioner that its condition or method of operation in connection with the issuance of these contracts shall not be such as would render its operation hazardous to the public or its policyholders in this state and, in the case of a foreign or alien insurer, that it meets the conditions prescribed in Section 716, for the issuance of a certificate of authority. In determining the qualification of a company requesting authority to issue contracts providing for variable benefits within this state, the commissioner shall consider among other things, (1) the history of the company; (2) the character, responsibility, and general fitness of the officers and directors of the company; (3) the regulation of a foreign company by its state of domicile; (4) the adequacy of the investment management which the company is providing; and (5) the company’s arrangements for the supervision of the marketing of the contracts. Subsequent to an insurer initially satisfying the commissioner that its condition or method of operation would not render its operation hazardous to the public or its policyholders, the insurer shall notify the commissioner at any time it implements a material change respecting the mutual funds underlying the variable contract separate account available or to be available with a policy or contract providing variable benefits. The notification shall prominently disclose the sales charges, management and other fees payable to the insurer under the contract, and whether one or more of the mutual funds underlying the variable contract separate account are issued by an affiliated company and the names of those mutual funds. The notification shall be accompanied by a certification signed by an executive officer having responsibility for contracts providing variable benefits stating that the change complies with relevant statutes and regulations. The commissioner may review the notification to ensure the continued qualification of the insurer to issue and deliver those policies and contracts. The commissioner may make reasonable rules and regulations as he or she considers necessary, proper, and advisable concerning the issuance and delivery of these policies and contracts and the payment of benefits thereunder and the manner in which the separate accounts shall be administered and which types of policies and contracts, if any, shall be subject to his or her approval prior to issue. Notification of any material change shall not be subject to the commissioner’s approval or acknowledgment prior to implementation. The commissioner shall promulgate on an emergency basis, and in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), a regulation superseding Insurance Department Bulletin 97-2 that shall become effective January 1, 2003. Until promulgation of the regulation, the commissioner and insurers may continue to rely upon Insurance Department Bulletin 97-2, except that the commissioner’s approval or acknowledgment prior to implementation of a change to a mutual fund underlying a variable contract separate account shall not be required on or after January 1, 2003.
However, no company may provide variable benefits in its contracts unless it is an admitted insurer having and maintaining a combined capital and surplus of at least ten million dollars ($10,000,000).
For purposes of this section, “affiliated company” has the same meaning given in paragraph (1) of subsection (g) of Section 6701 of Title 15 of the United States Code.
Any contract providing benefits payable in variable amounts delivered or issued for delivery in this state on or after the effective date of the amendments to this section enacted at the 1971 Regular Session of the Legislature shall contain a statement of the essential features of the procedures to be followed by an insurance company in determining the dollar amount of these variable benefits. Any contract under which the benefits vary to reflect investment experience, including a group contract and any certificate in evidence of variable benefits issued thereunder, shall state that the dollar amount shall so vary, and shall contain on its first page a statement to the effect that the benefits thereunder are on a variable basis. Except for Article 3a (commencing with Section 10159.1) of Chapter 1 of Part 2 of Division 2, in the case of a variable life insurance policy, and except as otherwise provided in this section, all pertinent provisions of this code shall apply to separate accounts and contracts relating thereto. Any variable life insurance contract, delivered or issued for delivery in this state on or after the effective date of the amendments to this section enacted at the 1992 Regular Session of the Legislature, shall contain such nonforfeiture provisions as are appropriate to such a contract.
The reserve liability for variable contracts shall be established in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees.
No insurer shall issue anywhere any group variable life insurance policy for which the master contractholder or any covered party is an individual residing in this state or is a corporation, association, trust, or other legal entity that is either domiciled in or has its principal place of business in this state, unless the insurer has become qualified to issue variable life insurance policies and its group master policy form together with all forms of certificates or notices thereunder have been approved by the commissioner. Group variable life insurance policies shall be issued only to groups referred to in Chapter 2 (commencing with Section 10200) of Part 2 of Division 2.
The commissioner shall require the payment of two thousand eight hundred twenty-three dollars ($2,823), as a fee for the determination of qualification required by Section 10506. Upon completion of the determination of qualification, and, whether authorization to issue contracts providing variable benefits is granted or denied, the commissioner shall require the payment by domestic insurers of those additional amounts from the requesting domestic insurer as may be necessary to defray all administrative costs in excess of eight hundred forty-nine dollars ($849) incurred by the commissioner in making that determination.
The commissioner shall require the payment in advance of two thousand eight hundred twenty-three dollars ($2,823), as a fee for the examination and analysis of documents required by law to be filed with the commissioner by domestic or foreign insurers in connection with changes to an application and qualification to write variable contracts.
The commissioner shall require the payment in advance of seven hundred twenty-six dollars ($726), as a fee for the review, examination, and analysis of documents required to be filed by insurers issuing variable life insurance policies.
The commissioner shall require the payment in advance of three thousand six hundred eighteen dollars ($3,618), as a fee for the examination and analysis involved in approving transfers of assets pursuant to subdivision (f) of Section 10506.
The commissioner shall adopt appropriate administrative regulations governing modified guaranteed annuities. Modified guaranteed annuities shall be subject to Article 3b (commencing with Section 10168) of Chapter 1 of Part 2 of Division 2 with regard to nonforfeiture values computed under the terms of the annuity but excluding from the computation the effect of market-value adjustment factors.
Group annuities exempted under Section 10168 are also exempted from any modified guaranteed annuity regulations.
Subdivision (b) shall be retroactive to January 1, 1987, to the extent the assets underlying such group contracts have not been maintained in a separate account.
The commissioner shall issue a bulletin, on or before July 1, 1987, setting forth conditions under which variable life insurance may be issued, or issued for delivery, in this state as permitted by Chapter 731 of the Statutes of 1984.
Upon issuance of the bulletin, regulations regarding variable life insurance contained in Article 11.1 (commencing with Section 2534) of Title 10 of the California Code of Regulations shall be of no force and effect as long as the bulletin is effective. The bulletin authorized by this section shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree, as the regulations superseded by it until the time that the commissioner may make additional or amended regulations as provided by subdivision (h) of Section 10506.
On or before July 1, 1993, the commissioner may amend the existing bulletin to include reasonable provisions relating to requirements for group variable life insurance. Notwithstanding the foregoing authority to issue a bulletin and prior to its issuance, the commissioner shall approve group master policy forms and certificates and notices related thereto that reasonably comply with the general provisions set forth in Sections 10506 to 10506.2, inclusive, and any other applicable statutes or regulations.
An admitted life insurer that is financially qualified pursuant to subdivision (b) and complies with the provisions of this section and those of Section 10506 that expressly refer to this section or are not inconsistent with it, may guarantee, pursuant to an approved policy, contract, or agreement, the value of the assets allocated to a separate account, which as provided under the applicable policy, contract, or agreement is not chargeable with liabilities arising out of any other business the company may conduct, or the investment results thereof, or the income thereon, or the benefits payable pursuant to the approved policy, contract, or agreement, and may transfer to the separate account cash to maintain its reserves for those guarantees pursuant to paragraph (2) of subdivision (f) of Section 10506. The general account of the insurer shall be paid reasonable and sufficient compensation not less frequently than quarterly, for risks and other expenses incurred, from any separate account that receives a guarantee authorized by this section.
For the purposes of this section “approved policy, contract, or agreement” means a policy, contract, or agreement, the form of which has been approved by the commissioner, for issue or marketing in this state, and which in addition to meeting the requirements of all pertinent provisions of this code, meets the requirements of one of the following paragraphs:
A policy, contract, or agreement meets the requirements of this paragraph if it satisfies and is expected to satisfy over the full life of the policy, contract, or agreement all of the following conditions:
The weighted asset valuation reserve factor for the assets held in the separate account pursuant to the terms of the policy, contract, or agreement shall not exceed 2 percent.
Guarantees of interest that extend beyond 14 months at any time shall be no greater than 3 percent per annum.
Any reserves required because the contract value is less than the reserves required for the policy, contract, or agreement shall be maintained in a separate identified segment of the insurer’s general account or otherwise segregated within the general account, or be held in a separate account all of the assets of which shall also be chargeable with liabilities arising out of other business of the insurer.
In the event the policy, contract, or agreement provides for withdrawals (other than those resulting from an election by a participant under a pension, retirement, retirement medical benefit, or profit-sharing plan) of amounts other than on the conversion date or guarantee effective date, if any, the withdrawals shall be made in either of the following manners:
In a lump sum in an amount not to exceed the market value.
In one or more contract value installments the present value of which is equal to or less than the market value of the aggregate withdrawal.
A policy, contract, or agreement meets the requirements of this paragraph if it satisfies and is expected to satisfy over the full life of the policy, contract, or agreement all of the following conditions:
The weighted asset valuation reserve factor for the assets held in the separate account pursuant to the terms of the policy, contract, or agreement shall not exceed 4 percent.
The market value of the assets held in the separate account plus any reserves described in subparagraph (C) shall exceed the current aggregate liabilities determined by discounting the guaranteed benefit liability cashflows at the rate of 105 percent of the then current yields as quoted on United States Government issued securities having substantially similar maturities by at least the following applicable amount:
For assets consisting of debt instruments, an amount equal to the asset valuation reserve “maximum reserve factor,” provided, however, that the factor shall be reduced by 50 percent for the purpose of this calculation if the difference in durations of the assets and liabilities (as confirmed in the actuarial statement referred to in subparagraph (B) of paragraph (1) of subdivision (d)) are one year or less.
For assets that are not debt instruments, 20 percent.
Any reserves required because the contract value is less than the reserves required for the policy, contract, or agreement shall be maintained in a separate identified segment of the insurer’s general account or otherwise segregated within the general account, or be held in a separate account all of the assets of which shall also be chargeable with liabilities arising out of other business of the insurer.
In the event the policy, contract, or agreement provides for withdrawals (other than those resulting from an election by a participant under a pension, retirement, retirement medical benefit, or profit-sharing plan) of amounts other than on the conversion date or guarantee effective date, if any, the withdrawals shall be made in either of the following manners:
In a lump sum in an amount not to exceed the market value.
In one or more contract value installments the present value of which is equal to or less than the market value of the aggregate withdrawal.
A policy, contract, or agreement meets the requirements of this paragraph if it satisfies and is expected to satisfy over the full life of the policy, contract, or agreement all of the following conditions:
The guarantees contained in the policy, contract, or agreement applicable to the value of the assets held in the separate account by the insurer shall be based upon a publicly available interest rate series or an index of the aggregate market value of a group of publicly traded financial instruments, the interest rate series or index to be specified in the policy, contract, or agreement.
Assets held in the separate account and the accumulations thereon shall be invested in accordance with the requirements of subdivision (a) of Section 10506 applicable to policies, contracts, or agreements governed by this section and shall comply with all of the following:
Interest-bearing bonds, notes, or other obligations shall be publicly traded or meet applicable requirements of the United States Securities and Exchange Commission enabling the securities to be publicly traded.
Investments in capital stock shall be traded on an exchange regulated by the United States Securities and Exchange Commission, and investments in any futures contracts with respect thereto shall be traded on an exchange regulated under the Commodities Exchange Act (Title 7, United States Code).
Issuers of interest-bearing obligations held in the separate account must be rated by an independent nationally recognized financial rating agency approved by the commissioner or by the Securities Valuation Office of the National Association of Insurance Commissioners.
With respect to any investments in shares of investment companies registered under the federal Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.) the assets of the entity must qualify as investments directly allowed for separate accounts pursuant to the requirements of subdivision (a) of Section 10506 applicable to policies, contracts, or agreements governed by this section.
The type, quality, industry diversification, prepayment characteristics, expected duration, and other factors pertaining to investments shall be set forth in the approved method of operations which shall contain a demonstration satisfactory to the commissioner that the investments are likely to achieve the performance of the applicable index or interest rate series.
The period between the commencement date of the guaranty of the value of the assets held in the separate account and the conversion date, if any, shall not exceed five years.
Any reserves required because the contract value is less than the reserves required for the policy, contract, or agreement shall be maintained in a separate identified segment of the insurer’s general account or otherwise segregated within the general account, or be held in a separate account all of the assets of which shall also be chargeable with liabilities arising out of other business of the insurer.
In the event the policy, contract, or agreement provides for withdrawals (other than those resulting from an election by a participant under a pension, retirement, retirement medical benefit, or profit-sharing plan) of amounts other than on the conversion date or guarantee effective date, if any, the withdrawals shall be made in either of the following manners:
In a lump sum in an amount not to exceed the market value.
In one or more contract value installments the present value of which is equal to or less than the market value of the aggregate withdrawal.
For the purposes of this section, “conversion date” means the date, if any, specified in the policy, contract, or agreement upon which the assets held pursuant to it shall be converted or applied to the purchase of annuities or returned to the owner of the policy, contract, or agreement, or its designee.
For the purposes of this section, the “asset valuation reserve factor” for each asset will be determined by the application of the asset valuation reserve factor, “maximum reserve factor,” as contained in the National Association of Insurance Commissioners (NAIC) Life, Accident and Health Annual Statement Instructions (Instructions) and Valuation of Securities Manual, or if not contained therein, an asset valuation reserve factor of 20 percent shall be assigned. To determine the weighted asset valuation reserve factor, the asset valuation reserve factor shall be applied to the market value of each asset.
For the purposes of this section, “market value” means the policy, contract, or agreement’s proportionate share of the actual market value of the separate account at the time of withdrawal or if the determination of market value is by formula, the formula shall be set forth in the policy, contract, or agreement and shall be designed to closely match actual market value.
For the purposes of this section, “guarantee effective date” means the date guarantees authorized by this section may result in payments from the general account to the separate account.
No admitted life insurer may issue or market in this state, nor may any domestic life insurer issue or market anywhere, a policy, contract, or agreement, or coverage thereunder by certificate or otherwise, which contains the guarantees referred to in subdivision (a) unless both of the following apply:
The statement shall state that, after taking into account risk charges payable from the assets of the separate account with respect to the guarantee, the assets of the separate account, together with any reserves in excess of the account value, make good and sufficient provision for the liabilities of the insurer with respect thereto.
The statement shall provide an opinion of the reasonableness and sufficiency of the pricing of any general account guarantees and any other fees for administration paid to the general account from the separate account.
The statement shall be supported by a memorandum by a qualified actuary, also in form and substance satisfactory to the commissioner, that describes the calculations made in support of the actuarial statement and includes the assumptions used in the calculations.
The liability for any asset valuation reserve.
One-half the liability for dividends.
Policies, contracts, and agreements referred to in subdivision (a), that are not otherwise subject to filing under applicable law and regulation, shall be filed, before being marketed or issued in this state, by the insurer with the commissioner. If the commissioner finds that the policies, contracts, or agreements submitted pursuant to subdivision (a) contemplate practices that are unfair or unreasonable or otherwise inconsistent with the provisions of this code, he or she may disapprove of the forms of policies, contracts, or agreements specifying in what regard the policies, contracts, or agreements are unfair or unreasonable or otherwise inconsistent with the provisions of this code.
As an alternative to the filing and approval procedure set forth in subdivision (e), an insurer that satisfies eligibility criteria specified in the bulletin authorized by subdivision (g) may file with the commissioner the proposed form of the policy, contract, or agreement, together with an officer’s certificate, accompanied by an actuarial certification and demonstration, and other supporting material, all in accordance with procedures set forth in the bulletin authorized by subdivision (g). An insurer may issue and deliver a policy, contract, or agreement the day following approval by the commissioner of a filing under this subdivision. Absent explicit approval, an insurer may, no sooner than 30 working days after the filing of the policy, contract, or agreement and all required supporting documentation, issue and deliver any policy, contract, or agreement that has been filed pursuant to this subdivision if the commissioner has not notified the insurer in writing that the filing lacks the required documentation or that he or she objects to the filing upon grounds sufficient to disapprove the policy, contract, or agreement. The bulletin shall set forth procedures providing the insurer an opportunity to respond to any objections. If the commissioner finds that the officer’s certificate or the actuarial certification or demonstration filed in support of the policy, contract, or agreement is false or incorrect, the commissioner may, in addition to taking any other lawful measures, including suspension of authority to use the policy, contract, or agreement, declare the insurer ineligible to utilize the alternative procedure authorized by this subdivision for a period not to exceed three years from the date of the filing of the policy, contract, or agreement. The commissioner may summarily suspend the use of any policy, contract, or agreement used by the insurer pursuant to this subdivision on any grounds sufficient to disapprove the policy, contract, or agreement, or if the filing fails to include the required documents. This suspension may be prospective only. Suspension of use of a policy, contract, or agreement shall be in writing and shall specify the reasons for the suspension. Unless the commissioner in the suspension order or subsequent thereto specifies a later effective date for the suspension, any suspension shall be effective on the day following the receipt of the suspension order by the insurer. An insurer affected by any suspension, issued pursuant to this subdivision, of a policy, contract or agreement may refile the policy, contract, or agreement with the commissioner pursuant to subdivision (e). The commissioner may suspend or discontinue filings of policies, contracts, or agreements under this subdivision at any time upon notice to affected insurers. Any filing by an insurer of a policy, contract, or agreement under this subdivision that is not accepted by the commissioner may be filed by the insurer pursuant to subdivision (e).
The commissioner may issue, and amend from time to time thereafter, as he or she deems appropriate, a bulletin setting forth reasonable requirements for insurers that issue policies, contracts, or agreements referred to in subdivision (a) relating to all of the following:
The reserves to be maintained by insurers for those policies, contracts, or agreements.
The accounting and reporting of funds credited under, assets held with respect to, and transfers to and from the insurer’s general account and separate accounts pertaining to, those policies, contracts, or agreements.
The disclosure of information to be given to holders and prospective holders of those policies, contracts, or agreements.
The qualification of persons selling those policies, contracts, or agreements on behalf of the insurers.
The filing of those policies, contracts, or agreements with the commissioner.
The filing with the commissioner of specified sales and financial information pertaining to those policies, contracts and agreements.
The eligibility criteria and procedure for filing under subdivision (f).
Other matters relating to those policies, contracts, and agreements as the commissioner considers necessary, proper, and advisable that are not inconsistent with this section. This bulletin shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree, as regulations issued by the commissioner until the time that the commissioner issues additional or amended regulations.
The authority granted in this section is in addition to the authority granted to life insurers by other provisions of this code and the requirements of this section shall not contravene that authority. No policy, contract, or agreement that constitutes investment return assurance pursuant to Section 10203.10 or Section 10507 may be issued pursuant to this section.
Guarantees authorized by this section may only be made in connection with policies, contracts, or agreements issued to an owner that is not a natural person, and is an “accredited investor” as defined in Regulation D-Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933, 17 Code of Federal Regulations Section 230.501 et seq., as promulgated by the United States Securities and Exchange Commission, in transactions where the aggregate single premium or deposit for all policies, contracts, or agreements (excluding certificates issued under a group or master policy) issued to the owner containing guarantees authorized by this section is at least one million dollars ($1,000,000). Notwithstanding the foregoing, an insurer may issue policies, contracts, or agreements qualifying under paragraph (1) of subdivision (b) above, to a pension, retirement, or retirement medical benefit or profit-sharing plan reasonably expected to receive contributions in excess of two hundred fifty thousand dollars ($250,000) within the first 12 months following issuance of the policy, contract, or agreement and that has more than 10 participants. Policies, contracts, or agreements providing coverage in this state, by certificate or otherwise, that contain guarantees authorized by this section issued on a group basis shall be issued only to groups referred to in Chapter 2 (commencing with Section 10200) of Part 2 of Division 2.
For the purposes of this section, “guaranteed living benefit” means a benefit in a variable annuity or a variable life insurance contract providing that one or more benefit amounts available to a living contractholder, under specified conditions, will be enhanced should it fall below a given level, in the absence of the guaranteed living benefit.
An insurer may deliver or issue for delivery contracts containing, or riders to variable contracts providing, guaranteed living benefits if all the following requirements are met:
The insurer is authorized to deliver, or issue for delivery, variable insurance products in this state.
The insurer meets the requirements of paragraph (1) of subdivision (d) of Section 10506.4.
The commissioner has issued a bulletin setting forth the terms and conditions under which variable contracts containing, or riders to variable contracts providing, guaranteed living benefits may be issued or delivered in this state.
The variable contract or rider meets the terms and conditions for guaranteed living benefits established by the commissioner and set forth in the bulletin described in paragraph (3) and the insurer desiring to issue the variable contract or rider has satisfied the requirements set forth in Section 2529 of Title 10 of the California Code of Regulations.
The bulletin described in paragraph (3) of subdivision (b) may include provisions covering requirements similar to those included in subdivision (f) of Section 10506.4. The bulletin shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree as regulations issued by the commissioner until the time that the commissioner issues additional or amended regulations pertaining to guaranteed living benefits.
An insurer may not deliver or issue for delivery variable contracts containing, or riders to variable contracts providing, guaranteed living benefits except pursuant to this section. No policy, contract, rider, or agreement that constitutes investment return assurance pursuant to Section 10203.10 or 10507, or guarantee pursuant to Section 10506.4, may be issued pursuant to this section.
ARTICLE 6. Investment Return Assurance [10507. - 10507.4.]
Any life insurance company authorized to do business in this state shall be permitted to issue and deliver individual policies in connection with the payment of benefits against the risk of loss in the value of redeemable securities of the insured investor issued by investment companies regulated by the federal Investment Company Act of 1940, as amended, and whose redeemable securities are registered under the federal Securities Act of 1933, as amended. For purposes of this article, such benefits shall be referred to as “investment return assurance.”
Policies providing such investment return assurance shall provide a benefit equal to the difference between the amount paid for such redeemable securities and the value of such redeemable securities at the earlier of either (1) the end of the policy period, or (2) the date of death of the insured.
To protect the public and policyholders located in this state from hazardous operation by domestic, foreign, or alien companies, and to further the purpose and provision of this part, no domestic, foreign, or alien insurance company shall undertake the issuance of any policy providing for investment return assurance until such company has satisfied the commissioner that its condition or method of operation in connection with the issuance of such policies shall not be such as to render its operation hazardous to the public, or its policyholders in this state, and, whether domestic, foreign, or alien, that it meets the conditions prescribed in Section 717 for the issuance of a certificate of authority. In the determination of the qualification of a company requesting authority to issue policies providing for investment return assurance within this state, the commissioner shall consider, in addition to the requirements of Section 717, (1) the history of the company, (2) the character, responsibility, and general fitness of the officers and directors of the company, (3) the regulation of a foreign or alien company by its state of domicile, (4) the adequacy of the investment management which the company is providing, and (5) the company’s arrangements for the supervision of the marketing of such policies. No company may provide investment return assurance in its policies unless it is an admitted insurer having and maintaining a combined capital and surplus of at least two million dollars ($2,000,000).
In addition to the requirements of subdivision (c), no admitted insurer may provide investment return assurance in its policies unless it establishes a special contingency fund of not less than one million dollars ($1,000,000). This fund shall be deemed to constitute a reserve liability in addition to other reserves of such insurer. In the event such insurer writes investment return assurance both on an individual and a group basis, the special contingency fund shall be one million dollars ($1,000,000) for both.
The commissioner shall require the payment of three hundred seventy-four dollars ($374), as a fee for the determination of qualification required by Section 10507. Upon completion of the determination of qualification, and whether authorization to issue policies providing investment return benefits is granted or denied, the commissioner shall require the payment of those additional amounts from the requesting insurer as may be necessary to defray all administrative costs in excess of three hundred seventy-four dollars ($374) incurred by the commissioner in making that determination.
An investment return assurance policy evidencing such insurance, shall not be issued or delivered in this state until a copy of the form thereof is filed with the commissioner, the fees required by Section 12973.9 are paid, and the commissioner has given written approval of the form.
No policy of investment return assurance shall be delivered or issued for delivery to any person in this state unless each such policy does all of the following:
Includes a statement on the first page thereof in boldface type that, in the event that the investment covered by the policy exceeds the benefit provided under the policy, there shall be no benefit.
Provides for both of the following:
The reserves for all investment return assurance policies shall be computed and maintained on a basis which shall place an actuarially sound value on the liabilities under such policies. To provide a basis for the determination of such actuarially sound values, the commissioner, from time to time, shall adopt rules requiring the use of appropriate tables of morbidity, mortality, interest rates, and valuation methods for such reserves.
Any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment due on any policy anniversary shall be such that its present value as of such anniversary shall be at least equal to the ratio of the number of years the policy has been in force to the total premium-paying period times the present value of benefits payable had the policy been kept in full force and effect for the total premium-paying period.
In furtherance of the purpose of this article, the commissioner may make reasonable rules and regulations. The rules and regulations shall be adopted, amended, or repealed in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
ARTICLE 6.5. Portfolio Indexing [10507.5. - 10507.5.]
An insurer may deliver or issue for delivery one or more policies, contracts, or agreements that establish the insurer’s obligations under the policies, contracts, or agreements by reference to a portfolio of assets that is not owned by or possessed by the insurer, if the following requirements are met:
The insurer is authorized to deliver, or issue for delivery, life insurance policies in this state.
The insurer has at least one billion dollars ($1,000,000,000) in admitted assets or one hundred million dollars ($100,000,000) in capital and surplus, as reflected by the most recent financial statements on file with the commissioner. For the purposes of this section, “capital and surplus” includes capital and surplus plus the asset valuation reserve and one-half of the liability for dividends, all as reflected on the most recent financial statement on file with the commissioner.
Policies, contracts, and agreements referred to in subdivision (a), that are not otherwise subject to filing under applicable law and regulation, shall be filed, before being marketed or issued in this state, by the insurer with the commissioner. If the commissioner finds that the policies, contracts, or agreements submitted pursuant to subdivision (a) contemplate practices that are unfair or unreasonable or otherwise inconsistent with the provisions of this code, he or she may disapprove of the forms of policies, contracts, or agreements specifying in what regard the policies, contracts, or agreements are unfair or unreasonable or otherwise inconsistent with the provisions of this code.
As an alternative to the filing and approval procedure set forth in subdivision (b), if a bulletin is issued by the commissioner pursuant to subdivision (d), an insurer that satisfies eligibility criteria specified in that bulletin may file with the commissioner the proposed form of the policy, contract, or agreement, together with an officer’s certificate, accompanied by an actuarial certification and demonstration, and other supporting material, all in accordance with procedures set forth in the bulletin authorized by subdivision (d). An insurer may issue and deliver a policy, contract, or agreement the day following approval by the commissioner of a filing under this subdivision. Absent explicit approval, an insurer may, no sooner than 30 working days after the filing of the policy, contract, or agreement and all required supporting documentation, issue and deliver any policy, contract, or agreement that has been filed pursuant to this subdivision if the commissioner has not notified the insurer in writing that the filing lacks the required documentation or that he or she objects to the filing upon grounds sufficient to disapprove the policy, contract, or agreement. The bulletin authorized in subdivision (d) shall set forth procedures providing the insurer an opportunity to respond to any objections. If the commissioner finds that the officer’s certificate or the actuarial certification or demonstration filed in support of the policy, contract, or agreement is false or incorrect, the commissioner may, in addition to taking any other lawful measures, including suspension of authority to use the policy, contract, or agreement, declare the insurer ineligible to utilize the alternative procedure authorized by this subdivision for a period not to exceed three years from the date of the filing of the policy, contract or agreement. The commissioner may summarily suspend the use of any policy, contract, or agreement used by the insurer pursuant to this subdivision on any grounds sufficient to disapprove the policy, contract, or agreement, or if the filing fails to include the required documents. This suspension may be prospective only. Suspension of use of a policy, contract, or agreement shall be in writing and shall specify the reasons for the suspension. Unless the commissioner in the suspension order or subsequent thereto specifies a later effective date for the suspension, any suspension shall be effective on the day following the receipt of the suspension order by the insurer. An insurer affected by any suspension, issued pursuant to this subdivision, of a policy, contract, or agreement may refile the policy, contract, or agreement with the commissioner pursuant to subdivision (b). The commissioner may suspend or discontinue filings of policies, contracts, or agreements under this subdivision at any time upon notice to affected insurers. Any filing by an insurer of a policy, contract, or agreement under this subdivision that is not accepted by the commissioner may be filed by the insurer pursuant to subdivision (b).
The commissioner may issue, and amend from time to time thereafter, as he or she deems appropriate, a bulletin setting forth reasonable requirements for insurers that issue policies, contracts, or agreements referred to in subdivision (a), relating to all of the following:
The reserves to be maintained by insurers for those policies, contracts, or agreements.
The accounting and reporting of those policies, contracts, or agreements.
The disclosure of information to be given to holders and prospective holders of those policies, contracts, or agreements.
The qualification of persons selling those policies, contracts, or agreements on behalf of the insurers.
The filing of those policies, contracts, or agreements with the commissioner.
The filing with the commissioner of specified sales and financial information pertaining to those policies, contracts and agreements.
The eligibility criteria and procedure for filing under subdivision (c).
Other matters relating to those policies, contracts, and agreements as the commissioner considers necessary, proper, and advisable that are not inconsistent with this section.
This bulletin shall have the same force and effect, and may be enforced by the commissioner to the same extent and degree, as regulations issued by the commissioner until the time that the commissioner issues additional or amended regulations.
Upon completion of the determination of qualification required by subdivision (a), and, whether authorization to issue policies, contracts, or agreements referred to in subdivision (a) is granted or denied, the commissioner shall require the payment of the fee specified in Section 736 for the determination of qualification.
ARTICLE 7. Records [10508. - 10508.8.]
It is the obligation of every insurer admitted in this state to transact life or disability insurance, or both, to maintain certain records specified in this article pertaining to the activities of its life, life and disability, and disability agents and any other agents for the inspection and examination of the commissioner.
The original or certified copies of the records shall be delivered to the commissioner within a period of 30 days following receipt of written demand therefor.
The records required to be maintained or made available in this state may be in the form of originals, carbon, or facsimile copies, microfilm copies, or electronic data-processing records if printouts are available within a reasonable period of time, and shall include, to the extent the data are pertinent and available for each insurance transaction, the names, dates, amounts and policy numbers involved. The records are composed of all of the following:
The original application for each insurance policy or contract sold in this state.
Records showing, for each insurance policy or contract issued, the premiums received by the insurer.
Production records showing all insurance policies or contracts sold by each agent or other agent in the expired portion of the current calendar year and the whole of each of the preceding five calendar years.
Records showing, for each insurance policy or contract issued, the amount of commissions paid and to whom.
Records or memoranda identifying any agent other, than the agent whose name appears on the application who, to the actual knowledge of the insurer, handled any part of an insurance transaction for which the other agent was not compensated.
Correspondence, written solicitations or proposals, or other written communications sent by the insurer to a prospect, applicant, or insured, or received from him or her by the insurer, excluding printed material in general use distributed by the insurer, either directly or indirectly through its life agents.
Correspondence, written proposals, notices, a statement of reasons, or other written communications, if any, pertaining to the recision, termination, or nonrenewal of a policy or contract, or the election of nonforfeiture values thereunder, sent by an insurer to a policyholder or contractholder or received from him or her by an insurer.
A copy of a written comparison of benefits, limitations, exclusions, and costs of existing accident, sickness, or long-term care coverage and proposed coverage.
A copy of the outline of coverage or disclosure statement required by law or regulation.
Copies of any correspondence between the policyholder or prospective policyholder and the agent or insurer.
Copies of correspondence between anyone acting on behalf of the policyholder or prospective policyholder and the agent or insurer.
Except as otherwise provided, the records shall be maintained for a minimum period of five years following the actual delivery of the insurance policy or contract to which each pertains, or, if no policy or contract was issued, for a minimum period of five years after the date of the application therefor.
It shall be the obligation of each life, life and disability, and disability insurance agent and any other agent and insurer to preserve and maintain all applicable records defined in Section 10508 in his or her possession, in addition to those records transmitted to the insurer, at his or her principal place of business for a minimum of five years. The records shall be kept in an orderly manner so that the information therein is readily available, and shall be open to inspection or examination by the commissioner at all times.
The Legislature finds and declares that there is no statutory authority for the commissioner to gather information or data on life insurance, annuity, or disability products for the purpose of evaluating trends in the marketplace or the uses these contracts serve.
The commissioner may collect, compile, analyze, and report data relating to life and disability insurance, annuity contracts, and related contracts offered, issued, delivered, or renewed in this state through any method of marketing.
Any officer, manager, agent, or employee of any institution offering life and disability insurance, annuity contracts, or related contracts, shall, upon request by the commissioner, exhibit to the commissioner all books, records, accounts, documents, or agreements governing its method of operation, together with all data, statistics, and information of every kind and character collected or considered by the institution in the conduct of its operations.
The commissioner may adopt reasonable rules and regulations requiring an annual reporting of the data authorized for collection under this section.
The commissioner may, for the purpose of furthering the uniform administration of regulatory laws, exchange information and data with law enforcement officials of this and other states relating to the implementation of the reporting requirements imposed by this section, and may consult with those officials regarding that information and data.
A person subject to the requirements of Section 10508.6 who submits any false information in connection with a request for information or data pursuant to that section shall be liable for a civil penalty not to exceed one hundred thousand dollars ($100,000). A person subject to the requirements of Section 10508.6 who fails to comply with a request for information or data pursuant to that section shall be liable for a civil penalty not to exceed five thousand dollars ($5,000) for each 30-day period in which the person fails to comply. If the failure to comply is willful, the person shall be liable for a civil penalty not to exceed ten thousand dollars ($10,000) for each 30-day period in which the person fails to comply, but not to exceed an aggregate amount of one hundred thousand dollars ($100,000). In determining the penalty, the commissioner shall consider the good faith of the person and any similar prior violations by the person under this code.
The commissioner shall ensure, to the furthest extent possible, that any data call issued by him or her does not conflict with any similar data call or data collection request, including, but not limited to, a request issued by the National Association of Insurance Commissioners.
ARTICLE 8. Requirements for Replacement of Life Insurance and Annuity Policies [10509. - 10509.9.]
The purpose of this article is the following:
To regulate the activities of insurers and agents with respect to the replacement of existing life insurance and annuities.
To protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to be observed in replacement transactions by the following:
Assuring that the purchaser receives information with which a decision can be made in his or her own best interest.
Reducing the opportunity for misrepresentation and incomplete disclosures.
Establishing penalties for failure to comply with the requirements of this article.
This article is applicable to all individual life insurance and annuity policies.
“Replacement” means any transaction in which new life insurance or a new annuity is to be purchased, and it is known or should be known to the proposing agent, or to the proposing insurer if there is no agent, that by reason of that transaction, the existing life insurance or annuity has been or is to be any of the following:
Lapsed, forfeited, surrendered, or otherwise terminated.
Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.
Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid.
Reissued with any reduction in cash value.
Pledged as collateral or subjected to borrowing, whether in a single loan or under a schedule of borrowing over a period of time for amounts in the aggregate exceeding 25 percent of the loan value set forth in the policy.
“Conservation” means any attempt by the existing insurer or its agent to dissuade a policyowner from the replacement of existing life insurance or annuity. Conservation does not include routine administrative procedures such as late payment reminders, late payment offers, or reinstatement offers.
“Direct-response sales” means any sale of life insurance or annuity where the insurer does not utilize an agent in the sale or delivery of the policy.
“Existing insurer” means the insurer whose policy is or will be changed or terminated in such a manner as described within the definition of “replacement.”
“Existing life insurance or annuity” means any life insurance or annuity in force including life insurance under a binding or conditional receipt or a life insurance policy that is within an unconditional refund period.
“Replacing insurer” means the insurer that issues a new policy which is a replacement of existing life insurance or annuity.
“Registered contract” means variable annuities, investment annuities, variable life insurance under which the death benefits and cash values vary in accordance with unit values of investments held in a separate account, or any other contracts issued by life insurers which are registered with the Federal Securities and Exchange Commission.
Unless otherwise specifically included, this article does not apply to the following:
Credit life insurance.
Group life insurance or group annuities.
An application to the existing insurer that issued the existing life insurance when a contractual change or a conversion privilege is being exercised, or when a term conversion privilege is exercised among corporate affiliates.
Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same insurer.
Transactions where the replacing insurer and the existing insurer are the same; provided, however, that agents proposing replacement shall:
Comply with the requirements of subdivisions (a) and (d) of Section 10509.4.
Provide and leave with the applicant a written statement containing information relating to premiums, cash values, death benefits, and outstanding indebtedness, and dividends and dividend accumulations, if any, for the existing policy, both immediately before and after replacement, and for the proposed life insurance or annuity.
Registered contracts shall be exempt from the requirements of paragraphs (2) and (3) of subdivision (b) of Section 10509.6 requiring provision of policy summary or ledger statement information; however, premium or contract contribution amounts and identification of the appropriate prospectus or offering circular shall be required in lieu thereof.
“Term conversion privilege” means an option afforded by contract to certain holders of term life insurance policies that permits the policy to be converted into permanent insurance, including whole life insurance, universal life insurance, or variable life insurance, regardless of the insured’s physical condition and without a medical examination. The holder of a term life insurance policy with a term conversion privilege shall not be denied coverage or charged an additional premium for any health problems and premiums for the permanent policy shall be based on the same underwriting class as the term policy, regardless of any changes of health since the term policy was issued.
“Corporate affiliate” means the same as “affiliate” as defined in Section 1215.
Each agent who accepts an application shall submit to the insurer with which an application for life insurance or annuity is presented, or as part of each application, both of the following:
A statement signed by the applicant as to whether replacement of existing life insurance or annuity is involved in the transaction.
A signed statement as to whether or not the agent knows replacement is or may be involved in the transaction.
Where a replacement is involved, the agent shall do all of the following:
Present to the applicant, not later than at the time of taking the application, a “Notice Regarding Replacement of Life Insurance” in the form as described in subdivision (d). The notice shall be signed by both the applicant and the agent and left with the applicant. Obtain with or as part of each application a list of all existing life insurance or annuities to be replaced and properly identified by name of insurer, the insured and contract number. If a contract number has not been assigned by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.
Leave with the applicant the original or a copy of all printed communications used for presentation to the applicant.
Submit to the replacing insurer with the application a copy of the replacement notice.
Every agent who uses written or printed communications in conservation shall leave with the applicant the originals of any materials used.
Each agent or broker shall present to an applicant the following notice:
NOTICE REGARDING REPLACEMENT
Are you thinking about buying a new life insurance policy or annuity and discontinuing or changing an existing one? If you are, your decision could be a good one—or a mistake. You will not know for sure unless you make a careful comparison of your existing benefits and the proposed benefits.
Make sure you understand the facts. You should ask the company or agent that sold you your existing policy to give you information about it.
Hear both sides before you decide. This way you can be sure you are making a decision that is in your best interest.
We are required by law to notify your existing company that you may be replacing their policy.
Every life insurer shall do the following:
Inform its field representatives or other personnel responsible for compliance with this article of the requirements of this article.
Require with, or as part of, each completed application for life insurance or annuity a statement signed by the applicant as to whether such proposed insurance or annuity will replace existing life insurance or annuity.
Every life insurer that uses an agent in a life insurance or annuity sale shall do the following:
Require with or as part of each completed application for life insurance or annuity, a statement signed by the agent as to whether he or she knows a replacement is or may be involved in the transaction.
Where a replacement is involved:
Require from the agent with the application for life insurance or annuity: (i) a list of all of the applicant’s existing life insurance or annuity to be replaced, and (ii) a copy of the replacement notice provided the applicant pursuant to Section 10509.4. The existing life insurance or annuity shall be identified by name of insurer, insured, and contract number. If a number has not been assigned by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.
Send to each existing life insurer a written communication advising of the replacement or proposed replacement and the identification information obtained pursuant to this section and a policy summary, contract summary, or ledger statement containing policy data on the proposed life insurance or annuity. Cost indices and equivalent level annual dividend figures need not be included in the policy summary or ledger statement. This written communication shall be made within three working days of the date the application is received in the replacing insurer’s home or regional office, or the date the proposed policy or contract is issued, whichever is sooner.
Every existing life insurer or the insurer’s agent that undertakes a conservation shall, within 20 days from the date the written communication plus the materials required in subdivisions (1) and (2) are received by the existing insurer, furnish the policyowner with a policy summary for the existing life insurance or ledger statement containing policy data on the existing policy or annuity. Information relating to premiums, cash values, death benefits, and dividends, if any, shall be computed from the current policy year of the existing life insurance. The policy summary or ledger statement shall include the amount of any outstanding indebtedness, the sum of any dividend accumulations or additions, and may include any other information that is not in violation of any regulation or statute. Cost indices and equivalent level annual dividend figures need not be included. When annuities are involved, the disclosure information shall be that in the contract summary.
The replacing insurer may request the existing insurer to furnish it with a copy of the summaries or ledger statement, which shall be within five working days of the receipt of the request.
The replacing insurer shall maintain evidence of the “notice regarding replacement,” the policy summary, the contract summary, and any ledger statements used, and a replacement register, cross-indexed by replacing agent and existing insurer to be replaced. The existing insurer shall maintain evidence of policy summaries, contract summaries, or ledger statements used in any conservation. Evidence that all requirements were met shall be maintained for at least three years.
The replacing insurer shall provide on the front of the policy jacket or on the cover page of its life insurance policy or annuity contract or, alternatively, as a separate written document which is delivered with the life insurance policy or annuity contract, a notice stating that the owner has a right to an unconditional refund of all premiums paid which right may be exercised within a period of 30 days commencing from the date of delivery of the contract. In the case of variable annuities, and variable life insurance, return of the contract during the cancellation period shall entitle the owner to a refund of the account value and any policy fee paid. The account value and policy fee shall be refunded by the insurer to the owner within 30 days from the date that the insurer is notified that the owner has canceled the contract.
This section shall become operative on July 1, 2015.
If in the solicitation of a direct response sale, an insurer does not propose the replacement, and a replacement is involved, the insurer shall send to the applicant with the policy a replacement notice as described in subdivision (d) of Section 10509.4 or other substantially similar form approved by the commissioner. In those instances the insurer may delete the last sentence and the reference to signatures from the form without having to obtain approval of the form from the commissioner.
If the insurer proposed the replacement it shall do the following:
Provide to applicants or prospective applicants with or as part of the application a replacement notice as described in subdivision (d) of Section 10509.4.
Request from the applicant with or as part of the application, a list of all existing life insurance or annuities to be replaced and properly identified by name of insurer and insured.
Comply with the requirements of paragraph (2) of subdivision (b) of Section 10509.6, if the applicant furnishes the names of the existing insurers, and the requirements of subdivision (c) of Section 10509.6, except that it need not maintain a replacement register.
A violation of this article shall occur if an agent or insurer recommends the replacement or conservation of an existing policy by use of a materially inaccurate presentation or comparison of an existing contract’s premiums and benefits or dividends and values, if any, or recommends that an insured 65 years of age or older purchase an unnecessary replacement annuity.
For purposes of this section, “unnecessary replacement” means the sale of an annuity to replace an existing annuity that requires that the insured will pay a surrender charge for the annuity that is being replaced and that does not confer a substantial financial benefit over the life of the policy to the purchaser so that a reasonable person would believe that the purchase is unnecessary.
Patterns of action by policyowners who purchase replacement policies from the same agent after indicating on applications that replacement is not involved, shall constitute a rebuttable presumption of the agent’s knowledge that replacement was intended in connection with the sale of those policies, and such patterns of action shall constitute a rebuttable presumption of the agent’s intent to violate this article.
This article does not prohibit the use of additional material other than that which is required that is not in violation of this article or any other statute or regulation.
Any agent or other person or entity engaged in the business of insurance, other than an insurer, who violates this article is liable for an administrative penalty of no less than one thousand dollars ($1,000) for the first violation.
Any agent or other person or entity engaged in the business of insurance, other than an insurer, who engages in practices prohibited by this chapter a second or subsequent time or who commits a knowing violation of this article, is liable for an administrative penalty of no less than five thousand dollars ($5,000) and no more than fifty thousand dollars ($50,000) for each violation.
Any insurer who violates this article is liable for an administrative penalty of ten thousand dollars ($10,000) for the first violation.
Any insurer who violates this article with a frequency as to indicate a general business practice or commits a knowing violation of this article, is liable for an administrative penalty of no less than thirty thousand dollars ($30,000) and no more than three hundred thousand dollars ($300,000) for each violation.
After a hearing conducted in accordance with Chapter 4.5 (commencing with Section 11400) and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, the commissioner may suspend or revoke the license of any person or entity that violates this article.
Nothing in this section shall be deemed to affect any other authority provided by law to the commissioner.
ARTICLE 9. Suitability Requirements for Annuity Transactions before January 1, 2025 [10509.910. - 10509.919.]
The purpose of this article is to require insurers to establish a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuity products, so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed.
This article shall apply to any recommendation to purchase, exchange, or replace an annuity made to a consumer that results in the purchase, exchange, or replacement that was recommended.
Nothing in this act shall be interpreted to preclude, preempt, or otherwise interfere with the application of any other laws of this state that may apply in any matter involving the sale of an annuity that is subject to this article.
Unless otherwise specifically included, this article shall not apply to transactions involving any of the following:
Direct response solicitations where there is no recommendation based on information collected from the consumer pursuant to this article.
Contracts used to fund any of the following:
An employee pension or welfare benefit plan that is covered by the federal Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. Sec. 1001 et seq.).
A plan described by Section 401(a), 401(k), 403(b), 408(k), or 408(p) of the Internal Revenue Code (IRC), as amended, if established or maintained by an employer.
A government or church plan defined in Section 414 of the IRC, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under Section 457 of the IRC.
A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.
Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.
Formal prepaid funeral contracts.
“Annuity” means an annuity that is an insurance product under California law that is individually solicited, regardless of whether or not the product is classified as an individual or group annuity.
“Commissioner” means the Insurance Commissioner.
“Continuing education credit” or “CE credit” means one continuing education credit hour as defined in Section 2188.2(i) of Title 10 of the California Code of Regulations.
“Continuing education provider” or “CE provider” means an individual or entity that is certified to offer continuing education courses pursuant to Section 2186.1(b) and Section 2188 of Title 10 of the California Code of Regulations.
“Insurance producer” means a person required to be licensed under California law to sell, solicit, or negotiate insurance, including annuities. An insurance producer is also referred to in this article as a “producer.”
“Insurer” means a company required to be licensed or to hold a certificate of authority, or both, under California law to provide insurance products, including annuities.
“Recommendation” means advice or guidance provided or made by an insurance producer or by an insurer to an individual consumer that results in a purchase, exchange, or replacement of an annuity in accordance with that advice or guidance.
“Replacement” means a transaction in which a new policy or contract is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer, regardless of whether or not there is a producer, that by reason of the transaction, an existing policy or contract has been or is to be any of the following:
Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated.
Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.
Amended so as to effect either a reduction in benefits or a reduction in the term for which coverage would otherwise remain in force or for which benefits would be paid.
Reissued with any reduction in cash value.
Used in a financed purchase.
“Suitability information” means information that is reasonably appropriate to determine the suitability of a recommendation, including all of the following:
Intended use of the annuity.
Financial time horizon.
Existing assets, including investment and life insurance holdings.
Liquidity needs.
Liquid net worth.
Risk tolerance.
Tax status.
Whether or not the consumer has a reverse mortgage.
Whether or not the consumer intends to apply for means-tested government benefits, including, but not limited to, Medi-Cal or the veterans’ aid and attendance benefit.
In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, the producer, or an insurer if no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to their investments and other insurance products and as to their financial situation and needs, including the consumer’s suitability information, and that there is a reasonable basis to believe all of the following:
The consumer has been reasonably informed of various features of the annuity, such as the potential surrender period and surrender charge, potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity, mortality and expense fees, investment advisory fees, potential charges for and features of riders, limitations on interest returns, insurance and investment components, and market risk.
The consumer would receive a tangible net benefit from the transaction.
The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or exchange of the annuity, and riders and similar product enhancements, if any, are suitable, and in the case of an exchange or replacement, the transaction as a whole is suitable, for the particular consumer based on their suitability information.
In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable, including taking into consideration all of the following:
Whether the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living, or other contractual benefits, or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements.
Whether the consumer would benefit from product enhancements and improvements.
Whether the consumer has had another annuity exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.
Prior to the execution of a purchase, exchange, or replacement of an annuity resulting from a recommendation, a producer, or an insurer where no producer is involved, shall make reasonable efforts to obtain the consumer’s suitability information.
Except as permitted under subdivision (d), an insurer shall not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity is suitable based on the consumer’s suitability information. The preceding sentence and subdivision (d) notwithstanding, neither a producer nor an insurer shall in any event recommend to a person 65 years of age or older the sale of an annuity to replace an existing annuity that requires the insured to pay a surrender charge for the annuity that is being replaced, where purchase of the annuity does not confer a substantial financial benefit over the life of the policy to the consumer, so that a reasonable person would believe the purchase is unnecessary.
Except as provided under paragraph (2), neither a producer nor an insurer shall have any obligation to a consumer under subdivision (a) or (c) related to an annuity transaction if any of the following occur:
No recommendation is made.
A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer.
A consumer refuses to provide relevant suitability information and the annuity transaction is not recommended.
A consumer decides to enter into an annuity transaction that is not based on a recommendation of the insurer or the producer.
An insurer’s issuance of an annuity subject to paragraph (1) shall be reasonable under all the circumstances which are actually known, or which after reasonable inquiry should be known, to the insurer or the producer at the time the annuity is issued.
A producer or, where no producer is involved, the responsible insurer representative, shall, at the time of sale, do all of the following:
Make a record of any recommendation subject to subdivision (a).
Obtain a customer-signed statement documenting the customer’s refusal to provide suitability information, if any.
Obtain a customer-signed statement acknowledging that an annuity transaction is not recommended if the customer decides to enter into an annuity transaction that is not based on the producer’s or insurer’s recommendation.
An insurer shall establish a supervision system that is reasonably designed to achieve the insurer’s and its producers’ compliance with this article, including, but not limited to, all of the following:
The insurer shall maintain reasonable procedures to inform its producers of the requirements of this article and shall incorporate the requirements of this article into relevant producer training manuals.
The insurer shall establish standards for producer product training and shall maintain reasonable procedures to require its producers to comply with the requirements of Section 10509.915.
The insurer shall provide product-specific training and training materials which explain all material features of its annuity products to its producers.
The insurer shall maintain procedures for review of each recommendation prior to issuance of an annuity that are designed to ensure that there is a reasonable basis to determine that a recommendation is suitable. The review procedures may apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means, including, but not limited to, physical review. An electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.
The insurer shall maintain reasonable procedures to detect recommendations that are not suitable. This may include, but is not limited to, confirmation of consumer suitability information, systematic customer surveys, interviews, confirmation letters, and programs of internal monitoring. Nothing in this subparagraph prevents an insurer from complying with this subparagraph by applying sampling procedures or by confirming suitability information after issuance or delivery of the annuity.
The insurer shall annually provide a report to its senior management, including to the senior manager responsible for audit functions, which details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.
Nothing in this subdivision restricts an insurer from contracting for performance of a function, including maintenance of procedures, required under paragraph (1). An insurer is responsible for taking appropriate corrective action, and may be subject to sanctions and penalties pursuant to Section 10509.916 regardless of whether the insurer contracts for performance of a function and regardless of the insurer’s compliance with subparagraph (B). An insurer is responsible for the compliance of its producer with the provisions of this article regardless of whether the insurer contracts for performance of a function required under this subdivision and regardless of the insurer’s compliance with subparagraph (B).
An insurer’s supervision system under paragraph (1) shall include reasonable supervision of contractual performance under this subdivision. This includes, but is not limited to, both of the following:
Reasonable monitoring and, as appropriate, conducting audits to ensure that the contracted function is properly performed.
Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.
An insurer is not required to include in its system of supervision a producer’s recommendations to consumers of products other than the annuities offered by the insurer.
A producer or insurer shall not dissuade, or attempt to dissuade, a consumer from any of the following:
Truthfully responding to an insurer’s request for confirmation of suitability information.
Filing a complaint.
Cooperating with the investigation of a complaint.
This subdivision applies to FINRA broker-dealer sales of variable and fixed annuities.
Sales by FINRA broker-dealers that comply with the suitability and supervision system requirements set forth in FINRA Rule 2330, or any successor rule, shall satisfy the suitability and supervision system requirements of this article, provided that the suitability criteria used also include both of the following:
The consumer’s income.
The intended use of the annuity.
Except as provided in paragraphs (1) and (2), all other provisions of this article remain applicable to these broker-dealer sales.
Nothing in this subdivision shall limit the commissioner’s ability to enforce, including conducting investigations related to, the provisions of this article.
“FINRA” means the Financial Industry Regulatory Authority or a successor agency.
A producer shall not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer’s standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this subdivision.
A producer who is otherwise entitled to engage in the sale of annuity products shall complete a one-time eight credit-hour annuity training course approved by the commissioner and provided by a commissioner-approved education provider, prior to commencing the transaction of annuities, pursuant to subdivision (a) of Section 1749.8.
In addition to the requirement set forth in paragraph (1), every producer who engages in this state in the sale of annuity products shall satisfactorily complete four continuing education credits prior to license renewal every two years, pursuant to subdivision (b) of Section 1749.8.
The training required under this subdivision shall include information on all of the following topics:
The types of annuities and various classifications of annuities.
Identification of the parties to an annuity.
How fixed, variable, and indexed annuity contract provisions affect consumers.
The application of income taxation of qualified and nonqualified annuities.
The primary uses of annuities.
Prohibited sales practices, the recognition of indicators that a prospective insured may lack the short-term memory or judgment to knowingly purchase an insurance product, and fraudulent and unfair trade practices, as well as replacement and disclosure requirements for sales of annuities, all as provided under California law, including, but not limited to, this article.
Providers of courses intended to comply with this section shall cover all topics listed in the prescribed outline and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer’s products. Additional topics may be offered in conjunction with and in addition to the required outline.
A provider of an annuity training course intended to comply with this section shall register as a CE provider in this state and comply with the rules and guidelines applicable to producer continuing education courses as set forth in Section 1749.8, in subdivisions (d) and (e) of Section 1749.1, and in Sections 2188, 2188.1, 2188.2, 2188.3, 2188.4, 2188.50, 2188.6, 2188.7, 2188.8, and 2188.9 of Title 10 of the California Code of Regulations.
Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with Sections 2188.2 and 2188.3 of Title 10 of the California Code of Regulations.
Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with Section 2188.8 of Title 10 of the California Code of Regulations.
An insurer shall verify that a producer has completed the annuity training required under this section before allowing the producer to sell an annuity product for that insurer. An insurer may satisfy its responsibility under this paragraph by obtaining certificates of completion of the training course or obtaining reports provided by commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.
An insurer is responsible for compliance with this article. If a violation occurs, either because of the action or inaction of the insurer or its insurance producer, the commissioner may, in addition to any other available penalties, remedies, or administrative actions, order any or all of the following:
An insurer to take reasonably appropriate corrective action for any consumer harmed by the insurer’s, or by its insurance producer’s, violation of this article.
A managing general agent or an insurance producer to take reasonably appropriate corrective action for any consumer harmed by the insurance producer’s violation of this article.
Nothing in this article shall affect any obligation of an insurer for acts of its agents, or any consumer remedy or cause of action that is otherwise provided for.
Insurers and insurance producers shall maintain or be able to make available to the commissioner records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of an insurance producer.
Records required to be maintained by this article may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.
The commissioner shall, from time to time as conditions warrant, after notice and hearing, adopt reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this article. The commissioner may adopt regulations not inconsistent with this article pursuant to Section 989J of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203).
This article shall apply to both of the following:
A recommendation of an annuity made before January 1, 2025, that results in the purchase, exchange, or replacement that was recommended.
A sale of an annuity made before January 1, 2025, that is not based on a recommendation.
ARTICLE 9.5. Suitability Requirements for Annuity Transactions on or after January 1, 2025 [10509.9200. - 10509.9210.]
The purpose of this article is to require producers, as defined in Section 10509.9203, to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish, maintain, and utilize a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuities, so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed. This article does not create or imply a private cause of action for a violation of this article or subject a producer to civil liability under the best interest standard of care outlined in Section 10509.9204 or under standards governing the conduct of a fiduciary relationship.
This article shall apply to any sale of, or recommendation made to a consumer to purchase, exchange, or replace, as defined in paragraph (14) of subdivision (a) of Section 10509.9203, an annuity.
This article does not preclude, preempt, or otherwise interfere with the application of any other laws of this state that may apply in any matter involving the sale of an annuity that is subject to this article.
Unless otherwise specifically included, this article shall not apply to transactions involving any of the following:
Direct response solicitations where there is no recommendation based on information collected from the consumer pursuant to this article.
Contracts used to fund any of the following:
An employee pension or welfare benefit plan that is covered by the federal Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. Sec. 1001 et seq.).
A plan described by Section 401(a), 401(k), 403(b), 408(k), or 408(p) of the Internal Revenue Code (IRC), as amended, if established or maintained by an employer.
A government or church plan defined in Section 414 of the IRC, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under Section 457 of the IRC.
A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.
Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.
Formal prepaid funeral contracts.
For purposes of this article:
“Annuity” means an annuity that is an insurance product under California law that is individually solicited, whether the product is classified as an individual or group annuity.
“Cash compensation” means any discount, concession, fee, service fee, commission, sales charges, loan, override, or cash benefit received by a producer in connection with the recommendation or sale of an annuity from an insurer, intermediary, or directly from a consumer.
“Consumer profile information” means information that is reasonably appropriate to determine whether a recommendation addresses the consumer’s financial situation, insurance needs, and financial objectives, including, at a minimum, the following:
Age.
Annual income.
Financial situation and needs, including debts and other obligations, and the financial resources used for the funding of the annuity.
Financial experience.
Insurance needs.
Financial objectives.
Intended use of the annuity, including any riders attached thereto.
Financial time horizon, including the duration of existing liabilities and obligations.
Existing assets or financial products, including investments, annuity, and insurance holdings.
Liquidity needs.
Liquid net worth.
Risk tolerance, including, but not limited to, the willingness to accept nonguaranteed elements in the annuity.
Tax status.
Whether or not the consumer has a reverse mortgage.
Whether or not the consumer intends to apply for means-tested government benefits, including Medi-Cal or the veterans’ aid and attendance benefit.
Any other relevant information that the producer or the insurer knew or reasonably should have known about, as provided by the consumer.
“Continuing education credit” or “CE credit” means one continuing education credit hour as defined in Section 2188.2(i) of Title 10 of the California Code of Regulations.
“Continuing education provider” or “CE provider” means an individual or entity that is certified to offer continuing education courses pursuant to Section 2186.1(b) and Section 2188 of Title 10 of the California Code of Regulations.
“FINRA” means the Financial Industry Regulatory Authority or a successor agency.
“Insurer” means a company required to be licensed or to hold a certificate of authority, or both, under California law to provide insurance products, including annuities.
“Intermediary” means an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer’s annuities by producers.
“Material conflict of interest” means a financial interest of the producer in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation. “Material conflict of interest” does not include cash compensation or noncash compensation.
“Noncash compensation” means any form of compensation that is not cash compensation, including, but not limited to, health insurance, office rent, office support, and retirement benefits.
“Nonguaranteed elements” means the premiums, benefits, values, credits, charges, and other elements not guaranteed over the life of the annuity, such as credited interest rates, including any temporary bonus interest rate, dividends, noninterest-based credits, index parameters, periodic expense charges, or elements of formulas used to determine any of these nonguaranteed elements, that are subject to insurer discretion and are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.
“Producer” means a person required to be licensed under California law to sell, solicit, or negotiate insurance, including annuities. “Producer” includes an insurer when no producer is involved.
“Recommendation” means advice or guidance provided or made by a producer or an insurer to an individual consumer that was intended to result or does result in a purchase, exchange, or replacement of an annuity in accordance with that advice or guidance.
“Recommendation” does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.
“Replacement” means a transaction in which a new annuity policy or contract is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer, whether or not a producer is involved, that by reason of the transaction, an existing annuity or insurance policy has been or is to be any of the following:
Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated.
Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.
Amended so as to effect either a reduction in benefits or a reduction in the term for which coverage would otherwise remain in force or for which benefits would be paid.
Reissued with any reduction in cash value.
Used in a financed purchase.
“SEC” means the United States Securities and Exchange Commission.
Insurers and producers have the following duties to ensure that annuities that are recommended are in the consumer’s best interest:
Best Interest Obligations. A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or insurer’s financial interest ahead of the consumer’s interest. A producer has acted in the best interest of the consumer if they have satisfied all of the following obligations regarding care, disclosure, conflict of interest, and documentation:
Care Obligation.
The producer, in making a recommendation, shall exercise reasonable diligence, care, and skill to:
Know the consumer’s financial situation, financial needs, insurance needs, and financial objectives.
Understand the available recommendation options after making a reasonable inquiry into options available to the producer.
Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, financial needs, insurance needs, and financial objectives over the life of the annuity, as evaluated in light of the consumer profile information.
Have a reasonable basis to believe that the consumer would receive a tangible net benefit from the transaction over the life of the product.
Communicate the basis or bases of the recommendation to the consumer orally and in writing and to the insurer in writing.
The producer’s or insurer’s recommendation to the consumer shall be based on an evaluation of the consumer’s relevant consumer profile information and other relevant information, and shall reflect the care, skill, prudence, and diligence that a reasonable producer with similar authority and licensure who is familiar with those matters would use under the circumstances then prevailing.
The requirements under subparagraphs (A) and (B) include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.
The requirements under subparagraphs (A) and (B) require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer’s financial situation, insurance needs, and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation. Producers shall be held to standards applicable to producers with similar authority and licensure.
This subdivision does not create a fiduciary obligation or relationship and only creates a regulatory obligation as established in this article.
The consumer profile information, characteristics of the insurer, and product costs, rates, benefits, and features are factors generally relevant in making a determination whether an annuity effectively addresses the consumer’s financial situation, financial needs, insurance needs, and financial objectives, but the level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case. However, each factor shall not be considered in isolation.
The requirements under subparagraphs (A) and (B) include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features.
The requirements under subparagraphs (A) and (B) apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.
The requirements under subparagraphs (A) and (B) do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be in the best interest of the consumer.
The requirements under subparagraphs (A) and (B) do not mean the producer has ongoing monitoring obligations under the care obligation under this paragraph, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the producer.
In the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction, which includes taking into consideration all of the following:
Whether the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living, or other contractual benefits, or be subject to increased fees, investment advisory fees, or charges for riders or similar product enhancements.
Whether the replacing product would not confer a substantial financial benefit to the consumer in comparison to the replaced product over the life of the product so that a reasonable person would believe the purchase is unnecessary.
Whether the consumer has had another annuity or life insurance policy exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.
This article does not require a producer to obtain a license other than a producer license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including, but not limited to, a securities license, in order to fulfill the duties and obligations of this section provided the producer does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.
Disclosure Obligation.
Before or at the time of recommendation, or before or at the time of sale if no recommendation is made, of an annuity, the producer shall prominently disclose all of the following information to the consumer on a form substantially similar to the “Insurance Agent (Producer) Disclosure for Annuities” form in Appendix A of the 2020 National Association of Insurance Commissioners’ (NAIC) Suitability in Annuity Transactions Model Regulation. If NAIC updates or adopts a new version of the “Insurance Agent (Producer) Disclosure for Annuities” form in Appendix A of the 2020 National Association of Insurance Commissioners’ Suitability in Annuity Transactions Model Regulation after January 1, 2024, the commissioner shall adopt, and producers shall use, a substantially similar version of the new or amended “Insurance Agent (Producer) Disclosure for Annuities” form.
A description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction.
An affirmative statement on whether the producer is licensed and authorized to sell the following products:
Fixed annuities.
(II) Fixed indexed annuities.
(III) Variable annuities.
(IV) Life insurance.
Other life and annuity products, as specified.
(VI) Mutual funds.
(VII) Stocks and bonds.
(VIII) Certificates of deposit.
From two or more insurers, although primarily contracted with one insurer.
(II) For purposes of this clause, insurers with common ownership and control shall be counted as one insurer.
A description of the sources and types of cash compensation and noncash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other producer or by fee as a result of a contract for advice or consulting services.
A prominent notice of the consumer’s right to request additional information regarding cash compensation to be received by the producer as described in subparagraph (B).
Upon request of the consumer or the consumer’s designated representative, the producer shall disclose both of the following:
A reasonable estimate of the amount of cash compensation to be received by the producer, which may be stated as a range of amounts or percentages.
Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.
Before or at the time of recommendation or sale of an annuity, the producer shall inform the consumer of various features of the annuity, such as the potential surrender period and surrender charges, potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitations on interest returns, potential changes in nonguaranteed elements of the annuity, insurance and investment components, and market risk.
Conflict of Interest Obligation. A producer shall identify and avoid or reasonably manage and prominently disclose any material conflicts of interest, including material conflicts of interest relating to an ownership interest.
Documentation Obligation. A producer shall, at the time of recommendation or sale, do all of the following:
Provide the consumer and the insurer with a written record of any recommendation and the basis for the recommendation, subject to this article.
Obtain a customer-signed statement documenting both of the following:
The customer’s refusal to provide the consumer profile information, if any.
The customer’s understanding of the ramifications of not providing their consumer profile information or providing insufficient consumer profile information.
Obtain a customer-signed statement acknowledging that an annuity transaction is not recommended if the customer decides to enter into an annuity transaction that is not based on the producer’s or insurer’s recommendation.
Application of the Best Interest Obligation. Any requirement applicable to a producer under this section shall apply to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a producer do not, in and of themselves, constitute material control or influence.
Transactions not based on a recommendation.
Except as provided under paragraph (2), a producer shall have no obligation to a consumer under paragraph (1) of subdivision (a) related to any annuity transaction if any of the following are true:
No recommendation is made.
A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer.
A consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended.
A consumer decides to enter into an annuity transaction that is not based on a recommendation of the producer.
An insurer’s issuance of an annuity subject to paragraph (1) shall be reasonable under all the circumstances that are actually known, or that after reasonable inquiry should be known, to the insurer or the producer at the time the annuity is issued.
Supervision System.
The insurer shall establish, maintain, and utilize reasonable procedures to inform its producers of the requirements of this article and shall incorporate the requirements of this article into relevant producer training manuals.
The insurer shall establish, maintain, and utilize reasonable standards for producer product training, and shall maintain and utilize reasonable procedures to require its producers to comply with the requirements of Section 10509.9205.
The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its producers.
The insurer shall establish, maintain, and utilize procedures for review of each recommendation before issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer’s financial situation, financial needs, insurance needs, and financial objectives. Such review procedures shall apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means, including, but not limited to, physical review. An electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.
The insurer shall establish, maintain, and utilize reasonable procedures to detect recommendations that are not in compliance with subdivisions (a), (b), (d), and (e). This may include, but is not limited to, confirmation of the consumer’s consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations, and programs of internal monitoring. This subparagraph does not prevent an insurer from complying with this subparagraph by applying sampling procedures, or by confirming consumer profile information or other required information under this section after issuance or delivery of the annuity.
The insurer shall establish, maintain, and utilize reasonable procedures to assess, before or upon issuance or delivery of an annuity, whether a producer has provided to the consumer the information required to be provided under this section.
The insurer shall establish, maintain, and utilize reasonable procedures to identify and address suspicious consumer refusals to provide complete consumer profile information.
The insurer shall establish, maintain, and utilize reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subparagraph are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees, as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time.
The insurer shall annually provide a written report to its senior management, including to the senior manager responsible for audit functions, that details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.
This subdivision does not restrict an insurer from contracting for performance of a function, including maintenance of procedures, required under this subdivision. An insurer is responsible for taking appropriate corrective action, and may be subject to sanctions and penalties pursuant to Section 10509.9206 regardless of whether or not the insurer contracts for performance of a function and regardless of the insurer’s compliance with subparagraph (B). An insurer is responsible for the compliance of its producer with the provisions of this article regardless of whether the insurer contracts for performance of a function required under this subdivision and regardless of the insurer’s compliance with subparagraph (B).
An insurer’s supervision system under this subdivision shall include reasonable supervision of contractual performance under this subdivision. This includes, but is not limited to, both of the following:
Reasonable monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed.
Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.
An insurer is not required to include in its system of supervision either of the following:
A producer’s recommendations to consumers of products other than the annuities offered by the insurer.
Consideration of or comparison to options available to the producer or compensation relating to those options other than annuities or other products offered by the insurer.
Prohibited Practices. A producer or insurer shall not dissuade, or attempt to dissuade, a consumer from any of the following:
Cooperating with the investigation of a complaint.
Safe Harbor.
Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements of this section. This subdivision applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if such a standard would not otherwise apply to the product or recommendation at issue. However, this subdivision does not limit the insurance commissioner’s ability to enforce, including conducting investigations related to, the provisions of this article, regardless of whether the financial professional is operating under a comparable standard or in accordance with subdivisions (a) to (d), inclusive, of this section.
Paragraph (1) does not limit the insurer’s obligation to comply with paragraph (1) of subdivision (c), although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.
For paragraph (1) to apply, an insurer shall do both of the following:
Monitor the relevant conduct of the financial professional seeking to rely on paragraph (1) or the entity responsible for supervising the financial professional, such as the financial professional’s broker-dealer or an investment adviser registered under federal or California securities laws using information collected in the normal course of an insurer’s business.
Provide to the entity responsible for supervising the financial professional seeking to rely on paragraph (1), such as the financial professional’s broker-dealer or investment adviser registered under federal or California securities laws, information and reports that are reasonably appropriate to assist the entity to maintain its supervision system.
For purposes of this subdivision, “financial professional” means a producer that is regulated and acting as any of the following:
A broker-dealer registered under federal or California securities laws or a registered representative of a broker-dealer.
An investment adviser registered under federal or California laws or an investment adviser representative associated with the federally or California-registered investment adviser.
A plan fiduciary under Section 3(21) of the federal Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. Sec. 1001 et seq.) or fiduciary under Section 4975(e)(3) of the Internal Revenue Code (IRC) or any amendments or successor statutes thereto.
For purposes of this subdivision, “comparable standards” means:
With respect to broker-dealers and registered representatives of broker-dealers, applicable rules of the United States Securities and Exchange Commission and the Financial Industry Regulatory Authority pertaining to best interest obligations and supervision of annuity recommendations and sales, including, but not limited to, Regulation Best Interest and any amendments or successor regulations thereto.
With respect to investment advisers registered under federal or California securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on such investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.) or applicable state securities law, including, but not limited to, the Form ADV and interpretations.
With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to such status under ERISA or the IRC, and any amendments or successor statutes thereto.
A producer shall not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer’s standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this subdivision.
A producer who is otherwise entitled to engage in the sale of annuity products shall complete a one-time eight-credit-hour annuity training course approved by the commissioner and provided by a commissioner-approved education provider, prior to commencing the transaction of annuities, pursuant to subdivision (a) of Section 1749.8.
In addition to the requirement set forth in paragraph (1), every producer who engages in this state in the sale of annuity products shall satisfactorily complete four continuing education credits prior to license renewal every two years, pursuant to subdivision (b) of Section 1749.8.
Producers who hold a life insurance line of authority prior to January 1, 2025, and who desire to sell annuities shall complete the requirements of this subdivision by July 1, 2025. Individuals who obtain a life insurance line of authority on or after January 1, 2025, shall not engage in the sale of annuities until the annuity training course required under this subdivision has been completed.
The training required under this subdivision shall include information on all of the following topics:
The types of annuities and various classifications of annuities.
Identification of the parties to an annuity.
How fixed, variable, and indexed annuity contract provisions affect consumers.
The application of income taxation of qualified and nonqualified annuities.
The primary uses of annuities.
Prohibited sales practices, the recognition of indicators that a prospective insured may lack the short-term memory or judgment to knowingly purchase an insurance product, and fraudulent and unfair trade practices, as well as replacement and disclosure requirements for sales of annuities, all as provided under California law, including, but not limited to, this article.
Providers of courses intended to comply with this section shall cover all topics listed for annuities in the prescribed outline and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer’s products. Additional topics may be offered in conjunction with and in addition to the required outline.
A provider of an annuity training course intended to comply with this section shall register as a CE provider in this state and comply with the rules and guidelines applicable to producer continuing education courses as set forth in Section 1749.8 and subdivisions (d) and (e) of Section 1749.1, and in Sections 2188, 2188.1, 2188.2, 2188.3, 2188.4, 2188.50, 2188.6, 2188.7, 2188.8, and 2188.9 of Title 10 of the California Code of Regulations.
Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with Sections 2188.2 and 2188.3 of Title 10 of the California Code of Regulations.
Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with Section 2188.8 of Title 10 of the California Code of Regulations.
An insurer shall verify that a producer has completed the annuity training required under this section before allowing the producer to sell an annuity for that insurer. An insurer may satisfy its responsibility under this paragraph by obtaining certificates of completion of the training course or obtaining reports provided by commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.
An insurer is responsible for compliance with this article. If a violation occurs, either because of the action or inaction of the insurer or its producer, the commissioner may, in addition to any other available penalties, remedies, or administrative actions, order any or all of the following:
An insurer to take reasonably appropriate corrective action for any consumer harm caused by a violation of this article by the insurer, by its producer, or by its intermediary or by an entity that is contracted to perform the insurer’s supervisory duties.
A general agency, independent agency, or producer to take reasonably appropriate corrective action for any consumer harmed by the producer’s violation of this article.
Nothing in this article shall affect any obligation of an insurer for acts of its agents, or any consumer remedy or cause of action that is otherwise provided for.
Insurers, general agents, independent agencies, and producers shall maintain or be able to make available to the commissioner records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of a producer.
Records required to be maintained by this article may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.
The commissioner shall, from time to time as conditions warrant, after notice and hearing, adopt reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this article. The commissioner may adopt regulations not inconsistent with this article pursuant to Section 989J of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203).
A life insurer shall provide to all consumers who purchase an annuity a buyer’s guide that shall be delivered as a stand-alone document with the annuity or before delivery of the annuity.
For the purposes of this section, “buyer’s guide” means the National Association of Insurance Commissioners’ approved Annuity Buyer’s Guide most relevant to the type of product being recommended.
This article shall apply only to sales or recommendations of annuities made on or after January 1, 2025.
ARTICLE 11. Life Insurance Proceeds Disclosure Act of 2011 [10509.930. - 10509.938.]
This act shall be known and may be cited as the Life Insurance Proceeds Disclosure Act of 2011.
The Legislature finds and declares all of the following:
The occasion of the death of a spouse, parent, child, partner, or other loved one is a difficult time, accompanied by severe emotional stress, and is frequently a time of important and often difficult financial decisions.
Life insurance is intended to provide an important resource to support and ease financial decisions at such a time.
While life insurance policies may provide for a single payment of the death benefit, policies may also offer alternative payout options, including the use of a retained asset account.
The inherent difficulty of financial decisions at such a time may be eased if consumers know what their available payment options are so they can receive the benefit of available life insurance policy proceeds in the form best suited to their circumstances and needs.
The purpose of this act is to establish disclosure standards regarding the payment of life insurance benefits to a beneficiary by means of a retained asset account if a life insurance company offers consumers a retained asset account or establishes such an account as an alternative to the receipt of insurance proceeds by a single payment made directly to the beneficiary that satisfies all of the benefits owed to the beneficiary.
For the purposes of this article, the following terms have the following definitions:
“Insurer” means an insurance company that delivers or issues for delivery in this state any policy of individual or group life insurance.
“Retained asset account” means any mechanism where the settlement of proceeds payable under a life insurance policy is accomplished by the insurer, or an entity acting on behalf of the insurer, by depositing the proceeds into an account with check or draft writing privileges, and where those proceeds are retained by the insurer, pursuant to a supplemental contract not involving annuity benefits.
The insurer shall provide the beneficiary of life insurance proceeds, at the time a claim is made, written information describing the settlement options available under the policy and any other option available to the beneficiary for the receipt of proceeds, including retained asset accounts, and how to obtain specific details relevant to those options. If a retained asset account is one of the available options, the written information shall include all of the disclosures required by Section 10509.937.
If the insurer settles life insurance benefits through a retained asset account, the insurer shall provide the beneficiary with a supplemental contract that clearly discloses the rights of the beneficiary and the obligations of the insurer under the supplemental contract.
If the life insurance benefits are placed in a retained asset account, the insurer shall send the beneficiary at least one statement per quarter, and a statement for any month in which there has been account activity other than just the crediting of interest.
The insurer shall provide the following written disclosures to the beneficiary before the retained asset account is established, unless the insurer has already provided these disclosures pursuant to Section 10509.934:
Payment of the full benefit is accomplished by delivery of the draft book or checkbook.
One draft or check may be written to access the entire amount, including interest, of the retained asset account at any time.
Whether the available settlement options are preserved until the entire balance is withdrawn or the balance drops below the insurer’s minimum balance requirements.
A statement identifying the account as either a checking or draft account and an explanation of how the account works, including, but not limited to, any minimum check or draft amount requirements.
Information about the account services provided and contact information where the beneficiary may request and obtain more details about those services.
A description of any fees charged, if applicable.
The frequency of statements showing the current account balance, the interest credited, drafts or checks written, and any other account activity. The insurer shall send the beneficiary at least one statement per quarter, and a statement for any month in which there has been account activity other than just the crediting of interest.
The guaranteed minimum interest rate to be credited to the account, how the actual interest rate will be determined, and the actual interest rate that would be credited to a newly opened account as of the date the disclosure is issued. The actual interest rate may be disclosed by the insurer with the disclosures provided with the claim documents sent to the beneficiary, through a toll-free telephone number established by the insurer, or through the insurer’s Internet Web site.
That the interest earned on the account may be taxable.
Retained asset account funds held by insurance companies are not guaranteed by the Federal Deposit Insurance Corporation (FDIC), but are guaranteed by State Guaranty Associations, and that the State Guaranty Association coverage limits vary by state.
A statement that advises the beneficiary to contact the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) to learn more about the coverage limitations applicable to his or her account, and that provides the beneficiary with the current Internet Web site address and telephone number for NOLHGA.
A description of the insurer’s policy regarding retained asset accounts that become inactive, including the policy with respect to inactive accounts that are at risk of escheating to the state pursuant to the California Unclaimed Property Law (Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure).
An insurer that fails to conform to the requirements provided under this article shall be subject to Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1.
ARTICLE 12. Unclaimed Life Insurance and Annuities Act [10509.940. - 10509.946.]
This act shall be known and may be cited as the Unclaimed Life Insurance and Annuities Act.
The purpose of this article is to provide standards for:
Identifying a deceased individual whose death may require an insurer to pay benefits or proceeds to beneficiaries in accordance with the terms of a life insurance policy, annuity contract, or retained asset account.
Locating beneficiaries of a deceased individual and providing appropriate claims forms or instructions to the beneficiaries to make a claim.
For purposes of this article:
“Annuity contract” does not include an annuity used to fund an employment-based retirement plan or program if either of the following applies:
The insurer does not perform the recordkeeping services.
The insurer is not committed by the terms of the annuity contract to pay death benefits to the beneficiaries of specific plan participants.
“Asymmetric conduct” means an insurer’s use of the Death Master File before July 1, 2020, solely for purposes other than determining whether one of its insureds may be deceased in order to locate and pay beneficiaries.
“Beneficiary” or “beneficiaries” means the person or persons entitled or contingently entitled to receive the proceeds from a policy, an annuity contract, or a retained asset account.
“Death Master File” means the United States Social Security Administration’s Death Master File or any other database or service that is at least as comprehensive and accurate as the United States Social Security Administration’s Death Master File for determining that an individual has reportedly died.
“Death Master File match” means a search of the Death Master File that results in a match of the social security number, individual taxpayer identification number, or name and date of birth of an insured that is made and validated in accordance with the requirements of subdivision (a) of Section 10509.944.
“Insured” means an individual identified in a policy, retained asset account, or annuity contract whose death obligates the insurer to pay benefits or proceeds to a beneficiary or beneficiaries.
“Knowledge of death” means any of the following:
Receipt of an original or valid copy of a certified death certificate.
A Death Master File match.
Any other information in an insurer’s records from which the insurer should know that the insured has died.
“Lapse” means the termination of a policy resulting from nonpayment of premiums or, in the case of variable life and universal life insurance policies, the depletion of cash value below the amount needed to keep the policy in force.
“Policy” means a policy or certificate of life insurance that provides a death benefit. “Policy” does not include any of the following:
A policy or certificate of life insurance that provides a death benefit under an employee welfare benefit plan subject to the federal Employee Retirement Income Security Act of 1974 (ERISA) for which the insurer does not provide recordkeeping services, or under any federal employee benefit program.
A funeral insurance contract, as defined in Section 10240.
A policy or certificate of credit life insurance as defined in Section 779.2.
An accidental death or health policy, rider, or certificate, including, but not limited to, a disability or long-term care policy, rider, or certificate.
A joint and survivor annuity contract, if an annuitant is still living.
A policy issued to a group master policyholder for which the insurer does not provide recordkeeping services.
“Recordkeeping services” means circumstances under which an insurer has agreed with a group life insurance policyholder or contractholder to be responsible for obtaining, maintaining, and administering, in its own or its agents’ systems, at least all of the following information about each individual insured under an insured’s group insurance contract or a line of coverage:
Social security number, individual taxpayer identification number, or name and date of birth.
Beneficiary designation information.
Coverage eligibility.
Benefit amount.
Premium payment status.
“Records” means information regarding policies, annuity contracts, and retained asset accounts maintained in an insurer’s administrative systems or the administrative systems of a third party retained by the insurer. “Records” does not include information regarding policies, annuity contracts, and retained asset accounts maintained by a group life insurance policyholder or contractholder, or information that has been deleted from an insurer’s administrative system consistent with this act and the insurer’s record retention and destruction policies.
“Retained asset account” means a mechanism whereby the settlement of proceeds payable under a policy or individual annuity contract, including, but not limited to, the payment of cash surrender value, is accomplished by the insurer or an entity acting on behalf of the insurer establishing an account with check or draft writing privileges, if those proceeds are retained by the insurer, pursuant to a supplementary contract not involving annuity benefits.
“Retained asset accountholder” means the owner of a retained asset account or other person to file a claim for, or otherwise receive proceeds in accordance with the terms of, the retained asset account.
“Thorough search” means reasonable and good faith efforts, documented by an insurer, to identify a beneficiary, determine a current address for the beneficiary, and contact the beneficiary.
This article applies to an in-force policy, annuity contract, or retained asset account, a policy or annuity contract effective on or after July 1, 2020, and a policy that has lapsed on or after January 1, 2019, if the insurer has not engaged in asymmetric conduct.
This article applies to a policy, annuity contract, or retained asset account described in subdivision (a) if one of the following applies:
The insurer is domiciled in this state.
The policy, annuity contract, or retained asset account was issued or delivered in this state.
An insurer shall comply with the following requirements for performing a comparison of a policy, annuity contract, or retained asset account against the Death Master File:
An insurer that has engaged in asymmetric conduct shall compare all in-force policies, annuity contracts, and retained asset accounts and policies that have lapsed from the date it first used the Death Master File to July 1, 2020, against the complete Death Master File to identify potential matches of its insureds.
An insurer that has not engaged in asymmetric conduct shall compare all in-force policies, annuity contracts, and retained asset accounts and policies that have lapsed on or after January 1, 2019, against the complete Death Master File to identify potential matches of its insureds.
If an insurer meets one of the following criteria on July 1, 2020, the insurer is not required to conduct the comparison specified in paragraph (1) or (2) for any in-force policies:
The insurer has entered into a regulatory settlement agreement with the department regarding claims handling practices and the use of the Death Master File.
The insurer has received a targeted market conduct examination report issued by an insurance regulator for a multistate examination regarding claims handling practices and the use of the Death Master File, and the report did not find violations of law.
After an initial review as specified in paragraph (1) or (2), or if an insurer is exempted from paragraphs (1) and (2) pursuant to paragraph (3), an insurer shall compare all in-force policies, annuity contracts, and retained asset accounts and policies that have lapsed within the last 18 months against any updates to the Death Master File at least semiannually to identify potential matches of its insureds. If the insurer conducts a Death Master File search for policies, annuities, or retained asset accounts more frequently than semiannually, the insurer shall conduct a Death Master File search of all policies, annuities, or retained asset accounts with the same frequency.
Except as provided in subparagraph (B), within six months of acquisition of a policy or annuity contract from another insurer, the acquiring insurer shall compare all newly acquired policies and annuity contracts that were not searched by the previous insurer against the complete Death Master File to identify potential matches of its insureds and annuitants.
Upon acquisition of a policy or annuity contract from another insurer, if the previous insurer has already conducted a search of the newly acquired policies and annuity contracts using the complete Death Master File, the acquiring insurer shall compare all newly acquired policies and annuity contracts using all of the Death Master File updates since the time the previous insurer conducted the complete search to identify potential matches of its insureds and annuitants.
In addition to accounting for exact matches of names, social security numbers, individual taxpayer identification numbers, and dates of birth of insureds, an insurer also shall conduct the comparisons required under this section following reasonable procedures that account for all of the following:
Common nicknames, initials used in lieu of a first or middle name, use of a middle name, compound first and middle names, and interchanged first and middle names.
Compound last names, surname given at birth or married names, and hyphens, blank spaces or apostrophes in last names.
Transposition of the month and date numerals in the date of birth.
Incomplete social security number or individual taxpayer identification number.
Common data entry errors that account for transposed numbers.
Upon identifying a potential match pursuant to this section, an insurer shall promptly make reasonable good faith efforts to validate the match by confirming the death of an insured.
Upon receipt of information establishing knowledge of death of an insured, other than if an insurer has made a match pursuant to subdivision (a), the insurer shall check its records to determine whether the insurer has any other policies, annuity contracts, or retained asset accounts for that insured.
Upon receipt of information establishing knowledge of death of an insured the insurer shall do both of the following:
Notify each United States affiliate, parent, or subsidiary company of the insurer, as appropriate, and any entity with which the insurer contracts that may maintain or control records related to policies, annuity contracts, or retained asset accounts of the knowledge of death or match pursuant to subdivision (a).
Make a reasonable and good faith effort to ensure that each affiliate, parent, or subsidiary company of the insurer or other entity performs a check of their records to determine whether they have any other policies, annuity contracts, or retained asset accounts for that insured.
If an insurer has not been contacted by a beneficiary within 120 days of an insurer’s receipt of information establishing the insurer’s knowledge of death of an insured, the insurer shall conduct a thorough search, which shall be completed within one year from the date the insurer received that information.
An insurer may disclose the minimum necessary personal information about an insured or beneficiary to a person to whom the insurer reasonably believes may be able to assist the insurer to locate a beneficiary or a person otherwise entitled to payment of the proceeds. The insurer shall not implement policies or practices that may diminish the rights of, or amounts of proceeds due to, beneficiaries under its policies, annuity contracts, or retained asset accounts.
An insurer or its service provider may not charge a beneficiary or other authorized representative for any fees or costs associated with a Death Master File search or verification of a Death Master File match conducted pursuant to this section.
If the insurer locates a beneficiary, within 15 days after the date of location, the insurer shall provide appropriate claims forms or instructions to the beneficiary to make a claim if the insurer has not already received a claim from that beneficiary.
If an insurer fails to locate a beneficiary following a thorough search, the insurer shall report and remit the proceeds pursuant to Section 1515 of the Code of Civil Procedure.
Except as provided in paragraph (2), at no later than the policy delivery or the establishment of an account, and upon a change of insured or beneficiary, an insurer shall request information from the insured sufficient to ensure that all benefits or proceeds are distributed to the appropriate persons upon the death of the insured, including, at a minimum, the name, address, date of birth, social security number or individual taxpayer identification number, and telephone number of every insured and beneficiary of a policy or account.
If an insurer issues a policy or provides an account based on information received directly from an insured’s employer, the insurer may obtain the beneficiary information described in paragraph (1) by communicating with the insured after the insurer’s receipt of the information from the insured’s employer.
Failure to meet a requirement of this article knowingly or with such frequency as to constitute a general practice is an unfair and deceptive act pursuant to Section 790.03.
This article does not create or imply a private right of action for a violation of this article.
Unless otherwise expressly provided, the remedies or penalties provided for by this article are cumulative to each other and to the remedies or penalties available under all other laws.
The provisions of this article are severable. If any provision of this article or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
CHAPTER 5.5. Life Insurance Policy Illustrations [10509.950. - 10509.965.]
In order to protect consumers and foster consumer education, this chapter shall govern the regulation of life insurance policy illustrations. It is the intent of the Legislature in enacting this chapter to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable by providing illustration formats, prescribing standards to be followed when illustrations are used, and specifying the disclosures that are required in connection with illustrations. Insurers should, as far as possible, eliminate the use of footnotes and caveats and define terms used in the illustration in language that is understandable by a typical person within the segment of the public to which the illustration is directed.
This chapter shall apply to all group and individual life insurance policies and certificates except as follows:
Variable life insurance.
Individual and group annuity contracts.
Credit life insurance.
Life insurance policies with no illustrated death benefits on any individual exceeding ten thousand dollars ($10,000).
As used in this chapter:
“Actuarial Standards Board” means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.
“Contract premium” means the gross premium that is required to be paid under a fixed premium policy, including the premium for a rider for which benefits are shown in the illustration.
“Currently payable scale” means a scale of nonguaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next 95 days.
“Disciplined current scale” means a scale of nonguaranteed elements constituting a limit on illustrations currently being illustrated by an insurer that is reasonably based on actual recent historical experience, as certified annually by an illustration actuary designated by the insurer. Further guidance in determining the disciplined current scale as contained in standards established by the Actuarial Standards Board may be relied upon if the standards meet all of the following:
Have not been found to be inconsistent with the provisions of this chapter by the commissioner after a hearing held in accordance with Sections 11500 to 11530, inclusive, of the Government Code.
Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred.
Do not permit a disciplined current scale to include any projected trends of improvements in experience or any assumed improvements in experience beyond the illustration date.
Do not permit assumed expenses to be less than minimum assumed expenses.
“Generic name” means a short title descriptive of the policy being illustrated such as whole life, “term life” or “flexible premium adjustable life.”
“Guaranteed elements” means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and determined at issue.
“Illustrated scale” means a scale of nonguaranteed elements currently being illustrated that is not more favorable to the policy owner than the lesser of either of the following:
The disciplined current scale.
The currently payable scale.
“Illustration” means a presentation or depiction that includes nonguaranteed elements of a policy of life insurance over a period of years and that is one of the three types defined below:
“Basic illustration” means a ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and nonguaranteed elements.
“Supplemental illustration” means an illustration furnished in addition to a basic illustration that meets the applicable requirements of this regulation, and that may be presented in a format differing from the basic illustration, but may only depict a scale of nonguaranteed elements that is permitted in a basic illustration.
“In force illustration” means an illustration furnished at any time after the policy that it depicts has been in force for one year or more.
“Illustration actuary” means an actuary meeting the requirements of Section 10509.960 who certifies to illustrations based on the standard of practice promulgated by the Actuarial Standards Board.
“Lapse-supported illustration” means an illustration of a policy form failing the test of self-supporting as defined in this chapter, under a modified persistency rate assumption using persistency rates underlying the disciplined current scale for the first five years and 100 percent policy persistency thereafter.
“Life insurance” means insurance upon the lives of persons or appertaining thereto.
“Minimum assumed expenses” means the minimum expenses that may be used in the calculation of the disciplined current scale for a policy form. The insurer may choose to designate each year the method of determining assumed expenses for all policy forms from all of the following:
Fully allocated expenses.
Marginal expenses.
A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the commissioner.
Marginal expenses may be used only if greater than a generally recognized expense table. If no generally recognized expense table is approved, fully allocated expenses must be used.
“Non-guaranteed elements” means the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue.
“Non-term group life” means a group policy or individual policies of life insurance issued to members of an employer group or other permitted group that includes all of the following:
Every plan of coverage was selected by the employer or other group representative.
Some portion of the premium is paid by the group or through payroll deduction.
Group underwriting or simplified underwriting is used.
“Policy owner” means the owner named in the policy or the certificate holder in the case of a group policy.
“Premium outlay” means the amount of premium assumed to be paid by the policy owner or other premium payer out-of-pocket.
“Self-supporting illustration” means an illustration of a policy form for which it can be demonstrated that, when using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the 15th policy anniversary or the 20th policy anniversary for second-or-later-to-die policies (or upon policy expiration if sooner), the accumulated value of all policy cash-flows equals or exceeds the total policy owner value available. For this purpose, policy owner value will include cash surrender values and any other illustrated benefit amounts available at the policy owner’s election.
Each insurer marketing policies to which this chapter is applicable shall notify the commissioner whether a policy form is to be marketed with or without an illustration. For all policy forms being actively marketed on the effective date of this chapter, the insurer shall identify in writing those forms and whether or not an illustration will be used with them. For policy forms filed after the effective date of this chapter, the identification shall be made at the time of filing. Any previous identification may be changed by notice to the commissioner.
If the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form prior to the first policy anniversary is prohibited.
If a policy form is identified by the insurer as one to be marketed with an illustration, a basic illustration prepared and delivered in accordance with this chapter is required, except that a basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals. The illustration furnished an applicant for a group life insurance policy or policies issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.
Potential enrollees of nonterm group life subject to this chapter shall be furnished a quotation with the enrollment materials. The quotation shall show potential policy values for sample ages and policy years on a guaranteed and nonguaranteed basis appropriate to the group and the coverage. This quotation shall not be considered an illustration for purposes of this chapter, but all information provided shall be consistent with the illustrated scale. A basic illustration shall be provided at delivery of the certificate to enrollees for nonterm group life who enroll for more than the minimum premium necessary to provide pure death benefit protection. In addition, the insurer shall make a basic illustration available to any nonterm group life enrollee who requests it.
An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this chapter, be clearly labeled “life insurance illustration,” and include, but not be limited to, the following information:
Name of insurer.
Name and business address of producer or insurer’s authorized representative, if any.
Name, age and sex of proposed insured, except where a composite illustration is permitted under this chapter.
Underwriting or rating classification upon which the illustration is based.
Generic name of the policy, the company product name, if different, and form number.
Initial death benefit.
Dividend option election or application of nonguaranteed elements, if applicable.
When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives shall not do any of the following:
Represent the policy as anything other than a life insurance policy.
Use or describe nonguaranteed elements in a manner that is misleading or has the capacity or tendency to mislead.
State or imply that the payment or amount of nonguaranteed elements is guaranteed.
Use an illustration that does not comply with the requirements of this chapter.
Use an illustration that at any policy duration depicts policy performance more favorable to the policy owner than that produced by the illustrated scale of the insurer whose policy is being illustrated.
Provide an applicant with an incomplete illustration.
Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact.
Use the term “vanishing” or “vanishing premium,” or a similar term that implies the policy becomes paid up, to describe a plan for using nonguaranteed elements to pay a portion of future premiums.
Except for policies that can never develop nonforfeiture values, use an illustration that is “lapse-supported.”
Use an illustration that is not “self-supporting.”
If an interest rate used to determine the illustrated nonguaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.
A basic illustration shall conform with the following requirements:
The illustration shall be labeled with the date on which it was prepared.
Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration.
The assumed dates of payment receipt and benefit payout within a policy year shall be clearly identified.
If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the numbers of years the policy is assumed to have been in force.
The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable. For policies that do not require a specific contract premium, the illustrated payments shall be identified as premiums outlay.
Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.
If the illustration shows any nonguaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer’s illustrated scale at any duration. These elements shall be clearly labeled nonguaranteed.
The guaranteed elements, if any, shall be shown before corresponding nonguaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the nonguaranteed elements.
The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.
The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans, and policy loan interest, as applicable.
Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.
Any illustration of nonguaranteed elements shall be accompanied by a statement indicating that:
The benefits and values are not guaranteed.
The assumptions on which they are based are subject to change by the insurer.
Actual results may be more or less favorable.
If the illustration shows that the premium payer may have the option to allow policy charges to be paid using nonguaranteed values, the illustration shall clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.
If the applicant plans to use dividends or policy values, guaranteed or nonguaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.
A basic illustration shall include all of the following:
A brief description of the policy being illustrated, including a statement that it is a life insurance policy.
A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code.
A brief description of any policy features, riders or options, guaranteed or nonguaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy.
Identification and a brief definition of column headings and key terms used in the illustration.
A statement as follows: “This illustration assumes that the currently illustrated nonguaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown.”
Policy guarantees.
Insurer’s illustrated scale.
Insurer’s illustrated scale used but with the nonguaranteed elements reduced as follows:
Dividends at 50 percent of the dividends contained in the illustrated scale used.
Nonguaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.
All nonguaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.
Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner in the case of an illustration provided at time of delivery, as required in this chapter.
A basic illustration shall include the following information for at least each policy year from 1 to 10 and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change:
The premium outlay and mode the applicant plans to pay and the contract premium, as applicable.
The corresponding guaranteed death benefit, as provided in the policy.
The corresponding guaranteed value available upon surrender, as provided in the policy.
For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.
Nonguaranteed elements may be shown if described in the contract. In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer’s current practice is to pay terminal dividends. If any nonguaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any. If no guaranteed benefit or value is available at any duration for which a nonguaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.
A supplemental illustration may be provided if it meets all of the following requirements:
It is appended to, accompanied by, or preceded by a basic illustration that complies with this chapter.
The nonguaranteed elements shown are not more favorable to the policy owner than the corresponding elements based on the scale used in the basic illustration.
It contains the same statement as required of a basic illustration under subdivision (d) of Section 10509.956 that nonguaranteed elements are not guaranteed.
For a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration. For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration shall be equal to the premium outlay shown in the basic illustration.
The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements and other important information.
If cost indices are required by Chapter 5.6 (commencing with Section 10509.970), they may be provided by means of a supplemental illustration or included in the basic illustration. Those indices shall be based on nonguaranteed elements calculated according to the standards required in this chapter.
If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this chapter, shall be submitted to the insurer at the time of the policy application. A copy also shall be provided to the applicant.
If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy. The revised illustration shall conform to the requirements of this chapter, shall be labeled “Revised Illustration” and shall be signed and dated by the applicant or policy owner and producer or other authorized representative of the insurer no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.
If no illustration is used by an insurance producer or other authorized representative in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the producer or representative shall certify to that effect in writing on a form provided by the insurer. On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form shall be submitted to the insurer at the time of policy application.
If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed by the policy owner no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.
If the basic illustration or revised illustration is sent by the insurer to the applicant or policy owner by mail, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer. The insurer’s obligation under this subdivision shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page. The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.
A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until three years after the policy is no longer in force. A copy need not be retained if no policy is issued.
In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall include, but not be limited to, the following information:
For universal life policies, the report shall include the following:
The beginning and end date of the current report period.
The policy value at the end of the previous report period and at the end of the current report period.
The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type, including, but not limited to, interest, mortality, expense and riders.
The current death benefit at the end of the current report period on each life covered by the policy.
The net cash surrender value of the policy as of the end of the current report period.
The amount of outstanding loans, if any, as of the end of the current report period.
For fixed premium policies:
If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy’s net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report.
For flexible premium policies:
If, assuming guaranteed interest, mortality and expense loads, the policy’s net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.
For all other policies, the report shall include the following, where applicable:
Current death benefit.
Annual contract premium.
Current cash surrender value.
Current dividend.
Application of current dividend.
Amount of outstanding loan.
Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to nonguaranteed policy elements by the insurer.
If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: “IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, such an illustration by calling [insurer’s phone number], writing to [insurer’s address] or contacting your agent. If you do not receive a current illustration of your policy within thirty days from your request, you should contact your state insurance department.” The insurer may vary the sequential order of the methods for obtaining an in force illustration.
Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer’s present illustrated scale. This illustration shall comply with the requirements of subdivisions (a) and (b) of Section 10509.955 and subdivisions (a) and (e) of Section 10509.956. No signature or other acknowledgment of receipt of this illustration shall be required.
If an adverse change in nonguaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.
The board of directors of each insurer shall appoint one or more illustration actuaries.
The illustration actuary shall certify that the disciplined current scale used in illustrations is in conformity with the Actuarial Standard of Practice for Compliance with the NAIC Model Regulation on Life Insurance Illustrations promulgated by the Actuarial Standards Board, and that the illustrated scales used in insurer-authorized illustrations meet the requirements of this chapter.
The illustration actuary shall comply with all of the following:
Be a member in good standing of the American Academy of Actuaries.
Be familiar with the standard of practice regarding life insurance policy illustrations.
Not been found by the commissioner, following appropriate notice and hearing, to have engaged in or committed any of the following acts:
Violated any provision of, or any obligation imposed by, the insurance law or other law in the course of his or her dealings as an illustration actuary.
Been found guilty of fraudulent or dishonest practices.
Demonstrated his or her incompetence, lack of cooperation, or untrustworthiness to act as an illustration actuary.
Resigned or been removed as an illustration actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of a failure to adhere to generally acceptable actuarial standards.
Notify the commissioner of any acts engaged in or committed in another state that are similar to those described in paragraph (3).
Disclose in the annual certification whether, since the last certification, a currently payable scale applicable for business issued within the previous five years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale. Nonguaranteed elements illustrated for new policies that are not consistent with those illustrated for similar in force policies shall be disclosed in the annual certification. Nonguaranteed elements illustrated for both new and in force policies that are not consistent with the nonguaranteed elements actually being paid, charged or credited to the same or similar forms shall be disclosed in the annual certification.
Disclose in the annual certification the method used to allocate overhead expenses for all illustrations including:
Fully allocated expenses.
Marginal expenses.
A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the commissioner.
Annually for all policy forms for which illustrations are used.
Before a new policy form is illustrated.
If an illustration actuary is unable to certify the scale for any policy form illustration the insurer intends to use, the actuary shall notify the board of directors of the insurer and the commissioner promptly of his or her inability to certify.
A responsible officer of the insurer, other than the illustration actuary, shall certify annually the following:
The illustration formats meet the requirements of this chapter and the scales used in insurer-authorized illustrations are those scales certified by the illustration actuary.
The company provided its agents with information about the expense allocation method used by the company in its illustrations and complied with the disclosure requirements of paragraph (6) of subdivision (c).
The annual certifications shall be provided to the commissioner each year by a date determined by the insurer.
If an insurer changes the illustration actuary responsible for all or a portion of the company’s policy forms, the insurer shall notify the commissioner of that fact promptly and disclose the reason for the change.
In addition to any other penalties provided by law, an insurer or producer that violates any provision of this chapter shall be subject to Section 790.06.
The provisions of this chapter are severable. If any provision of this chapter or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
If the commissioner has reason to believe that any insurer has violated this chapter, the commissioner may request and the insurer shall file both of the following:
An example of the annual report to the policy owner with notice of adverse change in nonguaranteed elements.
An example of an illustration.
Review by the commissioner of illustrations, supporting materials, certifications, and any and all other materials prepared pursuant to this chapter shall be subject to Section 736.
This chapter shall become effective on and after July 1, 1997, and shall apply to policies sold on or after that date.
CHAPTER 5.6. Life Insurance Cost Indexes [10509.970. - 10509.975.]
It is the purpose of this chapter to assure prospective purchasers of life insurance that, when a presentation is made showing or comparing the cost of life insurance over a period of years which does not recognize the time value of money, it shall be accompanied by a presentation which recognizes the time value of money.
If, in connection with the selling of life insurance to which this chapter applies, an agent or insurer makes a presentation showing or comparing the cost of life insurance over a period of years which does not recognize the time value of money, the agent or insurer shall at the same time present the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index which shall be calculated for both a 10-year and a 20-year period.
An agent or insurer may use any other system or form of presentation for comparing the cost of life insurance over a period of years which recognizes the time value of money, including the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index computed at an interest rate other than 5 percent.
If the Life Insurance Surrender Cost Index or the Life Insurance Net Payment Cost Index is used, it need not be provided for a period which extends beyond the end of the premium payment period for the plan. The Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index shall be accompanied by an explanation substantially to the effect that the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index are measures of the relative cost of similar plans of insurance, and that a low index number represents a lower cost than a higher index number.
The Life Insurance Surrender Cost Index for level premium plans of insurance shall be calculated by applying the steps in the following paragraphs:
Select either a 10-year or a 20-year period, commencing with the first year of the policy, over which the analysis is to be made.
Determine the cash surrender value, and terminal dividend, if any, available at the end of the period selected.
For participating policies, accumulate the annual cash dividends at 5 percent interest compounded annually to the end of the period selected and add this accumulation to the amount in paragraph (2).
Divide the amount in paragraph (3), or the amount in paragraph (2) for nonparticipating policies, by an interest factor that converts it into a level annual amount accruing over the period selected in paragraph (1). If the period is 10 years, this factor is 13.207, and if the period is 20 years, the factor is 34.719.
Subtract the amount in paragraph (4) from the annual premium payable.
Divide the amount in paragraph (5) by the number of thousands of the amount of insurance to arrive at the Life Insurance Surrender Cost Index.
The Life Insurance Surrender Cost Index for plans of insurance with premiums which are not level shall be calculated as follows:
Select either a 10-year or a 20-year period, commencing with the first year of the policy, over which the analysis is to be made.
Determine the cash surrender value, and terminal dividend, if any, available at the end of the period selected.
For participating policies, accumulate the annual cash dividends at 5 percent interest compounded annually to the end of the period selected and add this accumulation to the amount in paragraph (2).
Divide the amount in paragraph (3), or the amount in paragraph (2) for nonparticipating policies, by an interest factor that converts it into a level annual amount accruing over the period selected in paragraph (1). If the period is 10 years, this factor is 13.207, and if the period is 20 years, the factor is 34.719.
Subtract the amount in paragraph (4) from the equivalent level premium determined by accumulating the annual premium payable at 5 percent interest compounded annually to the end of the period in paragraph (1) and dividing the result by the factor stated in paragraph (4).
Divide the amount in paragraph (5) by the number of thousands of the amount of insurance to arrive at the Life Insurance Surrender Cost Index.
For plans of insurance where the amount of insurance is not level, the amount of insurance in paragraph (6) of subdivision (a) and paragraph (6) of subdivision (b) shall be calculated as follows:
The Life Insurance Net Payment Cost Index is calculated in the same manner as the comparable Life Insurance Surrender Cost Index except that the cash surrender value and any terminal dividend are set at zero.
Any comparison must be used with caution and should not be emphasized to the point that actual premiums and policy benefits are overshadowed. Only similar plans of insurance should be compared. Any dividend or nonguaranteed element used in calculating the Life Insurance Surrender Cost Index or the Life Insurance Net Payment Cost Index shall be based on nonguaranteed elements calculated according to the standards required in Chapter 5.5 (commencing with Section 10509.950). With respect to participating policies, care must be taken to describe the policy dividend as a refund or return of part of the premium paid, which is not guaranteed and which is dependent on the investment earnings, mortality experience, and expense experience of the insurer.
Except as provided in subdivision (b), this chapter shall apply to any solicitation, negotiation, or procurement of life insurance occurring within this state.
This chapter shall not apply to:
Variable life insurance.
Individual and group annuity contracts.
Credit life insurance.
Life insurance policies with no illustrated death benefits on any individual exceeding ten thousand dollars ($10,000).
Franchise life insurance.
Group term life insurance.
Life insurance policies issued in connection with pension and welfare plans as defined by and subject to the federal Employee Retirement Income Security Act (29 U.S.C. Sec. 1001 and following), as amended.
A life insurer shall provide to all prospective insureds a buyer’s guide prior to accepting the applicant’s initial premium or premium deposit. However, if the policy for which application is made contains an unconditional refund provision of at least 10 days, the buyer’s guide shall be delivered with the policy or prior to delivery of the policy.
For the purposes of this chapter, a buyer’s guide is a document that contains, and is limited to, the current buyer’s guide recommended for use by the National Association of Insurance Commissioners.
CHAPTER 6. Incorporated Life Insurers Issuing Policies on a Reserve Basis [10510. - 10541.]
ARTICLE 1. Capital [10510. - 10512.]
If authorized by its charter, such an incorporated life insurer may, except as provided in Section 700.03, transact, in addition to life insurance, any of the following classes of insurance if its total paid-in capital is at least two million two hundred fifty thousand dollars ($2,250,000) in excess of the sum of the amounts set forth opposite the classes of insurance transacted:
An insurer holding a certificate of authority for life insurance and any other proper class on December 31, 1989, shall be governed by the provisions of Section 700.05, 10510, and 10511 in effect on December 31, 1989, until December 31, 1999. After December 31, 1999, any insurer holding a certificate of authority for life insurance and any other proper class shall meet the capital requirement of Sections 10510 and 10511 as become effective January 1, 1990.
ARTICLE 2. Dividends [10530. - 10530.]
A domestic incorporated life insurer issuing policies on the reserve plan shall not make any dividends, except from earned surplus.
No dividends shall be declared out of earned surplus derived from the mere appreciation in the value of assets not yet realized, nor shall any dividends be declared from any part of earned surplus derived from an exchange of assets, unless and until earned surplus has been realized, or unless the assets received are currently realizable in cash.
An insurer may declare and distribute a dividend otherwise prohibited by this section if (1) following payment of the dividend the insurer’s surplus as regards policyholders is (A) reasonable in relation to its outstanding liabilities and (B) adequate to its financial needs as prescribed in Section 1215.5, and (2) the commissioner has given approval for the dividend prior to payment.
For purposes of this section, “earned surplus” means unassigned funds, as required to be reported on the insurer’s annual statement.
ARTICLE 3. Premiums and Premium Accounts [10540. - 10541.]
An incorporated life insurer issuing life insurance policies on the reserve basis may collect premiums in advance. Such insurers may also accept moneys for the payment of future premiums related to any policies issued by it. No such insurer may accept such moneys in an amount to exceed (1) the sum of future unpaid premiums on any such policy or (2) the sum of 10 such future unpaid annual premiums on any such policy if such sum is less than the sum of future unpaid premiums on any such policy. This section shall not limit the right of such insurers to accept funds under an agreement which provides for an accumulation of such funds for the purpose of purchasing annuities at future dates.
Insurers authorized to deliver or issue for delivery life insurance policies in this state may deliver or issue for delivery one or more funding agreements, but the issuance or delivery of those funding agreements shall not be deemed to be doing the insurance business described in Section 700, a class of business as provided in Section 100 or 101, a “security” as defined in Section 821, or receipt of “gross premiums” as defined in Section 12221 or 12222 of the Revenue and Taxation Code. Notwithstanding the definition of “insurance” in Section 22 or the definition of “life insurance” in Section 101, the issuance or delivery of a funding agreement by an admitted life insurer in this state shall constitute a lawful activity of that insurer that is reasonably related to and incidental to its insurance activities as provided in this section. However, this section shall not authorize any insurer to transact, under the guise of funding agreements, any class of insurance not authorized by its certificate of authority.
As used in this section, the term “funding agreement” means an agreement that authorizes an admitted life insurer to accept funds and that provides for an accumulation of those funds for the purpose of making one or more payments at future dates in amounts that are not based on mortality or morbidity contingencies. However, the term “funding agreement” does not include any agreement in connection with the funding of one or more payments that are excludable from the gross income of the recipient under Section 104(a)(2) of the United States Internal Revenue Code, as it may be amended or renumbered from time to time.
No amounts shall be guaranteed or credited under any funding agreement except upon reasonable assumptions as to investment income and expenses and on a basis equitable to all holders of funding agreements of a given class.
Amounts paid to the insurer, and proceeds applied under optional modes of settlement, under those funding agreements may be allocated by the insurer to one or more separate accounts pursuant to Section 10506.
The commissioner may establish reasonable conditions or adopt reasonable regulations relating to (1) the reserves to be maintained by insurers issuing those funding agreements, (2) the accounting and reporting of funds credited under those funding agreements, (3) the disclosure of information to be given to holders and prospective holders of those funding agreements, (4) the qualification of persons selling those funding agreements on behalf of insurers, and (5) any other matters relating to funding agreements that the commissioner considers necessary, proper, and advisable.
Notwithstanding any other provision of law, the commissioner shall have sole authority to regulate the issuance and sale of those funding agreements, including the persons selling those funding agreements on behalf of insurers.
CHAPTER 7. Disability Insurance Disclosure [10600. - 10609.]
This part shall be known and may be referred to as the “Health Insurance Disclosure Act of 1974.”
As used in this chapter:
“Benefits and coverage” means the accident, sickness or disability indemnity available under a policy of disability insurance.
“Exception” means any provision in a policy whereby coverage for a specified hazard or condition is entirely eliminated.
“Reduction” means any provision in a policy which reduces the amount of a policy benefit to some amount or period less than would be otherwise payable for medically authorized expenses or services had such a reduction not been used.
“Limitation” means any provision other than an exception or a reduction which restricts coverage under the policy.
“Presenting for examination or sale” means either (1) publication and dissemination of any brochure, mailer, advertisement, or form which constitutes a presentation of the provisions of the policy and which provides a policy enrollment or application form, or (2) consultations or discussions between prospective beneficiaries or their contract agents and employees or agents of disability insurers, when such consultations or discussions include presentation of formal, organized information about the policy which is intended to influence or inform the prospective insured or beneficiary, such as brochures, summaries, charts, slides, or other modes of information in lieu of or in addition to the policy itself.
“Disability insurance” means every policy of disability insurance, self-insured employee welfare benefit plan, and nonprofit hospital service plan issued, delivered, or entered into pursuant to or described in Chapter 1 (commencing with Section 10110), Chapter 4 (commencing with Section 10270), or Chapter 11A (commencing with Section 11491) of this part.
“Insurer” means every insurer transacting disability insurance, every self-insured employee welfare plan, and every nonprofit hospital service plan specified in subdivision (e).
“Disclosure form” means the standard supplemental disclosure form required pursuant to Section 10603.
For the purposes of this chapter, where the definition of the term “hospital” in the policy omits care in any “health facility” defined pursuant to subdivision (a) or (b) of Section 1250 of the Health and Safety Code, the omitted coverage shall constitute a limitation. Further, where the definition of the term “nursing home” in the policy omits care in any “health facility” defined pursuant to subdivision (c) or (d) of Section 1250 of the Health and Safety Code, the omitted coverage shall constitute a limitation.
Nothing in this chapter shall prevent an insurer which makes contracts with hospitals from distinguishing between contracting hospitals and noncontracting hospitals.
On or before April 1, 1975, the commissioner shall promulgate a standard supplemental disclosure form for all disability insurance policies. Upon the appropriate disclosure form as prescribed by the commissioner, each insurer shall provide, in easily understood language and in a uniform, clearly organized manner, as prescribed and required by the commissioner, the summary information about each disability insurance policy offered by the insurer as the commissioner finds is necessary to provide for full and fair disclosure of the provisions of the policy.
On and after January 1, 2014, a disability insurer offering health insurance coverage subject to Section 2715 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-15) shall satisfy the requirements of this section and the implementing regulations by providing the uniform summary of benefits and coverage required under Section 2715 of the federal Public Health Service Act and any rules or regulations issued thereunder. An insurer that issues the federal uniform summary of benefits referenced in this paragraph shall ensure that all applicable disclosures required in this chapter and its implementing regulations are met in other documents provided to policyholders and insureds. An insurer subject to this paragraph shall provide the uniform summary of benefits and coverage to the commissioner together with the corresponding health insurance policy pursuant to Section 10290.
Commencing October 1, 2016, the uniform summary of benefits and coverage referenced in this subdivision shall constitute a vital document for the purposes of Section 10133.8. Not later than July 1, 2016, the commissioner shall develop written translations of the template uniform summary of benefits and coverage for all language groups identified by the State Department of Health Care Services in all plan letters as of August 27, 2014, for translation services pursuant to Section 14029.91 of the Welfare and Institutions Code, except for any language group for which the United States Department of Labor has already prepared a written translation. Not later than July 1, 2016, the commissioner shall make available on the department’s Internet Web site written translations of the template uniform summary of benefits and coverage developed by the commissioner, and written translations prepared by the United States Department of Labor, if available, for any language group to which this subparagraph applies.
This section does not preclude the disclosure form from being included with the evidence of coverage or certificate of coverage or policy.
For policy years on and after January 1, 2021, or 12 months after regulations are adopted under subdivision (f), whichever occurs later, a health insurer that issues, sells, renews, or offers a policy that covers dental services in this state, in addition to any other applicable disclosure requirements, shall use a uniform benefits and coverage disclosure matrix, which shall be developed by the department, in conjunction with the Department of Managed Health Care, and in consultation with stakeholders. At a minimum, the benefits and coverage disclosure matrix shall require the health insurer to make available all of the following relating to covered dental services, together with the corresponding copayments or coinsurance and limitations:
The annual overall policy deductible.
The annual benefit limit.
Coverage for the following categories:
Preventive and diagnostic services.
Basic services.
Major services.
Orthodontia services.
Dental policy reimbursement levels and estimated insured cost share for service.
Waiting periods.
Examples to illustrate coverage and estimated insured costs of commonly used benefits. The examples shall include at least one service from each of the following categories listed in paragraph (3):
Preventive and diagnostic services.
Basic services.
Major services.
All health insurers, solicitors, and representatives of a health insurer that issue, sell, renew, or offer a policy that covers dental services shall, when presenting any policy for examination or sale to an individual prospective insured, make available to the individual a properly completed benefits and coverage disclosure matrix, as prescribed by the commissioner pursuant to this section for each dental policy examined or sold.
In the case of group policies for dental services, the completed disclosures and coverage matrix and evidence of coverage shall be made available to the policyholder upon delivery of the completed policy for dental insurance.
Group policyholders shall make available the completed benefits and coverage disclosure matrix to all persons eligible to be a policyholder under the group policy at the time those persons are offered the dental insurance. If the individual group members are offered a choice of dental policies, separate benefits and coverage disclosure matrices shall be made available for each dental policy offered. Each group policyholder shall also make available copies of the evidence of coverage to all applicants, upon request, prior to enrollment and to all policyholders insured under the group policy.
The health insurer offering a policy that covers dental services in the individual, small, or large group market shall make available the benefits and coverage disclosure matrix to all individuals newly enrolling for coverage, experiencing a special enrollment event, and renewing coverage, and shall make available the benefits and coverage disclosure matrix to all other insureds upon request.
The department shall adopt emergency regulations pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code to implement this section. The department shall consult with the Department of Managed Health Care in adopting the emergency regulations, as appropriate. The adoption of regulations pursuant to this section shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health, or safety.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, emergency regulations adopted pursuant to this section shall not be subject to the review and approval of the Office of Administrative Law. The regulations shall become effective immediately upon filing with the Secretary of State. The regulations shall not remain in effect more than 120 days unless the adopting agency complies with all of the provisions of Chapter 3.5 (commencing with Section 11340) as required by subdivision (c) of Section 11346.1 of the Government Code.
This section does not apply to Medi-Cal dental managed care contracts authorized under Chapter 7 (commencing with Section 14000) and Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code.
The disclosure form shall include the following information, in concise and specific terms, relative to the disability insurance policy:
The applicable category or categories of coverage provided by the policy, from among the following:
Basic hospital expense coverage.
Basic medical-surgical expense coverage.
Hospital confinement indemnity coverage.
Major medical expense coverage.
Disability income protection coverage.
Accident only coverage.
Specified disease or specified accident coverage.
Such other categories as the commissioner may prescribe.
The principal benefits and coverage of the disability insurance policy.
The exceptions, reductions, and limitations that apply to such policy.
A summary, including a citation of the relevant contractual provisions, of the process used to authorize or deny payments for services under the coverage provided by the policy including coverage for subacute care, transitional inpatient care, or care provided in skilled nursing facilities. This subdivision shall only apply to policies of disability insurance that cover hospital, medical, or surgical expenses.
The full premium cost of such policy.
Any copayment, coinsurance, or deductible requirements that may be incurred by the insured or his family in obtaining coverage under the policy.
The terms under which the policy may be renewed by the insured, including any reservation by the insurer of any right to change premiums.
A statement that the disclosure form is a summary only, and that the policy itself should be consulted to determine governing contractual provisions.
The Legislature finds and declares that the right of every patient to receive basic information necessary to give full and informed consent is a fundamental tenet of good public health policy and has long been the established law of this state. Some hospitals and other providers do not provide a full range of reproductive health services and may prohibit or otherwise not provide sterilization, infertility treatments, abortion, or contraceptive services, including emergency contraception. It is the intent of the Legislature that every patient be given full and complete information about the health care services available to allow patients to make well informed health care decisions.
On or before July 1, 2001, every disability insurer that provides coverage for hospital, medical, or surgical benefits, and which provides a list of network providers to prospective insureds and insureds, shall do both of the following:
Include the following statement, in at least 12-point boldface type, at the beginning of each provider directory:
“Some hospitals and other providers do not provide one or more of the following services that may be covered under your policy and that you or your family member might need: family planning; contraceptive services, including emergency contraception; sterilization, including tubal ligation at the time of labor and delivery; infertility treatments; or abortion. You should obtain more information before you become a policyholder or select a network provider. Call your prospective doctor or clinic, or call the insurer at (insert the insurer’s membership services number or other appropriate number that individuals can call for assistance) to ensure that you can obtain the health care services that you need.”
Place the statement described in paragraph (1) in a prominent location on any provider directory posted on the insurer’s website, if any, and include this statement in a conspicuous place in the insurer’s evidence of coverage and disclosure forms.
A disability insurer shall not be required to provide the statement described in paragraph (1) of subdivision (b) in a service area in which none of the hospitals, health facilities, clinics, medical groups, or independent practice associations with which it contracts limit or restrict any of the reproductive services described in the statement.
This section shall not apply to vision-only, dental-only, accident-only, specified disease, hospital indemnity, Medicare supplement, long-term care, or disability income insurance.
An insurer shall annually disclose to the governing board of a public agency that is the policyholder of a group health insurance policy, the name and address of, and amount paid to, any agent, broker, or individual to whom the insurer paid fees or commissions related to the public agency’s group health insurance policy. As part of this disclosure, the insurer shall include the name, address, and amounts paid to the specific agents, brokers, or individuals involved in transactions with the public agency. The compensation disclosure required by this section is in addition to any other compensation disclosure requirements that exist under law.
Effective July 1, 1976, all insurers, and their employees and agents, shall, when presenting any disability insurance policy for examination or sale to an individual prospective insured or individual prospective subscriber, provide such individual with a properly completed disclosure form, as prescribed by the commissioner pursuant to Sections 10603 and 10604, for each disability insurance policy so examined or sold.
In the case of group disability insurance contracts, the completed disclosure form shall be presented to the contract holder upon delivery of the group policy or contract.
Group insurance contract holders shall disseminate copies of the completed disclosure form to all persons or family units eligible under the group contract. Where the individual members of the group are offered a choice of policies, separate disclosure forms shall be supplied for each policy available.
Disability insurance issued in connection with an employees’ welfare plan subject to the Federal Employee Retirement Income Security Act of 1974 (P.L. 93-406) is exempt from the provisions of this chapter.
Effective July 1, 1976, where the commissioner finds it necessary in the interest of full and fair disclosure, all advertising and other consumer information, including brochures, disseminated by insurers for the purpose of influencing persons to purchase health insurance shall contain such supplemental disclosure information as the commissioner may require.
In addition to the other disclosures required by this chapter, every insurer and their employees or agents shall, when presenting a plan for examination or sale to any individual or the representative of a group consisting of 25 or fewer individuals, disclose in writing the ratio of incurred claims to earned premiums (loss-ratio) for the insurer’s preceding calendar year. This section shall become operative on March 1, 1991, in order to allow insurers time to comply with its provisions.
The commissioner shall, from time to time as conditions warrant, after notice and public hearing, promulgate such reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this chapter.
Beginning on or before January 1, 1976, each insurer shall, to the extent required by the commissioner, file with the commissioner copies of all printed advertising which the insurer proposes to disseminate in the state.
CHAPTER 8. Small Employer Health Insurance [10700. - 10752.8.]
ARTICLE 1. Definitions [10700. - 10701.]
As used in this chapter:
“Agent or broker” means a person or entity licensed under Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
“Benefit plan design” means a specific health coverage product issued by a carrier to small employers, to trustees of associations that include small employers, or to individuals if the coverage is offered through employment or sponsored by an employer. It includes services covered and the levels of copayment and deductibles, and it may include the professional providers who are to provide those services and the sites where those services are to be provided. A benefit plan design may also be an integrated system for the financing and delivery of quality health care services which has significant incentives for the covered individuals to use the system.
“Board” means the Major Risk Medical Insurance Board.
“Carrier” means any disability insurance company or any other entity that writes, issues, or administers health benefit plans that cover the employees of small employers, regardless of the situs of the contract or master policyholder. For the purposes of Articles 3 (commencing with Section 10719) and 4 (commencing with Section 10730), “carrier” also includes health care service plans.
“Dependent” means the spouse or child of an eligible employee, subject to applicable terms of the health benefit plan covering the employee, and includes dependents of guaranteed association members if the association elects to include dependents under its health coverage at the same time it determines its membership composition pursuant to subdivision (z).
“Eligible employee” means either of the following:
Any permanent employee who is actively engaged on a full-time basis in the conduct of the business of the small employer with a normal workweek of at least 30 hours, in the small employer’s regular place of business, who has met any statutorily authorized applicable waiting period requirements. The term does not include sole proprietors or the spouses of those sole proprietors, partners of a partnership or the spouses of those partners, or employees who work on a part-time, temporary, or substitute basis. It includes any eligible employee, as defined in this paragraph, who obtains coverage through a guaranteed association. Employees of employers purchasing through a guaranteed association are eligible employees if they would otherwise meet the definition except for the number of persons employed by the employer. A permanent employee who works at least 20 hours but not more than 29 hours is an eligible employee if all four of the following apply:
The employee otherwise meets the definition of an eligible employee except for the number of hours worked.
The employer offers the employee health coverage under a health benefit plan.
All similarly situated individuals are offered coverage under the health benefit plan.
The employee shall have worked at least 20 hours per normal workweek for at least 50 percent of the weeks in the previous calendar quarter. The insurer may request any necessary information to document the hours and time period in question, including, but not limited to, payroll records and employee wage and tax filings.
Any member of a guaranteed association as defined in subdivision (z).
“Enrollee” means an eligible employee or dependent who receives health coverage through the program from a participating carrier.
“Financially impaired” means, for the purposes of this chapter, a carrier that, on or after the effective date of this chapter, is not insolvent and is either:
Deemed by the commissioner to be potentially unable to fulfill its contractual obligations.
Placed under an order of rehabilitation or conservation by a court of competent jurisdiction.
“Fund” means the California Small Group Reinsurance Fund.
“Health benefit plan” means a policy or contract written or administered by a carrier that arranges or provides health care benefits for the covered eligible employees of a small employer and their dependents. The term does not include accident only, credit, disability income, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement, long-term care insurance, dental, vision, coverage issued as a supplement to liability insurance, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
“In force business” means an existing health benefit plan issued by the carrier to a small employer.
“Late enrollee” means an eligible employee or dependent who has declined health coverage under a health benefit plan offered by a small employer at the time of the initial enrollment period provided under the terms of the health benefit plan and who subsequently requests enrollment in a health benefit plan of that small employer, provided that the initial enrollment period shall be a period of at least 30 days. It also means any member of an association that is a guaranteed association as well as any other person eligible to purchase through the guaranteed association when that person has failed to purchase coverage during the initial enrollment period provided under the terms of the guaranteed association’s health benefit plan and who subsequently requests enrollment in the plan, provided that the initial enrollment period shall be a period of at least 30 days. However, an eligible employee, another person eligible for coverage through a guaranteed association pursuant to subdivision (z), or an eligible dependent shall not be considered a late enrollee if any of the following is applicable:
The individual meets all of the following requirements:
He or she was covered under another employer health benefit plan, the Healthy Families Program, the Access for Infants and Mothers (AIM) Program, or the Medi-Cal program at the time the individual was eligible to enroll.
He or she certified at the time of the initial enrollment that coverage under another employer health benefit plan, the Healthy Families Program, the AIM Program, or the Medi-Cal program was the reason for declining enrollment provided that, if the individual was covered under another employer health plan, the individual was given the opportunity to make the certification required by this subdivision and was notified that failure to do so could result in later treatment as a late enrollee.
He or she has lost or will lose coverage under another employer health benefit plan as a result of termination of employment of the individual or of a person through whom the individual was covered as a dependent, change in employment status of the individual, or of a person through whom the individual was covered as a dependent, the termination of the other plan’s coverage, cessation of an employer’s contribution toward an employee or dependent’s coverage, death of the person through whom the individual was covered as a dependent, legal separation, or divorce; or he or she has lost or will lose coverage under the Healthy Families Program, the AIM Program, or the Medi-Cal program.
He or she requests enrollment within 30 days after termination of coverage or employer contribution toward coverage provided under another employer health benefit plan, or requests enrollment within 60 days after termination of Medi-Cal program coverage, AIM Program coverage, or Healthy Families Program coverage.
The individual is employed by an employer who offers multiple health benefit plans and the individual elects a different plan during an open enrollment period.
A court has ordered that coverage be provided for a spouse or minor child under a covered employee’s health benefit plan.
In the case of an eligible employee as defined in paragraph (1) of subdivision (f), the carrier cannot produce a written statement from the employer stating that the individual or the person through whom an individual was eligible to be covered as a dependent, prior to declining coverage, was provided with, and signed acknowledgment of, an explicit written notice in boldface type specifying that failure to elect coverage during the initial enrollment period permits the carrier to impose, at the time of the individual’s later decision to elect coverage, an exclusion from coverage for a period of 12 months as well as a six-month preexisting condition exclusion unless the individual meets the criteria specified in paragraph (1), (2), or (3).
In the case of an eligible employee who is a guaranteed association member, the plan cannot produce a written statement from the guaranteed association stating that the association sent a written notice in boldface type to all potentially eligible association members at their last known address prior to the initial enrollment period informing members that failure to elect coverage during the initial enrollment period permits the plan to impose, at the time of the member’s later decision to elect coverage, an exclusion from coverage for a period of 12 months as well as a six-month preexisting condition exclusion unless the member can demonstrate that he or she meets the requirements of subparagraphs (A), (C), and (D) of paragraph (1) or meets the requirements of paragraph (2) or (3).
In the case of an employer or person who is not a member of an association, was eligible to purchase coverage through a guaranteed association, and did not do so, and would not be eligible to purchase guaranteed coverage unless purchased through a guaranteed association, the employer or person can demonstrate that he or she meets the requirements of subparagraphs (A), (C), and (D) of paragraph (1), or meets the requirements of paragraph (2) or (3), or that he or she recently had a change in status that would make him or her eligible and that application for coverage was made within 30 days of the change.
The individual is an employee or dependent who meets the criteria described in paragraph (1) and was under a COBRA continuation provision and the coverage under that provision has been exhausted. For purposes of this section, the definition of “COBRA” set forth in subdivision (e) of Section 10116.5 shall apply.
The individual is a dependent of an enrolled eligible employee who has lost or will lose his or her coverage under the Healthy Families Program, the AIM Program, or the Medi-Cal program and requests enrollment within 60 days after termination of that coverage.
The individual is an eligible employee who previously declined coverage under an employer health benefit plan and who has subsequently acquired a dependent who would be eligible for coverage as a dependent of the employee through marriage, birth, adoption, or placement for adoption, and who enrolls for coverage under that employer health benefit plan on his or her behalf and on behalf of his or her dependent within 30 days following the date of marriage, birth, adoption, or placement for adoption, in which case the effective date of coverage shall be the first day of the month following the date the completed request for enrollment is received in the case of marriage, or the date of birth, or the date of adoption or placement for adoption, whichever applies. Notice of the special enrollment rights contained in this paragraph shall be provided by the employer to an employee at or before the time the employee is offered an opportunity to enroll in plan coverage.
The individual is an eligible employee who has declined coverage for himself or herself or his or her dependents during a previous enrollment period because his or her dependents were covered by another employer health benefit plan at the time of the previous enrollment period. That individual may enroll himself or herself or his or her dependents for plan coverage during a special open enrollment opportunity if his or her dependents have lost or will lose coverage under that other employer health benefit plan. The special open enrollment opportunity shall be requested by the employee not more than 30 days after the date that the other health coverage is exhausted or terminated. Upon enrollment, coverage shall be effective not later than the first day of the first calendar month beginning after the date the request for enrollment is received. Notice of the special enrollment rights contained in this paragraph shall be provided by the employer to an employee at or before the time the employee is offered an opportunity to enroll in plan coverage.
“New business” means a health benefit plan issued to a small employer that is not the carrier’s in force business.
“Participating carrier” means a carrier that has entered into a contract with the program to provide health benefits coverage under this part.
“Plan of operation” means the plan of operation of the fund, including articles, bylaws, and operating rules adopted by the fund pursuant to Article 3 (commencing with Section 10719).
“Program” means the Health Insurance Plan of California.
“Preexisting condition provision” means a policy provision that excludes coverage for charges or expenses incurred during a specified period following the insured’s effective date of coverage, as to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during a specified period immediately preceding the effective date of coverage.
“Creditable coverage” means:
Any individual or group policy, contract, or program, that is written or administered by a disability insurer, health care service plan, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, coverage for onsite medical clinics, disability income, Medicare supplement, long-term care, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers’ compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
The federal Medicare Program pursuant to Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
The Medicaid program pursuant to Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.).
Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital, and surgical care.
Chapter 55 (commencing with Section 1071) of Title 10 of the United States Code (Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)).
A medical care program of the Indian Health Service or of a tribal organization.
A state health benefits risk pool.
A health plan offered under Chapter 89 (commencing with Section 8901) of Title 5 of the United States Code (Federal Employees Health Benefits Program (FEHBP)).
A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(I) of the federal Public Health Service Act, as amended by Public Law 104-191, the federal Health Insurance Portability and Accountability Act of 1996.
A health benefit plan under Section 5(e) of the federal Peace Corps Act (22 U.S.C. Sec. 2504(e)).
Any other creditable coverage as defined by subdivision (c) of Section 2701 of Title XXVII of the federal Public Health Service Act (42 U.S.C. Sec. 300gg(c)).
“Rating period” means the period for which premium rates established by a carrier are in effect and shall be no less than six months.
“Risk adjusted employee risk rate” means the rate determined for an eligible employee of a small employer in a particular risk category after applying the risk adjustment factor.
“Risk adjustment factor” means the percent adjustment to be applied equally to each standard employee risk rate for a particular small employer, based upon any expected deviations from standard claims. The factor may not be more than 110 percent or less than 90 percent.
“Risk category” means the following characteristics of an eligible employee: age, geographic region, and family size of the employee, plus the benefit plan design selected by the small employer.
No more than the following age categories may be used in determining premium rates:
Under 30
30–39
40–49
50–54
55–59
60–64
65 and over.
However, for the 65 years of age and over category, separate premium rates may be specified depending upon whether coverage under the health benefit plan will be primary or secondary to benefits provided by the federal Medicare Program pursuant to Title XVIII of the federal Social Security Act.
Small employer carriers shall base rates to small employers using no more than the following family size categories:
Single.
Married couple.
One adult and child or children.
Married couple and child or children.
In determining rates for small employers, a carrier that operates statewide shall use no more than nine geographic regions in the state, have no region smaller than an area in which the first three digits of all its ZIP Codes are in common within a county, and shall divide no county into more than two regions. Carriers shall be deemed to be operating statewide if their coverage area includes 90 percent or more of the state’s population. Geographic regions established pursuant to this section shall, as a group, cover the entire state, and the area encompassed in a geographic region shall be separate and distinct from areas encompassed in other geographic regions. Geographic regions may be noncontiguous.
In determining rates for small employers, a carrier that does not operate statewide shall use no more than the number of geographic regions in the state than is determined by the following formula: the population, as determined in the last federal census, of all counties that are included in their entirety in a carrier’s service area divided by the total population of the state, as determined in the last federal census, multiplied by nine. The resulting number shall be rounded to the nearest whole integer. A region shall not be smaller than an area in which the first three digits of all its ZIP Codes are in common within a county and a county shall not be divided into more than two regions. The area encompassed in a geographic region shall be separate and distinct from areas encompassed in other geographic regions. Geographic regions may be noncontiguous. A carrier shall not have less than one geographic area.
“Small employer” means either of the following:
Any person, proprietary or nonprofit firm, corporation, partnership, public agency, or association that is actively engaged in business or service that, on at least 50 percent of its working days during the preceding calendar quarter, or preceding calendar year, employed at least 2, but not more than 50, eligible employees, the majority of whom were employed within this state, that was not formed primarily for purposes of buying health insurance and in which a bona fide employer-employee relationship exists. In determining whether to apply the calendar quarter or calendar year test, the insurer shall use the test that ensures eligibility if only one test would establish eligibility. However, for purposes of subdivisions (b) and (h) of Section 10705, the definition shall include employers with at least two eligible employees. In determining the number of eligible employees, companies that are affiliated companies and that are eligible to file a combined income tax return for purposes of state taxation shall be considered one employer. Subsequent to the issuance of a health benefit plan to a small employer pursuant to this chapter, and for the purpose of determining eligibility, the size of a small employer shall be determined annually. Except as otherwise specifically provided, provisions of this chapter that apply to a small employer shall continue to apply until the health benefit plan anniversary following the date the employer no longer meets the requirements of this definition. It includes any small employer as defined in this paragraph who purchases coverage through a guaranteed association, any employer purchasing coverage for employees through a guaranteed association, and any small employer as defined in this paragraph who purchases coverage through any arrangement, but does not include multiple employer welfare arrangements regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 that provide health care benefits to their members on a self-funded or partially self-funded basis and that comply with small group health reforms.
Any guaranteed association, as defined in subdivision (y), that purchases health coverage for members of the association.
“Standard employee risk rate” means the rate applicable to an eligible employee in a particular risk category in a small employer group.
“Guaranteed association” means a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria which (1) includes one or more small employers as defined in paragraph (1) of subdivision (w), (2) does not condition membership directly or indirectly on the health or claims history of any person, (3) uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, (4) is organized and maintained in good faith for purposes unrelated to insurance, (5) has been in active existence on January 1, 1992, and for at least five years prior to that date, (6) has been offering health insurance to its members for at least five years prior to January 1, 1992, (7) has a constitution and bylaws, or other analogous governing documents that provide for election of the governing board of the association by its members, (8) offers any benefit plan design that is purchased to all individual members and employer members in this state, (9) includes any member choosing to enroll in the benefit plan design offered to the association provided that the member has agreed to make the required premium payments, and (10) covers at least 1,000 persons with the carrier with which it contracts. The requirement of 1,000 persons may be met if component chapters of a statewide association contracting separately with the same carrier cover at least 1,000 persons in the aggregate.
This subdivision applies regardless of whether a master policy by an admitted insurer is delivered directly to the association or a trust formed for or sponsored by an association to administer benefits for association members.
For purposes of this subdivision, an association formed by a merger of two or more associations after January 1, 1992, and otherwise meeting the criteria of this subdivision shall be deemed to have been in active existence on January 1, 1992, if its predecessor organizations had been in active existence on January 1, 1992, and for at least five years prior to that date and otherwise met the criteria of this subdivision.
“Members of a guaranteed association” means any individual or employer meeting the association’s membership criteria if that person is a member of the association and chooses to purchase health coverage through the association. At the association’s discretion, it may also include employees of association members, association staff, retired members, retired employees of members, and surviving spouses and dependents of deceased members. However, if an association chooses to include those persons as members of the guaranteed association, the association must so elect in advance of purchasing coverage from a plan. Health plans may require an association to adhere to the membership composition it selects for up to 12 months.
(aa) “Affiliation period” means a period that, under the terms of the health benefit plan, shall elapse before health care services under the plan become effective.
For purposes of this chapter, “health benefit plan” does not include policies or certificates of specified disease or hospital confinement indemnity provided that the carrier offering those policies or certificates complies with the following:
The carrier files, on or before March 1 of each year, a certification with the commissioner that contains the statement and information described in paragraph (2).
The certification required in paragraph (1) shall contain the following:
A statement from the carrier certifying that policies or certificates described in this section (i) are being offered and marketed as supplemental health insurance and not as a substitute for hospital or medical expense insurance, health care service plans, or major medical expense insurance, (ii) the disclosure forms as described in Section 10603 contains the following statement prominently on the first page: “This is a supplement to health insurance. It is not a substitute for hospital or medical expense insurance, a health maintenance organization (HMO) contract, or major medical expense insurance,” and (iii) are not being offered, marketed, or sold in a manner that would make the purchase of the policies contingent upon the sale of any product sold under Sections 10700 and 10718, or under Section 1357 of the Health and Safety Code.
A summary description of each policy or certificate described in this section, including the average annual premium rates, or range of premium rates in cases where premiums vary by age, gender, or other factors, charged for the policies and certificates in this state.
In the case of a policy or certificate that is described in this section and that is offered for the first time in this state on or after January 1, 1997, the carrier files with the commissioner the information and statement required in paragraph (2) at least 30 days prior to the date such a policy or certificate is issued or delivered in this state.
As used in this section, “policies or certificates of specified disease” and “policies or certificates of hospital confinement indemnity” mean policies or certificates of insurance sold to an insured to supplement other health insurance coverage as specified in this section. An insurer issuing a “policy or certificate of specified disease” or a “policy or certificate of hospital confinement indemnity” shall require that the person to be insured is covered by an individual or group policy or contract that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans.
ARTICLE 2. Small Employer Carrier Requirements [10702. - 10718.7.]
All carriers writing, issuing, or administering health benefit plans that cover employees of small employers shall be subject to this chapter if any one of the following conditions are met:
Any portion of the premium for any health benefit plan or benefits is paid by a small employer, or any covered individual is reimbursed, whether through wage adjustments or otherwise, by a small employer for any portion of the premium.
The health benefit plan is treated by the small employer or any of the covered individuals as part of a plan or program for the purposes of Section 106 or 162 of the Internal Revenue Code.
Any person or entity subject to the requirements of this chapter shall comply with the standards set forth in Chapter 7 (commencing with Section 3750) of Part 1 of Division 9 of the Family Code and Section 14124.94 of the Welfare and Institutions Code.
The commissioner shall have the authority to determine whether a health benefit plan is covered by this chapter, and to determine whether an employer is a small employer within the meaning of Section 10700.
The commissioner may issue regulations that are necessary to carry out the purposes of this chapter. Prior to the public comment period required on the regulations under the Administrative Procedure Act, the commissioner shall provide the Director of the Department of Managed Health Care with a copy of the proposed regulations. The Director of the Department of Managed Health Care shall have 30 days to notify the commissioner in writing of any comments on the regulations. The Director of the Department of Managed Health Care’s comments shall be included in the public notice issued on the regulations. Any rules and regulations issued pursuant to this subdivision may be adopted as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Until December 31, 1994, the adoption of these regulations shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, safety, or general welfare. The regulations shall be enforced by the director.
Upon the effective date of this act:
No group or individual policy or contract or certificate of group insurance or statement of group coverage providing benefits to employees of small employers as defined in this chapter shall be issued or delivered by a carrier subject to the jurisdiction of the commissioner regardless of the situs of the contract or master policyholder or of the domicile of the carrier nor, except as otherwise provided in Sections 10270.91 and 10270.92, shall a carrier provide coverage subject to this chapter until a copy of the form of the policy, contract, certificate, or statement of coverage is filed with and approved by the commissioner in accordance with Sections 10290 and 10291, and the carrier has complied with the requirements of Section 10717.
Each carrier, except a self-funded employer, shall fairly and affirmatively offer, market, and sell all of the carrier’s benefit plan designs that are sold to, offered through, or sponsored by, small employers or associations that include small employers to all small employers in each geographic region in which the carrier makes coverage available or provides benefits.
A carrier contracting to participate in the Voluntary Alliance Uniting Employers Purchasing Program shall be deemed to be in compliance with paragraph (1) for a benefit plan design offered through the program in those geographic regions in which the carrier participates in the program and the benefit plan design is offered exclusively through the program.
A carrier shall be deemed to meet the requirements of paragraph (1) and subdivision (c) with respect to a benefit plan design that qualifies as a grandfathered health plan under Section 1251 of PPACA if all of the following requirements are met:
The carrier offers to renew the benefit plan design, unless the carrier withdraws the benefit plan design from the small employer market pursuant to subdivision (e) of Section 10713.
The carrier provides appropriate notice of the grandfathered status of the benefit plan design in any materials provided to an insured of the design describing the benefits provided under the design, as required under PPACA.
The carrier makes no changes to the benefits covered under the benefit plan design other than those required by a state or federal law, regulation, rule, or guidance and those permitted to be made to a grandfathered health plan under PPACA.
For purposes of this paragraph, “PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder. For purposes of this paragraph, a “grandfathered health plan” shall have the meaning set forth in Section 1251 of PPACA.
Nothing in this section shall be construed to require an association, or a trust established and maintained by an association to receive a master insurance policy issued by an admitted insurer and to administer the benefits thereof solely for association members, to offer, market or sell a benefit plan design to those who are not members of the association. However, if the association markets, offers or sells a benefit plan design to those who are not members of the association it is subject to the requirements of this section. This shall apply to an association that otherwise meets the requirements of paragraph (8) formed by merger of two or more associations after January 1, 1992, if the predecessor organizations had been in active existence on January 1, 1992, and for at least five years prior to that date and met the requirements of paragraph (5).
A carrier which (A) effective January 1, 1992, and at least 20 years prior to that date, markets, offers, or sells benefit plan designs only to all members of one association and (B) does not market, offer or sell any other individual, selected group, or group policy or contract providing medical, hospital and surgical benefits shall not be required to market, offer, or sell to those who are not members of the association. However, if the carrier markets, offers or sells any benefit plan design or any other individual, selected group, or group policy or contract providing medical, hospital and surgical benefits to those who are not members of the association it is subject to the requirements of this section.
Each carrier that sells health benefit plans to members of one association pursuant to paragraph (5) shall submit an annual statement to the commissioner which states that the carrier is selling health benefit plans pursuant to paragraph (5) and which, for the one association, lists all the information required by paragraph (7).
Each carrier that sells health benefit plans to members of any association shall submit an annual statement to the commissioner which lists each association to which the carrier sells health benefit plans, the industry or profession which is served by the association, the association’s membership criteria, a list of officers, the state in which the association is organized, and the site of its principal office.
For purposes of paragraphs (4) and (5), an association is a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or small employer meeting its membership criteria, which do not condition membership directly or indirectly on the health or claims history of any person, which uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, which is organized and maintained in good faith for purposes unrelated to insurance, which has been in active existence on January 1, 1992, and at least five years prior to that date, which has a constitution and bylaws, or other analogous governing documents which provide for election of the governing board of the association by its members, which has contracted with one or more carriers to offer one or more health benefit plans to all individual members and small employer members in this state.
Each carrier shall make available to each small employer all benefit plan designs that the carrier offers or sells to small employers or to associations that include small employers. Notwithstanding subdivision (d) of Section 10700, for purposes of this subdivision, companies that are affiliated companies or that are eligible to file a consolidated income tax return shall be treated as one carrier.
Each carrier shall do all of the following:
Provide to small employers, agents, and brokers, upon request, for any given small employer the sum of the standard employee risk rates and the sum of the risk adjusted standard employee risk rates. When requesting this information, small employers, agents and brokers shall provide the carrier with the information the carrier needs to determine the small employer’s risk adjusted employee risk rate.
Every agent or broker representing one or more carriers for the purpose of selling health benefit plans to small employers shall do all of the following:
When providing information on a health benefit plan to a small employer but making no specific recommendations on particular benefit plan designs:
Advise the small employer of the carrier’s obligation to sell to any small employer any of the benefit plan designs it offers to small employers and provide them, upon request, with the actual rates that would be charged to that employer for a given benefit plan design.
Notify the small employer that the agent or broker will procure rate and benefit information for the small employer on any benefit plan design offered by a carrier for whom the agent or broker sells health benefit plans.
Notify the small employer that, upon request, the agent or broker will provide the small employer with the summary brochure required in paragraph (1) of subdivision (d) for any benefit plan design offered by a carrier whom the agent or broker represents.
When recommending a particular benefit plan design or designs, advise the small employer that, upon request, the agent will provide the small employer with the brochure required by paragraph (1) of subdivision (d) containing the benefit plan design or designs being recommended by the agent or broker.
Prior to filing an application for a small employer for a particular health benefit plan:
For each of the benefit plan designs offered by the carrier whose benefit plan design the agent or broker is presenting, provide the small employer with the benefit summary required in paragraph (1) of subdivision (d) and the sum of the standard employee risk rates for that particular employer.
Notify the small employer that, upon request, the agent or broker will provide the small employer with an evidence of coverage brochure for each benefit plan design the carrier offers.
Notify the small employer that, from July 1, 1993, to July 1, 1996, actual rates may be 20 percent higher or lower than the sum of the standard employee risk rates, and from July 1, 1996, and thereafter, actual rates may be 10 percent higher or lower than the sum of the standard employee risk rates depending on how the carrier assesses the risk of the small employer’s group.
Notify the small employer that, upon request, the agent or broker will submit information to the carrier to ascertain the small employer’s sum of the risk adjusted standard employee risk rate for any benefit plan design the carrier offers.
Obtain a signed statement from the small employer acknowledging that the small employer has received the disclosures required by this paragraph and Section 10716.
No carrier, agent, or broker shall induce or otherwise encourage a small employer to separate or otherwise exclude an eligible employee from a health benefit plan which, in the case of an eligible employee meeting the definition in paragraph (1) of subdivision (f) of Section 10700, is provided in connection with the employee’s employment or which, in the case of an eligible employee as defined in paragraph (2) of subdivision (f) of Section 17000, is provided in connection with a guaranteed association.
No carrier shall reject an application from a small employer for a benefit plan design provided:
The small employer as defined by paragraph (1) of subdivision (w) of Section 10700 offers health benefits to 100 percent of its eligible employees as defined in paragraph (1) of subdivision (f) of Section 10700. Employees who waive coverage on the grounds that they have other group coverage shall not be counted as eligible employees.
The small employer agrees to make the required premium payments.
No carrier or agent or broker shall, directly or indirectly, engage in the following activities:
Encourage or direct small employers to refrain from filing an application for coverage with a carrier because of the health status, claims experience, industry, occupation, or geographic location within the carrier’s approved service area of the small employer or the small employer’s employees.
Encourage or direct small employers to seek coverage from another carrier or the program because of the health status, claims experience, industry, occupation, or geographic location within the carrier’s approved service area of the small employer or the small employer’s employees.
No carrier shall, directly or indirectly, enter into any contract, agreement, or arrangement with an agent or broker that provides for or results in the compensation paid to an agent or broker for a health benefit plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the small employer or the small employer’s employees. This subdivision shall not apply with respect to a compensation arrangement that provides compensation to an agent or broker on the basis of percentage of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic area of the small employer.
Except in the case of a late insured, or for satisfaction of a preexisting condition clause in the case of initial coverage of an eligible employee, a disability insurer may not exclude any eligible employee or dependent who would otherwise be entitled to health care services on the basis of any of the following: the health status, the medical condition, including both physical and mental illnesses, the claims experience, the medical history, the genetic information, or the disability or evidence of insurability, including conditions arising out of acts of domestic violence of that employee or dependent. No health benefit plan may limit or exclude coverage for a specific eligible employee or dependent by type of illness, treatment, medical condition, or accident, except for preexisting conditions as permitted by Section 10198.7 or 10708.
If a carrier enters into a contract, agreement, or other arrangement with a third-party administrator or other entity to provide administrative, marketing, or other services related to the offering of health benefit plans to small employers in this state, the third-party administrator shall be subject to this chapter.
With respect to the obligation to provide coverage newly issued under subdivision (d), the carrier may cease enrolling new small employer groups and new eligible employees as defined by paragraph (2) of subdivision (f) of Section 10700 if it certifies to the commissioner that the number of eligible employees and dependents, of the employers newly enrolled or insured during the current calendar year by the carrier equals or exceeds: (A) in the case of a carrier that administers any self-funded health benefits arrangement in California, 10 percent of the total number of eligible employees, or eligible employees and dependents, respectively, enrolled or insured in California by that carrier as of December 31 of the preceding year, or (B) in the case of a carrier that does not administer any self-funded health benefit arrangements in California, 8 percent of the total number of eligible employees, or eligible employees and dependents, respectively, enrolled or insured by the carrier in California as of December 31 of the preceding year.
Certification shall be deemed approved if not disapproved within 45 days after submission to the commissioner. If that certification is approved, the small employer carrier shall not offer coverage to any small employers under any health benefit plans during the remainder of the current year. If the certification is not approved, the carrier shall continue to issue coverage as required by subdivision (d) and be subject to administrative penalties as established in Section 10718.
Between July 26, 1993, and October 24, 1993, as well as 60 days prior to the expiration of an existing contract that expires prior to July 1, 1994, or, for contracts expiring after July 1, 1994, 60 days prior to July 1, 1994, an association that meets the definition of guaranteed association, as set forth in Section 10700, except for the requirement that 1,000 persons be covered, shall be entitled to purchase small employer health coverage as if the association were a guaranteed association, except that the coverage shall be guaranteed only for those members of an association, as defined in Section 10700, (1) who were receiving coverage or had successfully applied for coverage through the association as of June 30, 1993, (2) who were receiving coverage through the association as of December 31, 1992, and whose coverage lapsed at any time thereafter because the employment through which coverage was received ended or an employer’s contribution to health coverage ended, or (3) who were covered at any time between June 30, 1993, and July 1, 1994, under a contract that was in force on June 30 1993.
An association obtaining health coverage for its members pursuant to this section shall otherwise be afforded all the rights of a guaranteed association under this chapter including, but not limited to, guaranteed renewability of coverage.
No later than August 25, 1993, carriers that, at any time during the 1993 calendar year have provided coverage to associations that would be eligible for coverage under this section shall notify those associations of their rights under this section. Ninety days prior to the expiration of a contract that expires prior to July 1, 1994, or, for contracts expiring after July 1, 1994, 90 days prior to July 1, 1994, carriers that have in force coverage with an association that would be eligible for coverage under this section shall notify the association of its rights under this section.
Every carrier shall file with the commissioner the reasonable participation requirements and employer contribution requirements that are to be included in its health benefit plans. Participation requirements shall be applied uniformly among all small employer groups, except that a carrier may vary application of minimum employer participation requirements by the size of the small employer group and whether the employer contributes 100 percent of the eligible employee’s premium. Employer contribution requirements shall not vary by employer size. A carrier shall not establish a participation requirement that (1) requires a person who meets the definition of a dependent in subdivision (e) of Section 10700 to enroll as a dependent if he or she is otherwise eligible for coverage and wishes to enroll as an eligible employee and (2) allows a carrier to reject an otherwise eligible small employer because of the number of persons that waive coverage due to coverage through another employer. Members of an association eligible for health coverage eligible under subdivision (z) of Section 10700 but not electing any health coverage through the association shall not be counted as eligible employees for purposes of determining whether the guaranteed association meets a carrier’s reasonable participation standards.
After a small employer submits a completed application, the carrier shall, within 30 days notify the employer of the employer’s actual rates in accordance with Section 10714. The employer shall have 30 days in which to exercise the right to buy coverage at the quoted rates.
When a small employer submits a premium payment, based on the quoted rates, and that payment is delivered or postmarked, whichever occurs earlier, within the first 15 days of a month, coverage shall become effective no later than the first day of the following month. When that payment is neither delivered nor postmarked until after the 15th day of a month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
During the first 30 days of coverage, the small employer shall have the option of changing coverage to a different benefit plan design offered by the same carrier. If a small employer notifies the carrier of the change within the first 15 days of a month, coverage under the new benefit plan design shall become effective no later than the first day of the following month. If a small employer notifies the carrier of the change after the 15th day of a month, coverage under the new benefit plan design shall become effective no later than the first day of the second month following notification.
All eligible employees and dependents listed on the small employer’s completed application shall be covered on the effective date of the health benefit plan.
Except in the case of a late enrollee, or for satisfaction of a preexisting condition clause in the case of initial coverage of an eligible employee, a carrier may not exclude any eligible employee or dependent who would otherwise be covered, on the basis of an actual or expected health condition of that employee or dependent. No health benefit plan may limit or exclude coverage for a specific eligible employee or dependent by type of illness, treatment, medical condition, or accident, except for preexisting conditions as permitted by Section 10708.
Preexisting condition provisions of health benefit plans shall not exclude coverage for a period beyond six months following the individual’s effective date of coverage and may only relate to conditions for which medical advice, diagnosis, care, or treatment, including the use of prescription medications, was recommended by or received from a licensed health practitioner during the six months immediately preceding the effective date of coverage.
Notwithstanding paragraph (1), a health benefit plan offered to a small employer shall not impose any preexisting condition provision upon any child under 19 years of age.
A carrier that does not utilize a preexisting condition provision may impose a waiting or affiliation period, not to exceed 60 days, before the coverage issued subject to this chapter shall become effective. During the waiting or affiliation period, the carrier is not required to provide health care benefits and no premiums shall be charged to the subscriber or enrollee.
In determining whether a preexisting condition provision or a waiting period applies to any person, a plan shall credit the time the person was covered under creditable coverage, provided the person becomes eligible for coverage under the succeeding plan contract within 62 days of termination of prior coverage, exclusive of any waiting or affiliation period, and applies for coverage with the succeeding health benefit plan contract within the applicable enrollment period. A plan shall also credit any time an eligible employee must wait before enrolling in the health benefit plan, including any postenrollment or employer-imposed waiting or affiliation period. However, if a person’s employment has ended, the availability of health coverage offered through employment or sponsored by an employer has terminated, or an employer’s contribution toward health coverage has terminated, a plan shall credit the time the person was covered under creditable coverage if the person becomes eligible for health coverage offered through employment or sponsored by an employer within 180 days, exclusive of any waiting or affiliation period, and applies for coverage under the succeeding health benefit plan within the applicable enrollment period.
Group health benefit plans may not impose a preexisting conditions exclusion to a condition relating to benefits for pregnancy or maternity care.
A carrier providing aggregate or specific stop loss coverage or any other assumption of risk with reference to a health benefit plan shall provide that the plan meets all requirements of this section concerning preexisting condition provisions and waiting or affiliation periods.
In addition to the preexisting condition exclusions authorized by subdivision (a) and the waiting or affiliation period authorized by subdivision (b), carriers providing coverage to a guaranteed association may impose on employers or individuals purchasing coverage who would not be eligible for guaranteed coverage if they were not purchasing through the association a waiting or affiliation period, not to exceed 60 days, before the coverage issued subject to this chapter shall become effective. During the waiting or affiliation period, the carrier is not required to provide health care benefits and no premiums shall be charged to the insured.
No health benefit plan may exclude late enrollees from coverage for more than 12 months from the date of the late enrollee’s application for coverage. No premiums shall be charged to the late enrollee until the exclusion period has ended.
A carrier providing aggregate or specific stop loss coverage or any other assumption of risk with reference to a health benefit plan shall provide that the plan meets all requirements of this section concerning late enrollees.
No carrier shall be required by the provisions of this chapter:
To offer coverage to, or accept applications from, a small employer as defined in paragraph (1) of subdivision (w) of Section 10700, where the small employer is not physically located in a carrier’s approved service areas.
To offer coverage to or accept applications from a small employer as defined in paragraph (2) of subdivision (w) of Section 10700 where the small employer is seeking coverage for eligible employees who do not work or reside in a carrier’s approved service areas.
To include in a health benefits plan an otherwise eligible employee or dependent, when the eligible employee or dependent does not work or reside within a carrier’s approved service area, except as provided in Section 10702.1.
To offer coverage to, or accept applications from, a small employer for a benefits plan design within an area if the commissioner has found that the carrier will not have the capacity within the area in its network of providers to deliver service adequately to the eligible employees and dependents of that employee because of its obligations to existing group contractholders and enrollees and that the action is not unreasonable or clearly inconsistent with the intent of this chapter.
A carrier that cannot offer coverage to small employers in a specific service area because it is lacking sufficient capacity may not offer coverage in the applicable area to new employer groups with more than 50 eligible employees until the carrier notifies the commissioner that it has regained capacity to deliver services to small employers, and certifies to the commissioner that from the date of the notice it will enroll all small groups requesting coverage from the carrier until the carrier has met the requirements of subdivision (h) of Section 10705.
To offer coverage to a small employer, or an eligible employee as defined in paragraph (2) of subdivision (g) of Section 10700, who within 12 months of application for coverage terminated from a health benefit plan offered by the carrier.
A carrier shall not be required to offer coverage or accept applications for benefit plan designs pursuant to this chapter where the commissioner determines that the acceptance of an application or applications would place the carrier in a financially impaired condition.
The commissioner’s determination shall follow an evaluation that includes a certification by the commissioner that the acceptance of an application or applications would place the carrier in a financially impaired condition.
A carrier that has not offered coverage or accepted applications pursuant to this chapter shall not offer coverage or accept applications for any individual or group health benefit plan until the commissioner has determined that the carrier has ceased to be financially impaired.
All health benefit plans written, issued, or administered by carriers on or after the effective date of this chapter, and all health benefit plans in force on or after the effective date of this chapter shall be renewable with respect to all eligible employees or dependents at the option of the policyholder, contractholder, or small employer except as follows:
For nonpayment of the required premiums by the policyholder, contractholder, or small employer, if the policyholder, contractholder, or small employer has been duly notified and billed for the charge and at least a 30-day grace period has elapsed since the date of notification or, if longer, the period of time required for notice and any other requirements pursuant to Section 2703, 2712, or 2742 of the federal Public Health Service Act (42 U.S.C. Secs. 300gg-2, 300gg-12, and 300gg-42) and any subsequent rules or regulations has elapsed.
An insurer shall continue to provide coverage as required by the policyholder’s, contractholder’s, or small employer’s policy during the period described in paragraph (1). Nothing in this section shall be construed to affect or impair the policyholder’s, contractholder’s, small employer’s, or insurer’s other rights and responsibilities pursuant to the subscriber contract.
If the insurer demonstrates fraud or an intentional misrepresentation of material fact under the terms of the policy by the policyholder, contractholder, or small employer or, with respect to coverage of individual enrollees, the enrollees or their representative.
Violation of a material contract provision relating to employer contribution or group participation rates by the policyholder, contractholder, or small employer.
When the carrier ceases to write, issue, or administer new small employer health benefit plans in this state, provided, however, that the following conditions are satisfied:
Notice of the decision to cease writing, issuing, or administering new or existing small employer health benefits plans in this state is provided to the commissioner, and to either the policyholder, contractholder, or small employer at least 180 days prior to the discontinuation of the coverage.
Small employer health benefit plans subject to this chapter shall not be canceled for 180 days after the date of the notice required under paragraph (1). For that business of a carrier that remains in force, any carrier that ceases to write, issue, or administer new health benefit plans shall continue to be governed by this chapter.
Except in the case where a certification has been approved pursuant to subdivision (l) of Section 10705 or the commissioner has made a determination pursuant to subdivision (a) of Section 10712, a carrier that ceases to write, issue, or administer new health benefit plans to small employers in this state after the passage of this chapter shall be prohibited from writing, issuing, or administering new health benefit plans to small employers in this state for a period of five years from the date of notice to the commissioner.
When a carrier withdraws a benefit plan design from the small employer market, provided that the carrier notifies all affected policyholders, contractholders, or small employers and the commissioner at least 90 days prior to the discontinuation of those contracts, and that the carrier makes available to the small employer all small employer benefit plan designs which it markets and satisfies the requirements of paragraph (3) of subdivision (b) of Section 10714.
If coverage is made available through a bona fide association pursuant to subdivision (w) of Section 10700 or a guaranteed association pursuant to subdivision (y) of Section 10700, the membership of the employer or the individual, respectively, ceases, but only if that coverage is terminated under this subdivision uniformly without regard to any health status-related factor of covered individuals.
Premiums for benefit plan designs written, issued, or administered by carriers on or after the effective date of this act, shall be subject to the following requirements:
The premium for new business shall be determined for an eligible employee in a particular risk category after applying a risk adjustment factor to the carrier’s standard employee risk rates. The risk adjusted employee risk rate may not be more than 120 percent or less than 80 percent of the carrier’s applicable standard employee risk rate until July 1, 1996. Effective July 1, 1996, the risk adjusted employee risk rate may not be more than 110 percent or less than 90 percent.
The premium charged a small employer for new business shall be equal to the sum of the risk adjusted employee risk rates.
The standard employee risk rates applied to a small employer for new business shall be in effect for no less than six months.
The premium for in force business shall be determined for an eligible employee in a particular risk category after applying a risk adjustment factor to the carrier’s standard employee risk rates. The risk adjusted employee risk rates may not be more than 120 percent or less than 80 percent of the carrier’s applicable standard employee risk rate until July 1, 1996. Effective July 1, 1996, the risk adjusted employee risk rate may not be more than 110 percent or less than 90 percent. The factor effective July 1, 1996, shall apply to in force business at the earlier of either the time of renewal or July 1, 1997. The risk adjustment factor applied to a small employer may not increase by more than 10 percentage points from the risk adjustment factor applied in the prior rating period. The risk adjustment factor for a small employer may not be modified more frequently than every 12 months.
The premium charged a small employer for in force business shall be equal to the sum of the risk adjusted employee risk rates. The standard employee risk rates shall be in effect for no less than six months.
For a benefit plan design that a carrier has discontinued offering, the risk adjustment factor applied to the standard employee risk rates for the first rating period of the new benefit plan design that the small employer elects to purchase shall be no greater than the risk adjustment factor applied in the prior rating period to the discontinued benefit plan design. However, the risk adjusted employee rate may not be more than 120 percent or less than 80 percent of the carrier’s applicable standard employee risk rate until July 1, 1996. Effective July 1, 1996, the risk adjusted employee risk rate may not be more than 110 percent or less than 90 percent. The factor effective July 1, 1996, shall apply to in force business at the earlier of either the time of renewal or July 1, 1997. The risk adjustment factor for a small employer may not be modified more frequently than every 12 months.
Carriers shall apply standard employee risk rates consistently with respect to all small employers.
In connection with the offering for sale of any benefit plan design to small employers:
Each carrier shall make a reasonable disclosure, as part of its solicitation and sales materials, of the following:
The extent to which the premium rates for a specified small employer are established or adjusted in part based upon the actual or expected variation in claims costs or actual or expected variation in health conditions of the employees and dependents of the small employer.
The provisions concerning the carrier’s ability to change premium rates and the factors other than claim experience which affect changes in premium rates.
Provisions relating to the guaranteed issue of policies and contracts.
Provisions relating to the effect of any preexisting condition provision.
Provisions relating to the small employer’s right to apply for any benefit plan design written, issued, or administered by the carrier at the time of application for a new health benefit plan, or at the time of renewal of a health benefit plan.
The availability, upon request, of a listing of all the carrier’s benefit plan designs, including the rates for each benefit plan design.
No carrier shall provide or renew coverage subject to this chapter until it has done all of the following:
A statement has been filed with the commissioner listing all of the carrier’s benefit plan designs currently in force that are offered or proposed to be offered for sale in this state, identified by form number, and, if previously approved by the commissioner, the date approved by the commissioner as well as the standard employee risk rate for each risk category for each benefit plan design and the highest and lowest risk adjustment factors that the carrier intends to use in determining rates for each benefit plan design. When filing a new benefit plan design pursuant to Section 10705, carriers may submit both the policy form and the standard employee risk rates for each risk category at the same time.
Either:
Thirty days expires after that statement is filed without written notice from the commissioner specifying the reasons for his or her opinion that the carrier’s risk categories or risk adjustment factors do no comply with the requirements of this chapter.
Prior to that time the commissioner gives the carrier written notice that the carrier’s risk categories and risk adjustment factors as filed comply with the requirements of this chapter.
No carrier shall issue, deliver, renew, or revise a benefit plan design lawfully provided pursuant to subdivision (a), and no carrier shall change the risk categories, risk adjustment factors, or standard employee risk rates for any benefit plan design until all of the following requirements are met:
The carrier files with the commissioner a statement of the specific changes which the carrier proposes in the risk categories, risk adjustment factors, or standard employee risk rates.
Either:
Thirty days expires after such statement is filed without written notice from the commissioner specifying the reasons for his or her opinion that the carrier’s risk categories or risk adjustment factors do not comply with the requirements of this chapter.
Prior to that time the commissioner gives the carrier written notice that the carrier’s risk categories and risk adjustment factors as filed comply with the requirements of this chapter.
Notwithstanding any provision to the contrary, when a carrier is changing the standard employee risk rates of a benefit plan design lawfully provided under (a) or (b) above but is not changing the risk categories or risk adjustment factors which have been previously authorized, the carrier need not comply with the requirements of paragraph (2) of subdivision (b), but instead shall submit the revised standard employee risk rates for the benefit plan design prior to offering or renewing the benefit plan design.
When submitting filings under subdivision (a), (b), or (c), a carrier may also file with the commissioner at the time of the filings a statement of the standard employee risk rate for each risk category the carrier intends to use for each month in the 12 months subsequent to the date of the filing. Once the requirements of the applicable subdivision (a), (b), or (c), have been met, these rates shall be used by the carrier for the 12-month period unless the carrier is otherwise informed by the commissioner in his or her response to the filings submitted under subdivision (a), (b), or (c), provided that any subsequent change in the standard employee risk rates charged by the carrier which differ from those previously filed with the commissioner must be newly filed in accordance with this subdivision and provided that the carrier does not change the risk categories or risk adjustment factors for the benefit plan design.
If the commissioner notifies the carrier, in writing, that the carrier’s risk categories or risk adjustment factors do not comply with the requirements of this chapter, specifying the reasons for his or her opinion, it is unlawful for the carrier, at any time after the receipt of such notice, to utilize the noncomplying health benefit plan, benefit plan design, risk categories, or risk adjustment factors in conjunction with the health benefit plans or benefit plan designs for which the filing was made.
Each carrier shall maintain at its principal place of business copies of all information required to be filed with the commissioner pursuant to this section.
Each carrier shall make the information and documentation described in this section available to the commissioner upon request.
Nothing in this section shall be construed to permit the commissioner to establish or approve the rates charged to policyholders for health benefit plans.
In addition to any other remedy permitted by law, the commissioner shall have the administrative authority to assess penalties against carriers, insurance producers, and other entities engaged in the business of insurance or other persons or entities for violations of this chapter.
Upon a showing of a violation of this chapter in any civil action, a court may also assess the penalties described in this chapter, in addition to any other remedies provided by law.
Any production agent or other person or entity engaged in the business of insurance, other than a carrier, that violates this chapter is liable for administrative penalties of not more than two hundred fifty dollars ($250) for the first violation.
Any production agent or other person or entity engaged in the business of insurance, other than a carrier, that engages in practices prohibited by this chapter a second or subsequent time, or who commits a knowing violation of this chapter, is liable for administrative penalties of not less than one thousand dollars ($1,000) and not more than two thousand five hundred dollars ($2,500) for each violation.
Any carrier that violates this chapter is liable for administrative penalties of not more than two thousand five hundred dollars ($2,500) for the first violation and not more than five thousand dollars ($5,000) for each subsequent violation.
Any carrier that violates this chapter with a frequency that indicates a general business practice or commits a knowing violation of this chapter, is liable for administrative penalties of not less than fifteen thousand dollars ($15,000) and not more than one hundred thousand dollars ($100,000) for each violation.
An act or omission that is inadvertent and that results in incorrect premium rates being charged to more than one policyholder shall be a single violation for the purpose of this section.
In addition to any other remedy permitted by law, whenever the commissioner shall have reason to believe that any carrier, production agent, or other person or entity engaged in the business of insurance has violated this chapter, and that a proceeding by the commissioner in respect thereto would be in the interest of the public, the commissioner may issue and serve upon that entity an order to show cause containing a statement of the charges, a statement of the entity’s potential liability under this chapter, and a notice of a public hearing thereon before the Administrative Law Bureau of the department to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the commissioner should issue an order to that entity to pay the penalty imposed by this chapter and such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order to cease and desist from the specified violations of this chapter.
The hearings provided by this subdivision shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
Whenever it appears to the commissioner that irreparable loss and injury has occurred or may occur to an insured, employer, employee, or other member of the public because a carrier, production agent, or other person or entity engaged in the business of insurance has violated this chapter, the commissioner may, before hearing, but after notice and opportunity to submit relevant information, issue and cause to be served upon the entity such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order requiring the entity to forthwith cease and desist from engaging further in the violations which are causing or may cause such irreparable injury.
At the same time an order is served pursuant to paragraph (1) of this subdivision, the commissioner shall issue and also serve upon the person a notice of public hearing before the Administrative Law Bureau of the department to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof.
The hearings provided by this subdivision shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
At any time prior to the commencement of a hearing as provided in this subdivision, the entity against which the commissioner has served an order may waive the hearing and have judicial review of the order by means of any remedy afforded by law without first exhausting administrative remedies or procedures.
If, after hearing as provided by subdivision (a) or (b), the charges, or any of them, that an entity has violated this chapter are found to be justified, the commissioner shall issue and cause to be served upon that entity an order requiring that entity to pay the penalty imposed by this chapter and such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order to cease and desist from the specified violations of this chapter.
In addition to any other penalty provided by law or the availability of any administrative procedure, if a carrier, after notice and hearing, is found to have violated this chapter knowingly or as a general business practice the commissioner may suspend the carrier’s certificate of authority to transact disability insurance. The order of suspension shall prescribe the period of such suspension. The proceedings shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all the powers granted therein.
Carriers may enter into contractual agreements with qualified associations, as defined in subdivision (b), under which these qualified associations may assume responsibility for performing specific administrative services, as defined in this section, for qualified association members. Carriers that enter into agreements with qualified associations for assumption of administrative services shall establish uniform definitions for the administrative services that may be provided by a qualified association or its third-party administrator. The carrier shall permit all qualified associations to assume one or more of these functions when the carrier determines the qualified association demonstrates that it has the administrative capacity to assume these functions.
For the purposes of this section, administrative services provided by qualified associations or their third-party administrators shall be services pertaining to eligibility determination, enrollment, premium collection, sales, or claims administration on a per-claim basis that would otherwise be provided directly by the carrier or through a third-party administrator on a commission basis or an agent or solicitor workforce on a commission basis.
Each carrier that enters into an agreement with any qualified association for the provision of administrative services shall offer all qualified associations with which it contracts the same premium discounts for performing those services the carrier has permitted the qualified association or its third-party administrator to assume. The carrier shall apply these uniform discounts to the carrier’s risk adjusted employee risk rates after the carrier has determined the qualified association’s risk adjusted employee risk rates pursuant to Section 10714. The carrier shall report to the department its schedule of discounts for each administrative service.
In no instance may a carrier provide discounts to qualified associations that are in any way intended to, or materially result in, a reduction in premium charges to the qualified association due to the health status of the membership of the qualified association. In addition to any other remedies available to the commissioner to enforce this chapter, the commissioner may declare a contract between a carrier and a qualified association for administrative services pursuant to this section null and void if the commissioner determines any discounts provided to the qualified association are intended to, or materially result in, a reduction in premium charges to the qualified association due to the health status of the membership of the qualified association.
For the purposes of this section, a qualified association is a nonprofit corporation comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, that conforms to all of the following requirements:
It accepts for membership any individual or small employer meeting its membership criteria.
It does not condition membership, directly or indirectly, on the health or claims history of any person.
It uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association.
It is organized and maintained in good faith for purposes unrelated to insurance.
It existed on January 1, 1972, and has been in continuous existence since that date.
It has a constitution and bylaws or other analogous governing documents that provide for election of the governing board of the association by its members.
It offered, marketed, or sold health coverage to its members for 20 continuous years prior to January 1, 1993.
It agrees to offer any plan contract only to association members.
It agrees to include any member choosing to enroll in the plan contract offered by the association, provided that the member agrees to make required premium payments.
It complies with all provisions of this article.
It had at least 10,000 enrollees covered by association-sponsored plans immediately prior to enactment of Chapter 1128 of the Statutes of 1992.
It applies any administrative cost at an equal rate to all members purchasing coverage through the qualified association.
A qualified association shall comply with the requirements set forth in Section 10198.9.
Notwithstanding any other provision of law, no provision of this chapter shall be construed to limit the applicability of any other provision of the Insurance Code unless such provision is in conflict with the requirements of this chapter.
ARTICLE 3. Voluntary Reinsurance Mechanism [10719. - 10729.]
The California Small Group Reinsurance Fund is hereby authorized to be created solely to allow carriers to share in financing the cost of covering high risk small employer groups. It shall be organized as a nonprofit corporation, which consists of all small employer carriers and small employer health care service plans which elect to participate in the fund pursuant to subdivision (d) of Section 10720. These carriers may cede that portion of risk to the fund that the fund has agreed to accept.
Any person or entity subject to the requirements of this chapter shall comply with the standards set forth in Chapter 7 (commencing with Section 3750) of Part 1 of Division 9 of the Family Code and Section 14124.94 of the Welfare and Institutions Code.
The fund shall be governed by a board of directors, which shall initially be elected by small employer carriers and small employer health care service plans. The initial board shall be elected by a weighted vote based on net health insurance premiums derived from the state in the previous calendar year in the small employer market. The initial board shall consist of at least five and not more than nine representatives of small employer carriers and small employer health care service plans.
Within 180 days of the election of the initial board, the board shall adopt a plan of operation which provides for the reasonable and equitable administration of the fund.
The plan of operation shall, among other things, do all of the following:
Establish procedures to assure the fair, reasonable, and equitable administration of the fund and provide for the sharing of fund gains or losses on an equitable and proportionate basis.
Establish procedures for handling and accounting of program assets and moneys.
Establish terms of office and procedures for filling vacancies on the board.
Establish procedures for reinsuring risks in accordance with the provisions of this chapter.
Establish procedures for collecting assessments from members to provide for claims reinsured by the fund and for administrative expenses incurred or estimated to be incurred during the period for which the assessment is made.
Within 60 days of the board’s adoption of the plan of operation, small employer carriers and small employer health care service plans shall elect to be either a participant or nonparticipant of the fund. All participants of the fund shall be members of the fund, and only members of the fund shall continue to be members of the board. Members may elect new members of the board, if necessary, to replace initial board members who elect to be nonparticipants of the fund, subject to subdivision (a). The election shall be binding for a three-year period. Thereafter, each small employer carrier shall notify the board 90 days prior to the end of the election period whether or not they will be a member of the fund.
The fund shall have the general powers and authority granted under the laws of California to insurance companies and health care service plans licensed to transact business, except the power to issue health benefit plans directly to either groups or individuals. In addition, thereto, the fund shall have the specific authority to:
Enter into contracts as are necessary or proper to carry out the provisions and purposes of this chapter, including the authority to enter into contracts with similar programs of other states for the joint performance of common functions or with persons or other organizations for the performance of administrative functions.
Sue or be sued, including taking any legal actions necessary or proper for recovering any assessments and penalties for, on behalf of, or against the fund.
Take any legal action necessary to avoid the payment of improper claims against the fund.
Issue reinsurance policies, in accordance with the requirements of this chapter.
Establish rules, conditions, and procedures pertaining to the reinsurance of members’ risk by the fund.
Establish actuarial functions as appropriate for the operation of the fund.
Assess members of the fund and take advance interim assessments as may be reasonable and necessary for organizational and interim operating expenses. Any interim assessments shall be credited as offsets against any regular assessments due following the close of the fiscal year.
Appoint from among fund members appropriate legal, actuarial, and other committees as necessary to provide technical assistance in the operation of the fund, policy and contract design, and any other function within the authority of the fund.
Borrow money to effect the purposes of the fund. Any notes or other evidence of indebtedness of the fund not in default shall be legal investments for fund members and may be carried as admitted assets.
The fund shall provide for the financing of its reinsurance and operating costs, including actuarially sound reserves for unpaid losses, by charging members a reinsurance contribution and, as necessary, making assessments and collections from members in proportion to their participation in the program. Neither the state or any officer, agent, or employee shall be liable for any costs of the fund, or for any debts or liabilities incurred by the fund.
If assessments exceed actual losses and administrative expenses of the fund, the excess shall be held at interest and used by the fund to offset future losses or to reduce fund premiums. As used in this paragraph, “future losses” includes reserves for incurred but not reported claims.
Any unsatisfied net liability or outstanding assessment owed by an insolvent member participating in the fund shall be assumed by and apportioned among the remaining members in the fund in the same manner in which assessments are levied by the fund. The fund shall have all rights allowed by law on behalf of the remaining members against the insolvent member for sums due the fund.
Carriers choosing to participate shall comply with all requirements for participation established by the fund.
The fund’s board of directors shall establish the rules, conditions, and procedures pertaining to the reinsurance of members’ risks by the fund.
Nothing in this article relieves members of participating in the fund from complying with the underwriting and rating provisions included in Article 1 (commencing with Section 10700) and Article 2 (commencing with Section 10702) in the case of small employer carriers, or in Article 3.1 (commencing with Section 1357) and with Article 3.14 (commencing with Section 1357.50) of the Health and Safety Code, in the case of small employer health care service plans.
The fund shall be exempt from any and all taxes.
For purposes of agreements entered into pursuant to this article, the fund, and its officers, directors, agents, and employees shall have no liability for any damages other than actual damages.
The fund shall establish rules, conditions, and procedures relating to the indemnification of any person or member of the fund made a party to any claim, action, suit, or proceeding because the person or member served on the board of directors of the fund, or on a committee, or was an officer or employee of the fund, provided, such rules, conditions, and procedures do not authorize indemnification in excess of that expressly permitted by Section 317 of the Corporations Code.
ARTICLE 4. Purchasing Pool for Small Employers [10730. - 10750.]
The Voluntary Alliance Uniting Employers Purchasing Program is hereby created and shall be administered by the Major Risk Medical Insurance Board.
No member of the Major Risk Medical Insurance Board and no decisionmaker for any nonprofit entity that assumes administrative and fiscal responsibility for operation of the program pursuant to Sections 10748.5 and 10748.6 shall make, participate in making, or in any way attempt to use his or her official position to influence the making of any decision that he or she knows or has reason to know will have a reasonably foreseeable material financial effect, distinguishable from its effect on the public generally, on him or her or a member of his or her immediate family, or on any of the following:
Any source of income, other than gifts and other than loans by a commercial lending institution in the regular course of business on terms available to the public without regard to official status aggregating two hundred fifty dollars ($250) or more in value provided to, received by, or promised to the member of the Major Risk Medical Insurance Board or decisionmaker for a nonprofit entity that assumes administrative and fiscal responsibility for operation of the program pursuant to Sections 10748.5 and 10748.6 within 12 months prior to the time when the decision is made.
Any business entity in which the member of the Major Risk Medical Insurance Board or decisionmaker for a nonprofit entity that assumes administrative and fiscal responsibility for operation of the program pursuant to Sections 10748.5 and 10748.6 is a director, officer, partner, trustee, employee, or holds any position of management.
Commencing January 1, 1994, no member of the Major Risk Medical Insurance Board and no decisionmaker for any nonprofit entity that assumes administrative and fiscal responsibility for the program pursuant to Sections 10748.5 and 10748.6, may be an employee, a consultant or a member of the board of directors of any insurer, hospital service plan or health care service plan, or an insurance broker or agent doing business in California.
The board may do any of the following:
Enter into contracts with carriers to provide health benefits coverage to eligible employees and their dependents. Any contract entered into pursuant to this part shall be exempt from any provision of law relating to competitive bidding, and shall be exempt from the review or approval of any division of the Department of General Services. The board shall not be required to specify the amounts encumbered for each contract, but may allocate funds to each contract based on projected and actual subscriber enrollments.
Enter into other contracts as are necessary or proper to carry out the provisions of this part.
Employ necessary staff.
Sue or be sued, including taking any legal actions necessary or proper for recovering any penalties for, on behalf of, or against, the program or any board member.
Define the health benefits coverage which the program will contract to purchase from participating carriers.
Appoint committees, as necessary, to provide technical assistance in the operation of the program.
Assess participating employers a reasonable fee for necessary costs in connection with the program.
Undertake activities necessary to administer the program, including marketing and publicizing the program, and assuring carrier, employer, and enrollee compliance with program requirements.
Establish rules, conditions, and procedures for participation for small employers.
Establish rules, conditions, and procedures for participation for participating carriers.
Establish a financial relationship directly with agents or brokers to provide services pursuant to this program.
Approve the benefit plan designs sold by carriers participating in the pool.
Issue rules and regulations as necessary to administer the program. Any rules and regulations issued pursuant to this subdivision may be adopted as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). Until December 31, 1994, the adoption of these regulations shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, and safety, or general welfare.
Exercise all powers reasonably necessary to carry out the powers and responsibilities expressly granted or imposed by this part.
From money appropriated to the Major Risk Medical Insurance Fund, the Major Risk Medical Insurance Board may loan funds for operating expenses to establish the program. These funds shall be repaid to the Major Risk Medical Insurance Fund prior to transitioning administrative and financial responsibility for the program to a qualified nonprofit entity pursuant to Sections 10748.5 and 10748.6.
Any person or entity subject to the requirements of this chapter shall comply with the standards set forth in Chapter 7 (commencing with Section 3750) of Part 1 of Division 9 of the Family Code and Section 14124.94 of the Welfare and Institutions Code.
The board shall establish geographic areas within which participating carriers may offer health coverage to eligible employees and dependents.
On or after the effective date of this chapter, the board shall enter into contracts with carriers for the purpose of providing health benefits coverage to eligible employees and dependents. Participating carriers shall have, but need not be limited to, all of the following operating characteristics satisfactory to the board:
Strong financial condition, including the ability to assume the risk of providing and paying for covered services. A participating carrier may utilize reinsurance, provider risk sharing, and other appropriate mechanisms to share a portion of the risk.
Adequate administrative management.
In the case of the health care service plan, the following requirements must be met: (1) on the effective date of the contract, the health care service plan must be in compliance with the minimum tangible net equity requirements of the Director of the Department of Managed Health Care as those requirements will be in effect on January 1, 1995, and must remain in compliance with these requirements throughout the duration of the contract; (2) (A) before the effective date of the contract, the health care service plan must have devised a system for identifying in a simple and clear fashion both in its own records and in the medical records of subscribers and enrollees the fact that the services provided are provided under the program; and (B) throughout the duration of the contract, the health care service plan must use that system; and (3) at least 30 days before the effective date of any contract with the board, the health care service plan must inform the Director of the Department of Managed Health Care in writing of the health care service plan’s intent to enter into the contract and must demonstrate in that letter, to the satisfaction of the Director of the Department of Managed Health Care, that it has complied with the requirements of paragraphs (1) and (2).
A satisfactory grievance procedure.
Participating carriers that contract with or employ health care providers shall have mechanisms to accomplish all of the following, in a manner satisfactory to the board, in consultation with the carrier’s licensing agency.
Review the quality of care covered.
Review the appropriateness of care covered.
Provide accessible health care services.
Notwithstanding any other provision of law, an employer purchasing coverage through the program shall not be determined to be no longer eligible to participate in the program solely because the employer employs more than 50 eligible employees, provided the employer employs no more than 100 eligible employees.
Notwithstanding any other provision of law, the board shall not be subject to licensure or regulation by the Department of Insurance or the Department of Managed Health Care, as the case may be.
Participating carriers that contract with the program shall be licensed and in good standing with their licensing agencies.
The board shall contract with a broad range of carriers in an area, if available, to ensure that enrollees have a choice from among a reasonable number and types of competing carriers. The board shall develop and make available objective criteria for carrier selection and provide adequate notice of the application process to permit all carriers a reasonable and fair opportunity to participate. The criteria and application process shall allow participating carriers to comply with their state and federal licensing and regulatory obligations, except as otherwise provided in this chapter. Carrier selection shall be based on the criteria developed by the board.
The administrator shall not eliminate any carrier from selection solely because of the carrier’s size or limited service area.
The board shall use appropriate and efficient means to notify small employers of the availability of sponsored health coverage from the program.
The board shall make available to small employers marketing materials that accurately summarize the benefits plans and rates that are offered by the carrier through the program.
Unless authorized by the board, no participating carrier shall, in an area served by the program, directly, or through an employee, agent, or contractor, provide a small group or enrollee with any marketing material relating to benefits or rates provided under the program.
Participating carriers may contract with agents or brokers to provide marketing and servicing of health benefits coverage offered through the program. Any commissions set and paid pursuant to this section shall be determined by the participating carrier and the agent or broker.
The board shall enforce conditions of participation in the program for small employers and enrollees which shall conform with the requirements of this chapter.
The board shall establish a mechanism to collect premiums from small employers, including remittance of the share of the premium paid by the enrollee.
The board may prohibit employers or employees who drop coverage after enrolling in the pool from reenrolling in the program for up to 12 months.
The board shall arrange to pay contractors as specified in program contracts.
The board shall pay participating carriers their contracted rates.
Participating carriers shall offer rates to small employers or enrollees in the program that, at a minimum, are consistent with the program regulations and existing statutes and regulations regulating health insurance offerings to small employers.
The board may adjust payments made to a carrier if the board finds that the carrier has a significantly disproportionate share of high- or low-risk enrollees. Prior to making this finding, the program shall obtain valid data from participating carriers. Reporting requirements shall be administratively compatible with the methods of operation of the carrier. Any adjustments to payments shall be prospective and shall utilize demographic and other factors which are actuarially related to risk.
If a small employer, employee, or dependent of a small employer is dissatisfied with any action or failure to act which has occurred in connection with eligibility for, or enrollment in the program, the employer or employee shall have the right to appeal to the board and shall be accorded an opportunity for a fair hearing. Hearings shall be conducted, insofar as practicable, pursuant to the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
No later than three years from the effective date of this article, the board shall issue a request for proposals that solicits nonprofit entities to submit bids to assume administrative and fiscal responsibility for operation of the program on a regional basis. The geographic boundaries of the regions shall be designated by the board. The board shall assess bidder’s qualifications in the areas of administrative capacity, financial responsibility, local experience, and demonstrated ability.
Within six months of issuing the request for proposals, the board shall select from among the qualified bidders and award administrative and financial responsibility for the program to the selected regional nonprofit entities. If no qualified nonprofit entity submits a bid pursuant to the board’s request for proposals, one year from the date that bids were due the board shall reissue a request for proposals if the board has reason to believe that there is a possibility for a response from a qualified nonprofit entity.
The board shall provide for an orderly transition of administrative and financial responsibility for the program.
The board shall accept and review proposals submitted from nonprofit entities for assumption of administrative and financial responsibility of the program at any time prior to the process described in Section 10748.5. If the board determines that a qualified entity exists, the board may relinquish administrative and financial responsibility for the program to the nonprofit entity. Any contract entered into pursuant to this section shall be exempt from any provision of law relating to competitive bidding and shall be exempt from the review or approval of any division of the Department of General Services.
There is in the program a five-member small employer advisory panel to be appointed by the board to provide consultation to the board on program design and implementation. The composition of the panel shall reflect varying sizes of small employers and a variety of occupational categories.
There is created a Voluntary Alliance Uniting Employers Fund which shall consist of moneys collected pursuant to this article and any funds loaned by the board for operating expenses. Moneys in the fund shall be continuously appropriated without regard to fiscal year, to the board for the purposes specified in this part. Costs of the Voluntary Alliance for Uniting Employers Purchasing Program shall not be paid with state funds other than funds loaned by the board for operating expenses. Moneys within the fund shall be utilized for the purposes of this article.
ARTICLE 5. Stop-Loss Insurance [10752. - 10752.8.]
As used in this article, the following definitions shall apply:
“Attachment point” means the amount of health claims incurred by a small employer in a policy year for its employees and their dependents, and covered by a stop-loss insurance policy, above which the stop-loss insurer incurs a liability for payment.
“Individual attachment point” means the amount of health claims incurred by a small employer in a policy year for an individual employee or dependent of an employee, and covered by a stop-loss insurance policy, above which the stop-loss insurer incurs a liability for payment, under individual stop-loss coverage. For purposes of this article, “specific attachment point” has the same meaning as “individual attachment point.”
“Aggregate attachment point” means the total amount of health claims incurred by a small employer in a policy year for all covered employees and their dependents, and covered by a stop-loss insurance policy, above which the stop-loss insurer incurs a liability for payment under aggregate stop-loss coverage.
“Dependent” means the spouse, registered domestic partner as described in Section 297 of the Family Code, or child of an employee.
“Direct coverage” means that an insurance company assumes a direct obligation to an employee under an insurance policy to pay or indemnify the employee for health claims incurred by the employee or the employee’s dependents.
“Expected claims” means, for the purposes of aggregate stop-loss coverage, the total amount of health claims that is projected to be incurred by a small employer for its employees and their dependents in a policy year.
“Policy year” means the 12-month period that is designated as the policy year or policy period for the stop-loss insurance policy. If the stop-loss insurance policy does not designate a policy year, the policy year is the year in which the total amount of health claims incurred by a small employer for an individual employee or dependent of an employee, or the aggregate amount for all covered employees and their dependents, are added together for the purposes of determining whether the claims have exceeded the attachment point.
“Small employer” has the same meaning as defined in subdivision (q) of Section 10753.
“Stop-loss insurer” means an insurance company providing individual or aggregate stop-loss insurance coverage, or both, or any other assumption of risk, to a small employer for the health claims it incurs for its employees and their dependents.
“Stop-loss insurance policy” means a policy, contract, certificate, or statement of coverage between a stop-loss insurer and small employer providing individual or aggregate stop-loss insurance coverage, or both, or any other assumption of risk, to a small employer for the liability the small employer incurs related to the covered health claims of its employees and their dependents.
A stop-loss insurer shall not exclude any employee or dependent on the basis of an actual or expected health status-related factor. Health status-related factors include, but are not limited to, any of the following: health status; medical condition, including both physical and mental illnesses; claims experience; medical history; receipt of health care; genetic information; disability; evidence of insurability, including conditions arising out of acts of domestic violence of the employee or dependent; or any other health status-related factor as determined by the department.
A stop-loss insurer shall renew, at the option of the small employer, all stop-loss insurance policies written, issued, administered, or renewed on or after January 1, 2014, and all small employer stop-loss insurance policies in force on or after January 1, 2014, except as follows:
For nonpayment of the required premiums by the small employer, if the small employer has been duly notified and billed for the charge and at least a 30-day grace period has elapsed since the date of notification.
A stop-loss insurer shall continue to provide coverage as required by the small employer’s policy during the grace period described in paragraph (1). Nothing in this section shall be construed to affect or impair the small employer’s or the stop-loss insurer’s other rights and responsibilities pursuant to the policy.
Where the stop-loss insurer demonstrates fraud or an intentional misrepresentation of material fact by the small employer under the terms of the stop-loss insurance policy.
Where the stop-loss insurer has been determined by the commissioner to be financially impaired.
Where the stop-loss insurer ceases to write, issue, or administer new stop-loss insurance policies in this state; provided, however, that the following conditions are satisfied:
Notice of the decision to cease writing, issuing, or administering new or existing stop-loss insurance policies in this state is provided to the commissioner, and to the small employer, at least 180 days prior to the discontinuation of the coverage.
Stop-loss insurance policies subject to this article shall not be canceled until 180 days after the date of the notice required under paragraph (1). During that time, the stop-loss insurer shall continue to comply with this article.
A stop-loss insurance policy issued, reissued, or renewed on or after January 1, 2014, and prior to January 1, 2016, to a small employer shall not contain any of the following provisions:
An individual attachment point for a policy year that is less than thirty-five thousand dollars ($35,000).
An aggregate attachment point for a policy year that is less than the greater of one of the following:
Five thousand dollars ($5,000) times the total number of group members.
One hundred twenty percent of expected claims.
Thirty-five thousand dollars ($35,000).
A provision for direct coverage of an employee or dependent of an employee.
A stop-loss insurance policy issued, reissued, or renewed on or after January 1, 2016, to a small employer shall not contain any of the following provisions:
An individual attachment point for a policy year that is less than forty thousand dollars ($40,000).
An aggregate attachment point for a policy year that is less than the greater of one of the following:
Five thousand dollars ($5,000) times the total number of group members.
One hundred twenty percent of expected claims.
Forty thousand dollars ($40,000).
A provision for direct coverage of an employee or dependent of an employee.
Sections 10752.3 and 10752.4 do not apply to a stop-loss insurance policy provided to a small employer that was in effect prior to September 1, 2013. A stop-loss insurance policy that was in effect prior to September 1, 2013, may be renewed or reissued, or a stop-loss insurance policy may be issued by another stop-loss insurer to maintain continuity of stop-loss coverage for a small employer who had a stop-loss insurance policy in effect prior to September 1, 2013, provided that a stop-loss policy issued to maintain continuity of coverage shall have attachment points that are the same as or higher than the attachment points that were in place in the policy held by the small employer prior to September 1, 2013.
On April 1, 2014, and on April 1 annually thereafter, a stop-loss insurer shall report to the Department of Insurance the number of small employer stop-loss policies it had issued and in effect as of December 31 of the previous year. The information shall include new policies issued and policies reissued or renewed in the previous year for groups that have 1 to 50 employees and 51 to 100 employees.
The commissioner may adopt regulations as may be necessary to carry out the purposes of this article. In adopting regulations, the commissioner shall comply with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
Nothing in this article shall affect the ongoing operations of multiple employer welfare arrangements regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 that provide health care benefits to their members on a self-funded or partially self-funded basis and that comply with small group health reforms.
The provisions of this article are severable. If any provision of this article or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
CHAPTER 8.01. Nongrandfathered Small Employer Health Insurance [10753. - 10753.18.7.]
ARTICLE 1. Definitions [10753. - 10753.01.]
“Agent or broker” means a person or entity licensed under Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
“Benefit plan design” means a specific health coverage product issued by a carrier to small employers, to trustees of associations that include small employers, or to individuals if the coverage is offered through employment or sponsored by an employer. It includes services covered and the levels of copayment and deductibles, and it may include the professional providers who are to provide those services and the sites where those services are to be provided. A benefit plan design may also be an integrated system for the financing and delivery of quality health care services which has significant incentives for the covered individuals to use the system.
“Carrier” means a health insurer or any other entity that writes, issues, or administers health benefit plans that cover the employees of small employers, regardless of the situs of the contract or master policyholder.
“Child” means a child described in Section 22775 of the Government Code and subdivisions (n) to (p), inclusive, of Section 599.500 of Title 2 of the California Code of Regulations.
“Dependent” means the spouse or registered domestic partner, or child, of an eligible employee, subject to applicable terms of the health benefit plan covering the employee, and includes dependents of guaranteed association members if the association elects to include dependents under its health coverage at the same time it determines its membership composition pursuant to subdivision (s).
“Eligible employee” means either of the following:
Any permanent employee who is actively engaged on a full-time basis in the conduct of the business of the small employer with a normal workweek of an average of 30 hours per week over the course of a month, in the small employer’s regular place of business, who has met any statutorily authorized applicable waiting period requirements. The term does not include sole proprietors or the spouses of those sole proprietors, partners of a partnership or the spouses of those partners, or employees who work on a part-time, temporary, or substitute basis. It includes any eligible employee, as defined in this paragraph, who obtains coverage through a guaranteed association. Employees of employers purchasing through a guaranteed association are eligible employees if they would otherwise meet the definition except for the number of persons employed by the employer. A permanent employee who works at least 20 hours but not more than 29 hours is an eligible employee if all four of the following apply:
The employee otherwise meets the definition of an eligible employee except for the number of hours worked.
The employer offers the employee health coverage under a health benefit plan.
All similarly situated individuals are offered coverage under the health benefit plan.
The employee shall have worked at least 20 hours per normal workweek for at least 50 percent of the weeks in the previous calendar quarter. The insurer may request any necessary information to document the hours and time period in question, including, but not limited to, payroll records and employee wage and tax filings.
Any member of a guaranteed association as defined in subdivision (s).
“Enrollee” means an eligible employee or dependent who receives health coverage through the program from a participating carrier.
“Exchange” means the California Health Benefit Exchange created by Section 100500 of the Government Code.
“Financially impaired” means, for the purposes of this chapter, a carrier that, on or after the effective date of this chapter, is not insolvent and is either:
Deemed by the commissioner to be potentially unable to fulfill its contractual obligations.
Placed under an order of rehabilitation or conservation by a court of competent jurisdiction.
“Health benefit plan” means a policy of health insurance, as defined in Section 106, for the covered eligible employees of a small employer and their dependents. The term does not include coverage of Medicare services pursuant to contracts with the United States government, or coverage that provides excepted benefits, as described in Sections 2722 and 2791 of the federal Public Health Service Act, subject to Section 10701.
“In force business” means an existing health benefit plan issued by the carrier to a small employer.
“Late enrollee” means an eligible employee or dependent who has declined health coverage under a health benefit plan offered by a small employer at the time of the initial enrollment period provided under the terms of the health benefit plan consistent with the periods provided pursuant to Section 10753.05 and who subsequently requests enrollment in a health benefit plan of that small employer, except where the employee or dependent qualifies for a special enrollment period provided pursuant to Section 10753.05. It also means any member of an association that is a guaranteed association as well as any other person eligible to purchase through the guaranteed association when that person has failed to purchase coverage during the initial enrollment period provided under the terms of the guaranteed association’s health benefit plan consistent with the periods provided pursuant to Section 10753.05 and who subsequently requests enrollment in the plan, except where the employee or dependent qualifies for a special enrollment period provided pursuant to Section 10753.05.
“New business” means a health benefit plan issued to a small employer that is not the carrier’s in force business.
“Preexisting condition provision” means a policy provision that excludes coverage for charges or expenses incurred during a specified period following the insured’s effective date of coverage, as to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during a specified period immediately preceding the effective date of coverage.
“Creditable coverage” means:
Any individual or group policy, contract, or program, that is written or administered by a health insurer, health care service plan, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, coverage for onsite medical clinics, disability income, Medicare supplement, long-term care, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers’ compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
The federal Medicare Program pursuant to Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
The Medicaid program pursuant to Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.).
Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital, and surgical care.
Chapter 55 (commencing with Section 1071) of Title 10 of the United States Code (Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)).
A medical care program of the Indian Health Service or of a tribal organization.
A health plan offered under Chapter 89 (commencing with Section 8901) of Title 5 of the United States Code (Federal Employees Health Benefits Program (FEHBP)).
A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(I) of the federal Public Health Service Act, as amended by Public Law 104-191, the federal Health Insurance Portability and Accountability Act of 1996.
A health benefit plan under Section 5(e) of the federal Peace Corps Act (22 U.S.C. Sec. 2504(e)).
Any other creditable coverage as defined by subdivision (c) of Section 2704 of Title XXVII of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(c)).
“Rating period” means the period for which premium rates established by a carrier are in effect and shall be no less than 12 months from the date of issuance or renewal of the health benefit plan.
“Small employer” means either of the following:
For plan years commencing on or after January 1, 2014, and on or before December 31, 2015, any person, firm, proprietary or nonprofit corporation, partnership, public agency, or association that is actively engaged in business or service, that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one, but no more than 50, eligible employees, the majority of whom were employed within this state, that was not formed primarily for purposes of buying health benefit plans, and in which a bona fide employer-employee relationship exists. For plan years commencing on or after January 1, 2016, any person, firm, proprietary or nonprofit corporation, partnership, public agency, or association that is actively engaged in business or service, that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one, but no more than 100, employees, the majority of whom were employed within this state, that was not formed primarily for purposes of buying health benefit plans, and in which a bona fide employer-employee relationship exists. In determining whether to apply the calendar quarter or calendar year test, a carrier shall use the test that ensures eligibility if only one test would establish eligibility. In determining the number of employees or eligible employees, companies that are affiliated companies and that are eligible to file a combined tax return for purposes of state taxation shall be considered one employer. Subsequent to the issuance of a health benefit plan to a small employer pursuant to this chapter, and for the purpose of determining eligibility, the size of a small employer shall be determined annually. Except as otherwise specifically provided in this chapter, provisions of this chapter that apply to a small employer shall continue to apply until the plan contract anniversary following the date the employer no longer meets the requirements of this definition. It includes any small employer as defined in this subparagraph who purchases coverage through a guaranteed association, any employer purchasing coverage for employees through a guaranteed association, and any small employer as defined in this paragraph who purchases coverage through any arrangement, but does not include multiple employer welfare arrangements regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 that provide health care benefits to their members on a self-funded or partially self-funded basis and that comply with small group health reforms.
Any guaranteed association, as defined in subdivision (r), that purchases health coverage for members of the association.
For plan years commencing on or after January 1, 2019, for purposes of determining whether an employer has one employee, sole proprietors and their spouses, and partners of a partnership and their spouses, are not employees.
For plan years commencing on or after January 1, 2016, the definition of small employer, for purposes of determining employer eligibility in the small employer market, shall be determined using the method for counting full-time employees and full-time equivalent employees set forth in Section 4980H(c)(2) of the Internal Revenue Code.
“Guaranteed association” means a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria which (1) includes one or more small employers as defined in subparagraph (A) of paragraph (1) of subdivision (q), (2) does not condition membership directly or indirectly on the health or claims history of any person, (3) uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, (4) is organized and maintained in good faith for purposes unrelated to insurance, (5) has been in active existence on January 1, 1992, and for at least five years prior to that date, (6) has been offering health insurance to its members for at least five years prior to January 1, 1992, (7) has a constitution and bylaws, or other analogous governing documents that provide for election of the governing board of the association by its members, (8) offers any benefit plan design that is purchased to all individual members and employer members in this state, (9) includes any member choosing to enroll in the benefit plan design offered to the association provided that the member has agreed to make the required premium payments, and (10) covers at least 1,000 persons with the carrier with which it contracts. The requirement of 1,000 persons may be met if component chapters of a statewide association contracting separately with the same carrier cover at least 1,000 persons in the aggregate.
This subdivision applies regardless of whether a master policy by an admitted insurer is delivered directly to the association or a trust formed for or sponsored by an association to administer benefits for association members.
For purposes of this subdivision, an association formed by a merger of two or more associations after January 1, 1992, and otherwise meeting the criteria of this subdivision shall be deemed to have been in active existence on January 1, 1992, if its predecessor organizations had been in active existence on January 1, 1992, and for at least five years prior to that date and otherwise met the criteria of this subdivision.
“Members of a guaranteed association” means any individual or employer meeting the association’s membership criteria if that person is a member of the association and chooses to purchase health coverage through the association. At the association’s discretion, it may also include employees of association members, association staff, retired members, retired employees of members, and surviving spouses and dependents of deceased members. However, if an association chooses to include those persons as members of the guaranteed association, the association must so elect in advance of purchasing coverage from a plan. Health plans may require an association to adhere to the membership composition it selects for up to 12 months.
“Grandfathered health plan” has the meaning set forth in Section 1251 of PPACA.
“Nongrandfathered health benefit plan” means a health benefit plan that is not a grandfathered health plan.
“Plan year” has the meaning set forth in Section 144.103 of Title 45 of the Code of Federal Regulations.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
“Waiting period” means a period that is required to pass with respect to the employee before the employee is eligible to be covered for benefits under the terms of the contract.
“Registered domestic partner” means a person who has established a domestic partnership as described in Section 297 of the Family Code.
“Family” means the policyholder and his or her dependents.
For purposes of this chapter, “health benefit plan” does not include policies or certificates of specified disease or hospital confinement indemnity provided that the carrier offering those policies or certificates complies with the following:
The carrier files, on or before March 1 of each year, a certification with the commissioner that contains the statement and information described in paragraph (2).
The certification required in paragraph (1) shall contain the following:
A statement from the carrier certifying that policies or certificates described in this section (i) are being offered and marketed as supplemental health insurance and not as a substitute for coverage that provides essential health benefits as defined by the state pursuant to Section 1302 of PPACA, and (ii) the disclosure forms as described in Section 10603 contains the following statement prominently on the first page: “This is a supplement to health insurance. It is not a substitute for essential health benefits or minimum essential coverage as defined in federal law.”
A summary description of each policy or certificate described in this section, including the average annual premium rates, or range of premium rates in cases where premiums vary by age, gender, or other factors, charged for the policies and certificates issued or delivered in this state.
In the case of a policy or certificate that is described in this section and that is offered for the first time in this state with respect to plan years on or after January 1, 2014, the carrier files with the commissioner the information and statement required in paragraph (2) at least 30 days prior to the date such a policy or certificate is issued or delivered in this state.
As used in this section, “policies or certificates of specified disease” and “policies or certificates of hospital confinement indemnity” mean policies or certificates of insurance sold to an insured to supplement other health insurance coverage as specified in this section. An insurer issuing a “policy or certificate of specified disease” or a “policy or certificate of hospital confinement indemnity” shall require that the person to be insured is covered by an individual or group policy or contract that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans.
ARTICLE 2. Small Employer Carrier Requirements [10753.02. - 10753.18.7.]
This chapter shall apply only to nongrandfathered health benefit plans and only with respect to plan years commencing on or after January 1, 2014.
All carriers writing, issuing, or administering health benefit plans that cover employees of small employers shall be subject to this chapter if any one of the following conditions are met:
Any portion of the premium for any health benefit plan or benefits is paid by a small employer, or any covered individual is reimbursed, whether through wage adjustments or otherwise, by a small employer for any portion of the premium.
The health benefit plan is treated by the small employer or any of the covered individuals as part of a plan or program for the purposes of Section 106 or 162 of the Internal Revenue Code.
Any person or entity subject to the requirements of this chapter shall comply with the standards set forth in Chapter 7 (commencing with Section 3750) of Part 1 of Division 9 of the Family Code and Section 14124.94 of the Welfare and Institutions Code.
The commissioner shall have the authority to determine whether a health benefit plan is covered by this chapter, and to determine whether an employer is a small employer within the meaning of Section 10753.
The commissioner may issue regulations that are necessary to carry out the purposes of this chapter.
A group or individual policy or contract or certificate of group insurance or statement of group coverage providing benefits to employees of small employers as defined in this chapter shall not be issued or delivered by a carrier subject to the jurisdiction of the commissioner regardless of the situs of the contract or master policyholder or of the domicile of the carrier nor, except as otherwise provided in Sections 10270.91 and 10270.92, shall a carrier provide coverage subject to this chapter until a copy of the form of the policy, contract, certificate, or statement of coverage is filed with and approved by the commissioner in accordance with Sections 10290 and 10291, and the carrier has complied with the requirements of Section 10753.17.
Each carrier shall fairly and affirmatively offer, market, and sell all of the carrier’s health benefit plans that are sold to, offered through, or sponsored by, small employers or associations that include small employers for plan years on or after January 1, 2014, to all small employers in each geographic region in which the carrier makes coverage available or provides benefits.
A carrier that offers qualified health plans through the Exchange shall be deemed to be in compliance with paragraph (1) with respect to health benefit plans offered through the Exchange in those geographic regions in which the carrier offers plans through the Exchange.
A carrier shall provide enrollment periods consistent with PPACA and described in Section 155.725 of Title 45 of the Code of Federal Regulations. Commencing January 1, 2014, a carrier shall provide special enrollment periods consistent with the special enrollment periods described in Section 10965.3, to the extent permitted by PPACA, except for both of the following:
The special enrollment period described in paragraph (3) of subdivision (c) of Section 10965.3.
The triggering events identified in paragraphs (d)(3) and (d)(6) of Section 155.420 of Title 45 of the Code of Federal Regulations with respect to health benefit plans offered through the Exchange.
This section does not require an association, or a trust established and maintained by an association to receive a master insurance policy issued by an admitted insurer and to administer the benefits thereof solely for association members, to offer, market, or sell a benefit plan design to those who are not members of the association. However, if the association markets, offers, or sells a benefit plan design to those who are not members of the association, it is subject to the requirements of this section. This section applies to an association that otherwise meets the requirements of paragraph (8) formed by merger of two or more associations after January 1, 1992, if the predecessor organizations had been in active existence on January 1, 1992, and for at least five years prior to that date and met the requirements of paragraph (5).
A carrier which (A) effective January 1, 1992, and at least 20 years that date, markets, offers, or sells benefit plan designs only to all members of one association and (B) does not market, offer, or sell any other individual, selected group, or group policy or contract providing medical, hospital, and surgical benefits shall not be required to market, offer, or sell to those who are not members of the association. However, if the carrier markets, offers, or sells any benefit plan design or any other individual, selected group, or group policy or contract providing medical, hospital, and surgical benefits to those who are not members of the association, it is subject to the requirements of this section.
Each carrier that sells health benefit plans to members of one association pursuant to paragraph (5) shall submit an annual statement to the commissioner which states that the carrier is selling health benefit plans pursuant to paragraph (5) and which, for the one association, lists all the information required by paragraph (7).
Each carrier that sells health benefit plans to members of any association shall submit an annual statement to the commissioner which lists each association to which the carrier sells health benefit plans, the industry or profession which is served by the association, the association’s membership criteria, a list of officers, the state in which the association is organized, and the site of its principal office.
For purposes of paragraphs (4) and (6), an association is a nonprofit organization composed of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or small employer meeting its membership criteria, which do not condition membership directly or indirectly on the health or claims history of any person, which uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, which is organized and maintained in good faith for purposes unrelated to insurance, which has been in active existence on January 1, 1992, and at least five years before that date, which has a constitution and bylaws, or other analogous governing documents that provide for election of the governing board of the association by its members, which has contracted with one or more carriers to offer one or more health benefit plans to all individual members and small employer members in this state.
Health coverage through an association that is not related to employment shall be considered individual coverage. The status of each distinct member of an association shall determine whether that member’s association coverage is individual, small group, or large group health insurance coverage.
Notwithstanding subparagraph (A), an association of employers may offer a large group health insurance policy consistent with the Employee Retirement Income Security Act of 1974 (Public Law 93-406) (ERISA), as amended (29 U.S.C. Sec. 1001 et seq.), if all of the following requirements are met:
The association is headquartered in this state and is a multiple employer welfare arrangement (MEWA) as defined under Section 3(40) of ERISA (29 U.S.C. Sec. 1002(40)).
The MEWA is fully insured as described in Section 514 of ERISA (29 U.S.C. Sec. 1144) and is a bona fide association or group of employers that may act as an “employer” under Section 3(5) of ERISA.
The MEWA was established prior to March 23, 2010, and has been in continuous existence since that date, and offers a large group health insurance policy in connection with an employee welfare benefit plan under Section 3(1) of ERISA (29 U.S.C. Sec. 1002(1)).
As of January 1, 2019, the large group health insurance policy offered to employees has continuously provided a level of coverage having an actuarial value equivalent to, or greater than, the platinum level of coverage, as described in Section 10112.295, that is available through the California Health Benefit Exchange established pursuant to Section 100500 of the Government Code, and the large group health insurance policy provides coverage for essential health benefits consistent with Section 10112.27 and any rules or regulations adopted pursuant to that section.
The large group health insurance policy includes coverage of employees, and their dependents, who are employed in designated job categories on a project-by-project basis for one or more participating employers, with no single project exceeding six months in duration, and who, in the course of that employment, are not covered by another group health insurance policy in which the employer participates. Employer members of the MEWA shall subsidize at least 51 percent of the cost of individual employee premiums of their employees.
The large group health insurance policy offers only fully insured benefits through a health insurer or disability insurer licensed by the department. The benefits offered under the large group health insurance policy shall be considered fully insured only if the terms of the health insurance policy provide for benefits, the amount of all of which the department determines are guaranteed under a policy of insurance issued by an insurer licensed by the department.
The number of total employees, including employees described in clause (v), employed by all participating employers in each year is at least 101 employees.
The MEWA and participating employers have a genuine organizational relationship unrelated to the provision of health care benefits, and the MEWA existed prior to the establishment of the employee welfare benefit plan.
The participating employers have a commonality of interests from being in the same line of business, unrelated to the provision of health care benefits, as demonstrated by membership in the same business league, as described in Section 501(c)(6) of the Internal Revenue Code (26 U.S.C. Sec. 501(c)(6)).
Membership in the MEWA is open solely to employers, including the MEWA as an employer, and participating member employers exercise control, either directly or indirectly, over the employer welfare benefit plan, the MEWA, and the large group health insurance policy, in form and in substance.
The large group health insurance policy is treated as a single-risk-rated policy that is guaranteed issue and guaranteed renewable for employees and dependents. An employee or dependent is not charged premium rates based on health status and is not excluded from coverage based upon any preexisting condition. Employee and dependent eligibility are not directly or indirectly based on health or claims of any person. An employer is not excluded from participating in a MEWA or offering the large group health insurance policy based on health status or claims of any employee or dependent.
The MEWA files an application for registration with the department on or before June 1, 2022.
A MEWA that timely registers with the department and that is found to be in compliance with this subparagraph shall annually file evidence of ongoing compliance with this subparagraph with the department, in a form and manner set forth by the department.
(II) Except as provided in clause (iii) of subparagraph (C), a MEWA that does not meet the requirements of subclause (I) shall be subject to the restrictions provided in subparagraph (A).
On or after June 1, 2022, a health insurer shall not market, issue, amend, renew, or deliver large employer health insurance coverage to a MEWA that provides any benefit to a resident in this state unless the MEWA is registered with the department and is found to be in compliance with the requirements set forth in subparagraph (B) or unless the MEWA filed an application for registration pursuant to subparagraph (B) and the application is pending before the department. The department shall have the authority to determine compliance with the requirements set forth in subparagraph (B).
The department may issue guidance to health insurers and MEWAs regarding registration and compliance with subparagraph (B). The guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
Subparagraph (B) does not apply to, or in any way affect, a self-funded or partially self-funded multiple employer welfare arrangement that is regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1.
Each carrier shall make available to each small employer all health benefit plans that the carrier offers or sells to small employers or to associations that include small employers for plan years on or after January 1, 2014. Notwithstanding subdivision (c) of Section 10753, for purposes of this subdivision, companies that are affiliated companies or that are eligible to file a consolidated income tax return shall be treated as one carrier.
Each carrier shall do all of the following:
Every agent or broker representing one or more carriers for the purpose of selling health benefit plans to small employers shall do all of the following:
When providing information on a health benefit plan to a small employer but making no specific recommendations on particular benefit plan designs:
Advise the small employer of the carrier’s obligation to sell to any small employer any of the health benefit plans it offers to small employers, consistent with PPACA, and provide them, upon request, with the actual rates that would be charged to that employer for a given health benefit plan.
Notify the small employer that the agent or broker will procure rate and benefit information for the small employer on any health benefit plan offered by a carrier for whom the agent or broker sells health benefit plans.
Notify the small employer that, upon request, the agent or broker will provide the small employer with the summary brochure required in paragraph (1) of subdivision (d) for any benefit plan design offered by a carrier whom the agent or broker represents.
Notify the small employer of the availability of coverage and the availability of tax credits for certain employers consistent with PPACA and state law, including any rules, regulations, or guidance issued in connection therewith.
When recommending a particular benefit plan design or designs, advise the small employer that, upon request, the agent will provide the small employer with the brochure required by paragraph (1) of subdivision (d) containing the benefit plan design or designs being recommended by the agent or broker.
Prior to filing an application for a small employer for a particular health benefit plan:
For each of the health benefit plans offered by the carrier whose health benefit plan the agent or broker is presenting, provide the small employer with the benefit summary required in paragraph (1) of subdivision (d) and the premium for that particular employer.
Notify the small employer that, upon request, the agent or broker will provide the small employer with an evidence of coverage brochure for each health benefit plan the carrier offers.
Obtain a signed statement from the small employer acknowledging that the small employer has received the disclosures required by this paragraph and Section 10753.16.
A carrier, agent, or broker shall not induce or otherwise encourage a small employer to separate or otherwise exclude an eligible employee from a health benefit plan which, in the case of an eligible employee meeting the definition in paragraph (1) of subdivision (f) of Section 10753, is provided in connection with the employee’s employment or which, in the case of an eligible employee as defined in paragraph (2) of subdivision (f) of Section 10753, is provided in connection with a guaranteed association.
A carrier shall not reject an application from a small employer for a health benefit plan provided:
The small employer as defined by subparagraph (A) of paragraph (1) of subdivision (q) of Section 10753 offers health benefits to 100 percent of its eligible employees as defined in paragraph (1) of subdivision (f) of Section 10753. Employees who waive coverage on the grounds that they have other group coverage shall not be counted as eligible employees.
The small employer agrees to make the required premium payments.
A carrier or agent or broker shall not, directly or indirectly, engage in the following activities:
Encourage or direct small employers to refrain from filing an application for coverage with a carrier because of the health status, claims experience, industry, occupation, or geographic location within the carrier’s approved service area of the small employer or the small employer’s employees.
Encourage or direct small employers to seek coverage from another carrier because of the health status, claims experience, industry, occupation, or geographic location within the carrier’s approved service area of the small employer or the small employer’s employees.
Employ marketing practices or benefit designs that will have the effect of discouraging the enrollment of individuals with significant health needs or discriminate based on the individual’s race, color, national origin, present or predicted disability, age, sex, gender identity, sexual orientation, expected length of life, degree of medical dependency, quality of life, or other health conditions.
A carrier shall not, directly or indirectly, enter into any contract, agreement, or arrangement with an agent or broker that provides for or results in the compensation paid to an agent or broker for a health benefit plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the small employer or the small employer’s employees. This subdivision shall not apply with respect to a compensation arrangement that provides compensation to an agent or broker on the basis of percentage of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic area of the small employer.
A health benefit plan offered to a small employer, as defined in subsection (b) of Section 1304 of PPACA and in Section 10753, shall not establish rules for eligibility, including continued eligibility, of an individual, or dependent of an individual, to enroll under the terms of the plan based on any of the following health status-related factors:
Health status.
Medical condition, including physical and mental illnesses.
Claims experience.
Receipt of health care.
Medical history.
Genetic information.
Evidence of insurability, including conditions arising out of acts of domestic violence.
Disability.
Any other health status-related factor as determined by any federal regulations, rules, or guidance issued pursuant to Section 2705 of the federal Public Health Service Act.
Notwithstanding Section 10291.5, a carrier shall not require an eligible employee or dependent to fill out a health assessment or medical questionnaire before enrollment under a health benefit plan. A carrier shall not acquire or request information that relates to a health status-related factor from the applicant or the applicant’s dependent or any other source before enrollment of the individual.
A carrier shall consider as a single-risk pool for rating purposes in the small employer market the claims experience of all insureds in all nongrandfathered small employer health benefit plans offered by the carrier in this state, whether offered as health care service plan contracts or health insurance policies, including those insureds and enrollees who enroll in coverage through the Exchange and insureds and enrollees covered by the carrier outside of the Exchange.
At least each calendar year, and no more frequently than each calendar quarter, a carrier shall establish an index rate for the small employer market in the state based on the total combined claims costs for providing essential health benefits, as defined pursuant to Section 1302 of PPACA and Section 10112.27, within the single-risk pool required under paragraph (1). The index rate shall be adjusted on a marketwide basis based on the total expected marketwide payments and charges under the risk adjustment program established for the state pursuant to Section 1343 of PPACA and Exchange user fees, as described in subdivision (d) of Section 156.80 of Title 45 of the Code of Federal Regulations. The premium rate for all of the nongrandfathered health benefit plans within the single-risk pool required under paragraph (1) shall use the applicable marketwide adjusted index rate, subject only to the adjustments permitted under paragraph (3).
A carrier may vary premium rates for a particular nongrandfathered health benefit plan from its index rate based only on the following actuarially justified plan-specific factors:
The actuarial value and cost-sharing design of the health benefit plan.
The health benefit plan’s provider network, delivery system characteristics, and utilization management practices.
The benefits provided under the health benefit plan that are in addition to the essential health benefits, as defined pursuant to Section 1302 of PPACA. These additional benefits shall be pooled with similar benefits within the single-risk pool required under paragraph (1) and the claims experience from those benefits shall be utilized to determine rate variations for health benefit plans that offer those benefits in addition to essential health benefits.
Administrative costs, excluding any user fees required by the Exchange.
With respect to catastrophic plans, as described in subsection (e) of Section 1302 of PPACA, the expected impact of the specific eligibility categories for those plans.
If a carrier enters into a contract, agreement, or other arrangement with a third-party administrator or other entity to provide administrative, marketing, or other services related to the offering of health benefit plans to small employers in this state, the third-party administrator shall be subject to this chapter.
This section shall become operative on January 1, 2030.
For contracts expiring after July 1, 1994, 60 days prior to July 1, 1994, an association that meets the definition of guaranteed association, as set forth in Section 10753, except for the requirement that 1,000 persons be covered, shall be entitled to purchase small employer health coverage as if the association were a guaranteed association, except that the coverage shall be guaranteed only for those members of an association, as defined in Section 10753, (1) who were receiving coverage or had successfully applied for coverage through the association as of June 30, 1993, (2) who were receiving coverage through the association as of December 31, 1992, and whose coverage lapsed at any time thereafter because the employment through which coverage was received ended or an employer’s contribution to health coverage ended, or (3) who were covered at any time between June 30, 1993, and July 1, 1994, under a contract that was in force on June 30, 1993.
An association obtaining health coverage for its members pursuant to this section shall otherwise be afforded all the rights of a guaranteed association under this chapter including, but not limited to, guaranteed renewability of coverage.
Every carrier shall file with the commissioner the reasonable participation requirements and employer contribution requirements that are to be included in its health benefit plans. Participation requirements shall be applied uniformly among all small employer groups, except that a carrier may vary application of minimum employer participation requirements by the size of the small employer group and whether the employer contributes 100 percent of the eligible employee’s premium. Employer contribution requirements shall not vary by employer size. A carrier shall not establish a participation requirement that (1) requires a person who meets the definition of a dependent in subdivision (e) of Section 10753 to enroll as a dependent if he or she is otherwise eligible for coverage and wishes to enroll as an eligible employee and (2) allows a carrier to reject an otherwise eligible small employer because of the number of persons that waive coverage due to coverage through another employer. Members of an association eligible for health coverage eligible under subdivision (s) of Section 10753 but not electing any health coverage through the association shall not be counted as eligible employees for purposes of determining whether the guaranteed association meets a carrier’s reasonable participation standards.
With respect to small employer health benefit plans offered outside the Exchange, after a small employer submits a completed application, the carrier shall, within 30 days, notify the employer of the employer’s actual rates in accordance with Section 10753.14. The employer has 30 days in which to exercise the right to buy coverage at the quoted rates.
Except as required under subdivision (c), when a small employer submits a premium payment, based on the quoted rates, and that payment is delivered or postmarked, whichever occurs earlier, within the first 15 days of a month, coverage shall become effective no later than the first day of the following month. When that payment is neither delivered nor postmarked until after the 15th day of a month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
With respect to a small employer health benefit plan offered through the Exchange, a carrier shall apply coverage effective dates consistent with those required under Section 155.720 of Title 45 of the Code of Federal Regulations and of subdivision (e) of Section 10965.3.
With respect to a small employer health benefit plan offered outside the Exchange for which an individual applies during a special enrollment period described in paragraph (3) of subdivision (b) of Section 10753.05, the following provisions shall apply:
Coverage under the plan shall become effective no later than the first day of the first calendar month beginning after the date the carrier receives the request for special enrollment.
Notwithstanding subparagraph (A), in the case of a birth, adoption, or placement for adoption, coverage under the plan shall become effective on the date of birth, adoption, or placement for adoption.
During the first 30 days of coverage, the small employer shall have the option of changing coverage to a different health benefit plan offered by the same carrier. If a small employer notifies the carrier of the change within the first 15 days of a month, coverage under the new health benefit plan shall become effective no later than the first day of the following month. If a small employer notifies the carrier of the change after the 15th day of a month, coverage under the new health benefit plan shall become effective no later than the first day of the second month following notification.
All eligible employees and dependents listed on a small employer’s completed application shall be covered on the effective date of the health benefit plan.
A health benefit plan shall not impose a preexisting condition provision or a waiting or affiliation period upon any individual.
Nothing in this chapter shall be construed as prohibiting a carrier from restricting enrollment of late enrollees to open enrollment periods provided under Section 10753.05 as authorized under Section 2702 of the federal Public Health Service Act.
To the extent permitted by PPACA, a carrier shall not be required by the provisions of this chapter to do any of the following:
Offer coverage to, or accept applications from, a small employer where the small employer is seeking coverage for eligible employees and dependents who do not live, work, or reside in a carrier’s service areas.
Offer coverage to, or accept applications from, a small employer for a benefits plan design within an area if the commissioner has found all of the following:
The carrier will not have the capacity within the area in its network of providers to deliver service adequately to the eligible employees and dependents of that employee because of its obligations to existing group contractholders and enrollees.
The carrier is applying this paragraph uniformly to all employers without regard to the claims experience of those employers, and their employees and dependents, or any health status-related factor relating to those employees and dependents.
The action is not unreasonable or clearly inconsistent with the intent of this chapter.
A carrier that cannot offer coverage to small employers in a specific service area because it is lacking sufficient capacity as described in this paragraph may not offer coverage in the applicable area to new employer groups until the later of the following dates:
The 181st day after the date that coverage is denied pursuant to this paragraph.
The date the carrier notifies the commissioner that it has regained capacity to deliver services to small employers, and certifies to the commissioner that from the date of the notice it will enroll all small groups requesting coverage from the carrier until the carrier has met the requirements of subdivision (g) of Section 10753.05.
Coverage offered within a service area after the period specified in subparagraph (B) shall be subject to the requirements of this section.
A carrier shall not be required to offer coverage or accept applications for benefit plan designs pursuant to this chapter where the carrier demonstrates to the satisfaction of the commissioner both of the following:
The acceptance of an application or applications would place the carrier in a financially impaired condition.
The carrier is applying this subdivision uniformly to all employers without regard to the claims experience of those employers and their employees and dependents or any health status-related factor relating to those employees and dependents.
The commissioner’s determination under subdivision (a) shall follow an evaluation that includes a certification by the commissioner that the acceptance of an application or applications would place the carrier in a financially impaired condition.
A carrier that has not offered coverage or accepted applications pursuant to this chapter shall not offer coverage or accept applications for any individual or group health benefit plan until the later of the following dates:
The 181st day after the date that coverage is denied pursuant to this section.
The date on which the carrier ceases to be financially impaired, as determined by the commissioner.
Coverage offered within a service area after the period specified in subdivision (c) shall be subject to the requirements of this section.
All health benefit plans subject to this chapter shall be renewable with respect to all eligible employees or dependents at the option of the policyholder, contractholder, or small employer except as follows:
For nonpayment of the required premiums by the policyholder, contractholder, or small employer, if the policyholder, contractholder, or small employer has been duly notified and billed for the charge and at least a 30-day grace period has elapsed since the date of notification or, if longer, the period of time required for notice and any other requirements pursuant to Section 2703, 2712, or 2742 of the federal Public Health Service Act (42 U.S.C. Secs. 300gg-2, 300gg-12, and 300gg-42) and any subsequent rules or regulations has elapsed.
An insurer shall continue to provide coverage as required by the policyholder’s, contractholder’s, or small employer’s policy during the period described in paragraph (1). Nothing in this section shall be construed to affect or impair the policyholder’s, contractholder’s, small employer’s, or insurer’s other rights and responsibilities pursuant to the subscriber contract.
If the insurer demonstrates fraud or an intentional misrepresentation of material fact under the terms of the policy by the policyholder, contractholder, or small employer or, with respect to coverage of individual enrollees, the enrollees or their representative.
Violation of a material contract provision relating to employer contribution or group participation rates by the policyholder, contractholder, or small employer.
When the carrier ceases to write, issue, or administer new or existing grandfathered or nongrandfathered small employer health benefit plans in this state, provided, however, that the following conditions are satisfied:
Notice of the decision to cease writing, issuing, or administering new or existing small employer health benefits plans in this state is provided to the commissioner, and to either the policyholder, contractholder, or small employer at least 180 days prior to the discontinuation of the coverage.
Small employer health benefit plans subject to this chapter shall not be canceled for 180 days after the date of the notice required under paragraph (1). For that business of a carrier that remains in force, any carrier that ceases to write, issue, or administer new or existing health benefit plans shall continue to be governed by this chapter.
Except in the case where a certification has been approved pursuant to subdivision (l) of Section 10753.05 or the commissioner has made a determination pursuant to subdivision (a) of Section 10753.12, a carrier that ceases to write, issue, or administer new health benefit plans to small employers in this state after the passage of this chapter shall be prohibited from writing, issuing, or administering new health benefit plans to small employers in this state for a period of five years from the date of notice to the commissioner.
When a carrier withdraws a benefit plan design from the small employer market, provided that the carrier notifies all affected policyholders, contractholders, or small employers and the commissioner at least 90 days prior to the discontinuation of those contracts, and that the carrier makes available to the small employer all small employer benefit plan designs which it markets.
If coverage is made available through a bona fide association pursuant to subdivision (q) of Section 10753 or a guaranteed association pursuant to subdivision (r) of Section 10753, the membership of the employer or the individual, respectively, ceases, but only if that coverage is terminated under this subdivision uniformly without regard to any health status-related factor of covered individuals.
The premium rate for a small employer health benefit plan issued, amended, or renewed on or after January 1, 2014, shall vary with respect to the particular coverage involved only by the following:
Age, pursuant to the age bands established by the United States Secretary of Health and Human Services and the age rating curve established by the Centers for Medicare and Medicaid Services pursuant to Section 2701(a)(3) of the federal Public Health Service Act (42 U.S.C. Sec. 300gg(a)(3)). Rates based on age shall be determined using the individual’s age as of the date of the plan issuance or renewal, as applicable, and shall not vary by more than three to one for like individuals of different age who are 21 years of age or older as described in federal regulations adopted pursuant to Section 2701(a)(3) of the federal Public Health Service Act (42 U.S.C. Sec. 300gg(a)(3)).
Geographic region. The geographic regions for purposes of rating shall be the following:
Region 1 shall consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Plumas, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, and Yuba.
Region 2 shall consist of the Counties of Marin, Napa, Solano, and Sonoma.
Region 3 shall consist of the Counties of El Dorado, Placer, Sacramento, and Yolo.
Region 4 shall consist of the City and County of San Francisco.
Region 5 shall consist of the County of Contra Costa.
Region 6 shall consist of the County of Alameda.
Region 7 shall consist of the County of Santa Clara.
Region 8 shall consist of the County of San Mateo.
Region 9 shall consist of the Counties of Monterey, San Benito, and Santa Cruz.
Region 10 shall consist of the Counties of Mariposa, Merced, San Joaquin, Stanislaus, and Tulare.
Region 11 shall consist of the Counties of Fresno, Kings, and Madera.
Region 12 shall consist of the Counties of San Luis Obispo, Santa Barbara, and Ventura.
Region 13 shall consist of the Counties of Imperial, Inyo, and Mono.
Region 14 shall consist of the County of Kern.
Region 15 shall consist of the ZIP Codes in the County of Los Angeles starting with 906 to 912, inclusive, 915, 917, 918, and 935.
Region 16 shall consist of the ZIP Codes in the County of Los Angeles other than those identified in clause (xv).
Region 17 shall consist of the Counties of Riverside and San Bernardino.
(xviii) Region 18 shall consist of the County of Orange.
Region 19 shall consist of the County of San Diego.
No later than June 1, 2017, the department, in collaboration with the Exchange and the Department of Managed Health Care, shall review the geographic rating regions specified in this paragraph and the impacts of those regions on the health care coverage market in California, and submit a report to the appropriate policy committees of the Legislature. The requirement for submitting a report imposed under this subparagraph is inoperative June 1, 2021, pursuant to Section 10231.5 of the Government Code.
Whether the health benefit plan covers an individual or family, as described in PPACA.
The rate for a health benefit plan subject to this section shall not vary by any factor not described in this section.
The total premium charged to a small employer pursuant to this section shall be determined by summing the premiums of covered employees and dependents in accordance with Section 147.102(c)(1) of Title 45 of the Code of Federal Regulations.
The rating period for rates subject to this section shall be no less than 12 months from the date of issuance or renewal of the health benefit plan.
In connection with the offering for sale of a health benefit plan subject to this chapter to small employers:
Each carrier shall make a reasonable disclosure, as part of its solicitation and sales materials, of the following:
The provisions concerning the carrier’s ability to change premium rates and the factors that affect changes in premium rates. The carrier shall disclose that claims experience cannot be used.
Provisions relating to the guaranteed issue of policies and contracts.
A statement that no preexisting condition provisions shall be allowed.
Provisions relating to the small employer’s right to apply for any health benefit plan written, issued, or administered by the carrier at the time of application for a new health benefit plan, or at the time of renewal of a health benefit plan.
The availability, upon request, of a listing of all the carrier’s benefit plan designs offered, both inside and outside the Exchange, including the rates for each benefit plan design.
No carrier shall provide or renew coverage subject to this chapter until a statement has been filed with the commissioner listing all of the carrier’s health benefit plans currently in force that are offered or proposed to be offered for sale in this state, identified by form number, and, if previously approved by the commissioner, the date approved by the commissioner.
No carrier shall issue, deliver, renew, or revise a health benefit plan lawfully provided pursuant to subdivision (a) until all of the following requirements are met:
The carrier files with the commissioner a statement of the factors used to establish rates for the plan.
Either:
Thirty days expires after the statement is filed without written notice from the commissioner specifying the reasons for his or her opinion that the carrier’s rating factors do not comply with the requirements of this chapter.
Prior to that time the commissioner gives the carrier written notice that the carrier’s rating factors as filed comply with the requirements of this chapter.
If the commissioner notifies the carrier, in writing, that the carrier’s rating factors do not comply with the requirements of this chapter, specifying the reasons for his or her opinion, it is unlawful for the carrier, at any time after the receipt of such notice, to utilize the noncomplying health benefit plan or rating factors in conjunction with the health benefit plans or benefit plan designs for which the filing was made.
Each carrier shall maintain at its principal place of business copies of all information required to be filed with the commissioner pursuant to this section.
Each carrier shall make the information and documentation described in this section available to the commissioner upon request.
Nothing in this section shall be construed to permit the commissioner to establish or approve the rates charged to policyholders for health benefit plans.
In addition to any other remedy permitted by law, the commissioner shall have the administrative authority to assess penalties against carriers, insurance producers, and other entities engaged in the business of insurance or other persons or entities for violations of this chapter.
Upon a showing of a violation of this chapter in any civil action, a court may also assess the penalties described in this chapter, in addition to any other remedies provided by law.
Any production agent or other person or entity engaged in the business of insurance, other than a carrier, that violates this chapter is liable for administrative penalties of not more than two hundred fifty dollars ($250) for the first violation.
Any production agent or other person or entity engaged in the business of insurance, other than a carrier, that engages in practices prohibited by this chapter a second or subsequent time, or who commits a knowing violation of this chapter, is liable for administrative penalties of not less than one thousand dollars ($1,000) and not more than two thousand five hundred dollars ($2,500) for each violation.
Any carrier that violates this chapter is liable for administrative penalties of not more than two thousand five hundred dollars ($2,500) for the first violation and not more than five thousand dollars ($5,000) for each subsequent violation.
Any carrier that violates this chapter with a frequency that indicates a general business practice or commits a knowing violation of this chapter, is liable for administrative penalties of not less than fifteen thousand dollars ($15,000) and not more than one hundred thousand dollars ($100,000) for each violation.
An act or omission that is inadvertent and that results in incorrect premium rates being charged to more than one policyholder shall be a single violation for the purpose of this section.
In addition to any other remedy permitted by law, whenever the commissioner shall have reason to believe that any carrier, production agent, or other person or entity engaged in the business of insurance has violated this chapter, and that a proceeding by the commissioner in respect thereto would be in the interest of the public, the commissioner may issue and serve upon that entity an order to show cause containing a statement of the charges, a statement of the entity’s potential liability under this chapter, and a notice of a public hearing thereon before the Administrative Law Bureau of the department to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the commissioner should issue an order to that entity to pay the penalty imposed by this chapter and such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order to cease and desist from the specified violations of this chapter.
The hearings provided by this subdivision shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all the powers granted therein.
Whenever it appears to the commissioner that irreparable loss and injury has occurred or may occur to an insured, employer, employee, or other member of the public because a carrier, production agent, or other person or entity engaged in the business of insurance has violated this chapter, the commissioner may, before hearing, but after notice and opportunity to submit relevant information, issue and cause to be served upon the entity such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order requiring the entity to forthwith cease and desist from engaging further in the violations which are causing or may cause such irreparable injury.
At the same time an order is served pursuant to paragraph (1) of this subdivision, the commissioner shall issue and also serve upon the person a notice of public hearing before the Administrative Law Bureau of the department to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof.
The hearings provided by this subdivision shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all the powers granted therein.
At any time prior to the commencement of a hearing as provided in this subdivision, the entity against which the commissioner has served an order may waive the hearing and have judicial review of the order by means of any remedy afforded by law without first exhausting administrative remedies or procedures.
If, after hearing as provided by subdivision (a) or (b), the charges, or any of them, that an entity has violated this chapter are found to be justified, the commissioner shall issue and cause to be served upon that entity an order requiring that entity to pay the penalty imposed by this chapter and such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order to cease and desist from the specified violations of this chapter.
In addition to any other penalty provided by law or the availability of any administrative procedure, if a carrier, after notice and hearing, is found to have violated this chapter knowingly or as a general business practice the commissioner may suspend the carrier’s certificate of authority to transact disability insurance. The order of suspension shall prescribe the period of such suspension. The proceedings shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all the powers granted therein.
Carriers may enter into contractual agreements with qualified associations, as defined in subdivision (b), under which these qualified associations may assume responsibility for performing specific administrative services, as defined in this section, for qualified association members. Carriers that enter into agreements with qualified associations for assumption of administrative services shall establish uniform definitions for the administrative services that may be provided by a qualified association or its third-party administrator. The carrier shall permit all qualified associations to assume one or more of these functions when the carrier determines the qualified association demonstrates that it has the administrative capacity to assume these functions.
For the purposes of this section, administrative services provided by qualified associations or their third-party administrators shall be services pertaining to eligibility determination, enrollment, premium collection, sales, or claims administration on a per-claim basis that would otherwise be provided directly by the carrier or through a third-party administrator on a commission basis or an agent or solicitor workforce on a commission basis.
Each carrier that enters into an agreement with any qualified association for the provision of administrative services shall offer all qualified associations with which it contracts the same premium discounts for performing those services the carrier has permitted the qualified association or its third-party administrator to assume. The carrier shall apply these uniform discounts to the carrier’s rates pursuant to Section 10753.14. The carrier shall report to the department its schedule of discounts for each administrative service.
In no instance may a carrier provide discounts to qualified associations that are in any way intended to, or materially result in, a reduction in premium charges to the qualified association due to the health status of the membership of the qualified association. In addition to any other remedies available to the commissioner to enforce this chapter, the commissioner may declare a contract between a carrier and a qualified association for administrative services pursuant to this section null and void if the commissioner determines any discounts provided to the qualified association are intended to, or materially result in, a reduction in premium charges to the qualified association due to the health status of the membership of the qualified association.
For the purposes of this section, a qualified association is a nonprofit corporation comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, that conforms to all of the following requirements:
It accepts for membership any individual or small employer meeting its membership criteria.
It does not condition membership, directly or indirectly, on the health or claims history of any person.
It uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association.
It is organized and maintained in good faith for purposes unrelated to insurance.
It existed on January 1, 1972, and has been in continuous existence since that date.
It has a constitution and bylaws or other analogous governing documents that provide for election of the governing board of the association by its members.
It offered, marketed, or sold health coverage to its members for 20 continuous years prior to January 1, 1993.
It agrees to offer any plan contract only to association members.
It agrees to include any member choosing to enroll in the plan contract offered by the association, provided that the member agrees to make required premium payments.
It complies with all provisions of this article.
It had at least 10,000 enrollees covered by association-sponsored plans immediately prior to enactment of Chapter 1128 of the Statutes of 1992.
It applies any administrative cost at an equal rate to all members purchasing coverage through the qualified association.
A qualified association shall comply with the requirements set forth in Section 10198.9.
Notwithstanding any other provision of law, no provision of this chapter shall be construed to limit the applicability of any other provision of the Insurance Code unless such provision is in conflict with the requirements of this chapter.
CHAPTER 8.02. Grandfathered Small Employer Health Insurance [10755. - 10755.18.7.]
ARTICLE 1. Definitions [10755. - 10755.01.]
As used in this chapter, the following definitions shall apply:
“Agent or broker” means a person or entity licensed under Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
“Benefit plan design” means a specific health coverage product issued by a carrier to small employers, to trustees of associations that include small employers, or to individuals if the coverage is offered through employment or sponsored by an employer. It includes services covered and the levels of copayment and deductibles, and it may include the professional providers who are to provide those services and the sites where those services are to be provided. A benefit plan design may also be an integrated system for the financing and delivery of quality health care services which has significant incentives for the covered individuals to use the system.
“Carrier” means any disability insurance company or any other entity that writes, issues, or administers health benefit plans that cover the employees of small employers, regardless of the situs of the contract or master policyholder.
“Dependent” means the spouse or registered domestic partner, or child, of an eligible employee, subject to applicable terms of the health benefit plan covering the employee, and includes dependents of guaranteed association members if the association elects to include dependents under its health coverage at the same time it determines its membership composition pursuant to subdivision (t).
“Eligible employee” means either of the following:
Any permanent employee who is actively engaged on a full-time basis in the conduct of the business of the small employer with a normal workweek of an average of 30 hours per week over the course of a month, in the small employer’s regular place of business, who has met any statutorily authorized applicable waiting period requirements. The term does not include sole proprietors or the spouses of those sole proprietors, partners of a partnership or the spouses of those partners, or employees who work on a part-time, temporary, or substitute basis. It includes any eligible employee, as defined in this paragraph, who obtains coverage through a guaranteed association. Employees of employers purchasing through a guaranteed association are eligible employees if they would otherwise meet the definition except for the number of persons employed by the employer. A permanent employee who works at least 20 hours but not more than 29 hours is an eligible employee if all four of the following apply:
The employee otherwise meets the definition of an eligible employee except for the number of hours worked.
The employer offers the employee health coverage under a health benefit plan.
All similarly situated individuals are offered coverage under the health benefit plan.
The employee shall have worked at least 20 hours per normal workweek for at least 50 percent of the weeks in the previous calendar quarter. The insurer may request any necessary information to document the hours and time period in question, including, but not limited to, payroll records and employee wage and tax filings.
Any member of a guaranteed association as defined in subdivision (t).
“Enrollee” means an eligible employee or dependent who receives health coverage through the program from a participating carrier.
“Financially impaired” means, for the purposes of this chapter, a carrier that, on or after the effective date of this chapter, is not insolvent and is either:
Deemed by the commissioner to be potentially unable to fulfill its contractual obligations.
Placed under an order of rehabilitation or conservation by a court of competent jurisdiction.
“Health benefit plan” means a policy or contract written or administered by a carrier that arranges or provides health care benefits for the covered eligible employees of a small employer and their dependents. The term does not include accident only, credit, disability income, coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement, long-term care insurance, dental, vision, coverage issued as a supplement to liability insurance, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
“In force business” means an existing health benefit plan issued by the carrier to a small employer.
“Late enrollee” means an eligible employee or dependent who has declined health coverage under a health benefit plan offered by a small employer at the time of the initial enrollment period provided under the terms of the health benefit plan and who subsequently requests enrollment in a health benefit plan of that small employer, provided that the initial enrollment period shall be a period of at least 30 days. It also means any member of an association that is a guaranteed association as well as any other person eligible to purchase through the guaranteed association when that person has failed to purchase coverage during the initial enrollment period provided under the terms of the guaranteed association’s health benefit plan and who subsequently requests enrollment in the plan, provided that the initial enrollment period shall be a period of at least 30 days. However, an eligible employee, another person eligible for coverage through a guaranteed association pursuant to subdivision (t), or an eligible dependent shall not be considered a late enrollee if any of the following is applicable:
The individual meets all of the following requirements:
He or she was covered under another employer health benefit plan, the Healthy Families Program, the Access for Infants and Mothers (AIM) Program, the Medi-Cal program, or coverage through the California Health Benefit Exchange at the time the individual was eligible to enroll.
He or she certified at the time of the initial enrollment that coverage under another employer health benefit plan, the Healthy Families Program, the AIM Program, the Medi-Cal program, or the California Health Benefit Exchange was the reason for declining enrollment provided that, if the individual was covered under another employer health plan, the individual was given the opportunity to make the certification required by this subdivision and was notified that failure to do so could result in later treatment as a late enrollee.
He or she has lost or will lose coverage under another employer health benefit plan as a result of termination of employment of the individual or of a person through whom the individual was covered as a dependent, change in employment status of the individual, or of a person through whom the individual was covered as a dependent, the termination of the other plan’s coverage, cessation of an employer’s contribution toward an employee or dependent’s coverage, death of the person through whom the individual was covered as a dependent, legal separation, or divorce; or he or she has lost or will lose coverage under the Healthy Families Program, the AIM Program, the Medi-Cal program, or the California Health Benefit Exchange.
He or she requests enrollment within 30 days after termination of coverage or employer contribution toward coverage provided under another employer health benefit plan, or requests enrollment within 60 days after termination of Medi-Cal program coverage, AIM Program coverage, Healthy Families Program coverage, or coverage offered through the California Health Benefit Exchange.
The individual is employed by an employer who offers multiple health benefit plans and the individual elects a different plan during an open enrollment period.
A court has ordered that coverage be provided for a spouse or minor child under a covered employee’s health benefit plan.
In the case of an eligible employee as defined in paragraph (1) of subdivision (e), the carrier cannot produce a written statement from the employer stating that the individual or the person through whom an individual was eligible to be covered as a dependent, prior to declining coverage, was provided with, and signed acknowledgment of, an explicit written notice in boldface type specifying that failure to elect coverage during the initial enrollment period permits the carrier to impose, at the time of the individual’s later decision to elect coverage, an exclusion from eligibility for coverage until the next open enrollment period, unless the individual meets the criteria specified in paragraph (1), (2), or (3). This exclusion from eligibility for coverage shall not be considered a waiting period in violation of Section 10198.7 or 10755.08.
In the case of an eligible employee who is a guaranteed association member, the plan cannot produce a written statement from the guaranteed association stating that the association sent a written notice in boldface type to all potentially eligible association members at their last known address prior to the initial enrollment period informing members that failure to elect coverage during the initial enrollment period permits the plan to impose, at the time of the member’s later decision to elect coverage, an exclusion from eligibility for coverage until the next open enrollment period, unless the member can demonstrate that he or she meets the requirements of subparagraphs (A), (C), and (D) of paragraph (1) or meets the requirements of paragraph (2) or (3). This exclusion from eligibility for coverage shall not be considered a waiting period in violation of Section 10198.7 or 10755.08.
In the case of an employer or person who is not a member of an association, was eligible to purchase coverage through a guaranteed association, and did not do so, and would not be eligible to purchase guaranteed coverage unless purchased through a guaranteed association, the employer or person can demonstrate that he or she meets the requirements of subparagraphs (A), (C), and (D) of paragraph (1), or meets the requirements of paragraph (2) or (3), or that he or she recently had a change in status that would make him or her eligible and that application for coverage was made within 30 days of the change.
The individual is an employee or dependent who meets the criteria described in paragraph (1) and was under a COBRA continuation provision and the coverage under that provision has been exhausted. For purposes of this section, the definition of “COBRA” set forth in subdivision (e) of Section 10116.5 shall apply.
The individual is a dependent of an enrolled eligible employee who has lost or will lose his or her coverage under the Healthy Families Program, the AIM Program, the Medi-Cal program, or the California Health Benefit Exchange and requests enrollment within 60 days after termination of that coverage.
The individual is an eligible employee who previously declined coverage under an employer health benefit plan, including a plan offered through the California Health Benefit Exchange, and who has subsequently acquired a dependent who would be eligible for coverage as a dependent of the employee through marriage, birth, adoption, or placement for adoption, and who enrolls for coverage under that employer health benefit plan on his or her behalf and on behalf of his or her dependent within 30 days following the date of marriage, birth, adoption, or placement for adoption, in which case the effective date of coverage shall be the first day of the month following the date the completed request for enrollment is received in the case of marriage, or the date of birth, or the date of adoption or placement for adoption, whichever applies. Notice of the special enrollment rights contained in this paragraph shall be provided by the employer to an employee at or before the time the employee is offered an opportunity to enroll in plan coverage.
The individual is an eligible employee who has declined coverage for himself or herself or his or her dependents during a previous enrollment period because his or her dependents were covered by another employer health benefit plan, including a plan offered through the California Health Benefit Exchange, at the time of the previous enrollment period. That individual may enroll himself or herself or his or her dependents for plan coverage during a special open enrollment opportunity if his or her dependents have lost or will lose coverage under that other employer health benefit plan. The special open enrollment opportunity shall be requested by the employee not more than 30 days after the date that the other health coverage is exhausted or terminated. Upon enrollment, coverage shall be effective not later than the first day of the first calendar month beginning after the date the request for enrollment is received. Notice of the special enrollment rights contained in this paragraph shall be provided by the employer to an employee at or before the time the employee is offered an opportunity to enroll in plan coverage.
“Preexisting condition provision” means a policy provision that excludes coverage for charges or expenses incurred during a specified period following the insured’s effective date of coverage, as to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during a specified period immediately preceding the effective date of coverage.
“Creditable coverage” means:
Any individual or group policy, contract, or program, that is written or administered by a disability insurer, health care service plan, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans. The term includes continuation or conversion coverage but does not include accident only, credit, coverage for onsite medical clinics, disability income, Medicare supplement, long-term care, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers’ compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
The federal Medicare Program pursuant to Title XVIII of the federal Social Security Act (42 U.S.C. Sec. 1395 et seq.).
The Medicaid program pursuant to Title XIX of the federal Social Security Act (42 U.S.C. Sec. 1396 et seq.).
Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital, and surgical care.
Chapter 55 (commencing with Section 1071) of Title 10 of the United States Code (Civilian Health and Medical Program of the Uniformed Services (CHAMPUS)).
A medical care program of the Indian Health Service or of a tribal organization.
A health plan offered under Chapter 89 (commencing with Section 8901) of Title 5 of the United States Code (Federal Employees Health Benefits Program (FEHBP)).
A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(I) of the federal Public Health Service Act, as amended by Public Law 104-191, the federal Health Insurance Portability and Accountability Act of 1996.
A health benefit plan under Section 5(e) of the federal Peace Corps Act (22 U.S.C. Sec. 2504(e)).
Any other creditable coverage as defined by subdivision (c) of Section 2704 of Title XXVII of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-3(c)).
“Rating period” means the period for which premium rates established by a carrier are in effect and shall be no less than 12 months from the date of issuance or renewal of the health benefit plan.
“Risk adjusted employee risk rate” means the rate determined for an eligible employee of a small employer in a particular risk category after applying the risk adjustment factor.
“Risk adjustment factor” means the percent adjustment to be applied equally to each standard employee risk rate for a particular small employer, based upon any expected deviations from standard claims. This factor may not be more than 110 percent or less than 90 percent.
“Risk category” means the following characteristics of an eligible employee: age, geographic region, and family size of the employee, plus the benefit plan design selected by the small employer.
No more than the following age categories may be used in determining premium rates:
Under 30
30–39
40–49
50–54
55–59
60–64
65 and over.
However, for the 65 years of age and over category, separate premium rates may be specified depending upon whether coverage under the health benefit plan will be primary or secondary to benefits provided by the federal Medicare Program pursuant to Title XVIII of the federal Social Security Act.
Small employer carriers shall base rates to small employers using no more than the following family size categories:
Single.
Married couple or registered domestic partners.
One adult and child or children.
Married couple or registered domestic partners and child or children.
In determining rates for small employers, a carrier that operates statewide shall use no more than nine geographic regions in the state, have no region smaller than an area in which the first three digits of all its ZIP Codes are in common within a county, and shall divide no county into more than two regions. Carriers shall be deemed to be operating statewide if their coverage area includes 90 percent or more of the state’s population. Geographic regions established pursuant to this section shall, as a group, cover the entire state, and the area encompassed in a geographic region shall be separate and distinct from areas encompassed in other geographic regions. Geographic regions may be noncontiguous.
In determining rates for small employers, a carrier that does not operate statewide shall use no more than the number of geographic regions in the state than is determined by the following formula: the population, as determined in the last federal census, of all counties which are included in their entirety in a carrier’s service area divided by the total population of the state, as determined in the last federal census, multiplied by nine. The resulting number shall be rounded to the nearest whole integer. No region may be smaller than an area in which the first three digits of all its ZIP Codes are in common within a county and no county may be divided into more than two regions. The area encompassed in a geographic region shall be separate and distinct from areas encompassed in other geographic regions. Geographic regions may be noncontiguous. A carrier shall not have less than one geographic area.
“Small employer” means either of the following:
For plan years commencing on or after January 1, 2014, and on or before December 31, 2015, any person, firm, proprietary or nonprofit corporation, partnership, public agency, or association that is actively engaged in business or service, that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one, but no more than 50, eligible employees, the majority of whom were employed within this state, that was not formed primarily for purposes of buying health benefit plans, and in which a bona fide employer-employee relationship exists. For plan years commencing on or after January 1, 2016, any person, firm, proprietary or nonprofit corporation, partnership, public agency, or association that is actively engaged in business or service, that, on at least 50 percent of its working days during the preceding calendar quarter or preceding calendar year, employed at least one, but no more than 100, eligible employees, the majority of whom were employed within this state, that was not formed primarily for purposes of buying health benefit plans, and in which a bona fide employer-employee relationship exists. In determining whether to apply the calendar quarter or calendar year test, a carrier shall use the test that ensures eligibility if only one test would establish eligibility. In determining the number of eligible employees, companies that are affiliated companies and that are eligible to file a combined tax return for purposes of state taxation shall be considered one employer. Subsequent to the issuance of a health benefit plan to a small employer pursuant to this chapter, and for the purpose of determining eligibility, the size of a small employer shall be determined annually. Except as otherwise specifically provided in this chapter, provisions of this chapter that apply to a small employer shall continue to apply until the plan contract anniversary following the date the employer no longer meets the requirements of this definition. It includes any small employer as defined in this subparagraph who purchases coverage through a guaranteed association, any employer purchasing coverage for employees through a guaranteed association, and any small employer as defined in this paragraph who purchases coverage through any arrangement, but does not include multiple employer welfare arrangements regulated pursuant to Article 4.7 (commencing with Section 742.20) of Chapter 1 of Part 2 of Division 1 that provide health care benefits to their members on a self-funded or partially self-funded basis and that comply with small group health reforms.
Any guaranteed association, as defined in subdivision (s), that purchases health coverage for members of the association.
For plan years commencing on or after January 1, 2019, for purposes of determining whether an employer has one employee, sole proprietors and their spouses, and partners of a partnership and their spouses, are not considered employees.
“Standard employee risk rate” means the rate applicable to an eligible employee in a particular risk category in a small employer group.
“Guaranteed association” means a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or employer meeting its membership criteria which (1) includes one or more small employers as defined in subparagraph (A) of paragraph (1) of subdivision (q), (2) does not condition membership directly or indirectly on the health or claims history of any person, (3) uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, (4) is organized and maintained in good faith for purposes unrelated to insurance, (5) has been in active existence on January 1, 1992, and for at least five years prior to that date, (6) has been offering health insurance to its members for at least five years prior to January 1, 1992, (7) has a constitution and bylaws, or other analogous governing documents that provide for election of the governing board of the association by its members, (8) offers any benefit plan design that is purchased to all individual members and employer members in this state, (9) includes any member choosing to enroll in the benefit plan design offered to the association provided that the member has agreed to make the required premium payments, and (10) covers at least 1,000 persons with the carrier with which it contracts. The requirement of 1,000 persons may be met if component chapters of a statewide association contracting separately with the same carrier cover at least 1,000 persons in the aggregate.
This subdivision applies regardless of whether a master policy by an admitted insurer is delivered directly to the association or a trust formed for or sponsored by an association to administer benefits for association members.
For purposes of this subdivision, an association formed by a merger of two or more associations after January 1, 1992, and otherwise meeting the criteria of this subdivision shall be deemed to have been in active existence on January 1, 1992, if its predecessor organizations had been in active existence on January 1, 1992, and for at least five years prior to that date and otherwise met the criteria of this subdivision.
“Members of a guaranteed association” means any individual or employer meeting the association’s membership criteria if that person is a member of the association and chooses to purchase health coverage through the association. At the association’s discretion, it may also include employees of association members, association staff, retired members, retired employees of members, and surviving spouses and dependents of deceased members. However, if an association chooses to include those persons as members of the guaranteed association, the association must so elect in advance of purchasing coverage from a plan. Health plans may require an association to adhere to the membership composition it selects for up to 12 months.
“Grandfathered health benefit plan” means a health benefit plan that constitutes a grandfathered health plan.
“Grandfathered health plan” has the meaning set forth in Section 1251 of PPACA.
“Nongrandfathered health benefit plan” means a health benefit plan that is not a grandfathered health plan.
“Plan year” has the meaning set forth in Section 144.103 of Title 45 of the Code of Federal Regulations.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued thereunder.
“Waiting period” means a period that is required to pass with respect to the employee before the employee is eligible to be covered for benefits under the terms of the contract.
(aa) “Registered domestic partner” means a person who has established a domestic partnership as described in Section 297 of the Family Code.
For purposes of this chapter, “health benefit plan” does not include policies or certificates of specified disease or hospital confinement indemnity provided that the carrier offering those policies or certificates complies with the following:
The carrier files, on or before March 1 of each year, a certification with the commissioner that contains the statement and information described in paragraph (2).
The certification required in paragraph (1) shall contain the following:
A statement from the carrier certifying that policies or certificates described in this section (i) are being offered and marketed as supplemental health insurance and not as a substitute for coverage that provides essential health benefits as defined by the state pursuant to Section 1302 of PPACA, and (ii) contain the disclosure forms as described in Section 10603 with the following statement prominently on the first page: “This is a supplement to health insurance. It is not a substitute for essential health benefits or minimum essential coverage as required under federal law.”
A summary description of each policy or certificate described in this section, including the average annual premium rates, or range of premium rates in cases where premiums vary by age, gender, or other factors, charged for the policies and certificates issued or delivered in this state.
In the case of a policy or certificate that is described in this section and that is offered for the first time in this state for plan years on or after January 1, 2014, the carrier files with the commissioner the information and statement required in paragraph (2) at least 30 days prior to the date such a policy or certificate is issued or delivered in this state.
As used in this section, “policies or certificates of specified disease” and “policies or certificates of hospital confinement indemnity” mean policies or certificates of insurance sold to an insured to supplement other health insurance coverage as specified in this section. An insurer issuing a “policy or certificate of specified disease” or a “policy or certificate of hospital confinement indemnity” shall require that the person to be insured is covered by an individual or group policy or contract that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans.
ARTICLE 2. Small Employer Carrier Requirements [10755.02. - 10755.18.7.]
This chapter shall apply only to grandfathered health benefit plans and only with respect to plan years commencing on or after January 1, 2014.
All carriers administering health benefit plans that cover employees of small employers shall be subject to this chapter if any one of the following conditions are met:
Any portion of the premium for any health benefit plan or benefits is paid by a small employer, or any covered individual is reimbursed, whether through wage adjustments or otherwise, by a small employer for any portion of the premium.
The health benefit plan is treated by the small employer or any of the covered individuals as part of a plan or program for the purposes of Section 106 or 162 of the Internal Revenue Code.
Any person or entity subject to the requirements of this chapter shall comply with the standards set forth in Chapter 7 (commencing with Section 3750) of Part 1 of Division 9 of the Family Code and Section 14124.94 of the Welfare and Institutions Code.
The commissioner shall have the authority to determine whether a health benefit plan is covered by this chapter, and to determine whether an employer is a small employer within the meaning of Section 10755.
The department may adopt emergency regulations implementing this chapter no later than August 31, 2013. The department may readopt any emergency regulation authorized by this section that is the same as or substantially equivalent to an emergency regulation previously adopted under this section.
The initial adoption of emergency regulations implementing this section and the one readoption of emergency regulations authorized by this section shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, safety, or general welfare. The initial emergency regulations and the one readoption of emergency regulations authorized by this section shall be submitted to the Office of Administrative Law for filing with the Secretary of State and each shall remain in effect for no more than 180 days, by which time final regulations may be adopted.
This section shall become operative on January 1, 2013.
Each carrier, except a self-funded employer, shall fairly and affirmatively renew all of the carrier’s health benefit plans that are sold to small employers or associations that include small employers.
Nothing in this section shall be construed to require an association, or a trust established and maintained by an association to receive a master insurance policy issued by an admitted insurer and to administer the benefits thereof solely for association members, to offer, market or sell a benefit plan design to those who are not members of the association. However, if the association markets, offers or sells a benefit plan design to those who are not members of the association it is subject to the requirements of this section. This shall apply to an association that otherwise meets the requirements of paragraph (6) formed by merger of two or more associations after January 1, 1992, if the predecessor organizations had been in active existence on January 1, 1992, and for at least five years prior to that date and met the requirements of paragraph (3).
A carrier which (A) effective January 1, 1992, and at least 20 years prior to that date, markets, offers, or sells benefit plan designs only to all members of one association and (B) does not market, offer or sell any other individual, selected group, or group policy or contract providing medical, hospital and surgical benefits shall not be required to market, offer, or sell to those who are not members of the association. However, if the carrier markets, offers or sells any benefit plan design or any other individual, selected group, or group policy or contract providing medical, hospital and surgical benefits to those who are not members of the association it is subject to the requirements of this section.
Each carrier that sells health benefit plans to members of one association pursuant to paragraph (3) shall submit an annual statement to the commissioner which states that the carrier is selling health benefit plans pursuant to paragraph (3) and which, for the one association, lists all the information required by paragraph (5).
Each carrier that sells health benefit plans to members of any association shall submit an annual statement to the commissioner which lists each association to which the carrier sells health benefit plans, the industry or profession which is served by the association, the association’s membership criteria, a list of officers, the state in which the association is organized, and the site of its principal office.
For purposes of paragraphs (2) and (3), an association is a nonprofit organization comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, accepting for membership any individual or small employer meeting its membership criteria, which do not condition membership directly or indirectly on the health or claims history of any person, which uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association, which is organized and maintained in good faith for purposes unrelated to insurance, which has been in active existence on January 1, 1992, and at least five years prior to that date, which has a constitution and bylaws, or other analogous governing documents which provide for election of the governing board of the association by its members, which has contracted with one or more carriers to offer one or more health benefit plans to all individual members and small employer members in this state.
Each carrier shall make available to each small employer all nongrandfathered health benefit plans that the carrier offers or sells to small employers or to associations that include small employers. Notwithstanding subdivision (c) of Section 10755, for purposes of this subdivision, companies that are affiliated companies or that are eligible to file a consolidated income tax return shall be treated as one carrier.
Each carrier shall do all of the following:
Prepare a brochure that summarizes all of its health benefit plans and make this summary available to small employers, agents, and brokers upon request. The summary shall include for each health benefit plan information on benefits provided, a generic description of the manner in which services are provided, such as how access to providers is limited, benefit limitations, required copayments and deductibles, standard employee risk rates, and a telephone number that can be called for more detailed benefit information. Carriers are required to keep the information contained in the brochure accurate and up to date, and, upon updating the brochure, send copies to agents and brokers representing the carrier. Any entity that provides administrative services only with regard to a benefit plan design written or issued by another carrier shall not be required to prepare a summary brochure which includes that benefit plan design.
For each health benefit plan, prepare a more detailed evidence of coverage and make it available to small employers, agents and brokers upon request. The evidence of coverage shall contain all information that a prudent buyer would need to be aware of in making selections of benefit plan designs. An entity that provides administrative services only with regard to a benefit plan design written or issued by another carrier shall not be required to prepare an evidence of coverage for that benefit plan design.
Provide to small employers and agents and brokers, upon request, for any given small employer the sum of the standard employee risk rates and the sum of the risk adjusted employee risk rates. When requesting this information, small employers and agents and brokers shall provide the plan with the information the plan needs to determine the small employer’s risk adjusted employee risk rate.
Provide copies of the current summary brochure to all agents or brokers who represent the carrier and, upon updating the brochure, send copies of the updated brochure to agents and brokers representing the carrier for the purpose of selling health benefit plans.
Notwithstanding subdivision (c) of Section 10755, for purposes of this subdivision, companies that are affiliated companies or that are eligible to file a consolidated income tax return shall be treated as one carrier.
No carrier, agent, or broker shall induce or otherwise encourage a small employer to separate or otherwise exclude an eligible employee from a health benefit plan which, in the case of an eligible employee meeting the definition in paragraph (1) of subdivision (e) of Section 10755, is provided in connection with the employee’s employment or which, in the case of an eligible employee as defined in paragraph (2) of subdivision (e) of Section 10755, is provided in connection with a guaranteed association.
No carrier or agent or broker shall, directly or indirectly, engage in the following activities:
Encourage or direct small employers to refrain from filing an application for coverage with a carrier because of the health status, claims experience, industry, occupation, or geographic location within the carrier’s approved service area of the small employer or the small employer’s employees.
Encourage or direct small employers to seek coverage from another carrier or the California Health Benefit Exchange because of the health status, claims experience, industry, occupation, or geographic location within the carrier’s approved service area of the small employer or the small employer’s employees.
No carrier shall, directly or indirectly, enter into any contract, agreement, or arrangement with an agent or broker that provides for or results in the compensation paid to an agent or broker for a health benefit plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the small employer or the small employer’s employees. This subdivision shall not apply with respect to a compensation arrangement that provides compensation to an agent or broker on the basis of percentage of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic area of the small employer.
A policy or contract that covers a small employer, as defined in Section 1304(b) of PPACA and in subdivision (q) of Section 10755 shall not establish rules for eligibility, including continued eligibility, of an individual, or dependent of an individual, to enroll under the terms of the plan based on any of the following health status-related factors:
Health status.
Medical condition, including physical and mental illnesses.
Claims experience.
Receipt of health care.
Medical history.
Genetic information.
Evidence of insurability, including conditions arising out of acts of domestic violence.
Disability.
Any other health status-related factor as determined by any federal regulations, rules, or guidance issued pursuant to Section 2705 of the federal Public Health Service Act.
If a carrier enters into a contract, agreement, or other arrangement with a third-party administrator or other entity to provide administrative, marketing, or other services related to the offering of health benefit plans to small employers in this state, the third-party administrator shall be subject to this chapter.
For contracts expiring after July 1, 1994, 60 days prior to July 1, 1994, an association that meets the definition of guaranteed association, as set forth in Section 10755, except for the requirement that 1,000 persons be covered, shall be entitled to purchase small employer health coverage as if the association were a guaranteed association, except that the coverage shall be guaranteed only for those members of an association, as defined in Section 10755, (1) who were receiving coverage or had successfully applied for coverage through the association as of June 30, 1993, (2) who were receiving coverage through the association as of December 31, 1992, and whose coverage lapsed at any time thereafter because the employment through which coverage was received ended or an employer’s contribution to health coverage ended, or (3) who were covered at any time between June 30, 1993, and July 1, 1994, under a contract that was in force on June 30, 1993.
An association obtaining health coverage for its members pursuant to this section shall otherwise be afforded all the rights of a guaranteed association under this chapter including, but not limited to, guaranteed renewability of coverage.
Every carrier shall file with the commissioner the reasonable participation requirements that will be required in renewing its health benefit plans. Participation requirements of a health benefit plan shall be applied uniformly among all small employer groups, except that a carrier may vary application of minimum employer participation requirements by the size of the small employer group and whether the employer contributes 100 percent of the eligible employee’s premium. Employer contribution requirements of a health benefit plan shall not vary by employer size. A carrier shall not establish a participation requirement that (1) requires a person who meets the definition of a dependent in subdivision (d) of Section 10755 to enroll as a dependent if he or she is otherwise eligible for coverage and wishes to enroll as an eligible employee and (2) allows a carrier to reject an otherwise eligible small employer because of the number of persons that waive coverage due to coverage through another employer. Members of an association eligible for health coverage eligible under subdivision (t) of Section 10755 but not electing any health coverage through the association shall not be counted as eligible employees for purposes of determining whether the guaranteed association meets a carrier’s reasonable participation standards.
A health benefit plan shall not impose a preexisting condition provision or a waiting or affiliation period upon any individual.
Nothing in this chapter shall be construed as prohibiting a carrier from restricting enrollment of late enrollees to open enrollment periods consistent with federal law.
No carrier shall be required by the provisions of this chapter:
To include in a health benefit plan an otherwise eligible employee or dependent, when the eligible employee or dependent does not work or reside within a carrier’s approved service area, except as provided in Section 10755.02.1.
To offer coverage to an eligible employee, as defined in paragraph (2) of subdivision (e) of Section 10755, who within 12 months of application for coverage terminated from a health benefit plan offered by the carrier.
All grandfathered health benefit plans shall be renewable with respect to all eligible employees or dependents at the option of the policyholder, contractholder, or small employer except as follows:
For nonpayment of the required premiums by the policyholder, contractholder, or small employer, if the policyholder, contractholder, or small employer has been duly notified and billed for the charge and at least a 30-day grace period has elapsed since the date of notification or, if longer, the period of time required for notice and any other requirements pursuant to Section 2703, 2712, or 2742 of the federal Public Health Service Act (42 U.S.C. Secs. 300gg-2, 300gg-12, and 300gg-42) and any subsequent rules or regulations has elapsed.
An insurer shall continue to provide coverage as required by the policyholder’s, contractholder’s, or small employer’s policy during the period described in paragraph (1). Nothing in this section shall be construed to affect or impair the policyholder’s, contractholder’s, small employer’s, or insurer’s other rights and responsibilities pursuant to the subscriber contract.
If the insurer demonstrates fraud or an intentional misrepresentation of material fact under the terms of the policy by the policyholder, contractholder, or small employer or, with respect to coverage of individual enrollees, the enrollees or their representative.
Violation of a material contract provision relating to employer contribution or group participation rates by the policyholder, contractholder, or small employer.
When the carrier ceases to write, issue, or administer new or existing grandfathered or nongrandfathered small employer health benefit plans in this state, provided, however, that the following conditions are satisfied:
Notice of the decision to cease writing, issuing, or administering new or existing small employer health benefits plans in this state is provided to the commissioner, and to either the policyholder, contractholder, or small employer at least 180 days prior to the discontinuation of the coverage.
Small employer health benefit plans subject to this chapter shall not be canceled for 180 days after the date of the notice required under paragraph (1). For that business of a carrier that remains in force, any carrier that ceases to write, issue, or administer new or existing health benefit plans shall continue to be governed by this chapter.
A carrier that ceases to write, issue, or administer new health benefit plans to small employers in this state after the passage of this chapter shall be prohibited from writing, issuing, or administering new health benefit plans to small employers in this state for a period of five years from the date of notice to the commissioner.
When a carrier withdraws a health benefit plan from the small employer market, provided that the carrier notifies all affected policyholders, contractholders, or small employers and the commissioner at least 90 days prior to the discontinuation of those contracts, and that the carrier makes available to the small employer all nongrandfathered small employer health benefit plans which it markets and satisfies the requirements of Section 10714.
If coverage is made available through a bona fide association pursuant to subdivision (q) of Section 10755 or a guaranteed association pursuant to subdivision (s) of Section 10755, the membership of the employer or the individual, respectively, ceases, but only if that coverage is terminated under this subdivision uniformly without regard to any health status-related factor of covered individuals.
Premiums for grandfathered health benefit plans written or administered by carriers on or after the January 1, 2014, shall be subject to the following requirements:
The premium for new business shall be determined for an eligible employee in a particular risk category after applying a risk adjustment factor to the carrier’s standard employee risk rates. The risk adjusted employee risk rate may not be more than 110 percent or less than 90 percent.
The premium charged a small employer for new business shall be equal to the sum of the risk adjusted employee risk rates.
The standard employee risk rates applied to a small employer for new business shall be in effect for no less than 12 months.
The premium for in force business shall be determined for an eligible employee in a particular risk category after applying a risk adjustment factor to the carrier’s standard employee risk rates. The risk adjusted employee risk rate may not be more than 110 percent or less than 90 percent. The risk adjustment factor applied to a small employer may not increase by more than 10 percentage points from the risk adjustment factor applied in the prior rating period. The risk adjustment factor for a small employer may not be modified more frequently than every 12 months.
The premium charged a small employer for in force business shall be equal to the sum of the risk adjusted employee risk rates. The standard employee risk rates shall be in effect for 12 months.
Carriers shall apply standard employee risk rates consistently with respect to all small employers.
In connection with the renewal of any grandfathered health benefit plan to small employers:
Each carrier shall make a reasonable disclosure, as part of its solicitation and sales materials, of the following:
The extent to which the premium rates for a specified small employer are established or adjusted in part based upon the actual or expected variation in claims costs of the employees and dependents of the small employer.
The provisions concerning the carrier’s ability to change premium rates and the factors other than claim experience which affect changes in premium rates.
Provisions relating to the guaranteed issue of policies and contracts.
Provisions relating to the prohibition of any preexisting condition provision.
Provisions relating to the small employer’s right to apply for any nongrandfathered health benefit plan written, issued, or administered by the carrier, at the time of application for a new health benefit plan, or at the time of renewal of a health benefit plan, consistent with the requirements of PPACA.
The availability, upon request, of a listing of all the carrier’s nongrandfathered health benefit plans, offered inside or outside the California Health Benefit Exchange, including the rates for each benefit plan design.
No carrier shall renew coverage subject to this chapter until it has done all of the following:
A statement has been filed with the commissioner listing all of the carrier’s grandfathered health benefit plans currently in force in this state, identified by form number, and, if previously approved by the commissioner, the date approved by the commissioner as well as the standard employee risk rate for each risk category for each benefit plan design and the highest and lowest risk adjustment factors that the carrier intends to use in determining rates for each benefit plan design. When filing a new benefit plan design pursuant to Section 10755.05, carriers may submit both the policy form and the standard employee risk rates for each risk category at the same time.
Either:
Thirty days expires after that statement is filed without written notice from the commissioner specifying the reasons for his or her opinion that the carrier’s risk categories or risk adjustment factors do not comply with the requirements of this chapter.
Prior to that time the commissioner gives the carrier written notice that the carrier’s risk categories and risk adjustment factors as filed comply with the requirements of this chapter.
No carrier shall renew or revise a grandfathered health benefit plan lawfully provided pursuant to subdivision (a), and no carrier shall change the risk categories, risk adjustment factors, or standard employee risk rates for a grandfathered health benefit plan until all of the following requirements are met:
The carrier files with the commissioner a statement of the specific changes which the carrier proposes in the risk categories, risk adjustment factors, or standard employee risk rates.
Either:
Thirty days expires after such statement is filed without written notice from the commissioner specifying the reasons for his or her opinion that the carrier’s risk categories or risk adjustment factors do not comply with the requirements of this chapter.
Prior to that time the commissioner gives the carrier written notice that the carrier’s risk categories and risk adjustment factors as filed comply with the requirements of this chapter.
Notwithstanding any provision to the contrary, when a carrier is changing the standard employee risk rates of a health benefit plan lawfully provided under subdivision (a) or (b) but is not changing the risk categories or risk adjustment factors which have been previously authorized, the carrier need not comply with the requirements of paragraph (2) of subdivision (b), but instead shall submit the revised standard employee risk rates for the health benefit plan prior to renewing the health benefit plan.
When submitting filings under subdivision (a), (b), or (c), a carrier may also file with the commissioner at the time of the filings a statement of the standard employee risk rate for each risk category the carrier intends to use for each month in the 12 months subsequent to the date of the filing. Once the requirements of the applicable subdivision (a), (b), or (c), have been met, these rates shall be used by the carrier for the 12-month period unless the carrier is otherwise informed by the commissioner in his or her response to the filings submitted under subdivision (a), (b), or (c), provided that any subsequent change in the standard employee risk rates charged by the carrier which differ from those previously filed with the commissioner must be newly filed in accordance with this subdivision and provided that the carrier does not change the risk categories or risk adjustment factors for the health benefit plan.
If the commissioner notifies the carrier, in writing, that the carrier’s risk categories or risk adjustment factors do not comply with the requirements of this chapter, specifying the reasons for his or her opinion, it is unlawful for the carrier, at any time after the receipt of such notice, to utilize the noncomplying health benefit plan, benefit plan design, risk categories, or risk adjustment factors in conjunction with the health benefit plans or benefit plan designs for which the filing was made.
Each carrier shall maintain at its principal place of business copies of all information required to be filed with the commissioner pursuant to this section.
Each carrier shall make the information and documentation described in this section available to the commissioner upon request.
Nothing in this section shall be construed to permit the commissioner to establish or approve the rates charged to policyholders for health benefit plans.
In addition to any other remedy permitted by law, the commissioner shall have the administrative authority to assess penalties against carriers, insurance producers, and other entities engaged in the business of insurance or other persons or entities for violations of this chapter.
Upon a showing of a violation of this chapter in any civil action, a court may also assess the penalties described in this chapter, in addition to any other remedies provided by law.
Any production agent or other person or entity engaged in the business of insurance, other than a carrier, that violates this chapter is liable for administrative penalties of not more than two hundred fifty dollars ($250) for the first violation.
Any production agent or other person or entity engaged in the business of insurance, other than a carrier, that engages in practices prohibited by this chapter a second or subsequent time, or who commits a knowing violation of this chapter, is liable for administrative penalties of not less than one thousand dollars ($1,000) and not more than two thousand five hundred dollars ($2,500) for each violation.
Any carrier that violates this chapter is liable for administrative penalties of not more than two thousand five hundred dollars ($2,500) for the first violation and not more than five thousand dollars ($5,000) for each subsequent violation.
Any carrier that violates this chapter with a frequency that indicates a general business practice or commits a knowing violation of this chapter, is liable for administrative penalties of not less than fifteen thousand dollars ($15,000) and not more than one hundred thousand dollars ($100,000) for each violation.
An act or omission that is inadvertent and that results in incorrect premium rates being charged to more than one policyholder shall be a single violation for the purpose of this section.
In addition to any other remedy permitted by law, whenever the commissioner shall have reason to believe that any carrier, production agent, or other person or entity engaged in the business of insurance has violated this chapter, and that a proceeding by the commissioner in respect thereto would be in the interest of the public, the commissioner may issue and serve upon that entity an order to show cause containing a statement of the charges, a statement of the entity’s potential liability under this chapter, and a notice of a public hearing thereon before the Administrative Law Bureau of the department to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the commissioner should issue an order to that entity to pay the penalty imposed by this chapter and such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order to cease and desist from the specified violations of this chapter.
The hearings provided by this subdivision shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
Whenever it appears to the commissioner that irreparable loss and injury has occurred or may occur to an insured, employer, employee, or other member of the public because a carrier, production agent, or other person or entity engaged in the business of insurance has violated this chapter, the commissioner may, before hearing, but after notice and opportunity to submit relevant information, issue and cause to be served upon the entity such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order requiring the entity to forthwith cease and desist from engaging further in the violations which are causing or may cause such irreparable injury.
At the same time an order is served pursuant to paragraph (1) of this subdivision, the commissioner shall issue and also serve upon the person a notice of public hearing before the Administrative Law Bureau of the department to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof.
The hearings provided by this subdivision shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
At any time prior to the commencement of a hearing as provided in this subdivision, the entity against which the commissioner has served an order may waive the hearing and have judicial review of the order by means of any remedy afforded by law without first exhausting administrative remedies or procedures.
If, after hearing as provided by subdivision (a) or (b), the charges, or any of them, that an entity has violated this chapter are found to be justified, the commissioner shall issue and cause to be served upon that entity an order requiring that entity to pay the penalty imposed by this chapter and such order or orders as shall be reasonably necessary to correct, eliminate, or remedy the alleged violations of this chapter, including, but not limited to, an order to cease and desist from the specified violations of this chapter.
In addition to any other penalty provided by law or the availability of any administrative procedure, if a carrier, after notice and hearing, is found to have violated this chapter knowingly or as a general business practice the commissioner may suspend the carrier’s certificate of authority to transact disability insurance. The order of suspension shall prescribe the period of such suspension. The proceedings shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all the powers granted therein.
Carriers may enter into contractual agreements with qualified associations, as defined in subdivision (b), under which these qualified associations may assume responsibility for performing specific administrative services, as defined in this section, for qualified association members. Carriers that enter into agreements with qualified associations for assumption of administrative services shall establish uniform definitions for the administrative services that may be provided by a qualified association or its third-party administrator. The carrier shall permit all qualified associations to assume one or more of these functions when the carrier determines the qualified association demonstrates that it has the administrative capacity to assume these functions.
For the purposes of this section, administrative services provided by qualified associations or their third-party administrators shall be services pertaining to eligibility determination, enrollment, premium collection, sales, or claims administration on a per-claim basis that would otherwise be provided directly by the carrier or through a third-party administrator on a commission basis or an agent or solicitor workforce on a commission basis.
Each carrier that enters into an agreement with any qualified association for the provision of administrative services shall offer all qualified associations with which it contracts the same premium discounts for performing those services the carrier has permitted the qualified association or its third-party administrator to assume. The carrier shall apply these uniform discounts to the carrier’s risk adjusted employee risk rates after the carrier has determined the qualified association’s risk adjusted employee risk rates pursuant to Section 10755.14. The carrier shall report to the department its schedule of discounts for each administrative service.
In no instance may a carrier provide discounts to qualified associations that are in any way intended to, or materially result in, a reduction in premium charges to the qualified association due to the health status of the membership of the qualified association. In addition to any other remedies available to the commissioner to enforce this chapter, the commissioner may declare a contract between a carrier and a qualified association for administrative services pursuant to this section null and void if the commissioner determines any discounts provided to the qualified association are intended to, or materially result in, a reduction in premium charges to the qualified association due to the health status of the membership of the qualified association.
For the purposes of this section, a qualified association is a nonprofit corporation comprised of a group of individuals or employers who associate based solely on participation in a specified profession or industry, that conforms to all of the following requirements:
It accepts for membership any individual or small employer meeting its membership criteria.
It does not condition membership, directly or indirectly, on the health or claims history of any person.
It uses membership dues solely for and in consideration of the membership and membership benefits, except that the amount of the dues shall not depend on whether the member applies for or purchases insurance offered by the association.
It is organized and maintained in good faith for purposes unrelated to insurance.
It existed on January 1, 1972, and has been in continuous existence since that date.
It has a constitution and bylaws or other analogous governing documents that provide for election of the governing board of the association by its members.
It offered, marketed, or sold health coverage to its members for 20 continuous years prior to January 1, 1993.
It agrees to offer any plan contract only to association members.
It agrees to include any member choosing to enroll in the plan contract offered by the association, provided that the member agrees to make required premium payments.
It complies with all provisions of this article.
It had at least 10,000 enrollees covered by association-sponsored plans immediately prior to enactment of Chapter 1128 of the Statutes of 1992.
It applies any administrative cost at an equal rate to all members purchasing coverage through the qualified association.
A qualified association shall comply with the requirements set forth in Section 10198.9.
Notwithstanding any other provision of law, no provision of this chapter shall be construed to limit the applicability of any other provision of the Insurance Code unless such provision is in conflict with the requirements of this chapter.
CHAPTER 8.5. Coverage for Federally Eligible Defined Individuals [10785. - 10786.]
A disability insurer that covers hospital, medical, or surgical expenses under an individual health benefit plan as defined in subdivision (a) of Section 10198.6 may not, with respect to a federally eligible defined individual desiring to enroll in individual health insurance coverage, decline to offer coverage to, or deny enrollment of, the individual or impose any preexisting condition exclusion with respect to the coverage.
For purposes of this section, “federally eligible defined individual” means an individual who, as of the date on which the individual seeks coverage under this section, meets all of the following conditions:
Has had 18 or more months of creditable coverage, and whose most recent prior creditable coverage was under a group health plan, a federal governmental plan maintained for federal employees, or a governmental plan or church plan as defined in the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1002).
Is not eligible for coverage under a group health plan, Medicare, or Medi-Cal, and does not have other health insurance coverage.
Was not terminated from his or her most recent creditable coverage due to nonpayment of premiums or fraud.
If offered continuation coverage under COBRA or Cal-COBRA, has elected and exhausted that coverage.
Every disability insurer that covers hospital, medical, or surgical expenses shall comply with applicable federal statutes and regulations regarding the provision of coverage to federally eligible defined individuals, including any relevant application periods.
A disability insurer shall offer the following health benefit plans under this section that are designed for, made generally available to, are actively marketed to, and enroll, individuals: (1) either the two most popular products as defined in Section 300gg-41(c)(2) of Title 42 of the United States Code and Section 148.120(c)(2) of Title 45 of the Code of Federal Regulations or (2) the two most representative products as defined in Section 300gg-41(c)(3) of the United States Code and Section 148.120(c)(3) of Title 45 of the Code of Federal Regulations, as determined by the insurer in compliance with federal law. An insurer that offers only one health benefit plan to individuals, excluding health benefit plans offered to Medi-Cal or Medicare beneficiaries, shall be deemed to be in compliance with this chapter if it offers that health benefit plan contract to federally eligible defined individuals in a manner consistent with this chapter.
In the case of a disability insurer that offers health benefit plans in the individual market through a network plan, the insurer may do both of the following:
Limit the individuals who may be enrolled under that coverage to those who live, reside, or work within the service area for the network plan.
Within the service area covered by the health benefit plan, deny coverage to individuals if the insurer has demonstrated to the commissioner that the insured will not have the capacity to deliver services adequately to additional individual insureds because of its obligations to existing group policyholders, group contractholders and insureds, and individual insureds, and that the insurer is applying this paragraph uniformly to individuals without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
A disability insurer, upon denying health insurance coverage in any service area in accordance with subparagraph (B) of paragraph (1), may not offer health benefit plans through a network in the individual market within that service area for a period of 180 days after the coverage is denied.
A disability insurer may deny health insurance coverage in the individual market to a federally eligible defined individual if the insurer has demonstrated to the commissioner both of the following:
The insurer does not have the financial reserves necessary to underwrite additional coverage.
The insurer is applying this subdivision uniformly to all individuals in the individual market and without regard to any health status-related factor of the individuals and without regard to whether the individuals are federally eligible defined individuals.
A disability insurer, upon denying individual health insurance coverage in any service area in accordance with paragraph (1), may not offer that coverage in the individual market within that service area for a period of 180 days after the date the coverage is denied or until the insurer has demonstrated to the commissioner that the insurer has sufficient financial reserves to underwrite additional coverage, whichever is later.
The requirement pursuant to federal law to furnish a certificate of creditable coverage shall apply to health benefits plans offered by a disability insurer in the individual market in the same manner as it applies to an insurer in connection with a group health benefit plan policy or group health benefit plan contract.
A disability insurer shall compensate an accident and health agent or a life and accident and health agent whose activities result in the enrollment of federally eligible defined individuals in the same manner and consistent with the renewal commission amounts as the insurer compensates accident and health agents or life and accident and health agents for other enrollees who are not federally eligible defined individuals and who are purchasing the same individual health benefit plan.
Every disability insurer shall disclose as part of its COBRA or Cal-COBRA disclosure and enrollment documents, an explanation of the availability of guaranteed access to coverage under the federal Health Insurance Portability and Accountability Act of 1996, including the necessity to enroll in and exhaust COBRA or Cal-COBRA benefits in order to become a federally eligible defined individual.
No disability insurer may request documentation as to whether or not a person is a federally eligible defined individual other than is permitted under applicable federal law or regulations.
This section shall not apply to coverage defined as excepted benefits pursuant to Section 300gg(c) of Title 42 of the United States Code.
This section shall apply to policies or contracts offered, delivered, amended, or renewed on or after January 1, 2001.
On and after January 1, 2014, and except as provided in paragraph (2), this section shall apply only to individual grandfathered health plans previously issued pursuant to this section to federally eligible defined individuals.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-91), paragraph (1) shall become inoperative on the date of that repeal or amendment and this section shall apply to health benefit plans issued, amended, or renewed on or after that date.
For purposes of this subdivision, the following definitions apply:
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
On and after January 1, 2014, a health insurer providing health insurance coverage shall provide to policyholders in individual policies or certificate holders in group policies who cease to be enrolled in coverage a notice informing them that they may be eligible for reduced-cost coverage through the California Health Benefit Exchange (Exchange) established under Title 22 (commencing with Section 100500) of the Government Code or free or low-cost coverage through Medi-Cal. The notice shall include information on obtaining coverage pursuant to those programs, shall be in no less than 12-point type, and shall be developed by the department, no later than July 1, 2013, in consultation with the Department of Managed Health Care and the Exchange. The notice shall also include information that individuals eligible for the Medicare Program should examine their options carefully, as delaying Medicare enrollment may result in substantial financial implications, as well as information on how to find enrollment advice or assistance.
The notice described in paragraph (1) may be incorporated into or sent simultaneously with and in the same manner as any other notices sent by the health insurer.
A health insurer shall annually notify a policyholder or certificate holder that if the policyholder or certificate holder ceases to be enrolled in coverage, the health insurer will provide information, including the policyholder’s or certificate holder’s name, address, and other contact information, such as email address, to the Exchange so that the policyholder or certificate holder may obtain other coverage. A policyholder or certificate holder may opt out of this transfer of information to the Exchange. This notice may be incorporated into or sent simultaneously with other notices sent by the health insurer.
Beginning January 1, 2021, a health insurer that has notified its policyholders or certificate holders consistent with paragraph (1) shall provide to the Exchange the name, address, and other contact information of a policyholder or certificate holder who ceased to be enrolled in coverage and who did not opt out of the information transfer. The information shall be provided in a manner prescribed by the Exchange.
The Exchange may use any contact method to communicate with and inform a policyholder or certificate holder who ceases to be enrolled in coverage of available coverage options.
This section does not apply to a specialized health insurance policy or a health insurance policy consisting solely of coverage of excepted benefits as described in Section 2722 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-21).
CHAPTER 9. The Private Health Care Voluntary Purchasing Alliance Act [10800. - 10887.]
ARTICLE 1. General [10800. - 10803.]
This chapter shall be known as the Private Health Care Voluntary Purchasing Alliance Act.
The purpose of this chapter is to improve the competition in the pricing and delivering of health care coverage for employers and small employers. It does so by allowing for the establishment of private competing purchasing alliances through which eligible employers or small employers can purchase health coverage. Another goal is to avoid jurisdictional confusion by clarifying the respective roles and jurisdiction of existing regulatory agencies and a purchasing alliance. This chapter provides a mechanism for employers or small employers to join together solely for the purpose of procuring health coverage and operates as an exception to existing false group or fictitious group laws.
This chapter is also intended to provide a meaningful choice of high quality, fairly priced health care providers, and health care coverage for participating employers and employees of a purchasing alliance through a system that is fair, efficient, and accountable to its members and includes procedural and substantive protections.
It is envisioned that a purchasing alliance will contract with qualified group carriers to provide a meaningful choice of carriers providing health benefit plans or ancillary benefit plans to purchasing alliance participants.
ARTICLE 2. Definitions [10810. - 10810.]
As used in this chapter:
“Ancillary benefit plan” means a policy or contract written or administered by a participating carrier that covers dental or vision benefits for the covered eligible employees of an employer or small employer and their dependents.
“Appropriate Regulatory Authority” means the Department of Insurance except for health care service plans, in which case it means the Department of Managed Health Care.
“Benefit plan design” means a specific health coverage product issued by a carrier to employers or small employers, to trustees of associations, or to individuals if the coverage is offered through employment or sponsored by an employer or small employer. It includes the services covered and the levels of copayment and deductibles.
“Board” means the governing body of the purchasing alliance. This term shall include the board of directors of a nonprofit corporation or trust, a for-profit corporation, the general partners of a partnership, or a sole proprietor.
“Carrier” means any licensed disability insurance company or licensed health care service plan or any other entity that writes, issues, or administers any health benefit plan or ancillary benefit plan to employers or small employers in this state.
“Commissioner” means the Insurance Commissioner, who shall have regulatory jurisdiction over purchasing alliances.
“Eligible employee” means any permanent employee who is actively engaged on a full-time basis in the conduct of business of the employer or small employer and, who has satisfied any employer or small employer waiting period requirements. The term includes sole proprietors or partners of a partnership if they are actively engaged on a full-time basis in the employer’s or small employer’s business, but does not include employees who work on a part-time, temporary, or substitute basis.
“Employer” means any corporation, partnership, sole proprietorship, or other business entity doing business in this state that may be eligible to participate in a purchasing alliance. The term “employer” shall not include “small employer” as defined in subdivision (s).
“Enrollee” means an eligible employee or a dependent of an eligible employee who is enrolled in a health benefit plan or ancillary benefit plan offered through the purchasing alliance by a participating carrier.
“Health benefit plan” means a policy or contract written or administered by a participating carrier that arranges or provides health care benefits for the covered eligible employees of an employer or small employer and their dependents. The term does not include accident only, credit, dental, vision, disability income, or long-term care insurance, coverage issued as a supplement to liability insurance, automobile medical payments insurance, or insurance under which benefits are payable with or without regard to fault and is statutorily required to be continued in any liability insurance policy or equivalent self-insurance.
“Management company” means the company under contract to the purchasing alliance to provide managerial services for the operation of the purchasing alliance.
“Participating carrier” means a carrier that contracts with a purchasing alliance to provide coverage to enrollees under a health benefit plan or ancillary benefit plan.
“Participating employer” means an employer or small employer who contracts with a purchasing alliance to provide coverage to the employer’s or small employer’s employees.
“Purchasing alliance” means a non-risk-bearing entity issued a certificate of registration pursuant to this chapter to provide health benefits through multiple unaffiliated participating carriers to multiple participating employers, small employers and their employees within this state as authorized by the commissioner. That entity shall include nonprofit corporations, for-profit corporations, trusts, partnerships, and sole proprietorships.
“Service region” means that portion of the state, designated by the commissioner pursuant to regulations as described in this chapter in which each purchasing alliance must fairly and affirmatively offer, market, and sell all of the health benefit plan designs offered through the purchasing alliance that are sold or offered to a small employer to all small employers.
“Third-party administrator” means the company contracted by the purchasing alliance to provide administrative services for the purchasing alliance and that is licensed to provide those services by the department pursuant to Section 1759.10.
ARTICLE 3. Regulation [10820. - 10826.]
The commissioner shall regulate the establishment and conduct of purchasing alliances as set forth in this chapter.
No person or entity may market, sell, offer, or contract for a package of one or more health benefit plans underwritten by two or more carriers to two or more employers or small employers or their eligible employees within a purchasing alliance without first being registered by the commissioner pursuant to this chapter. This subdivision does not apply to entities licensed by the Department of Managed Health Care as health care service plans or entities licensed by the Department of Insurance as disability insurers except that no licensed health care service plan or licensed disability insurer may be registered with the commissioner as a purchasing alliance. This chapter does not apply to any entity exempt pursuant to Section 1349.2 of the Health and Safety Code.
A person or entity not registered by the commissioner as a purchasing alliance and engaged in the purchase, sale, marketing or distribution of health insurance or health care benefit plans shall not hold itself out as an alliance, health insurance purchasing alliance, purchasing alliance, health alliance, health insurance purchasing cooperative, or purchasing cooperative, or otherwise use a confusingly similar name.
The commissioner shall establish six geographic service regions throughout which all purchasing alliances shall operate. These regions shall be established with no region smaller than an area in which the first three digits of all its postal ZIP Codes are in common within a county and shall divide no county into more than two service regions. Geographic service regions established pursuant to this section shall, as a group, cover the entire state, and the areas encompassed in geographic service regions shall be separate and distinct from regions encompassed in other geographic service regions. Geographic service regions may be noncontiguous.
Nothing in this chapter shall be deemed to be in conflict with or limit the duties and powers granted to the commissioner under the laws of this state.
Purchasing alliances shall report to the commissioner any suspected or alleged law violations of this chapter.
Violations of this chapter shall be subject to the penalties outlined hereafter.
The commissioner shall adopt reasonable rules and regulations as are necessary to administer this chapter.
Nothing in this chapter shall be construed or interpreted to apply to an entity that has been approved by the Director of the Department of Managed Health Care, pursuant to Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code, to act as a solicitor and third-party administrator with respect to a multiple carrier or health care service plan marketing cooperative in which each carrier or health care service plan contracts directly with subscribing groups or individuals for the provision of health care, for the arranging for the provision of health care, or for the provision of coverage for health care.
An entity seeking to obtain a certificate of registration to act as a purchasing alliance shall complete and file with the commissioner an application designated by the commissioner. An application will not be deemed filed until all information necessary to properly process the application has been received by the commissioner.
Upon filing, the commissioner shall make a determination concerning the application and provide notice of file determination to the applicant within 180 days of the date the application is deemed filed. If approved, a copy of a certificate of registration, in a form designed by the commissioner, shall be provided to the purchasing alliance. The certificate of registration shall serve as authorization to operate pursuant to this chapter.
A purchasing alliance shall maintain a minimum net worth of forty thousand dollars ($40,000) plus one months operating expenses as reserves. Net worth is defined as the excess of admitted assets over all liabilities.
A purchasing alliance shall at all times maintain current assets of at least ten thousand dollars ($10,000) in excess of current liabilities, as such current assets and liabilities may be defined pursuant to regulations made by the commissioner. In making those regulations, the commissioner shall be guided by generally accepted accounting principles followed by certified public accountants in this state.
The entity that is seeking to obtain a certificate of registration to act as a purchasing alliance shall file with the commissioner the following information or documents:
At the time of initial registration, the entity shall provide a written description as to how the entity intends to meet the public policy objectives of increased access and improved quality of health care services.
The written description shall also demonstrate that the purchasing alliance will have the technical expertise and physical capacity to serve employers or small employers and their eligible employees in this state.
The written description shall also describe the scope of services to be offered in this state and the resources and expertise to be used to implement and administer those services.
Current partnership agreements, articles of incorporation, trust documents, or similar documents establishing the group.
Current bylaws of the group.
A statement of grievance procedures relative to the eligibility, enrollment, premium collection, and administrative services provided by the alliance.
A statement of enrollment procedures and requirements, including participation and contribution rules and requirements.
A statement of disenrollment criteria and procedures.
A statement of payment procedures, late payment procedures, and grace periods.
A purchasing alliance shall demonstrate to the satisfaction of the commissioner that its governance makes it an appropriate and effective representative of employers or small employers and their eligible employees’ interests throughout this state. A purchasing alliance shall organize and facilitate competition between multiple unaffiliated carriers.
A list of owners, partners, officers, and directors of the applicant and the contracted management company or third-party administrator, if such are employed, and personal biographical information or firm descriptions for each. The owners, partners, officers, directors, and contracted managers and administrators shall not have a prior record of administrative, civil, or criminal violations within any financial service industry.
The personal biographical information and firm descriptions shall demonstrate by clear and convincing evidence that those involved in the operation of the alliance have the expertise, experience, and character to effectively and professionally represent employers or small employers and their eligible employees in a fiduciary capacity.
Evidence of adequate security and prudence in the accounting, deposit, collection, handling, and transfer of moneys. A purchasing alliance shall affirmatively demonstrate adequate financial controls to the satisfaction of the commissioner as a condition of being issued a certificate of registration.
A description of the employers or small employers and their eligible employees to which the purchasing alliance will be marketing. A purchasing alliance shall demonstrate to the satisfaction of the commissioner that it will fairly and affirmatively offer, market, and sell all of its available small employer health benefit plan products to all small employers throughout all the service regions in this state.
Disclosure of any preexisting oral or written agreements.
Any other information required by the commissioner deemed pertinent to the policies and operation of the alliance.
Thirty days prior to any amendment or modification to any of the documents submitted pursuant to subdivision (e), the alliance shall file with the commissioner a copy of the amended or modified document. Any amendment or modification shall be deemed approved if the commissioner has not disapproved the document within 30 days.
The purchasing alliance shall furnish an annual financial audit to the commissioner on the forms provided by the commissioner. The annual financial audit may be filed either on a calendar year basis on or before March 31, or, if approved in writing by the commissioner in respect to any individual purchasing alliance, on a fiscal year basis on or before 90 days after the end of the fiscal year. The deadline for filing the annual audit may be extended by the commissioner for good cause, as determined by the commissioner for a period not to exceed 60 days. Failure to submit an audit on time, or within any extended time that the commissioner may grant, shall be grounds for an order by the commissioner to prohibiting the alliance from accepting any new business pursuant to this section. The audits shall be private, except that a synopsis of the balance sheet on a form prescribed by the commissioner may be made available to the public upon request. The audits shall be conducted and prepared in accordance with generally accepted auditing standards by an independent certified public accountant or independent licensed public accountant whose certification or license is in good standing at the time of the preparation. The fee for filing of the audit shall be three hundred thirteen dollars ($313). Any purchasing alliance that fails to file any audit or other report on or before the date it is due shall pay to the commissioner a penalty fee of one hundred eighteen dollars ($118) payable within 30 days of the due date of the audit and on failure to pay that fine or any fee or file the audit required by this section, shall forfeit the privilege of accepting new business until the delinquency is corrected. The commissioner may refuse to accept an audit or order a new audit for any of the following reasons:
Adverse result in any proceeding before the California Board of Accountancy affecting the auditor’s license.
The auditor has an affiliation with the purchasing alliance or any of its officers or directors that could prevent his or her reports on the purchasing alliance from being reasonably objective.
The auditor has been convicted of any misdemeanor or felony based on his or her activities as an accountant.
Judgment adverse to the auditor in any civil action finding him or her guilty of fraud, deceit, or misrepresentation in the practice of his or her profession.
Financial and performance audits or examinations of the purchasing alliance shall be conducted by the commissioner once every two years. The cost of the examinations or audits are to be paid by the purchasing alliance. The commissioner may impose conditions on registration, or continued registration to remedy compliance or performance problems.
At any time the commissioner determines, after notice and hearing, that a purchasing alliance registered under this article has willfully failed to comply with any of the provisions of this section, the commissioner shall make his or her order prohibiting the purchasing alliance from conducting its business for a period not to exceed one year.
Any purchasing alliance violating an order made under this subdivision is subject to seizure under Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and may have its certificate of registration revoked by the commissioner. Any person aiding and abetting any purchasing alliance in violation of that order is guilty of a misdemeanor.
The purpose of this section is to maintain the solvency of the purchasing alliance subject to this article and to protect the public by preventing fraud and requiring fair dealing. The audit shall be designed to ensure that the purchasing alliance is not a risk-bearing entity, to ensure sound financial controls and money management, and to prevent mismanagement or misappropriation of funds either through neglect or malfeasance. In order to carry out those purposes the commissioner shall make reasonable rules and regulations to govern the conduct of the business of the purchasing alliance subject to this chapter.
The commissioner shall establish fees for initial registration of a purchasing alliance and for renewal of registration of a purchasing alliance in an amount sufficient to cover the costs of administering this chapter. A purchasing alliance shall pay the initial registration fee at the time of application for registration, and the renewal fee at the time of application for renewal.
After the issuance or reissuance of a certificate of registration to act as a purchasing alliance, the holder shall continue to comply with the requirements as to its business set forth in this chapter and in the other applicable sections of this code, and in the other laws of this state.
In addition to any other grounds specified in this chapter, the following constitute grounds for denial, nonrenewal, suspension, or revocation of an application or existing certificate of registration, following notice and an opportunity for hearing:
Failure to comply with the provisions of this chapter.
Failure to disclose a preexisting oral or written agreement during the alliance application process.
Failure to fairly and affirmatively offer, market, and sell all of the health benefit plan designs offered through a purchasing alliance that are sold or offered to small employers to all small employers.
Failure to have adequate controls or failure to follow approved procedures.
Failure to meet minimum standards in a financial or performance audit or examination.
Failure to comply with a lawful order of the commissioner.
Filing any necessary form with the commissioner that contains fraudulent information or omission.
Misappropriation, conversion, illegal withholding, or refusal to pay over upon proper demand any moneys that belong to a person or participating carrier otherwise not entitled to the alliance and that have been entrusted to the alliance in its fiduciary capacity.
Operation of the purchasing alliance that is at variance with the basic organizational documents as filed pursuant to this chapter or as published by the purchasing alliance, or in any manner contrary to that described in, or reasonably inferred from, the purchasing alliance’s application for certification and annual report, or any modification thereof, unless amendments allowing the variation have been submitted to, and approved by, the commissioner pursuant to this chapter.
The continued operation of the purchasing alliance will constitute a substantial risk to its subscribers and enrollees.
The purchasing alliance has violated, attempted to violate, or conspired to violate, directly or indirectly, or assisted in or abetted a violation or conspiracy to violate any provision of this chapter or any rule or regulation adopted by the commissioner pursuant to this chapter.
The purchasing alliance has permitted, or aided or abetted, any violation by an employee or contractor who is a holder of any license, certificate, permit, or registration issued pursuant to the Business and Professions Code, the Health and Safety Code, or this code, which violation would constitute grounds for discipline against that licensee, or certificate, permit, or registration holder.
The purchasing alliance has aided, abetted, or permitted the commission of any illegal acts.
The purchasing alliance, its management company, or any other affiliate of the purchasing alliance, or any controlling person, officer, director, or other person occupying a principal management or supervisory position in the purchasing alliance, management company, or affiliate, has been convicted or pleaded no contest to a crime, or committed any act involving dishonesty, fraud, or deceit, which crime or act is substantially related to the qualifications, functions, or duties of that person under this chapter. The commissioner may revoke or deny a certificate issued under this chapter irrespective of a subsequent order under Section 1203.4 of the Penal Code.
The commissioner may take disciplinary action against a purchasing alliance if the commissioner determines that the purchasing alliance has committed any of the acts set forth in Section 10823. The disciplinary action may include censuring the purchasing alliance, or prohibiting for a period not exceeding 24 months or barring permanently, a person, partnership, corporation, or trust from acting as a purchasing alliance.
The commissioner shall notify the purchasing alliance of any order that suspends or bars a person from engaging in operations as a purchasing alliance. It shall be unlawful for any purchasing alliance, after receipt of notice of the order, to enroll any new employers or small employers.
The commissioner may prohibit any person from serving as an officer, director, employee, or associate of any purchasing alliance or solicitor firm of any purchasing alliance, or any management company of any purchasing alliance, or as a solicitor or agent if any of the following applies:
The prohibition is in the public interest and the person has committed or caused, participated in, or had knowledge of, and failed to properly report a violation of this chapter by a purchasing alliance, management company, or solicitor firm.
The person was an officer, director, employee, associate, or provider of a purchasing alliance or of a management company or solicitor firm of any purchasing alliance whose certificate has been suspended or revoked pursuant to this section and the person had knowledge of and failed to report, or participated in, any of the prohibited acts for which the certificate was suspended or revoked.
The person was an officer director, employee, or associate of a purchasing alliance that has been the subject of an order of suspension or bar from engaging in operations as a purchasing alliance under this section and the person had knowledge of, or participated in, any of the prohibited acts for which the order was issued. A proceeding for the issuance of an order under this subdivision may be included with a proceeding against a purchasing alliance under this section, or may conduct a separate proceeding.
The person has been convicted or pleaded no contest to a crime, or committed any act involving dishonesty, fraud, or deceit, which crime or act is substantially related to the qualifications, functions, or duties of the person under this chapter.
Any disciplinary action under Section 10823 and this section shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code).
A purchasing alliance whose certificate has been revoked or suspended for more than one year may petition the commissioner to reinstate the certificate as provided by Section 11522 of the Government Code. No petition may be considered if the petitioner is under criminal sentence for a violation of this chapter, or for any offense that would constitute grounds for discipline or denial of registration under this chapter, including any period of probation or parole.
A purchasing alliance that is barred or suspended for more than one year from acting as such, or that is subject to an order imposing discipline that by its terms is effective for more than one year, may petition the commissioner to reduce by order the penalty in a manner generally consistent with the provisions of Section 11522 of the Government Code. No petition may be considered if the petitioner is under criminal sentence for a violation of this chapter, or for any offense that would constitute grounds for discipline or denial of registration under this chapter, including any period of probation or parole.
The petition for restoration shall be in the form prescribed by the commissioner and the commissioner may condition the granting of the petition on any additional information and undertakings that the commissioner may require in order to determine whether the purchasing alliance, if restored, would engage in business in full compliance with the objectives and provisions of this chapter and the rules and regulations adopted by the commissioner under this chapter.
The commissioner may prescribe a fee not to exceed one thousand dollars ($1,000) for the filing of a petition for restoration pursuant to this section. In addition, the commissioner may condition the granting of the petition to a purchasing alliance upon payment of the assessment due and unpaid as of December 15 during the preceding 12-calendar-month period, and if the purchasing alliance’s suspension or revocation was in effect for more than 12 months, upon the filing of a new application for registration as a purchasing alliance and the payment of the fee for certification.
Any person who violates any provision of this chapter, or who violates any rule or order adopted or issued pursuant to this chapter, shall be liable for a civil penalty not to exceed two thousand five hundred dollars ($2,500) for each violation, which shall be assessed and recovered in a civil action brought in the name of the people of the state by the commissioner in any court of competent jurisdiction.
As applied to the civil penalties for acts in violation of this chapter, the remedies provided by this article and by other sections of this chapter are not exclusive, and may be sought and employed in any combination to enforce this chapter.
No action may be maintained to enforce any liability created under article unless brought before the expiration of four years after the act or transaction constituting the violation.
The commissioner shall be able to recover the costs of investigating an alleged violation of this chapter in which a violation has been determined.
ARTICLE 4. Conflicts of Interest [10830. - 10830.]
No owner, officer, partner, or board members or members of their household nor any management personnel of the alliance may be employed by, be a consultant for, be a member of the board of directors of, be affiliated with an agent of, or otherwise be a representative of any carrier or other insurer, agent or broker, or a health care provider. This provision shall not preclude any of the above from purchasing coverage through an alliance.
Any employee of a purchasing alliance and any person or organization having any ownership interest in a purchasing alliance or any organization the alliance contracts with for marketing purposes shall be prohibited from receiving compensation based upon the health status, claims experience, industry, occupation, or geographic location of participating employers or small employers or the participating employer’s or small employer’s employees exclusive of a compensation arraignment that provides compensation on the basis of a percentage of premium, provided that the percentage shall not vary because of health status, industry, occupation, medical utilization, claims experience, or geographic location within a service region. Those employees, persons, and organizations are expressly prohibited from receiving compensation based upon a participating carrier’s loss ratio resulting from the carrier’s participation in the purchasing alliance.
Additionally, any employee of a purchasing alliance and those persons or organizations having an ownership interest in the purchasing alliance shall be prohibited from encouraging or directing employers or small employers to seek coverage from a source other than the alliance because of the health status, claims experience, industry, occupation, or geographic location of the employer or small employer or the employer’s or small employer’s employees.
ARTICLE 5. Additional Powers of and Restrictions on Purchasing Alliances [10840. - 10845.]
A purchasing alliance shall do all of the following:
Set reasonable fees, which may vary by employer or small employer size, in the purchasing alliance that will finance reasonable and necessary costs incurred in marketing, selling, servicing, and administering the purchasing alliance. Fees may not vary based upon the small employer or his or her enrollees and dependents’ actual or expected health status, medical utilization, claims experience, industry, occupation, or the geographic location of participating small employers within the same service region.
Define, market, offer, and sell to small employers the health benefit plans purchased from participating carriers. The purchasing alliance may also incidentally offer optional ancillary benefit plans. The purchasing alliance may also define, market, and offer health benefit plans and ancillary benefit plans to employers.
Require as a condition of participation that all employers or small employers include all their eligible employees or a minimum percentage of eligible employees in coverage purchased through the purchasing alliance.
With respect to small employers, the purchasing alliance shall require that the application of participation requirements be uniformly applied to all small employers.
Provide premium collection services for health benefit plans and ancillary benefit plans offered through the purchasing alliance.
Establish administrative and accounting procedures for operating the purchasing alliance and for services to employers and small employers and enrollees, including billing, administration, underwriting, marketing, enrollment, sales, regulatory compliance, and ensuring carrier and member compliance with the purchasing alliance requirements.
Establish rules, conditions, and procedures for participating members. The rules, conditions, and procedures for participating small employers shall be uniformly applied.
Establish rules, conditions, and procedures for participating carriers.
Reject or allow a participating carrier to reject an employer or small employer from participation or drop or allow a participating carrier to drop a participating employer if the participating employer or any of its eligible employees fail to pay premiums, or if the participating employer fails to maintain the minimum participation and contribution requirements or if the participating employer has engaged in fraud or material misrepresentation in connection with a health benefit plan or ancillary benefit plan purchased through the purchasing alliance. If a participating employer or enrollee is dropped from coverage, the enrollee shall be entitled to continuation and conversion coverage to the extent provided for under applicable state or federal continuation laws and the state conversion law.
Contract with at least three unaffiliated participating carriers offering health benefit plans to provide benefits in all regions of the state in which each carrier is licensed to operate and together to provide health benefit plans throughout all service regions in this state to ensure that enrollees have a personal choice from among a reasonable number of competing carriers. The commissioner may, upon a showing of good cause, waive the requirement to have at least three unaffiliated participating medical carriers.
Fairly and affirmatively offer, market, and sell all the health benefit plans sponsored by the purchasing alliance that are sold or offered to small employers to all small employers, in all service regions. In addition, the alliance shall require all participating carriers to make their purchasing alliance products available in all portions of each of the alliances service regions where the carrier offers health care benefits.
Be registered to operate in all service regions in this state and throughout each service region.
Develop standard enrollment procedures.
Publish educational materials, plan descriptions, and comparison sheets describing participating carriers and the benefit plan designs available through the purchasing alliance for use in enrolling employers or small employers and their eligible employees. The information may include an assessment of utilization management procedures and the level of quality and cost-effective care.
Establish conditions for participation of employers or small employers that conform to the requirements of this chapter and that include, but are not limited to, assurances that the employer or small employer is a bona fide employer or small employer group and provision for prepayment of premiums or other mechanisms to ensure that payment will be made for coverage. Conditions for participating small employers shall be uniformly applied to all small employers.
Provide that each eligible employee may choose from any participating medical carrier as long as the participating carrier provides coverage where the employee works or lives.
Receive, review, and act, as appropriate, on grievances by participating employers or enrollees.
Review information and recommendations from consumers, employers, small employers, participating carriers, health care providers, and other sources. After the review, the board may issue reports or otherwise make recommendations to improve the delivery or purchase of health care.
Establish administrative and accounting procedures for operating the purchasing alliance and for providing services to employers, small employers, and enrollees.
Prepare an annual report on the operations of the purchasing alliance to the commissioner, which shall include an accounting of all outside revenues received by the board and internal and independent audits and any other information the commissioner may require.
Establish procedures for billing and collection of premiums from employers and small employers, including any share of the premium paid by enrollees.
Establish procedures for annual open enrollment periods during which an employee enrolled in a health benefit plan through the purchasing alliance may elect to enroll in any health benefit plan that is available to that size group through the purchasing alliance, and that provides health coverage where the employee lives or works and during which any enrollee may elect to enroll in any health benefit plan that is available to that size group through the purchasing alliance, and that provides health coverage where the enrollee lives or works. For purposes of this subdivision, “size group” refers to whether the employer is a small employer or any other employer covered by this chapter.
Provide that in the event an employer or small employer terminates coverage purchased through the purchasing alliance, the former employer or small employer shall be ineligible to purchase a health benefit plan or ancillary benefit plan through the purchasing alliance for a period determined by the alliance, but not to exceed 12 months.
Maintain a trust account or accounts in a California bank for deposit of all moneys received and collected for operation of the purchasing alliance. A purchasing alliance, its owners, operators, partners, board members, employees, and agents shall have a fiduciary duty with respect to all moneys received or owed to it to ensure payment of its obligations and a full accounting to its participating employers, health plans, and the commissioner.
Treat all members within an employer or small employer group equally with regard to administrative fees and benefits of participation.
(aa) Every purchasing alliance shall offer at least one health plan that compensates its providers on an other than capitated basis in every region in which the alliance operates.
(ab) Have the authority to develop or contract for the development of uniform standards for data to be provided by participating carriers and providers. The purchasing alliance may collect or contract for the collection of data necessary for evaluation of the performance of participating carriers and their provider networks by consumers, providers, employers, small employers, and the commissioner. In formulating data collection standards, the board may use standards based on, and consistent with, existing state, National Association of Insurance Commissioners, and national health care data collection initiatives, and shall take into account their feasibility and cost-effectiveness.
(ac) Not expend for administrative purposes and profits in any fiscal year an excessive amount of the aggregate premiums, fees, and other periodic payments received by the purchasing alliance for providing health benefits to employers, small employers, and their employees, through a contract with participating carriers. As used in this subdivision, “administrative costs” includes costs in connection with marketing and sales of the health benefit plans offered by the purchasing alliance.
(ad) Exercise all powers reasonably necessary to carry out the powers and responsibilities expressly granted or imposed by this chapter.
A purchasing alliance shall comply with all requirements pertaining to the underwriting, rating and renewal practices for small employers, pursuant to subdivisions (a) and (b) of Section 1357.12 of , and subdivision (f) of Section 1357.03 of, the Health and Safety Code, and subdivisions (a) and (b) of Section 10714.
A purchasing alliance shall comply with all requirements pertaining to the participation requirements for small employers who participate in the purchasing alliance, pursuant to subdivision (b) of Section 1357.03 of the Health and Safety Code and Section 10706. A carrier participating in a purchasing alliance shall be deemed to be in compliance with this requirement.
A purchasing alliance may do any of the following:
Contract with qualified independent third parties for any services necessary to carry out the powers and duties authorized or required by this chapter.
Employ necessary staff.
Sue or be sued, including taking any legal actions necessary or proper for recovering any penalties for or on behalf of the health insurance purchasing group.
Allow a participating employer to choose the benefit plan design, from those offered by the purchasing alliance, to be made available to their eligible employees.
Allow eligible employees to enroll in any benefit plan design offered by the purchasing alliance.
Contract with licensed insurance agents or brokers to market and service coverage made available through the purchasing alliance to its members. Compensation for agents and brokers may not vary based on the small employer or his or her enrollees and dependents’ actual or expected health status, industry, occupation, medical utilization, claims experience, or geographic location within the service region. This subdivision shall not apply with respect to a compensation arrangement that provides compensation to an agent or broker on the basis of percentage of premium; provided that percentage shall not vary because of the health status, industry, occupation, medical utilization, claims experience, or geographic location within the service region.
Exclude a carrier or freeze enrollment in a carrier for failure to achieve established quality, access, or information reporting standards of the purchasing alliance.
A purchasing alliance shall not do any of the following:
Purchase health care services, assume risk for the cost or provision of health services, or otherwise contract with health care providers for the provision of health care services directly to enrollees.
Exclude a small employer or eligible employee or dependent of an eligible employee of a small employer from membership in the purchasing alliance who agrees to pay fees for membership and the premium for coverage through the purchasing alliance and who abides by the bylaws and rules of the purchasing alliance.
Prohibit the participation of small employers, as described in subdivision (a) of Section 1357.03 of the Health and Safety Code and in subdivision (b) of Section 10705, or utilize risk adjustment practices that conflict with the small employer group health provisions described in subdivisions (a) and (b) of Section 1357.12 of the Health and Safety Code and subdivision (b) of Section 10714.
Charge a fee not directly related to the operation of the purchasing alliance.
As a condition of participation, require an employer or small employer, eligible employee or dependent to subscribe to nonhealth care or nonhealth insurance related products or services.
Operate the purchasing alliance or market the purchasing alliance in a service region in a way that would cause the purchasing alliance to select a risk pool with health care utilization that is significantly below the average for all similar groups with similar coverage in the same region.
Engage in any competitive act or practice that results in the selection of small employers and his or her enrollees and dependents based on actual or expected health status, claims experience, medical utilization, industry, occupation, or geographic location within the service region.
Require or take any action inconsistent or in conflict with state laws or regulations.
A purchasing alliance may offer coverage pursuant to Chapter 9.5 (commencing with Section 10900).
The commissioner shall require every purchasing alliance, as a condition precedent to receiving and holding a certificate of registration, to file and maintain in the commissioner’s office a writing designating an agent for service of process. The writing shall state the name of the agent and his or her place of business in this state with sufficient particularity so that he or she can readily be found by peace officers or process servers. Appointment of the agent reasonably available for service of papers, notice, proof of loss, summons or other process during business hours shall be continuously maintained by every registered purchasing alliance subject to this article while it holds a valid and unrevoked certificate of registration.
An agent designated by a purchasing alliance as provided in this article may file with the commissioner a written statement of resignation as that agent, which shall be signed and execution thereof shall be duly acknowledged by the agent. Thereupon, the authority of the agent to act in such capacity shall cease and the commissioner shall forthwith give written notice of the resignation by mail to the purchasing alliance addressed to its principal office as shown by the commissioner’s records. If an agent who has been appointed by a purchasing alliance as provided by this article dies or resigns or removes his or her residence from the state, the purchasing alliance shall forthwith file with the commissioner an appointment of a new agent on a form provided by the commissioner for such purpose and pay the filing fee therefor, and the filing shall be deemed to revoke any prior designation of agent.
No fee shall be charged, except as included in the application for certificate of registration fee provided in this article, for filing the initial appointment under this article by an applicant for registration. Thereafter the commissioner shall require the payment of forty-five dollars ($45) in advance as a fee for filing appointment of agent or stipulation or both by every registered purchasing alliance.
ARTICLE 6. Participating Carriers [10850. - 10856.]
In order to be eligible to be a participating carrier, a carrier shall demonstrate the following operating characteristics satisfactory to the board:
Be licensed and approved as a carrier and in good standing with the appropriate regulatory authority.
The ability to provide data required by the board, including information on enrollee satisfaction based on standard surveys, as may be prescribed, and to meet reasonable satisfaction measures as may be established.
The ability to provide standard data elements in a manner prescribed by the board.
All other criteria established by the board.
Carriers that contract with or employ health care providers shall have mechanisms to accomplish all of the following in a manner satisfactory to the purchasing alliance, provided that the requirements of the alliance do not conflict with the carrier’s licensing requirements:
Review the quality of care covered.
Review the appropriateness of care covered.
Provide accessible health care services.
In evaluating which carriers may participate in the purchasing alliance, the board shall consider all of the following:
Every participating carrier shall:
Meet the standards established by the board pursuant to this chapter.
Provide any data required by the board.
Comply with, all applicable laws and regulations that regulate health care coverage or medical benefits provided to employers, including, with respect to coverage that is provided to small employers, Chapter 8 (commencing with Section 10700) for insurers and Article 3.1 (commencing with Section 1357) of Chapter 2.2 of Division 2 of the Health and Safety Code for health care service plans. However, a carrier contracting to participate in a purchasing alliance shall be deemed to be in compliance with the requirements for small employers of subdivision (a) of Section 1357.03 of the Health and Safety Code and of subdivisions (b) and (c) of Section 10705 for a benefit plan design offered through the purchasing alliance in those service regions in which the carrier participates in the purchasing alliance and the benefit plan design is offered exclusively through the purchasing alliance.
Comply with all rules and regulations regarding the application of risk adjustment factors to standard risk rates for small employers as specified in subdivisions (a) and (b) of Section 1357.12 of the Health and Safety Code and subdivisions (a) and (b) of Section 10714 of this code. A participating carrier shall also comply with the requirements that coverage be issued to small employers on a guaranteed issue basis as is specified in subdivision (a) of Section 1357.03 of the Health and Safety Code and subdivision (b) of Section 10705 of this code for small employers.
All participating medical carriers shall, in determining small employer rates for health benefit plans offered through a purchasing alliance, use the six service regions established by this chapter in determining risk categories for standard employee risk rates.
Enroll and disenroll individuals as directed by the purchasing alliance or its designee.
Comply with any other requirement established by the board pursuant to this chapter.
In contracts with participating carriers, the purchasing alliance may establish performance standards for specific contractual elements and penalties for failure to fulfill specific contractual obligations.
Nothing in this chapter shall prohibit a participating carrier from contracting with particular health care providers or types, classes, or categories of health care providers or setting reimbursement methodology.
In the event the participating carrier elects to terminate its participating agreement with a purchasing alliance, the participating carrier shall do both of the following:
Provide advance notice of its decision to the board.
Provide notice of the decision at least 180 days prior to the nonrenewal of any health benefit plan or ancillary benefit plan to employers or small employers and enrollees.
A participating carrier that elects not to renew a health benefit plan with a purchasing alliance shall be prohibited from writing new business through the purchasing alliance for a period of three years from the date of the notice to the purchasing alliance or until the purchasing alliance, with the concurrence of the commissioner, invites the former participating carrier to renew participation, whichever is sooner.
Nothing in this article shall be construed to limit the existing regulatory authority of the Department of Managed Health Care to regulate health care service plans or of the Department of Insurance to regulate disability or life insurers or hospital service plans. None of the requirements of this article shall conflict with the participating carrier’s licensing requirements.
ARTICLE 7. Contracts with Employers, Small Employers, and Participating Carriers [10860. - 10861.]
Contracts between the purchasing alliance and participating carriers shall specify how all premiums will be transmitted, and penalties and grace periods for payments.
Contracts between purchasing alliances and participating employers shall provide all of the following:
For administrative purposes, the purchasing alliance shall be the policyholder or contractholder of the health benefit plan or ancillary benefit plan on behalf of participating employers, their eligible employees, and dependents.
That the participating carrier will issue a certificate of coverage, or equivalent document, specifying the essential features of the health benefit plan’s or ancillary benefit plan’s coverage to each enrolled eligible employee.
The following notice shall be provided to employers, small employers, and eligible employees who obtain coverage from a purchasing alliance at the time of enrollment:
NOTICE
THE PURCHASING ALLIANCE IS NOT AN INSURANCE COMPANY AND DOES NOT PAY BENEFITS OR CLAIMS. IT COLLECTS AND DISTRIBUTES PREMIUMS IN YOUR EMPLOYER’S BEHALF TO INSURERS WHO MAY PARTICIPATE IN A GUARANTEE FUND CREATED BY CALIFORNIA LAW. THE ALLIANCE ITSELF DOES NOT PARTICIPATE IN A GUARANTEE FUND CREATED BY CALIFORNIA LAW.
THE PURCHASING ALLIANCE WHICH YOUR EMPLOYER HAS JOINED IS REGISTERED BY THE CALIFORNIA DEPARTMENT OF INSURANCE TO PROVIDE SPECIFIC ADMINISTRATIVE SERVICES AND MAY NOT ASSUME ANY RISK FOR CLAIM AND BENEFIT PAYMENTS.
FOR ADDITIONAL INFORMATION ABOUT THE PURCHASING ALLIANCE YOU SHOULD ASK QUESTIONS OF YOUR BENEFITS ADMINISTRATOR OR YOU MAY CONTACT THE CALIFORNIA DEPARTMENT OF INSURANCE AT 1-800-927-4356.
ARTICLE 8. Marketing [10870. - 10873.]
The board shall establish marketing standards to be used by participating carriers.
Any marketing, advertisement, or educational material for health benefit plans or ancillary benefit plans sold through the purchasing alliance shall be approved by the board prior to its use.
This article shall not be construed to prohibit or to compel the purchasing alliance or a participating carrier from using the services of an agent or broker.
A participating carrier, agent, broker, contractor, or producer of a participating carrier, or independent insurance agent, broker, contractor, or producer may not engage, directly or indirectly, in an activity or marketing practice that would encourage small employers or eligible enrollees to do any of the following:
Refrain from enrolling in a health benefit plan offered through the purchasing alliance because of their health status, claims experience, industry, occupation, or geographic location within the service region.
Seek coverage from other participating carriers because of their health status, claim experience, industry, occupation, or geographic location within the service region.
Enroll or fail to enroll in the purchasing alliance because of their health status, claims experience, industry, occupation, or geographic location within the service region.
In the event that an agent, broker, contractor, carrier, or producer of a participating carrier fails to abide by these provisions, they shall be subject to the penalties and fines described in Section 10718.
ARTICLE 9. Solvency [10880. - 10880.]
In the event a purchasing alliance becomes insolvent, the commissioner shall maintain jurisdiction of the alliance for purposes of protection of the interests of the alliance enrollees. In that event, the commissioner may do any of the following:
Arrange for transfer of coverage from the insolvent purchasing alliance to one that is deemed to be solvent by the commissioner.
Arrange for individual employers or small employers participating in the purchasing alliance to obtain coverage through one or more participating carriers outside of an alliance arrangement.
Take any other actions necessary to preserve the coverage provided to employers, small employers, and enrollees in the insolvent alliance.
In any proceedings under this article, the costs of employing special deputy commissioners, clerks, or assistants appointed to carry out this article, and all expenses of taking possession of, conversing, conducting, liquidating, disposing of, or otherwise dealing with the business and property of the alliance under this article, shall be fixed by the commissioner, subject to the approval of the court, and shall be paid out of the assets of the alliance to the department.
ARTICLE 10. Exemptions [10885. - 10887.]
Purchasing alliances shall be exempt from requirements of licensure as a health care service plan or solicitor under Chapter 2.2 (commencing with Section 1340) of Division 2 of the Health and Safety Code.
For purposes of carrier product disclosure, a purchasing alliance shall be considered an entity that provides administrative services, as is described in paragraph (1) of subdivision (d) of Section 10705. As such, a purchasing alliance shall not be required to provide a summary of those plans offered by participating carriers outside of the purchasing alliance with whom they have contracted. A purchasing alliance shall be required to provide a summary brochure of all benefit plan designs that the purchasing alliance offers to employers or small employers.
Except as provided in subdivision (c) of Section 10820, nothing in this chapter shall apply to a health care service plan licensed under the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of the Health and Safety Code) when operating within the scope of that license and not contracting with a purchasing alliance registered under this chapter.
CHAPTER 9.5. Individual Access to Contracts for Health Care Services [10900. - 10902.5.]
As used in this chapter:
“Benefit plan design” means a specific health coverage policy issued by a carrier to individuals, to trustees of associations that cover individuals. It includes services covered and the levels of copayment and deductibles, and it may include the professional providers who are to provide those services and the sites where those services are to be provided. A benefit plan design may also be an integrated system for the financing and delivery of quality health services that has significant incentives for the covered individuals to use the system.
“Carrier” means any disability insurance company or any other entity that writes, issues, or administers health benefit plans, as defined in subdivision (a) of Section 10198.6, that cover individuals, regardless of the situs of the contract or master policyholder.
“Creditable coverage” means:
Any individual or group policy, contract, or program that is written or administered by a disability insurer, health care service plan, fraternal benefits society, self-insured employer plan, or any other entity, in this state or elsewhere, and that arranges or provides medical, hospital, and surgical coverage not designed to supplement other plans. The term includes continuation or conversion coverage but does not include accident only, credit, disability income, Champus supplement, Medicare supplement, long-term care, dental, vision, coverage issued as a supplement to liability insurance, insurance arising out of a workers’ compensation or similar law, automobile medical payment insurance, or insurance under which benefits are payable with or without regard to fault and that is statutorily required to be contained in any liability insurance policy or equivalent self-insurance.
The federal Medicare program pursuant to Title XVIII of the Social Security Act.
The medicaid program pursuant to Title XIX of the Social Security Act.
Any other publicly sponsored program, provided in this state or elsewhere, of medical, hospital, and surgical care.
10 U.S.C.A. Chapter 55 (commencing with Section 1071) (CHAMPUS).
A medical care program of the Indian Health Service or of a tribal organization.
A state health benefits risk pool.
A health plan offered under 5 U.S.C.A. Chapter 89 (commencing with Section 8901) (FEHBP).
A public health plan as defined in federal regulations authorized by Section 2701(c)(1)(l) of the Public Health Service Act, as amended by Public Law 104-191.
A health benefit plan under Section 5(e) of the Peace Corps Act (22 U.S.C.A. 2504(e)).
“Dependent” means the spouse or child of an eligible individual or other individual applying for coverage, subject to applicable terms of the health benefit plan covering the eligible person.
“Federally eligible defined individual” means an individual who as of the date on which the individual seeks coverage under this part, (1) has 18 or more months of creditable coverage, and whose most recent prior creditable coverage was under a group health plan, a federal governmental plan maintained for federal employees, or a governmental plan or church plan as defined in the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1002), (2) is not eligible for coverage under an employer-sponsored health benefit plan, Medicare, or Medi-Cal, and has no other health insurance coverage, (3) was not terminated from his or her most recent creditable coverage due to nonpayment of premiums or fraud, and (4) if offered continuation coverage under COBRA or Cal-COBRA, had elected and exhausted such coverage.
“In force business” means an existing health benefit plan issued by a carrier to a federally eligible defined individual.
“New business” means a health benefit plan issued to an eligible individual that is not the carrier’s in force business.
“Preexisting condition provision” means a policy provision that excludes coverage for charges and expenses incurred during a specified period following the eligible individual’s effective date, as to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during a specified period immediately preceding the effective date of coverage.
Every carrier offering health benefit plans to individuals shall comply with the provisions of this chapter and the rules adopted thereunder.
Nothing in this chapter shall be construed to preclude the application of this chapter to either of the following: (a) an association, trust, or other organization acting as a health care service plan as defined under Section 1345, (b) an association, trust, multiple employer welfare arrangement, or other organization or person presenting information regarding a health benefit plan to persons who may be interested in subscribing or enrolling in the plan.
Commencing January 1, 2001, a carrier shall fairly and affirmatively offer, market, and sell the health benefit plan designs described in subdivision (d) of Section 10785 that are sold to individuals or to associations that include individuals to all federally eligible defined individuals in each geographic region in which the carrier provides coverage for health care services. Each carrier shall make available to each federally eligible defined individual the identified health benefit plan designs which the plan offers and sells to individuals or to associations that include individuals.
A carrier may not reject an application from a federally eligible defined individual for a benefit plan design under the following circumstances:
The federally eligible defined individual as defined by subdivision (e) of Section 10900 agrees to make the required premium payments.
The federally eligible defined individual, and his or her dependents who are to be covered by the carrier, work or reside in the service area in which the plan provides or otherwise arranges for the provision of health care services.
No carrier or agent or broker shall, directly or indirectly, encourage or direct federally eligible defined individuals to refrain from filing an application for coverage with a carrier because of health status, claims experience, industry, occupation, receipt of health care, genetic information, evidence of insurability, including conditions arising out of acts of domestic violence, disability, or geographic location provided that it is within the carrier’s approved service area.
No carrier shall, directly or indirectly, enter into any contract, agreement, or arrangement with an agent or broker that provides for or results in the compensation paid to a solicitor for the sale of a health benefit plan design to be varied because of health status, claims experience, industry, occupation, receipt of health care, genetic information, evidence of insurability, including conditions arising out of acts of domestic violence, disability, or geographic location of the individual. This subdivision shall not apply with respect to a compensation arrangement that provides compensation to an agent or broker on the basis of percentage of premium, provided that the percentage shall not vary for the reasons listed in this subdivision.
If a carrier enters into a contract, agreement, or other arrangement with a third-party administrator or other entity to provide administrative, marketing, or other services related to the offering of health benefit plans to individuals in this state, the third-party administrator shall be subject to this chapter.
After the federally eligible defined individual submits a completed application form for a health benefit plan, the carrier shall, within 30 days, notify the individual of the individual’s actual premium charges for that health benefit plan design. In no case shall the premium charged for any health benefit plan identified in subdivision (d) of Section 10785 exceed the following amounts:
For health benefit plans that offer services through a preferred provider arrangement, the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is of the same age and resides in the same geographic area as the federally eligible defined individual. However, for a federally eligible defined individual who is between the ages of 60 and 64 years, inclusive, the premium shall not exceed the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is 59 years of age and resides in the same geographic area as the federally eligible defined individual.
For health benefit plans identified in subdivision (d) of Section 10785 that do not offer services through a preferred provider arrangement, 170 percent of the standard premium charged to an individual who is of the same age and resides in the same geographic area as the federally eligible defined individual. However, for a federally eligible defined individual who is between the ages of 60 and 64 years, inclusive, the premium shall not exceed 170 percent of the standard premium charged to an individual who is 59 years of age and resides in the same geographic area as the federally eligible defined individual. The individual shall have 30 days in which to exercise the right to buy coverage at the quoted premium rates.
A carrier may adjust the premium based on family size, not to exceed the following amounts:
For health benefit plans that offer services through a preferred provider arrangement, the average of the Major Risk Medical Insurance Program rate for families of the same size that reside in the same geographic area as the federally eligible defined individual.
For health benefit plans identified in subdivision (d) of Section 10785 that do not offer services through a preferred provider arrangement, 170 percent of the standard premium charged to a family that is of the same size and resides in the same geographic area as the federally eligible defined individual.
This subdivision shall become inoperative on January 1, 2014. This subdivision shall become operative on January 1, 2020.
On and after January 1, 2014, after the federally eligible defined individual submits a completed application form for a health benefit plan, the carrier shall, within 30 days, notify the individual of the individual’s actual premium charges for that health benefit plan design. In no case shall the premium charged for any health benefit plan identified in subdivision (d) of Section 10785 exceed the following amounts:
With respect to the rate charged for coverage provided in 2014, the rate charged in 2013 for that coverage multiplied by 1.09.
With respect to the rate charged for coverage provided in 2015 and each subsequent year, the rate charged in the prior year multiplied by a factor of one plus the percentage change in the statewide average premium for the second lowest cost silver plan offered on the Exchange. The Exchange shall determine the percentage change in the statewide average premium for the second lowest cost silver plan by subtracting clause (i) from clause (ii) and dividing the result by clause (i).
The average of the premiums charged in the year prior to the applicable year for the second lowest cost silver plan in all 19 rating regions, with the premium for each region weighted based on the region’s relative share of the Exchange’s total individual enrollment according to the latest data available to the Exchange.
The average of the premiums to be charged in the applicable year for the second lowest cost silver plan in all 19 rating regions, with the premium for each region weighted based on the region’s relative share of the Exchange’s total individual enrollment according to the latest data available to the Exchange.
The Exchange shall determine the percentage change in the statewide average premium no later than 30 days after the Exchange’s rates for individual coverage for the applicable year have been finalized.
For purposes of this subdivision, “Exchange” means the California Health Benefit Exchange established pursuant to Section 100500 of the Government Code.
This subdivision shall become operative on January 1, 2014, and shall become inoperative on January 1, 2020.
When a federally eligible defined individual submits a premium payment, based on the quoted premium charges, and that payment is delivered or postmarked, whichever occurs earlier, within the first 15 days of the month, coverage shall begin no later than the first day of the following month. When that payment is neither delivered nor postmarked until after the 15th day of a month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
During the first 30 days after the effective date of the health benefit plan, the individual shall have the option of changing coverage to a different health benefit plan design offered by the same carrier. If the individual notified the plan of the change within the first 15 days of a month, coverage under the new health benefit plan shall become effective no later than the first day of the following month. If an enrolled individual notified the carrier of the change after the 15th day of a month, coverage under the health benefit plan shall become effective no later than the first day of the second month following notification.
On and after January 1, 2014, and except as provided in paragraph (2), this section shall apply only to individual grandfathered health plans previously issued pursuant to this section to federally eligible defined individuals.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Section 300gg-91), paragraph (1) shall become inoperative on the date of that repeal or amendment and this section shall apply to health benefit plans issued, amended, or renewed on or after that date.
For purposes of this subdivision, the following definitions apply:
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
A carrier may not exclude any federally eligible defined individual, or his or her dependents, who would otherwise be entitled to health care services, on the basis of an actual or expected health condition of that individual or dependent. No health benefit plan may limit or exclude coverage for a specific federally eligible defined individual, or his or her dependents, by type of illness, treatment, medical condition, or accident.
The commissioner may require a carrier to discontinue the offering of health benefit plans or the acceptance of applications from any individual upon a determination by the commissioner that the plan carrier does not have sufficient financial viability, organization, and administrative capacity to assure the delivery of health care services to its enrollees.
The commissioner’s determination shall follow an evaluation that includes a certification by the commissioner that the acceptance of an application or applications would place the carrier in a financially impaired condition.
A carrier that has not offered coverage or accepted applications pursuant to this chapter shall not offer coverage or accept applications for any individual until the commissioner has determined that the carrier has ceased to be financially impaired.
All health benefit plans offered to a federally eligible defined individual shall be renewable with respect to the individual and dependents at the option of the enrolled individual except in cases of:
Nonpayment of the required premiums.
Fraud or misrepresentation by the enrolled individual.
The carrier ceases to provide or arrange for the provision of health care services for individual health benefit plan contracts in this state, provided, however, that the following conditions are satisfied:
Notice of the decision to cease new or existing individual health benefit plans in this state is provided to the commissioner and to the contractholder.
Individual health benefit plan contracts subject to this chapter shall not be canceled for 180 days after the date of the notice required under paragraph (1) and for that business of a carrier that remains in force, any carrier that ceases to offer for sale new individual health benefit plan contracts shall continue to be governed by this article with respect to business conducted under this chapter.
A carrier that ceases to write new individual business in this state after the effective date of this chapter shall be prohibited from offering for sale new individual health benefit plan contracts in this state for a period of three years from the date of the notice to the commissioner.
When a carrier withdraws a health benefit plan design from the individual market, provided that a carrier makes available to eligible individuals all health plan benefit designs that it makes available to new individual business, and provided that premium for the new health benefit plan complies with the renewal increase requirements set forth in Section 10901.9.
On and after January 1, 2014, and except as provided in paragraph (2), this section shall apply only to individual grandfathered health plans previously issued pursuant to this section to federally eligible defined individuals.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Section 300gg-91), paragraph (1) shall become inoperative on the date of that repeal or amendment and this section shall apply to health benefit plans issued, amended, or renewed on or after that date.
For purposes of this subdivision, the following definitions apply:
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
Commencing January 1, 2001, premiums for health benefit plans offered, delivered, amended, or renewed by carriers shall be subject to the following requirements:
The premium for new business for a federally eligible defined individual shall not exceed the following amounts:
For health benefit plans identified in subdivision (d) of Section 10785 that offer services through a preferred provider arrangement, the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is of the same age and resides in the same geographic area as the federally eligible defined individual. However, for federally eligible defined individuals who are between 60 to 64 years of age, inclusive, the premium shall not exceed the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is 59 years of age and resides in the same geographic area as the federally eligible defined individual.
For health benefit plans identified in subdivision (d) of Section 10785 that do not offer services through a preferred provider arrangement, 170 percent of the standard premium charged to an individual who is of the same age and resides in the same geographic area as the federally eligible defined individual. However, for federally eligible defined individuals who are between 60 to 64 years of age, inclusive, the premium shall not exceed 170 percent of the standard premium charged to an individual who is 59 years of age and resides in the same geographic area as the federally eligible defined individual.
The premium for in force business for a federally eligible defined individual shall not exceed the following amounts:
For health benefit plans identified in subdivision (d) of Section 10785 that offer services through a preferred provider arrangement, the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is of the same age and resides in the same geographic area as the federally eligible defined individual. However, for federally eligible defined individuals who are between 60 and 64 years of age, inclusive, the premium shall not exceed the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is 59 years of age and resides in the same geographic area as the federally eligible defined individual.
For health benefit plans identified in subdivision (d) of Section 10785 that do not offer services through a preferred provider arrangement, 170 percent of the standard premium charged to an individual who is of the same age and resides in the same geographic area as the federally eligible defined individual. However, for federally eligible defined individuals who are between 60 and 64 years of age, inclusive, the premium shall not exceed 170 percent of the standard premium charged to an individual who is 59 years of age and resides in the same geographic area as the federally eligible defined individual. The premium effective on January 1, 2001, shall apply to in force business at the earlier of either the time of renewal or July 1, 2001.
This subdivision shall become inoperative January 1, 2014. This subdivision shall become operative on January 1, 2020.
Commencing January 1, 2014, premiums for health benefit plans offered, delivered, amended, or renewed by carriers shall be subject to the following requirements:
With respect to the rate charged for coverage provided in 2014, the rate charged in 2013 for that coverage multiplied by 1.09.
With respect to the rate charged for coverage provided in 2015 and each subsequent year, the rate charged in the prior year multiplied by a factor of one plus the percentage change in the statewide average premium for the second lowest cost silver plan offered on the Exchange. The Exchange shall determine the percentage change in the statewide average premium for the second lowest cost silver plan by subtracting clause (i) from clause (ii) and dividing the result by clause (i).
The average of the premiums charged in the year prior to the applicable year for the second lowest cost silver plan in all 19 rating regions, with the premium for each region weighted based on the region’s relative share of the Exchange’s total individual enrollment according to the latest data available to the Exchange.
The average of the premiums to be charged in the applicable year for the second lowest cost silver plan in all 19 rating regions, with the premium for each region weighted based on the region’s relative share of the Exchange’s total individual enrollment according to the latest data available to the Exchange.
The Exchange shall determine the percentage change in the statewide average premium no later than 30 days after the Exchange’s rates for individual coverage for the applicable year have been finalized.
For purposes of this subdivision, “Exchange” means the California Health Benefit Exchange established pursuant to Section 100500 of the Government Code.
This subdivision shall become operative on January 1, 2014, and shall become inoperative on January 1, 2020.
The premium applied to a federally eligible defined individual may not increase by more than the following amounts:
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
Carriers shall apply premiums consistently with respect to all federally eligible defined individuals who apply for coverage.
In connection with the offering for sale of any health benefit plan designed to an individual, each carrier shall make a reasonable disclosure, as part of its solicitation and sales materials, of all individual contracts.
Nothing in this chapter shall be construed to require a health benefit plan to offer a contract to an individual if the carrier does not otherwise offer contracts to individuals.
At least 20 business days prior to renewing or amending a health benefit plan contract subject to this chapter, or at least 20 business days prior to the initial offering of a health benefit plan subject to this chapter, a carrier shall file a statement with the commissioner in the same manner as required for small employers as outlined in Section 10717. The statement shall include a statement certifying that the carrier is in compliance with subdivision (a) of Section 10901.3 and with Section 10901.9. Any action by the commissioner, as permitted under Section 10717, to disapprove, suspend, or postpone the plan’s use of a carrier’s health benefit plan design shall be in writing, specifying the reasons the health benefit plan does not comply with the requirements of this chapter.
Prior to making any changes in the premium, the carrier shall file an amendment in the same manner as required for small employers as outlined in Section 10717, and shall include a statement certifying the carrier is in compliance with subdivision (a) of Section 10901.3 and with Section 10901.9. All other changes to a health benefit plan previously filed with the commissioner pursuant to subdivision (a) shall be filed as an amendment in the same manner as required for small employers as outlined in Section 10717.
On and after January 1, 2014, and except as provided in paragraph (2), this section shall apply only to individual grandfathered health plans previously issued pursuant to this section to federally eligible defined individuals.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Section 300gg-91), paragraph (1) shall become inoperative on the date of that repeal or amendment and this section shall apply to health benefit plans issued, amended, or renewed on or after that date.
For purposes of this subdivision, the following definitions apply:
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
The commissioner may issue regulations that are necessary to carry out the purposes of this chapter. Any rules and regulations adopted pursuant to this chapter may be adopted as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. Until December 31, 2001, the adoption of these regulations shall be deemed an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare. The regulations shall be enforced by the commissioner.
CHAPTER 9.6. Consumer Operated and Oriented Plans [10930. - 10930.9.]
For purposes of this chapter, the following definitions shall apply:
“Consumer operated and oriented plan” means a nonprofit member organization or nonprofit member corporation that has been established consistent with the requirements of Section 1322 of PPACA and Subpart F (commencing with Section 156.500) of Part 156 of Subchapter B of Subtitle A of Title 45 of the Code of Federal Regulations and remains in full compliance with those requirements. A consumer operated and oriented plan shall also be known as a “CO-OP.”
“Formation board” means the initial board of directors of a CO-OP before it has begun accepting enrollment and had an election by the members of the CO-OP to the board of directors.
“Member” includes all individuals, including dependents, 18 years of age or older covered under health insurance policies issued by the CO-OP insurer.
“Operational board” means the board of directors elected by the members of the CO-OP after it has begun accepting enrollment under its health insurance policies.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules or regulations issued thereunder.
“Nonprofit member organization” or “nonprofit member corporation” means a nonprofit public benefit corporation organized under Part 2 (commencing with Section 5110) of Division 2 of Title 1 of the Corporations Code, a nonprofit mutual benefit corporation organized under Part 3 (commencing with Section 7110) of Division 2 of Title 1 of the Corporations Code, or a similar entity organized under applicable provisions of the Corporations Code, or in the case of a foreign corporation, a nonprofit public benefit corporation, a mutual benefit corporation, or a similar entity organized under nonprofit laws in a state other than California.
“Solvency loan” means a loan provided by the federal Centers for Medicare and Medicaid Services to a nonprofit member organization or nonprofit member corporation seeking to become licensed as a CO-OP insurer, to be used to assist in meeting the state’s solvency and reserve requirements.
“Start-up loan” means a loan provided by the federal Centers for Medicare and Medicaid Services to a nonprofit member organization or nonprofit member corporation seeking to become licensed as a CO-OP insurer, to be used for allowed expenses associated with establishing a CO-OP, as further specified by PPACA.
The commissioner shall have the authority to issue a certificate of authority as a disability insurer to a CO-OP that has been organized as a nonprofit member organization or nonprofit member corporation under the laws of this state. The commissioner may also issue a certificate of authority as a disability insurer to a foreign CO-OP that has been organized as a nonprofit member organization or nonprofit member corporation under the laws of another state, provided that the entity meets the requirements governing CO-OPs under PPACA and this chapter. A CO-OP seeking or maintaining a certificate of authority pursuant to this chapter shall be subject to the same fees that are imposed on mutual insurers.
A CO-OP admitted as a CO-OP insurer shall be subject to the same premium taxes as are imposed on for-profit health insurers with a certificate of authority from the commissioner.
A domestic or foreign CO-OP admitted as a CO-OP insurer shall be subject to all of the provisions of this code that are applicable to insurers issuing policies of health insurance in the state and all applicable rules and regulations of the commissioner, including, but not limited to, the general provisions governing issuance of a certificate of authority in Article 3 (commencing with Section 699) of, the examination provisions in Article 4 (commencing with Section 729) of, the risk-based capital requirements in Article 4.1 (commencing with Section 739) of, and the financial statement filing requirements in Article 10 (commencing with Section 900) of, Chapter 1 of Part 2 of Division 1.
In compliance with Section 1322(c)(5) of PPACA (42 U.S.C. Sec. 18042(c)(5)), and any rules or regulations issued under that section, a domestic or foreign CO-OP admitted as a CO-OP insurer shall be subject to any state laws that do not prevent the application of requirements under PPACA.
A solvency loan obtained by a CO-OP shall be treated as a surplus note and shall be subject to the same requirements as are imposed on mutual insurers pursuant to Article 4 (commencing with Section 4040) of Chapter 4 of Part 1 of Division 2. The commissioner may request any documentation relating to a CO-OP’s start-up loan or solvency loan.
A CO-OP shall be subject to the same securities permit requirements as are imposed upon mutual insurers pursuant to Section 4042; however, the commissioner shall have the authority to waive the requirements under Section 4042 upon a determination that they are not applicable following a full review of the CO-OP’s plan of operations and any other documents as requested by the commissioner prior to the admission of the CO-OP.
The provisions of Section 699.5 shall apply to any insurer admitted as a CO-OP insurer; however, any loans received by the CO-OP in the form of a solvency or start-up loan shall not be construed as any form of subsidy, ownership, or financial control of the CO-OP insurer within the meaning of Section 699.5.
A CO-OP shall be subject at all times to the prohibitions in PPACA against converting or selling to a for-profit or nonconsumer-operated entity at any time after receiving a solvency loan.
A CO-OP shall do all of the following, in addition to any other requirements imposed under Section 156.515 of Title 45 of the Code of Federal Regulations:
Implement policies and procedures to foster and ensure member control of the organization. For purposes of this paragraph, a CO-OP shall meet the following requirements:
The CO-OP shall have governing documents that incorporate governing rules that ensure that the directors of the operational board are elected by a majority vote of a quorum of the CO-OP members.
All members of the CO-OP shall be eligible to vote for each director on the CO-OP’s operational board.
Each member of the CO-OP shall have one vote in the election of each director of the CO-OP’s operational board.
The first elected directors of the CO-OP’s operational board shall be elected no later than one year after the effective date on which the CO-OP provides coverage to its first member; the entire operational board shall be elected no later than two years after the same date.
Elections of the directors on the CO-OP’s operational board shall be contested so that the total number of candidates for vacant positions on the operational board exceeds the number of vacant positions, except in cases where a seat is vacated midterm due to death, resignation, or removal.
A majority of the voting directors on the operational board shall be members of the CO-OP.
Have an operational board of directors that meets the following requirements:
Each director shall have one vote unless he or she is a nonvoting director.
Positions on the board of directors may be designated for individuals with specialized expertise, experience, or affiliation (for example, providers, employers, including small business consortia, and unions); however, those positions shall not constitute a majority of the operational board even if the individuals in those positions are also members of the CO-OP.
No representative of any federal, state, or local government, or of any political subdivision or instrumentality thereof, and no representative of any organization described in Section 156.510(b)(1)(i) of Title 45 of the Code of Federal Regulations may serve as staff of the CO-OP or on the CO-OP’s formation board or operational board.
No board member or staff of the CO-OP shall enter into an agreement or transaction that would jeopardize member control as required by Section 156.515 of Title 45 of the Code of Federal Regulations. A board member or staff of the CO-OP shall only enter into arm’s length transactions as described in Section 156.510(b)(2)(ii) of Title 45 of the Code of Federal Regulations.
Have governing documents that incorporate ethics, conflict of interest, and disclosure standards. These standards shall protect against insurance industry involvement and interference. In addition, these standards shall ensure that each director acts in the sole interest of the CO-OP, its members, and its local geographic community, as appropriate, and acts consistently with the terms of the CO-OP’s governance documents and applicable state and federal law. At a minimum, these standards shall include the following:
A mechanism to identify potential ethical or other conflicts of interest.
A duty on the CO-OP’s executive officers and directors to publicly disclose all potential conflicts of interest pursuant to the same standards required for state boards or commissions.
A process to determine the extent to which a conflict exists.
A process to address any conflict of interest.
A process to be followed in the event a director or executive officer of the CO-OP violates the standards described in this paragraph.
A violation of any of the requirements of this section shall constitute grounds for revocation of the CO-OP insurer’s certificate of authority, in addition to any other grounds in this code for revocation of the certificate.
A CO-OP insurer is insolvent if its surplus becomes less than the amount of paid-in capital required of a capital stock company to qualify to transact the class of disability and health insurance. The conservation and liquidation provisions of Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 shall apply to CO-OP insurers.
In addition to any applicable requirements in this code for maintaining a certificate of authority, a CO-OP is required at all times to be in full compliance with the requirements of PPACA governing CO-OPs. The commissioner may request the federal government’s certification that a CO-OP is in compliance with the requirements of PPACA governing CO-OPs, as well as the status of the CO-OP’s compliance with its obligations under any loan or loan modification agreement.
The department may adopt regulations implementing this chapter pursuant to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
CHAPTER 9.7. Child Access to Health Insurance [10950. - 10960.5.]
As used in this chapter:
“Child” means any individual under 19 years of age.
“Individual grandfathered plan coverage” means health care coverage in which an individual was enrolled on March 23, 2010, consistent with Section 1251 of PPACA and any rules or regulations adopted pursuant to that law.
“Initial open enrollment period” means the open enrollment period beginning on January 1, 2011, and ending 60 days thereafter.
“Late enrollee” means a child without coverage who did not enroll in a health benefit plan during an open enrollment period because of any of the following:
The child lost dependent coverage due to termination or change in employment status of the child or the person through whom the child was covered; cessation of an employer’s contribution toward an employee or dependent’s coverage; death of the person through whom the child was covered as a dependent; legal separation; divorce; loss of coverage under the Healthy Families Program, the Access for Infants and Mothers Program, or the Medi-Cal program; or adoption of the child.
The child became a resident of California during a month that was not the child’s birth month.
The child is born as a resident of California and did not enroll in the month of birth.
The child is mandated to be covered pursuant to a valid state or federal court order.
“Open enrollment period” means the annual open enrollment period subsequent to the initial open enrollment period, applicable to each individual child that is the month of the child’s birth date.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any subsequent rules or regulations issued pursuant to that law.
“Preexisting condition exclusion” means, with respect to coverage, a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment of the coverage, whether or not any medical advice, diagnosis, care, or treatment was recommended or received before that date.
“Responsible party for a child” means an adult having custody of the child or with responsibility for the financial needs of the child, including the responsibility to provide health care coverage.
“Standard risk rate” means the lowest rate that can be offered for a child with the same benefit plan, effective date, age, geographic region, and family status.
During each open enrollment period, every carrier offering health benefit plans in the individual market, other than individual grandfathered plan coverage, shall offer to the responsible party for a child coverage for the child that does not exclude or limit coverage due to any preexisting condition of the child.
A carrier offering coverage in the individual market shall not reject an application for a health benefit plan from a child or filed on behalf of a child by the responsible party during an open enrollment period or from a late enrollee during a period no longer than 63 days from the qualifying event listed in subdivision (d) of Section 10950.
Except to the extent permitted by federal law, rules, regulations, or guidance issued by the relevant federal agency, a carrier shall not condition the issuance or offering of individual coverage on any of the following factors:
Health status.
Medical condition, including physical and mental illnesses.
Claims experience.
Receipt of health care.
Medical history.
Genetic information.
Evidence of insurability, including conditions arising out of acts of domestic violence.
Disability.
Any other health status-related factor as determined by department.
This subdivision shall not apply to a health benefit plan providing individual grandfathered plan coverage.
When a responsible party for a child submits a premium payment, based on the quoted premium charges, and that payment is delivered or postmarked, whichever occurs earlier, within the first 15 days of the month, coverage under the health benefit plan shall become effective no later than the first day of the following month. When that payment is neither delivered nor postmarked until after the 15th day of the month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
A carrier offering coverage in the individual market shall not reject the request of a responsible party for a child to include that child as a dependent on an existing health benefit plan that includes dependent coverage during an open enrollment period.
Nothing in this chapter shall be construed to prohibit a carrier offering coverage in the individual market from establishing rules for eligibility for coverage and offering coverage pursuant to those rules for children and individuals based on factors otherwise authorized under federal and state law for health benefit plans in addition to those offered on a guaranteed issue basis during an open enrollment period to children or late enrollees pursuant to this chapter. However, a carrier, other than a carrier providing individual grandfathered plan coverage, shall not impose a preexisting condition provision on coverage, including dependent coverage, offered to a child.
Nothing in this chapter shall be construed to require a carrier to establish a new service area or to offer health care coverage on a statewide basis, outside of the carrier’s existing service area.
Nothing in this chapter shall be construed to prevent a carrier from offering coverage to a family member of an enrollee in grandfathered health plan coverage consistent with Section 1251 of PPACA.
This chapter shall not apply to health benefit plans for coverage of Medicare services pursuant to contracts with the United States government, Medicare supplement policies, Medi-Cal contracts with the State Department of Health Care Services, policies offered under the Healthy Families Program, long-term care coverage, or specialized health benefit plans.
Upon the effective date of this chapter, a carrier shall fairly and affirmatively offer, market, and sell all of the carrier’s health benefit plans that are offered and sold to a child or the responsible party for a child in each service area in which the plan provides or arranges for health care coverage during any open enrollment period, to late enrollees, and during any other period in which state or federal law, rules, regulations, or guidance expressly provide that a carrier shall not condition offer or acceptance of coverage on any preexisting condition.
No carrier or solicitor shall, directly or indirectly, engage in the following activities:
Encourage or direct a child or responsible party for a child to refrain from filing an application for coverage with a carrier because of the health status, claims experience, industry, occupation, or geographic location, provided that the location is within the carrier’s approved service area, of the child.
Encourage or direct a child or responsible party for a child to seek coverage from another carrier because of the health status, claims experience, industry, occupation, or geographic location, provided that the location is within the carrier’s approved service area, of the child.
A carrier shall not, directly or indirectly, enter into any contract, agreement, or arrangement with a solicitor that provides for or results in the compensation paid to a solicitor for the sale of a health benefit plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the child. This subdivision does not apply to a compensation arrangement that provides compensation to a solicitor on the basis of percentage of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic area of the child.
A carrier may use the following characteristics of an eligible child for purposes of establishing the rate of the health benefit plan for that child, where consistent with federal regulations under PPACA: age, geographic region, and family composition, plus the health benefit plan selected by the child or the responsible party for a child.
From the effective date of this chapter to December 31, 2013, inclusive, rates for a child applying for coverage shall be subject to the following limitations:
During any open enrollment period or for late enrollees, the rate for any child due to health status shall not be more than two times the standard risk rate for a child.
The rate for a child shall be subject to a 20-percent surcharge above the highest allowable rate on a child applying for coverage who is not a late enrollee and who failed to maintain coverage with any carrier or health care service plan for the 90-day period prior to the date of the child’s application. The surcharge shall apply for the 12-month period following the effective date of the child’s coverage.
If expressly permitted under PPACA and any rules, regulations, or guidance issued pursuant to that act, a carrier may rate a child based on health status during any period other than an open enrollment period if the child is not a late enrollee.
If expressly permitted under PPACA and any rules, regulations, or guidance issued pursuant to that act, a carrier may condition an offer or acceptance of coverage on any preexisting condition or other health status-related factor for a period other than an open enrollment period and for a child who is not a late enrollee.
For any individual health benefit plan issued, sold, or renewed prior to December 31, 2013, the carrier shall provide to a child or responsible party for a child a notice that states the following:
“Please consider your options carefully before failing to maintain or renewing coverage for a child for whom you are responsible. If you attempt to obtain new individual coverage for that child, the premium for the same coverage may be higher than the premium you pay now.”
A child who applied for coverage between September 23, 2010, and the end of the initial enrollment period shall be deemed to have maintained coverage during that period.
Effective January 1, 2014, except for individual grandfathered health plan coverage, the rate for any child shall be identical to the standard risk rate.
Carriers shall not require documentation from applicants relating to their coverage history.
On and after the operative date of the act adding this subdivision, and until January 1, 2014, a carrier shall provide the model notice, as provided in paragraph (3), to all applicants for coverage under this chapter and to all insureds, or the responsible party for an insured, renewing coverage under this chapter that contains the following information:
Information about the open enrollment period provided under Section 10965.3.
An explanation that obtaining coverage during the open enrollment period described in Section 10965.3 will not affect the effective dates of coverage for coverage purchased pursuant to this chapter unless the applicant cancels that coverage.
An explanation that coverage purchased pursuant to this chapter shall be effective as required under subdivision (d) of Section 10951 and that such coverage shall not prevent an applicant from obtaining new coverage during the open enrollment period described in Section 10965.3.
Information about the Medi-Cal program, information about the Healthy Families Program if the Healthy Families Program is accepting enrollment, and information about subsidies available through the California Health Benefit Exchange.
The notice described in paragraph (1) shall be in plain language and 14-point type.
The department shall adopt a uniform model notice to be used by carriers in order to comply with this subdivision, and shall consult with the Department of Managed Health Care in adopting that uniform model notice. Use of the model notice shall not require prior approval of the department. The adoption of the model notice by the department for purposes of this section shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
No carrier shall be required to offer a health benefit plan or accept applications for the contract pursuant to this chapter in the case of any of the following:
To a child, if the child who is to be covered by the health benefit plan does not work or reside within the carrier’s approved service areas.
Within a specific service area or portion of a service area, if the carrier reasonably anticipates and demonstrates to the satisfaction of the commissioner that it will not have sufficient health care delivery resources to ensure that health care services will be available and accessible to the child because of its obligations to existing insureds.
A carrier that cannot offer a health benefit plan to individuals or children because it is lacking in sufficient health care delivery resources within a service area or a portion of a service area may not offer a contract in the area in which the carrier is not offering coverage to individuals to new employer groups until the carrier notifies the commissioner that it has the ability to deliver services to individuals, and certifies to the commissioner that from the date of the notice it will enroll all individuals requesting coverage in that area from the carrier.
Nothing in this chapter shall be construed to limit the commissioner’s authority to develop and implement a plan of rehabilitation for a carrier whose financial viability or organizational and administrative capacity has become impaired.
The commissioner may require a carrier to discontinue the offering of contracts or acceptance of applications from any individual or child or responsible party for a child upon a determination by the commissioner that the carrier does not have sufficient financial viability or organizational and administrative capacity to ensure the delivery of health care services to its insureds. In determining whether the conditions of this section have been met, the commissioner shall consider, but not be limited to, the carrier’s compliance with the requirements of this part and the rules adopted under those provisions.
All health benefit plans offered to a child or on behalf of a child to a responsible party for a child shall conform to the requirements of Section 10127.18, 10273.4, and 12682.1, and shall be renewable at the option of the child or responsible party for a child on behalf of the child except as permitted to be canceled, rescinded, or not renewed pursuant to Section 10273.4.
Any carrier that ceases to offer for sale new individual health benefit plans pursuant to Section 10273.4 shall continue to be governed by this chapter with respect to business conducted under this chapter.
Except as authorized under Section 10958, a carrier that as of the effective date of this chapter does not write new health benefit plans for children in this state or that after the effective date of this chapter ceases to write new health benefit plans for children in this state shall be prohibited from offering for sale new individual health benefit plans or in this state for a period of five years from the date of notice to the commissioner.
On or before July 1, 2011, the commissioner may issue guidance to health plans regarding compliance with this chapter and such guidance shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The guidance shall only be effective until the commissioner and the Director of the Department of Managed Health Care adopt joint regulations pursuant to the Administrative Procedure Act.
This chapter shall become inoperative on January 1, 2014, or the 91st calendar day following the adjournment of the 2013–14 First Extraordinary Session, whichever date is later.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-4), this chapter shall become operative 12 months after the date of that repeal or amendment.
CHAPTER 9.9. Individual Access to Health Insurance [10965. - 10965.18.]
For purposes of this chapter, the following definitions shall apply:
“Child” means a child described in Section 22775 of the Government Code and subdivisions (n) to (p), inclusive, of Section 599.500 of Title 2 of the California Code of Regulations.
“Dependent” means the spouse or registered domestic partner, child, or parent or stepparent pursuant to Section 10278.1, of an individual, subject to applicable terms of the health benefit plan.
“Exchange” means the California Health Benefit Exchange created by Section 100500 of the Government Code.
“Family” means the policyholder and dependent or dependents.
“Grandfathered health plan” has the same meaning as defined in Section 1251 of PPACA.
“Health benefit plan” means an individual or group policy of health insurance, as defined in Section 106. The term does not include a health insurance policy that provides excepted benefits, as described in Sections 2722 and 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-21; 42 U.S.C. Sec. 300gg-91), subject to Section 10965.01 a health insurance policy provided in the Medi-Cal program (Chapter 7 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code), the Healthy Families Program (Part 6.2 (commencing with Section 12693) of Division 2), the Access for Infants and Mothers Program (Part 6.3 (commencing with Section 12695) of Division 2), or the program under Part 6.4 (commencing with Section 12699.50) of Division 2, or Medicare supplement coverage, to the extent consistent with PPACA or a specified disease or hospital indemnity policy, subject to Section 10965.01.
“Policy year” means the period from January 1 to December 31, inclusive.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
“Preexisting condition provision” means a policy provision that excludes coverage for charges or expenses incurred during a specified period following the insured’s effective date of coverage, as to a condition for which medical advice, diagnosis, care, or treatment was recommended or received during a specified period immediately preceding the effective date of coverage.
“Rating period” means the calendar year for which premium rates are in effect pursuant to subdivision (d) of Section 10965.9.
“Registered domestic partner” means a person who has established a domestic partnership as described in Section 297 of the Family Code.
For purposes of this chapter, “health benefit plan” does not include policies or certificates of specified disease or hospital confinement indemnity provided that the carrier offering those policies or certificates complies with the following:
The carrier files, on or before March 1 of each year, a certification with the commissioner that contains the statement and information described in paragraph (2).
The certification required in paragraph (1) shall contain the following:
A statement from the carrier certifying that policies or certificates described in this section (i) are being offered and marketed as supplemental health insurance and not as a substitute for coverage that provides essential health benefits as defined by the state pursuant to Section 1302 of PPACA, and (ii) the disclosure forms as described in Section 10603 contains the following statement prominently on the first page:
“This is a supplement to health insurance. It is not a substitute for essential health benefits or minimum essential coverage as defined in federal law.”
A summary description of each policy or certificate described in this section, including the average annual premium rates, or range of premium rates in cases where premiums vary by age, gender, or other factors, charged for the policies and certificates issued or delivered in this state.
In the case of a policy or certificate that is described in this section and that is offered in this state on or after January 1, 2014, the carrier files with the commissioner the information and statement required in paragraph (2) at least 30 days prior to the date such a policy or certificate is issued or delivered in this state.
The carrier issuing a policy or certificate of specified disease or a policy or certificate of hospital confinement indemnity requires that the person to be insured is covered by an individual or group policy or contract that arranges or provides medical, hospital, and surgical coverage not designed to supplement other private or governmental plans.
As used in this section, “policies or certificates of specified disease” and “policies or certificates of hospital confinement indemnity” mean policies or certificates of insurance sold to an insured to supplement other health insurance coverage as specified in this section.
For the purposes of determining eligibility for small employer coverage, a sole proprietor and the sole proprietor’s spouse are not considered employees with respect to a sole proprietorship that consists only of the sole proprietor and the sole proprietor’s spouse. A partner and a partner’s spouse are not employees of a partnership that consists solely of partners and their spouses. Employer group health benefit plans shall not be issued, marketed, or sold to a sole proprietorship or partnership without employees directly or indirectly through any arrangement. Only individual health benefit plans shall be sold to any entity without employees.
It is the intent of the Legislature to encourage self-funded student health coverage offered by the University of California Student Health Insurance Plan and the University of California Voluntary Dependent Plan to maintain or exceed coverage standards of the federal Patient Protection and Affordable Care Act. All other student health coverage offered by an institution of higher education in California shall comply with the provisions of the act that added this subdivision.
For policy years beginning on or after January 1, 2024, a blanket disability insurance policy that meets the definition of student health insurance coverage as set forth in this section shall be considered individual health insurance coverage for purposes of subdivision (b) of Section 106.
“Student health insurance coverage” is a blanket disability policy under paragraph (2) of subdivision (a) of Section 10270.2, that covers hospital, medical, or surgical benefits, that is provided pursuant to a written agreement between an institution of higher education, as defined in the federal Higher Education Act of 1965, and a disability insurance issuer, and provided to students enrolled in that institution of higher education and their dependents, that meets all of the following conditions:
Does not make coverage available other than in connection with enrollment as a student, or as a dependent of a student, in the institution of higher education.
Does not condition eligibility for the insurance coverage on any health status-related factor relating to a student or a dependent of a student.
Does not condition eligibility, an offer, issuance, a sale, or a renewal for the insurance coverage on any factor other than enrollment as a student or dependent of a student in the institution of higher education.
Except as otherwise expressly provided in this section, a blanket disability insurance policy that meets the definition of student health insurance coverage shall comply with the provisions of this code that are applicable to nongrandfathered individual health insurance, including, but not limited to, essential health benefits requirements as set forth in Section 10112.27, rating factors consistent with Section 10965.9, the annual limit on maximum out-of-pocket expenses as set forth in Section 10112.28, the prohibition against annual and lifetime limits under Section 10112.1, and all rules and regulations issued thereunder.
Commencing July 1, 2026, if a student certificate holder graduates, takes a leave of absence, or is no longer enrolled at the institution of higher education, they may request to terminate their student health insurance coverage during the policy year. The request shall be provided to the institution of higher education at least 30 calendar days before the effective date of termination. Upon receipt of the request to terminate coverage, the institution of higher education shall terminate coverage effective within the same calendar month if feasible, but no later than the last day of the calendar month in which the 30-day period ends. When a student certificate holder, or dependent of a student, chooses to terminate their student health insurance coverage during the policy year consistent with the circumstances set forth under this subparagraph, the student shall only pay the premium through the date of their termination of coverage. A student or dependent of a student shall not be liable for a premium payment during the time that they are not enrolled in student health insurance coverage. In the case of premium paid in full for an academic term, the student shall be refunded pro rata for any time they are not enrolled in student health insurance coverage. Notice of the ability to terminate coverage pursuant to this subparagraph shall be provided in the student health insurance enrollment materials provided to a student or a dependent of a student. A student or dependent of a student shall also be notified of premium liability to the student or dependent of the student, if any, if a student or dependent of a student chooses not to terminate coverage pursuant to this subparagraph.
A student, or dependent of a student, shall not be required to purchase a blanket disability insurance policy if they have minimum essential coverage that meets the requirements of the Minimum Essential Coverage Individual Mandate under Section 100705 of the Government Code.
Commencing July 1, 2026, a student that obtains or maintains health coverage that is minimum essential coverage and who requests a waiver shall be granted a waiver from obtaining student health insurance coverage from their institution of higher education and shall not be required to pay a fee or premium for student health insurance coverage.
The following provisions apply to student health insurance coverage:
Student health insurance coverage is exempt from laws requiring guaranteed availability or guaranteed renewability, as follows:
Subdivision (f) of Section 10273.6 applies if the basis of student health insurance coverage is enrollment in the institution of higher education and an individual’s enrollment in the institution ceases.
For purposes of Sections 10965.3 and 10965.4, a disability insurance issuer that offers student health insurance coverage is not required to accept individuals who are not students or dependents of students in that coverage. Notwithstanding the requirements of subdivisions (a) and (c) of Section 10965.3 and Section 10965.4, a disability insurance issuer that offers student health insurance coverage is not required to establish open enrollment periods or coverage effective dates that are based on a calendar policy year or to offer policies on a calendar year basis.
For purposes of Sections 10273.6 and 10965.7, a disability insurance issuer that offers student health insurance coverage is not required to renew or continue in force coverage for individuals who are no longer students or dependents of students. To the extent the institution of higher education opts to renew the student health insurance policy, student health insurance coverage shall be renewable with respect to all eligible students or dependents of students at the option of the student.
The requirement to provide a specific level of coverage described in Sections 10112.3 and 10112.295 does not apply to student health insurance coverage. However, the benefits provided by that coverage shall provide at least 60 percent actuarial value, as calculated in accordance with Section 10112.295. The issuer shall specify in any plan materials summarizing the terms of the coverage the actuarial value and level of coverage, or the next lowest level of coverage, and how the coverage would otherwise satisfy requirements under Sections 10112.295 and 10112.296.
Student health insurance coverage is not subject to the requirements of subdivision (h) of Section 10965.3. A health insurance issuer that offers student health insurance coverage may establish one or more separate risk pools for an institution of higher education if the distinction between or among groups of students or dependents of students who form the risk pool is based on a bona fide school-related classification and not based on a health factor. However, student health insurance rates shall reflect the claims experience of individuals who comprise the risk pool, and any adjustments to rates within a risk pool shall be actuarially justified.
Student health insurance coverage shall not be required to comply with nongrandfathered individual health insurance rate review, but shall be subject to the nongrandfathered large group market rate review requirements under Article 4.7 (commencing with Section 10181) of Chapter 1, with the exception of paragraph (2) of subdivision (b) of Section 10181 and Section 10181.4. If the department determines that a rate is unreasonable or not justified consistent with Article 4.7 (commencing with Section 10181) of Chapter 1, the insurer shall notify the policyholder of this decision. If an insurer fails to comply with the timeline specified in paragraph (1) of subdivision (a) of Section 10181.3, the department may prohibit the proposed rate change.
For purposes of subdivision (c) of Section 10113.9, the notification shall be provided to a student certificate holder in addition to the policyholder. For purposes of subdivision (b) of Section 10113.9, the insurer shall provide the notification to the policyholder, and the institution of higher education shall provide the notification of the actual change in premiums to the student certificate holders.
Each of the following shall not apply to student health insurance coverage:
Subdivision (d) of Section 10965.9.
The rating period, instead, is the policy year for which premium rates are established for student health insurance coverage.
The premium rate for student health insurance coverage shall not vary during the rating period.
Sections 2236.1, 2236.3, 2236.4, 2236.5, and 2236.6 of Article 4 of Subchapter 2 of Chapter 5 of Title 10 of the California Code of Regulations.
Subdivision (a) of Section 10270.3.
Subdivision (a) of Section 10144.4.
Subdivisions (a) to (e), inclusive, of Section 10277.
Section 10278 for dependents under 26 years of age.
Subdivisions (g) and (j) of Section 10965.
Subdivisions (a), (c), and (e) of, paragraphs (1) to (3), inclusive, of subdivision (f) of, and subdivision (h) of, Section 10965.3.
The following notice shall be provided in the student health insurance enrollment materials provided to a student or a dependent of a student:
California requires residents and their dependents to obtain, and maintain, health coverage or pay a penalty, unless they qualify for an exemption. Enrolling in student health insurance offered by the college or university you are attending is one way to meet this requirement.
You may be eligible to get free or low-cost health coverage through Medi-Cal regardless of immigration status. In addition, you may be eligible for free or low-cost health coverage through Covered California. Visit Covered California at www.coveredca.com to learn about health coverage options that are available for you and your dependents, and how you might qualify to get financial assistance with the cost of coverage.
If you are under 26 years of age, you may be eligible for coverage as a dependent in a group health plan of your parent’s employer or under your parents’ individual market coverage. In addition, you may be eligible to buy individual health insurance directly from a health insurer or health plan, regardless of immigration status.
Please examine your options carefully to see if other options are more affordable and whether you are currently eligible to enroll in these other forms of coverage pursuant to an open or special enrollment period.
The notice shall be prominently displayed in clear, conspicuous, 14-point bold type.
In addition to the enrollment materials, the notice also may be provided on the internet website of the institution of higher education.
A “health factor” means, in relation to an individual, any of the following health status-related factors:
Health status.
Medical condition, including both physical and mental illnesses.
Claims experience.
Receipt of health care.
Medical history.
Genetic information.
Evidence of insurability, including conditions arising out of acts of domestic violence.
Disability.
Any other health status-related factor as determined by any federal regulation, rule, or guidance issued under Section 2705 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-26).
The commissioner may exercise the authority provided by this code and the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340), Chapter 4.5 (commencing with Section 11400), and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code) to implement and enforce this section and all sections referenced in this section. If the commissioner assesses an administrative penalty for a violation, any hearing that is requested by the insurer may be conducted by an administrative law judge of the administrative hearing bureau of the department under the formal procedure of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. An administrative penalty shall not exceed five thousand dollars ($5,000) for each violation, or, if a violation was willful, shall not exceed ten thousand dollars ($10,000) for each violation. This subdivision does not impair or restrict the commissioner’s authority pursuant to another provision of this code or the Administrative Procedure Act.
Except as provided in Section 10965.15, the provisions of this chapter shall only apply with respect to nongrandfathered individual health benefit plans offered by a health insurer, and shall apply in addition to other provisions of this chapter and the rules adopted thereunder.
On and after October 1, 2013, a health insurer shall fairly and affirmatively offer, market, and sell all of the insurer’s health benefit plans that are sold in the individual market for policy years on or after January 1, 2014, to all individuals and dependents in each service area in which the insurer provides or arranges for the provision of health care services. A health insurer shall limit enrollment in individual health benefit plans to open enrollment periods, annual enrollment periods, and special enrollment periods as provided in subdivisions (c) and (d).
A health insurer shall allow the policyholder of an individual health benefit plan to add a dependent to the policyholder’s health benefit plan at the option of the policyholder, consistent with the open enrollment, annual enrollment, and special enrollment period requirements in this section.
An individual health benefit plan issued, amended, or renewed on or after January 1, 2014, shall not impose any preexisting condition provision upon any individual.
With respect to individual health benefit plans offered outside of the Exchange, a health insurer shall provide an initial open enrollment period from October 1, 2013, to March 31, 2014, inclusive, an annual enrollment period for the policy year beginning on January 1, 2015, from November 15, 2014, to February 15, 2015, inclusive, annual enrollment periods for policy years beginning on or after January 1, 2016, to December 31, 2018, inclusive, from November 1, of the preceding calendar year, to January 31 of the benefit year, inclusive, and annual enrollment periods for policy years beginning on or after January 1, 2019, from October 15 of the preceding calendar year, to January 15 of the benefit year, inclusive.
With respect to individual health benefit plans offered through the Exchange, a health insurer shall provide an annual enrollment period for the policy years beginning on January 1, 2016, to December 31, 2018, inclusive, from November 1, of the preceding calendar year, to January 31 of the benefit year, inclusive, and annual enrollment periods for policy years beginning on or after January 1, 2019, from November 1 to December 15 of the preceding calendar year, inclusive.
With respect to individual health benefit plans offered through the Exchange, for policy years beginning on or after January 1, 2019, a health insurer shall provide a special enrollment period for all individuals selecting an individual health benefit plan through the Exchange from October 15 to October 31 of the preceding calendar year, inclusive, and from December 16, of the preceding calendar year, to January 15 of the benefit year, inclusive. An application for a health benefit plan submitted during these two special enrollment periods shall be treated the same as an application submitted during the annual open enrollment period. The effective date of coverage for plan selections made between October 15 and October 31, inclusive, shall be January 1 of the benefit year, and for plan selections made from December 16 to January 15, inclusive, shall be no later than February 1 of the benefit year.
Pursuant to Section 147.104(b)(2) of Title 45 of the Code of Federal Regulations, for individuals enrolled in noncalendar year individual health plan contracts, a health insurer shall also provide a limited open enrollment period beginning on the date that is 30 calendar days prior to the date the policy year ends in 2014.
The individual or the individual’s dependent loses minimum essential coverage. For purposes of this paragraph, both of the following definitions shall apply:
“Minimum essential coverage” has the same meaning as that term is defined in Section 1345.5 of the Health and Safety Code or subsection (f) of Section 5000A of the Internal Revenue Code (26 U.S.C. Sec. 5000A).
“Loss of minimum essential coverage” includes, but is not limited to, loss of that coverage due to the circumstances described in Section 54.9801-6(a)(3)(i) to (iii), inclusive, of Title 26 of the Code of Federal Regulations and the circumstances described in Section 1163 of Title 29 of the United States Code. “Loss of minimum essential coverage” also includes loss of that coverage for a reason that is not due to the fault of the individual.
The individual gains a dependent or becomes a dependent.
The individual is mandated to be covered as a dependent pursuant to a valid state or federal court order.
The individual has been released from incarceration.
The individual’s health coverage issuer substantially violated a material provision of the health coverage contract.
The individual gains access to new health benefit plans as a result of a permanent move.
The individual was receiving services from a contracting provider under another health benefit plan, as defined in Section 10965 of this code or Section 1399.845 of the Health and Safety Code, for one of the conditions described in subdivision (a) of Section 10133.56 of this code and that provider is no longer participating in the health benefit plan.
The individual demonstrates to the Exchange, with respect to health benefit plans offered through the Exchange, or to the department, with respect to health benefit plans offered outside the Exchange, that the individual did not enroll in a health benefit plan during the immediately preceding enrollment period available to the individual because the individual was misinformed that the individual was covered under minimum essential coverage.
The individual is a member of the reserve forces of the United States military returning from active duty or a member of the California National Guard returning from active duty service under Title 32 of the United States Code.
With respect to individual health benefit plans offered through the Exchange, in addition to the triggering events listed in this paragraph, any other events listed in Section 155.420(d) of Title 45 of the Code of Federal Regulations.
With respect to individual health benefit plans offered through the Exchange, the effective date of coverage required pursuant to this section shall be consistent with the dates specified in Section 155.410 or 155.420 of Title 45 of the Code of Federal Regulations, as applicable. A dependent who is a registered domestic partner pursuant to Section 297 of the Family Code shall have the same effective date of coverage as a spouse.
With respect to an individual health benefit plan offered outside the Exchange, the following provisions shall apply:
After an individual submits a completed application form for a plan, the insurer shall, within 30 days, notify the individual of the individual’s actual premium charges for that plan established in accordance with Section 10965.9. The individual shall have 30 days in which to exercise the right to buy coverage at the quoted premium charges.
With respect to an individual health benefit plan for which an individual applies during the initial open enrollment period described in paragraph (1) of subdivision (c), when the policyholder submits a premium payment, based on the quoted premium charges, and that payment is delivered or postmarked, whichever occurs earlier, by December 15, 2013, coverage under the individual health benefit plan shall become effective no later than January 1, 2014. When that payment is delivered or postmarked within the first 15 days of any subsequent month, coverage shall become effective no later than the first day of the following month. When that payment is delivered or postmarked between December 16, 2013, to December 31, 2013, inclusive, or after the 15th day of any subsequent month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
With respect to an individual health benefit plan for which an individual applies during the annual open enrollment period described in paragraph (1) of subdivision (c), when the individual submits a premium payment, based on the quoted premium charges, and that payment is delivered or postmarked, whichever occurs later, by December 15 of the preceding calendar year, coverage shall become effective on January 1 of the benefit year. When that payment is delivered or postmarked within the first 15 days of any subsequent month, coverage shall become effective no later than the first day of the following month. When that payment is delivered or postmarked between December 16 to December 31, inclusive, or after the 15th day of any subsequent month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
With respect to an individual health benefit plan for which an individual applies during a special enrollment period described in subdivision (d), the following provisions shall apply:
When the individual submits a premium payment, based on the quoted premium charges, and that payment is delivered or postmarked, whichever occurs earlier, within the first 15 days of the month, coverage under the plan shall become effective no later than the first day of the following month. When the premium payment is neither delivered nor postmarked until after the 15th day of the month, coverage shall become effective no later than the first day of the second month following delivery or postmark of the payment.
Notwithstanding subparagraph (A), in the case of a birth, adoption, or placement for adoption, the coverage shall be effective on the date of birth, adoption, or placement for adoption.
Notwithstanding subparagraph (A), in the case of marriage or becoming a registered domestic partner or in the case where a qualified individual loses minimum essential coverage, the coverage effective date shall be the first day of the month following the date the insurer receives the request for special enrollment.
A health insurer shall not establish rules for eligibility, including continued eligibility, of any individual to enroll under the terms of an individual health benefit plan based on any of the following factors:
Health status.
Medical condition, including physical and mental illnesses.
Claims experience.
Receipt of health care.
Medical history.
Genetic information.
Evidence of insurability, including conditions arising out of acts of domestic violence.
Disability.
Any other health status-related factor as determined by any federal regulations, rules, or guidance issued pursuant to Section 2705 of the federal Public Health Service Act (Public Law 78-410).
Notwithstanding subdivision (c) of Section 10291.5, a health insurer shall not require an individual applicant or the applicant’s dependent to fill out a health assessment or medical questionnaire prior to enrollment under an individual health benefit plan. A health insurer shall not acquire or request information that relates to a health status-related factor from the applicant or the applicant’s dependent or any other source prior to enrollment of the individual.
A health insurer shall consider as a single risk pool for rating purposes in the individual market the claims experience of all insureds and enrollees in all nongrandfathered individual health benefit plans offered by that insurer in this state, whether offered as health care service plan contracts or individual health insurance policies, including those insureds and enrollees who enroll in individual coverage through the Exchange and insureds and enrollees who enroll in individual coverage outside the Exchange. Student health insurance coverage, as such coverage is defined in Section 147.145(a) of Title 45 of the Code of Federal Regulations, shall not be included in a health insurer’s single risk pool for individual coverage.
Each calendar year, a health insurer shall establish an index rate for the individual market in the state based on the total combined claims costs for providing essential health benefits, as defined pursuant to Section 1302 of PPACA, within the single risk pool required under paragraph (1). The index rate shall be adjusted on a marketwide basis based on the total expected marketwide payments and charges under the risk adjustment program established for the state pursuant to Section 1343 of PPACA and Exchange user fees, as described in subdivision (d) of Section 156.80 of Title 45 of the Code of Federal Regulations. The premium rate for all of the health benefit plans in the individual market within the single risk pool required under paragraph (1) shall use the applicable marketwide adjusted index rate, subject only to the adjustments permitted under paragraph (3).
A health insurer may vary premium rates for a particular health benefit plan from its index rate based only on the following actuarially justified plan-specific factors:
The actuarial value and cost-sharing design of the health benefit plan.
The health benefit plan’s provider network, delivery system characteristics, and utilization management practices.
The benefits provided under the health benefit plan that are in addition to the essential health benefits, as defined pursuant to Section 1302 of PPACA and Section 10112.27. These additional benefits shall be pooled with similar benefits within the single risk pool required under paragraph (1) and the claims experience from those benefits shall be utilized to determine rate variations for plans that offer those benefits in addition to essential health benefits.
With respect to catastrophic plans, as described in subsection (e) of Section 1302 of PPACA, the expected impact of the specific eligibility categories for those plans.
Administrative costs, excluding any user fees required by the Exchange.
This section shall only apply with respect to individual health benefit plans for policy years on or after January 1, 2014.
This section shall not apply to a grandfathered health plan.
Notwithstanding paragraph (1) of subdivision (c) of Section 10965.3, with respect to individual health benefit plans offered outside of the Exchange, a health insurer shall provide an annual enrollment period for policy years beginning on or after January 1, 2020, from November 1 of the preceding calendar year, to January 31 of the benefit year, inclusive.
Notwithstanding paragraphs (2) and (3) of subdivision (c) of Section 10965.3, with respect to individual health benefit plans offered through the Exchange, for policy years beginning on or after January 1, 2023, a health insurer shall provide an annual enrollment period from November 1 of the preceding calendar year to January 31 of the benefit year, inclusive.
Notwithstanding paragraph (3) of subdivision (c) of Section 10965.3, with respect to individual health benefit plans offered outside and through the Exchange, the effective date of coverage shall be as follows:
No later than January 1 of the benefit year for plan selection made from November 1 to December 31 of the preceding calendar year, inclusive.
No later than February 1 of the benefit year for plan selection made from January 1 to January 31 of the benefit year, inclusive.
Commencing on October 1, 2013, a health insurer or agent or broker shall not, directly or indirectly, engage in the following activities:
Encourage or direct an individual to refrain from filing an application for individual coverage with an insurer because of the health status, claims experience, industry, occupation, or geographic location, provided that the location is within the insurer’s approved service area, of the individual.
Encourage or direct an individual to seek individual coverage from another health care service plan or health insurer or the California Health Benefit Exchange because of the health status, claims experience, industry, occupation, or geographic location, provided that the location is within the insurer’s approved service area, of the individual.
Employ marketing practices or benefit designs that will have the effect of discouraging the enrollment of individuals with significant health needs or discriminate based on an individual’s race, color, national origin, present or predicted disability, age, sex, gender identity, sexual orientation, expected length of life, degree of medical dependency, quality of life, or other health conditions.
Commencing on October 1, 2013, a health insurer shall not, directly or indirectly, enter into any contract, agreement, or arrangement with a broker or agent that provides for or results in the compensation paid to a broker or agent for the sale of an individual health benefit plan to be varied because of the health status, claims experience, industry, occupation, or geographic location of the individual. This subdivision does not apply to a compensation arrangement that provides compensation to a broker or agent on the basis of percentage of premium, provided that the percentage shall not vary because of the health status, claims experience, industry, occupation, or geographic area of the individual.
This section shall only apply with respect to individual health benefit plans for policy years on or after January 1, 2014.
An individual health benefit plan shall be renewable at the option of the insured except as permitted to be canceled, rescinded, or not renewed pursuant to Section 155.430(b) of Title 45 of the Code of Federal Regulations.
Any insurer that ceases to offer for sale new individual health benefit plans pursuant to Section 10273.6 shall continue to be governed by this chapter with respect to business conducted under this chapter.
With respect to individual health benefit plans issued, amended, or renewed on or after January 1, 2014, a health insurer may use only the following characteristics of an individual, and any dependent thereof, for purposes of establishing the rate of the individual health benefit plan covering the individual and the eligible dependents thereof, along with the health benefit plan selected by the individual:
Age, pursuant to the age bands established by the United States Secretary of Health and Human Services and the age rating curve established by the federal Centers for Medicare and Medicaid Services pursuant to Section 2701(a)(3) of the federal Public Health Service Act (42 U.S.C. Sec. 300gg(a)(3)). Rates based on age shall be determined using the individual’s age as of the date of the plan issuance or renewal, as applicable, and shall not vary by more than three to one for like individuals of different ages who are 21 years of age or older as described in federal regulations adopted pursuant to Section 2701(a)(3) of the federal Public Health Service Act (42 U.S.C. Sec. 300gg(a)(3)).
Geographic region. The geographic regions for purposes of rating shall be the following:
Region 1 shall consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, Glenn, Humboldt, Lake, Lassen, Mendocino, Modoc, Nevada, Plumas, Shasta, Sierra, Siskiyou, Sutter, Tehama, Trinity, Tuolumne, and Yuba.
Region 2 shall consist of the Counties of Marin, Napa, Solano, and Sonoma.
Region 3 shall consist of the Counties of El Dorado, Placer, Sacramento, and Yolo.
Region 4 shall consist of the City and County of San Francisco.
Region 5 shall consist of the County of Contra Costa.
Region 6 shall consist of the County of Alameda.
Region 7 shall consist of the County of Santa Clara.
Region 8 shall consist of the County of San Mateo.
Region 9 shall consist of the Counties of Monterey, San Benito, and Santa Cruz.
Region 10 shall consist of the Counties of Mariposa, Merced, San Joaquin, Stanislaus, and Tulare.
Region 11 shall consist of the Counties of Fresno, Kings, and Madera.
Region 12 shall consist of the Counties of San Luis Obispo, Santa Barbara, and Ventura.
Region 13 shall consist of the Counties of Imperial, Inyo, and Mono.
Region 14 shall consist of the County of Kern.
Region 15 shall consist of the ZIP Codes in the County of Los Angeles starting with 906 to 912, inclusive, 915, 917, 918, and 935.
Region 16 shall consist of the ZIP Codes in the County of Los Angeles other than those identified in clause (xv).
Region 17 shall consist of the Counties of Riverside and San Bernardino.
(xviii) Region 18 shall consist of the County of Orange.
Region 19 shall consist of the County of San Diego.
No later than June 1, 2017, the department, in collaboration with the Exchange and the Department of Managed Health Care, shall review the geographic rating regions specified in this paragraph and the impacts of those regions on the health care coverage market in California, and make a report to the appropriate policy committees of the Legislature.
Whether the plan covers an individual or family, as described in PPACA.
The rate for a health benefit plan subject to this section shall not vary by any factor not described in this section.
With respect to family coverage under an individual health benefit plan, the rating variation permitted under paragraph (1) of subdivision (a) shall be applied based on the portion of the premium attributable to each family member covered under the plan. The total premium for family coverage shall be determined by summing the premiums for each individual family member. In determining the total premium for family members, premiums for no more than the three oldest family members who are under 21 years of age shall be taken into account.
The rating period for rates subject to this section shall be from January 1 to December 31, inclusive.
This section shall not apply to an individual health benefit plan that is a grandfathered health plan.
The requirement for submitting a report imposed under subparagraph (B) of paragraph (2) of subdivision (a) is inoperative on June 1, 2021, pursuant to Section 10231.5 of the Government Code.
A health insurer shall not be required to offer an individual health benefit plan or accept applications for the plan pursuant to Section 10965.3 in the case of any of the following:
To an individual who does not live or reside within the insurer’s approved service areas.
Within a specific service area or portion of a service area, if the insurer reasonably anticipates and demonstrates to the satisfaction of the commissioner both of the following:
It will not have sufficient health care delivery resources to ensure that health care services will be available and accessible to the individual because of its obligations to existing insureds.
It is applying this subparagraph uniformly to all individuals without regard to the claims experience of those individuals or any health status-related factor relating to those individuals.
A health insurer that cannot offer an individual health benefit plan to individuals because it is lacking in sufficient health care delivery resources within a service area or a portion of a service area pursuant to subparagraph (A) shall not offer an individual health benefit plan in that area until the later of the following dates:
The 181st day after the date coverage is denied pursuant to this paragraph.
The date the insurer notifies the commissioner that it has the ability to deliver services to individuals, and certifies to the commissioner that from the date of the notice it will enroll all individuals requesting coverage in that area from the insurer.
Subparagraph (B) shall not limit the insurer’s ability to renew coverage already in force or relieve the insurer of the responsibility to renew that coverage as described in Section 10273.6.
Coverage offered within a service area after the period specified in subparagraph (B) shall be subject to this section.
A health insurer may decline to offer an individual health benefit plan to an individual if the insurer demonstrates to the satisfaction of the commissioner both of the following:
It does not have the financial reserves necessary to underwrite additional coverage. In determining whether this subparagraph has been satisfied, the commissioner shall consider, but not be limited to, the insurer’s compliance with the requirements of this part and the rules adopted thereunder.
It is applying this subdivision uniformly to all individuals without regard to the claims experience of those individuals or any health status-related factor relating to those individuals.
A health insurer that denies coverage to an individual under paragraph (1) shall not offer coverage before the later of the following dates:
The 181st day after the date coverage is denied pursuant to this subdivision.
The date the insurer demonstrates to the satisfaction of the commissioner that the insurer has sufficient financial reserves necessary to underwrite additional coverage.
Paragraph (2) shall not limit the insurer’s ability to renew coverage already in force or relieve the insurer of the responsibility to renew that coverage as described in Section 10273.6. Coverage offered within a service area after the period specified in paragraph (2) shall be subject to this section.
This chapter shall not be construed to limit the commissioner’s authority to develop and implement a plan of rehabilitation for a health insurer whose financial viability or organizational and administrative capacity has become impaired, to the extent permitted by PPACA.
This section shall not apply to an individual health benefit plan that is a grandfathered plan.
A health insurer that receives an application for an individual health benefit plan outside the Exchange during the initial open enrollment period, an annual enrollment period, or a special enrollment period described in Section 10965.3 shall inform the applicant that he or she may be eligible for lower cost coverage through the Exchange and shall inform the applicant of the applicable enrollment period provided through the Exchange described in Section 10965.3.
On or before October 1, 2013, and annually every October 1 thereafter, a health insurer shall issue a notice to a policyholder enrolled in an individual health benefit plan offered outside the Exchange. The notice shall inform the policyholder that he or she may be eligible for lower cost coverage through the Exchange and shall inform the policyholder of the applicable open enrollment period and special enrollment periods provided through the Exchange described in Section 10965.3.
This section shall not apply where the individual health benefit plan described in subdivision (a) or (b) is a grandfathered health plan.
On or before October 1, 2013, and annually every October 1 thereafter, a health insurer shall issue the following notice to all policyholders enrolled in an individual health benefit plan that is a grandfathered health plan:
New improved health insurance options are available in California. You currently have health insurance that is not required to follow many of the new laws. For example, your policy may not provide preventive health services without you having to pay any cost sharing (copayments or coinsurance). Also your current policy may be allowed to increase your rates based on your health status while new policies cannot. You have the option to remain in your current policy or switch to a new policy. Under the new rules, a health insurance company cannot deny your application based on any health conditions you may have. For more information about your options, please contact Covered California at ____, your policy representative or insurance agent, or an entity paid by Covered California to assist with health coverage enrollment, such as a navigator or an assister.
Commencing October 1, 2013, a health insurer shall include the notice described in subdivision (a) in any renewal material of the individual grandfathered health plan and in any application for dependent coverage under the individual grandfathered health plan.
A health insurer shall not advertise or market an individual health benefit plan that is a grandfathered health plan for purposes of enrolling a dependent of a policyholder into the plan for policy years on or after January 1, 2014. Nothing in this subdivision shall be construed to prohibit an individual enrolled in an individual grandfathered health plan from adding a dependent to that plan to the extent permitted by PPACA.
Except as otherwise provided in this chapter, this chapter shall be implemented to the extent that it meets or exceeds the requirements set forth in PPACA.
The commissioner may, no later than December 31, 2014, adopt emergency regulations implementing this chapter. The commissioner may readopt any emergency regulation authorized by this section that is the same as or substantially equivalent to an emergency regulation previously adopted under this section.
The initial adoption of emergency regulations implementing this chapter and the one readoption of emergency regulation authorized by this section shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, safety, or general welfare. Initial emergency regulations and the one readoption of emergency regulations authorized by this section shall be exempt from review by the Office of Administrative Law. The initial emergency regulations and the one readoption of emergency regulations authorized by this section shall be submitted to the Office of Administrative Law for filing with the Secretary of State and each shall remain in effect for no more than one year, by which time final regulations may be adopted. The commissioner shall consult with the Director of the Department of Managed Health Care prior to adopting any regulations pursuant to this subdivision for the specific purpose of ensuring, to the extent practical, that there is consistency of regulations applicable to entities regulated by the commissioner and those regulated by the Department of Managed Health Care.
For purposes of this chapter, a bridge plan product shall mean an individual health benefit plan that is offered by a health insurer licensed under this part that contracts with the Exchange pursuant to Title 22 (commencing with Section 100500) of the Government Code.
On and after September 30, 2013, if a health insurance policy has not been filed with the commissioner, a health insurer that contracts with the Exchange to offer a qualified bridge plan product pursuant to Section 100504.5 of the Government Code shall file the policy form with the commissioner pursuant to Section 10290.
Notwithstanding subdivision (a) of Section 10965.3, a health insurer selling a bridge plan product shall not be required to fairly and affirmatively offer, market, and sell the health insurer’s bridge plan product except to individuals eligible for the bridge plan product pursuant to the State Department of Health Care Services and the Medi-Cal managed care plan’s contract entered into pursuant to Section 14005.70 of the Welfare and Institutions Code, provided the health care service plan meets the requirements of subdivision (b) of Section 14005.70 of the Welfare and Institutions Code.
Notwithstanding subdivision (c) of Section 10965.3, a health insurer selling a bridge plan product shall provide an initial open enrollment period of six months, and an annual enrollment period and a special enrollment period consistent with the annual enrollment and special enrollment periods of the Exchange.
A health insurer that contracts with the Exchange to offer a qualified bridge plan product pursuant to Section 100504.5 of the Government Code shall maintain a medical loss ratio of 85 percent for the bridge plan product. A health insurer shall utilize, to the extent possible, the same methodology for calculating the medical loss ratio for the bridge plan product that is used for calculating the health insurer’s medical loss ratio pursuant to Section 10112.25 and shall report its medical loss ratio for the bridge plan product to the department as provided in Section 10112.25.
This section shall become inoperative on the October 1 that is five years after the date that federal approval of the bridge plan option occurs, and, as of the second January 1 thereafter, is repealed, unless a later enacted statute that is enacted before that date deletes or extends the dates on which it becomes inoperative and is repealed.
CHAPTER 10. Fraternal Benefit Societies [10970. - 11165.]
ARTICLE 1. Scope of Chapter [10970. - 10976.]
Fraternal benefit societies shall be governed by this chapter and shall be exempt from all other provisions of this code, except:
Those provisions prior to Division 1 entitled “General Provisions.”
Those provisions specifically referred to in this chapter to the extent made necessary by such reference.
A statute relating to insurance shall not apply to them, unless they are expressly designated therein.
A lodge operating under the lodge system, which provides in its bylaws or rules or regulations for the payment of death benefits not exceeding one thousand dollars ($1,000) on the death of a member or for the payment of disability benefits not exceeding one thousand dollars ($1,000) to a member during any period of 12 consecutive calendar months, or both of those types of benefits.
The subordinate branch of a lodge, as a lodge is defined in Section 10972, or any association formed by the members of a lodge, which association confines its membership to the members of such lodge, which subordinate branch or association (1) is organized without capital stock, (2) is organized and operated solely for the benefit of its members or their beneficiaries and not for profit, and (3) provides in its bylaws or rules or regulations for the payment of either or both of the following benefits: (i) a benefit of not exceeding one thousand dollars ($1,000) on the death of a member from any cause; (ii) a benefit of not exceeding one thousand dollars ($1,000) on the accidental death of a member or benefits not exceeding one thousand dollars ($1,000) during any period of 12 consecutive calendar months to a member for his or her disability.
A lodge operating under the lodge system or any subordinate branch thereof or any association formed by the members thereof which association confines its membership to the members of such lodge, which subordinate branch or association (1) is organized without capital stock, (2) is organized and operated solely for the benefit of its members or their beneficiaries and not for profit, and (3) provides in its bylaws or rules or regulations for the payment of death benefits not exceeding five thousand dollars ($5,000) on the death of a member or for the payment of disability benefits not exceeding one thousand dollars ($1,000) to a member during any period of 12 consecutive calendar months, or both of those types of benefits.
An organization authorized to operate pursuant to a superior court judgment issued between January and April of 1940 whether or not the amount of benefits offered by that organization conforms to that judgment.
Contracts of reinsurance on a plan under subdivisions (a), (b), (c), or (d).
A lodge operating under the lodge system, as this term is used in Section 10971, shall have all of the following characteristics:
It is organized without capital stock.
It is organized and operated solely for the benefit of its members or their beneficiaries and not for profit.
It has a lodge system and representative form of government within the meaning of Section 10992, holds regular meetings at periodical intervals, and has a ritualistic form of work, and it has not less than 10 subordinate branches with more than a total of 1,000 dues-paying, active members in good standing.
Any lodge, subordinate branch or association otherwise covered by Section 10971, which issues to any person a policy or certificate providing for the payment of benefits, shall comply with all the requirements of this chapter.
The commissioner may require from any society such information as will enable him to determine whether or not such society is exempt from the provisions of this chapter.
A lodge, subordinate branch thereof or association formed by the members thereof which is exempted from the requirements of this chapter by Section 10971 shall not give or allow, nor promise to give or allow, any compensation for procuring new members.
Any fraternal benefit society organized and operating within the definition set forth in Sections 10990 to 10992 on July 29, 1911, providing benefits in case of death or disability resulting solely from accidents but not obligating itself to pay death or sick benefits, may obtain a certificate of authority under this chapter. Such society shall have all the privileges and shall be subject to all the provisions of this chapter, except those requiring medical examination, valuations of policies, and that the policies specify the amount of benefits.
Any incorporated fraternal benefit society engaged on July 29, 1911, in transacting business in this State may exercise all of the rights conferred by this chapter, and all of the rights, powers and privileges not inconsistent with this chapter, which were theretofore exercised or possessed by it under its charter. Any unincorporated fraternal benefit society thus engaged may incorporate hereunder.
A society already incorporated shall not be required to reincorporate hereunder. Any such society may amend its articles of incorporation. All such amendments shall be filed with the commissioner and shall become operative upon such filing, unless a later time is otherwise provided.
ARTICLE 2. Definitions [10990. - 10993.]
Any incorporated society, order or supreme lodge, without capital stock, conducted solely for the benefit of its members and their beneficiaries and not for profit, operated on a lodge system with ritualistic form of work, having a representative form of government, and which makes provision for the payment of benefits in accordance with this chapter, is hereby declared to be a fraternal benefit society.
When used in this chapter, the word “society,” unless otherwise indicated, shall mean fraternal benefit society.
A society having a supreme legislative or governing body and subordinate lodges or branches by whatever name known, into which members are elected, initiated, or admitted in accordance with its constitution, laws, and ritual, which subordinate lodges or branches shall be required by the laws of the society to hold regular meetings at least once a month in furtherance of the purposes of the society, shall be deemed to be operating on the lodge system.
A society shall be deemed to have a representative form of government when:
It provides in its constitution or laws for a supreme legislative or governing body, composed of representatives elected either by the members or by delegates elected directly or indirectly by the members, together with such other members as may be prescribed by the society’s constitution and laws;
The representatives elected constitute a majority in number and have not less than two-thirds of the votes nor less than the votes required to amend its constitution and laws;
The meetings of the supreme legislative or governing body and the election of officers, representatives and delegates, by whatever name known, are held as often as once in four calendar years;
The members, officers, representatives and delegates, by whatever name known, shall not vote by proxy; and
The officers may be elected by the board of directors if the board of directors is itself elected by the supreme legislative or governing body.
Every fraternal benefit society organized or admitted under this chapter is hereby declared to be a charitable and benevolent institution, and all of its funds shall be exempt from all and every state, county, district, municipal and school tax, other than taxes on real estate and office equipment.
ARTICLE 3. Organization [11010. - 11033.]
Seven or more United States citizens, a majority of whom are citizens of this state, who desire to form a fraternal benefit society, may make, sign, and acknowledge articles of incorporation before an officer competent to take acknowledgment of deeds. The articles of incorporation shall state:
The proposed corporate name of the society, which shall not so closely resemble the name of any society or insurance company as to be misleading or confusing.
The purposes for which it is being formed, and the mode in which its corporate powers are to be exercised.
The purposes shall not include more liberal powers than are granted by this chapter, provided that any lawful, social, intellectual, educational, charitable, benevolent, moral, fraternal, or religious purposes shall be set forth among the purposes of the society.
The names and residences of the incorporators, and the names, residences and official titles of all the officers, trustees, directors, or other persons who are to have and exercise the general control of the management of the affairs and funds of the society for the first year, or until the ensuing election at which all officers shall be elected by the supreme legislative or governing body. The election shall be held within one year of the date of the issuance of the permanent certificate.
The articles of incorporation, duly certified copies of the constitution, laws and rules, copies of all proposed forms of certificates, applications therefor, and circulars to be issued by the society, and a bond, conditioned upon the return to applicants of the advanced payments if the organization is not completed within one year, such bond to be in the amount of ten thousand dollars ($10,000) and approved by the commissioner, shall be filed with the commissioner, who may require such further information as the commissioner deems necessary. All documents filed are to be in the English language. If the purposes of the society conform to the requirements of this chapter and all provisions of the law have been complied with, the commissioner shall so certify, retain and file the articles of incorporation and furnish the incorporators a preliminary certificate authorizing the society to solicit members as hereinafter provided. Copies of the articles of incorporation shall also be filed with the Secretary of State.
No such preliminary certificate shall be valid after one year from its date, or after such further period, not exceeding one year, as may be authorized by the commissioner, upon cause shown, unless the 500 applicants hereinafter required have been secured and the organization has been completed as provided in this article. The articles of incorporation and all other proceedings thereunder shall become null and void in one year from the date of the preliminary certificate, or at the expiration of the extended period, unless the society shall have completed its organization and received a certificate of authority to do business as hereinafter provided.
Upon receipt of a preliminary certificate from the commissioner, the society may solicit members for the purpose of completing its organization, shall collect from each applicant the amount of not less than one semiannual payment or six monthly payments, in accordance with its table of rates as provided by its constitution and laws, and shall issue to each such applicant a receipt for the amount so collected. No society shall incur any liability other than for the return of such advance payment, nor issue any certificate, nor pay, allow, or offer or promise to pay or allow any death or disability benefit to any person until:
Actual bona fide applications for death benefits have been secured aggregating at least five hundred thousand dollars ($500,000) on not less than 500 lives.
All such applicants for death benefits shall have been regularly examined by qualified practicing physicians or shall have made acceptable declarations of insurability.
Certificates of examinations or acceptable declarations of insurability meeting the established underwriting standards of the society have been duly filed and approved by the society.
Ten subordinate lodges or branches have been established into which the 500 applicants have been admitted.
There has been submitted to the commissioner, under oath of the president or secretary, or corresponding officer of the society, a list of such applicants, giving their names, addresses, date each was admitted, name and number of the subordinate branch of which each applicant is a member, amount of benefits to be granted and rates therefor.
It shall have been shown to the commissioner, by sworn statement of the treasurer, or corresponding officer of such society, that at least 500 applicants have each paid in cash at least one semiannual payment or six monthly payments as herein provided, which payments in the aggregate shall amount to at least five thousand dollars ($5,000), all of which shall be credited to the fund or funds from which benefits are to be paid, and no part of which may be used for expenses. Said advance payments shall be held in trust during the period of organization and if the organization has not qualified for a certificate of authority within one year or within the extended period, as provided in Section 11012, such payments shall be returned to said applicants.
The commissioner may make such examination and require such further information as he deems advisable. Upon presentation of satisfactory evidence that the society has complied with all the provisions of law, he shall issue to the society a certificate to that effect and that the society is authorized to transact business pursuant to the provisions of this chapter. The certificate shall be prima facie evidence of the existence of the society at the date of such certificate. The commissioner shall cause a record of such certificate to be made. A certified copy of such record may be given in evidence with like effect as the original certificate.
Every such society shall have the power to make a constitution and by-laws for the government of the society, the admission of its members, the management of its affairs, and the fixing and readjusting of the rates of its members from time to time. It shall have the power to change, alter, add to or amend such constitution and by-laws and shall have such other powers as are necessary and incidental to carrying into effect the objects and purposes of the society.
A society shall operate for the benefit of its members and their beneficiaries by:
Providing benefits under Section 11041, and
Operating for one or more social, intellectual, educational, charitable, benevolent, moral, fraternal, patriotic, or religious purposes for the benefit of its members, and, if desired, for others. The society’s purposes may be carried out directly by the society or indirectly through subsidiary or affiliated entities established in furtherance of the purposes of the society.
Any incorporated society authorized to transact business in this state on January 1, 1996, may thereafter exercise all the rights, powers, and privileges prescribed in this chapter and in its charter or articles of incorporation as far as consistent with this chapter. A domestic society shall not be required to reincorporate.
After September 21, 1952, no unincorporated or voluntary association shall be permitted to transact business in this State as a fraternal benefit society under this chapter.
Any domestic voluntary association now authorized to transact business in this State may incorporate when:
It shall have completed its conversion to an incorporated society, not later than one year after the effective date of this chapter;
It has filed its articles of incorporation and has satisfied the other requirements prescribed in this article; and
The commissioner shall have made such examination and procured whatever additional information he shall deem advisable.
Every voluntary association so incorporated shall incur the obligations and enjoy the benefits thereof the same as though originally incorporated, and such corporation shall be deemed a continuation of the original voluntary association. The officers thereof shall serve through their respective terms as provided in its original articles of association, but their successors shall be elected and serve as provided in its articles of incorporation. Incorporation of a voluntary association shall not affect existing suits, claims or contracts.
Any domestic society may provide that the meetings of its legislative or governing body may be held in any state, district, province or territory wherein such society has at least five subordinate branches, and all business transacted at such meetings shall be as valid in all respects as if such meetings were held in this State. However, its principal office shall be located in this State.
A domestic society shall not consolidate or merge with any other society unless it files with the commissioner the papers and evidence specified in this section and pays the sum of three hundred eighty-six dollars ($386) to the commissioner in advance as a filing fee therefor. The papers and evidence herein required to be filed with the commissioner in that instance are:
A certified copy of the written contract containing in full the terms and conditions of the consolidation or merger;
A sworn statement by the president and secretary or corresponding officers of each society showing the financial condition thereof on a date not earlier than December 31, next preceding the date of the contract;
A certificate of those officers, duly verified by their respective oaths, that the consolidation or merger has been approved by a two-thirds vote of the supreme legislative or governing body of each society; and
Evidence that at least 60 days prior to the action of the supreme legislative or governing body of each society, the text of the contract has been furnished to all members of the society by being sent by mail or by being published in full in the official organ of the society and the issue containing the text of the contract being mailed to each member of the society.
If the commissioner finds that such contract is in conformity with the provisions of this chapter, that the financial statements are correct, that under it the interests of the certificate holders of the parties are properly protected and that the consolidation or merger is just and equitable to the members of each society, he shall approve the contract and issue his certificate to such effect. Upon such approval, the contract shall be in full force and effect unless any society which is a party to the contract is incorporated under the laws of any other state or territory. In such event the consolidation or merger shall not become effective unless and until it has been approved as provided by the laws of such state or territory and a certificate of such approval filed with the commissioner of this State or, if the laws of such state or territory contain no such provision, then the consolidation or merger shall not become effective unless and until the supervising insurance official of such state or territory has advised the commissioner that he has no objection to such consolidation or merger.
Upon the consolidation or merger becoming effective, all the rights, franchises and interests of the consolidated or merged societies in and to every species of property, real, personal or mixed, and things in action thereunto belonging shall be vested in the society resulting from or remaining after the consolidation or merger without any other instrument, except that conveyances of real property may be evidenced by proper deeds, and the title to any real estate or interest therein, vested under the laws of this State in any of the societies consolidated or merged, shall not revert or be in any way impaired by reason of the consolidation or merger, but shall vest absolutely in the society resulting from or remaining after such consolidation or merger.
The affidavit of any officer of the society or of any one authorized by it to mail any notice or document, stating facts which show that same has been duly addressed and mailed, shall be prima facie evidence that such notice or document has been furnished the addressees.
A society may admit to benefit membership any person not less than 15 years of age at nearest birthday who has been examined by a legally qualified physician, and whose examination has been supervised and approved in accordance with the laws of the society, or who has made declaration of insurability acceptable to the society in accordance with its established underwriting standards. Any such member who shall apply for additional benefits more than six months after becoming a benefit member shall pass an additional medical examination or make an additional declaration of insurability as required by the society.
Any person admitted to benefit membership in such society prior to attaining the full age of 21 years shall be bound by the terms of the application and certificate and by all the laws and rules of the society, and shall be entitled to all the rights and privileges of membership therein, to the same extent as though the age of majority had been attained at the time of application.
A society may accept general or social members who shall have no voice or vote in the management of its insurance affairs.
A domestic society may amend its articles of incorporation, constitution, or laws, in accordance with the provisions thereof, by action of its supreme legislative or governing body at any regular or special meeting. If the articles of incorporation, constitution, or laws so provide, amendment may be made by referendum. A referendum may be held in accordance with the provisions of the society’s articles of incorporation, constitution, or laws by the vote of the voting members of the society, by the vote of delegates or representatives of voting members or by the vote of local lodges or branches. No amendment submitted for adoption by referendum shall be adopted unless, within six months from the date of the amendment’s submission, a majority of the members of the society have signified their consent to the amendment by one of the methods herein specified.
No amendment to the articles of incorporation, constitution or laws of any domestic society shall take effect unless approved by the commissioner who shall approve such amendment if he finds that it has been duly adopted and is not inconsistent with any requirement of the laws of this State or with the character, objects and purposes of the society. Unless the commissioner shall disapprove any such amendment within 60 days after the filing of same, such amendment shall be considered approved. The approval or disapproval of the commissioner shall be in writing and mailed to the secretary or corresponding officer of the society at its principal office. In case he disapproves such amendment, the reasons therefor shall be stated in such written notice.
Within 90 days from the approval thereof by the commissioner, all such amendments, or a synopsis thereof, shall be furnished to all members of the society either by being published in the official organ of the society or by being sent by mail. The affidavit of any officer of the society or of anyone authorized by it to mail any amendments or synopsis thereof, stating facts which show that same has been duly addressed and mailed, shall be prima facie evidence that such amendments or synopsis thereof have been furnished the addressee.
Every foreign society transacting business under this chapter shall file with the commissioner a duly certified copy of all amendments of, or additions to, its constitution and laws within 90 days after the enactment of the same.
Printed copies of the constitution or laws of any domestic or foreign society as amended, certified by the secretary or corresponding officer of the society shall be prima facie evidence of the legal adoption thereof.
A society may create, maintain and operate hospitals, asylums, homes, sanitariums or other charitable or benevolent institutions for the benefit of its sick, disabled, aged or distressed members and their families and dependents in accordance with the provisions of its laws; and for such purpose it may own, hold or lease personal property or real property located within or without this State, with necessary buildings thereon. Such property shall not be deemed an admitted asset of the society.
Maintenance, treatment and proper attendance in any such institution may be furnished free or a reasonable charge may be made therefor, but no such institution shall be operated for profit. Excepting a society relieved of the requirement of maintaining a separation of funds pursuant to the provisions of Section 11120, no part of the cost or expense of creating, maintaining or operating such institution shall be defrayed or paid out of the mortuary, sick or disability funds of a society. The society shall maintain a separate accounting of any disbursements under this section and report them in its annual statement. No society shall own or operate funeral homes or undertaking establishments.
A society maintaining special funds of the nature set forth in Section 11122 may make payments from such funds to its members compatible with the type thereof; provided that, if such payments are of such a nature that they could constitute benefits within the classes of insurance set forth in Section 11041, the society making such payments may not:
Make any separate charge therefor;
Issue any certificate, policy or other document promising such payments;
Provide in its constitution, by-laws or any other document that such payments may be received by any member of such society as a matter of right; nor
Advertise such payments as insurance or as payments to which the member has any right.
No such special funds shall be an admitted asset of the society in excess of the amount of the liabilities of such special fund. The society shall maintain a separate accounting of any disbursements under this section and report them in its annual statement.
ARTICLE 4. Benefits [11040. - 11044.]
All benefits provided for in the laws and agreements of a society shall be payable only out of its funds in accordance with its laws. The officers and members of the supreme, grand or any subordinate body of a society shall not be individually liable therefor.
An admitted society may, by the issuance of certificates, provide for payment to its members of insurance benefits contained within the following classes:
All forms of disability insurance, as defined in Section 106, except group insurance.
Except as otherwise provided in this chapter, benefits may be paid in any manner compatible with their nature.
Any benefits authorized in this section, or combinations thereof, may be provided in the same or separate certificates.
A society shall specify in its laws or rules those persons who may receive benefits or be covered by benefits through the society. For all coverages, the member shall be the applicant or the insured provided that if the member is the applicant, there shall be a bona fide familial or other dependent relationship between the member and the insured or beneficiary. Every society, by its constitution, laws, or rules, may limit the scope of beneficiaries only to the extent required by federal law governing fraternal benefit societies. The society may specify the terms and conditions on which benefit certificates may be assigned.
A society may provide for benefits on the lives of children under 21 years of age and under the minimum age for adult membership under the laws of the society at time of application therefor, upon the application of some adult person, as its laws or rules may provide, which benefits shall be in accordance with the provisions of Section 11041. A society may, at its option, organize and operate branches for such children. Membership and initiation in local lodges shall not be required of such children, nor shall they have a voice in the management of the society. Children insured under certificates issued pursuant to this section may be transferred to and become members of the adult branch of the society upon attaining the minimum age for adult membership under the laws of the society.
If a society maintains a separate juvenile fund, it shall have the right to provide in its laws or rules for the payment to the society’s expense or general fund; provided, that no such society shall transfer to such funds amounts collected for juvenile mortuary benefits and the net accretions thereto. A society shall have full power to provide for the fixing and readjusting, from time to time, of the premiums and the designation and changing of designation of beneficiaries and to provide in all other respects for the regulation, government and control of such certificates and all rights, obligations and liabilities incident thereto and in connection therewith.
A society may grant nonforfeiture benefits, cash surrender values, certificate loans, and other options as its laws may permit.
In the case of certificates issued after September 21, 1952, other than those for which reserves are computed on the Commissioners 1941 Standard Ordinary Mortality Table, the 1941 Standard Industrial Table, the Commissioners 1958 Standard Ordinary Mortality Table, the Commissioners 1980 Standard Ordinary Mortality Table, or any more recent table approved by the commissioner that applies to life insurers, the value of any nonforfeiture benefit granted and the amount of any cash surrender value granted shall not be less than the excess, if any, of (a) over (b) as follows:
The reserve under the certificate determined on the basis specified in the certificate; and
The sum of any indebtedness to the society on the certificate, including interest due and accrued, and a surrender charge of not more than 212 percent of the face amount of the certificate, which, in the case of insurance on the lives of children, shall be the ultimate face amount of the certificate, if death benefits provided therein are graded.
However, in the case of certificates issued on a substandard basis or in the case of certificates, the reserves for which are computed upon the American Men Ultimate Table of Mortality, the term of any extended insurance benefit including accompanying pure endowment, if any, may be computed upon the rates of mortality not greater than 130 percent of those shown by the mortality table specified in the certificate for the computation of the reserve.
In the case of certificates issued after September 21, 1952, for which reserves are computed on the Commissioners 1941 Standard Ordinary Mortality Table, the 1941 Standard Industrial Table, the Commissioners 1958 Standard Ordinary Mortality Table, the Commissioners 1980 Standard Ordinary Mortality Table, or any more recent table approved by the commissioner that applies to life insurers, the value of any nonforfeiture benefit granted and the amount of any cash surrender value granted shall not be less than the corresponding amount ascertained in accordance with the provisions of Sections 10161, 10162, 10163, 10163.1, 10163.2, 10164, 10164.1, and 10165 applicable to life insurance companies.
No beneficiary shall have or obtain any vested interest in the proceeds of any certificate until the certificate has become due and payable in conformity with the provisions of the insurance contract. The owner of a certificate shall have the right at all times to change the beneficiary or beneficiaries in accordance with the constitution, laws, or rules of the society, unless the owner waives this right by specifically requesting in writing that the beneficiary designation be irrevocable. Every society, by its constitution, laws, or rules, may limit the scope of beneficiaries only to the extent required by federal law governing fraternal benefit societies.
ARTICLE 5. Contract [11060. - 11073.]
Every society authorized to do business in this State shall issue to each benefit member a certificate specifying the amount of benefits provided thereby. The certificate, together with any riders or endorsements attached thereto, the charter or articles of incorporation, the constitution and laws of the society, the application for membership, and declaration of insurability, if any, signed by the applicant, and all amendments to each thereof, shall constitute the entire agreement between the society and the member, and the certificate shall so state. A copy of the application for membership and of the declaration of insurability, if any, shall be endorsed upon or attached to the certificate.
All statements purporting to be made by the member shall, in the absence of fraud, be representations and not warranties. Any waiver of this provision shall be void.
Any changes, additions or amendments to the charter or articles of incorporation, constitution or laws duly made or enacted subsequent to the issuance of the certificate, shall bind the member and the beneficiaries, and shall govern and control the agreement in all respects the same as though such changes, additions or amendments had been made prior to and were in force at the time of the application for membership, but no such changes, additions or amendments shall have the effect of terminating or reducing the benefit or benefits payable under any certificate in force at the time such changes, additions or amendments become effective.
A society shall provide specifically in its certificates that if its reserves become impaired, its board of directors or corresponding body may require that the owner pay to the society the amount of the owner’s equitable proportion of the deficiency as ascertained by its board, and that if the payment be not made it shall stand as an indebtedness against the certificate and draw interest not to exceed the rate specified for certificate loans under the certificate, or if none is specified, 6 percent per annum compounded annually.
Every society authorized to do business in this State shall provide in its constitution or laws that additional payments or contributions shall be required of members by the action of the board of directors or corresponding body of the society whenever they deem it necessary or proper to effectuate the carrying on of the insurance business of the society.
After the effective date of the amendments to this section made during the 1995–96 Regular Session of the Legislature, no life insurance benefit certificate may be delivered or issued for delivery in this state unless a copy of the form, the application therefor, and any attached endorsements or riders have been filed with the commissioner in the same manner as policies, contracts, or certificates of life insurance issued by stock or mutual insurers. The certificate shall have a title clearly and correctly describing its form on the face and filing back and shall contain in substance the standard provisions listed below. However, the commissioner may approve any form that in his or her opinion contains provisions relating to any one or more of the following requirements that are more favorable to insured members than the one or ones required here.
A provision stating the amount of premiums that are payable under the certificate, and a provision that the certificate holder shall be obligated to pay, as a condition of the continuance in force of the certificate, additional premiums imposed in accordance with the constitution or laws of the society then in force or thereafter lawfully enacted.
A provision that the certificate holder is entitled to a grace of not less than a full month (or 30 days at the option of the society) in which the payment of any premium, after the first, may be made, and that during the grace period, the certificate shall continue in full force. However, the certificate may provide that in case a loss occurs during the grace period before the overdue premium is paid, the amount of the overdue premium or premiums may be deducted in any settlement under the certificate.
A provision that the certificate holder shall be entitled to have the certificate reinstated at any time within three years from the date of default in payment of premiums, unless the certificate has been completely terminated through the application of a nonforfeiture benefit, upon the production of evidence of insurability and good health satisfactory to the society and the payment of all overdue premiums and any other indebtedness to the society upon the certificate, together with interest on the premiums and indebtedness, if any, at a rate not exceeding 6 percent per annum compounded annually. However, a society may provide for a minimum interest payment of not exceeding ten cents ($0.10) for each month’s premium in arrears at the date of reinstatement, if the premiums do not exceed 12 in number.
A provision that, in the event of default in payment of any premium after three full years’ premiums have been paid, or after premiums for a lesser period have been paid if the contract so provides, the society will grant, upon proper request not later than 60 days after the due date of the premium in default, a nonforfeiture benefit on the plan stipulated in the certificate, effective as of the due date, of the value as specified in this chapter. This subdivision does not apply to pure endowment, annuity or reversionary annuity contracts, or term certificates of uniform amount, or renewal thereof, of 15 years or less expiring before age 66, for which uniform premiums are payable during the entire term of the certificate, or term certificates of decreasing amount on which the granting of a nonforfeiture benefit is not required in order to comply with the minimum values specified in this chapter.
A provision that one nonforfeiture benefit, as specified in the certificate, in accordance with the requirements of subdivision (d) above, shall become effective automatically unless the member elects another available nonforfeiture benefit or, if society makes available a cash surrender value, the cash surrender value, not later than 60 days after the due date of the premium in default.
A statement of the mortality table and rate of interest used in determining all nonforfeiture benefits and cash surrender values available under the certificate. After September 21, 1954, a brief general statement of the method used in calculating the benefits and values available under the certificate on any certificate anniversary beyond the last anniversary for which the benefits and values are consecutively shown in the certificate. The statement shall be accompanied by an explanation of the manner in which the benefits and values are altered by the existence of paid-up additions credited to the certificate or by any indebtedness to the society on the certificate.
A table showing in figures every nonforfeiture benefit and cash surrender value available under the certificate for each certificate anniversary either during the first 20 certificate years or during the term of the certificate, whichever is shorter, the benefits and values to be calculated upon the assumption that there are no dividends or paid-up additions credited to the certificate and that there is no indebtedness to the society on account of or secured by the certificate.
A provision that the certificate shall be incontestable after it has been in force during the lifetime of the insured for a period of two years from its date of issue except for nonpayment of premiums, risks limited or not assumed, violation of the provisions of the certificate relating to military, aviation, or naval service, or violation of the provisions relating to suspension or expulsion as substantially set forth in the certificate. At the option of the society, supplemental provisions relating to benefits in the event of temporary or permanent disability or hospitalization and provisions that grant additional insurance specifically against death by accident or accidental means, may also be excepted. The certificate shall be incontestable on the ground of suicide after it has been in force during the lifetime of the insured for a period of two years from date of issue. The certificate may provide, as to statements made to procure reinstatement, that the society has the right to contest a reinstated certificate within a period of two years from date of reinstatement with the same exceptions as provided here.
A provision that if it shall be found at any time before final settlement under the certificate that the age or sex of the insured (or the age or sex of any other person, if considered in determining the premium) has been misstated, and the discrepancy and the premium payment involved have not been adjusted, the amount payable under the certificate shall be such as the premium would have purchased at the correct age and sex. However, if the correct age was not an insurable age under the society’s charter, constitution, or bylaws, only the premiums paid to the society, less any payments previously made to the member, shall be returned. Alternatively, at the option of the society, the amount payable under the certificate shall be that which the premiums would have purchased at the correct age and sex according to the society’s promulgated rates and any extension thereof based upon actuarial principles.
A provision or provisions that recite fully, or that set forth the substance of, all sections of the charter, constitution, laws, rules or regulations of the society, in force at the time of issuance of the certificate, the violation of which will result in the termination of, or in the reduction of, the benefit or benefits payable under the certificate.
Any of the foregoing provisions or portions thereof not applicable by reason of the plan of insurance may, to the extent inapplicable, be omitted from the certificate. The word “premiums” as used in this section means premiums, rates, or other required contributions by whatever name known.
After September 21, 1952, no life insurance benefit certificate shall be delivered or issued for delivery in this State containing in substance any of the following provisions:
Any provision limiting the time within which any action at law or in equity may be commenced to less than 18 months after the cause of action shall accrue.
Any provision by which the certificate shall purport to be issued or take effect more than six months before the original application for the certificate was made, except in case of transfer from one form of certificate to another in connection with which the member is to receive credit for any reserve accumulation under the form of certificate from which the transfer is made.
Any provision for forfeiture of the certificate for failure to repay any loan thereon or to pay interest on such loan while the total indebtedness, including interest, is less than the loan value of the certificate.
Any provision whereby the suspension or expulsion of the member, or change of occupation, or any other violation of the terms and conditions of the contract shall result in the loss or reduction of the cash surrender value or other withdrawal equity, if any, available by the terms of such certificate.
After September 21, 1954, no life insurance benefit certificate shall be delivered or issued for delivery in this State containing in substance any provision limiting the time within which any action at law or in equity may be commenced to less than two years after the cause of action shall accrue.
No domestic, foreign or alien society authorized to do business in this State shall issue or deliver in this State any certificate or other evidence of any contract for temporary or permanent disability benefits as a result of disease or accident, or for hospital, medical or nursing benefits, unless and until the form thereof, together with the form of application and all riders or endorsements for use in connection therewith, shall have been filed with the commissioner and approved by him as conforming to reasonable rules and regulations from time to time made by him and as not inconsistent with any other provisions of law applicable thereto. The commissioner shall, within a reasonable time after the filing of any such form, notify the society filing the same either of his approval or of his disapproval of such form. The commissioner may approve any such form which in his opinion contains provisions on any one or more of the several requirements made by him which are more favorable to the insured members than the one or ones so required. The action of the commissioner in disapproving any such form shall be subject to judicial review. Pursuant to the foregoing provisions, the commissioner shall have power, from time to time, to make, alter and supersede reasonable regulations prescribing the required, optional and prohibited provisions in such contracts, and such regulations shall conform, as far as practicable, to the provisions of this code relating to similar contracts issued by other insurers. Where the commissioner deems inapplicable, either in part or in their entirety, the provisions of this code relating to similar contracts issued by other insurers, he may prescribe the portions or summary thereof of the contract to be printed on the certificate issued to the member. All rules and regulations made, altered or superseded by the commissioner pursuant to the authority granted in this section shall be in accordance with Chapter 4 of Part 1, Division 3, Title 2 of the Government Code.
After September 21, 1954, no action at law or in equity shall be had or maintained on any certificate or contract issued by a society unless commenced within two years after the cause of action shall accrue.
The constitution and laws of the society may provide that no subordinate body, nor any of its subordinate officers or members shall have the power or authority to waive any of the provisions of the laws and constitution of the society. Such provision shall be binding on the society and every member and beneficiary of a member.
A domestic society may, by a reinsurance agreement, cede any individual risk or risks in whole or in part to an insurer having the power to make such reinsurance and authorized to do business in this State, or if not so authorized, one which is approved by the commissioner; but no such society may reinsure substantially all of its insurance in force without the written permission of the commissioner. It may take credit for the reserves on such ceded risks to the extent reinsured, but no credit shall be allowed as an admitted asset or as a deduction from liability, to a ceding society for reinsurance made, ceded, renewed, or otherwise becoming effective after the effective date of this chapter, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding society under the contract or contracts reinsured without diminution because of the insolvency of the ceding society.
If the contract of a society entered into, amended, or renewed in this state on or after the effective date of this section provides in any manner for coverage for an employee and a covered spouse dependent upon such employee, the contract shall not provide for coverage under conditions less favorable for employees than coverage provided for covered spouses dependent upon the employees.
ARTICLE 6. Powers of Commissioner [11090. - 11112.]
Subject to the annual fee provisions as provided herein, every certificate of authority issued to a fraternal benefit society shall be for an indefinite term and shall expire with the expiration or termination of the corporate existence of the holder thereof unless sooner revoked by the commissioner. The commissioner shall require the payment of seven thousand fifty-five dollars ($7,055), in advance, as a fee for filing an application for each original certificate of authority authorizing any fraternal benefit society to transact insurance in this state. Each society possessing a certificate of authority of indefinite term shall owe and pay an annual fee of four hundred twenty-four dollars ($424), in advance, on account of that certificate until its final expiration or revocation. That fee shall be for annual periods commencing on July 1 of each year, and ending on June 30 of each year, and shall be due on each March 1 and shall be delinquent on and after each April 1. A duly certified copy or duplicate of the certificate of authority shall be prima facie evidence that the holder is a fraternal benefit society within the meaning of this chapter.
No foreign or alien society shall transact business in this State without a certificate of authority issued by the commissioner. Any such society may receive a certificate of authority to transact business in this State upon a showing that its assets are invested in accordance with the provisions of this chapter and filing with the commissioner:
A duly certified copy of its charter or articles of incorporation;
A copy of its constitution and laws, certified by its secretary or corresponding officer;
A power of attorney to the commissioner as prescribed in Section 11104;
A statement of its business under oath of its president and secretary or corresponding officers in a form prescribed by the commissioner, duly verified by an examination made by the supervising insurance official of its home state or other state satisfactory to the commissioner;
A valuation report prepared and executed in accordance with Section 11133 of this chapter;
A certificate from the proper official of its home state, territory, province or country that the society is legally incorporated and licensed to transact business therein;
Copies of its certificate forms;
Such other information as the commissioner may deem necessary to a proper exhibit of its plan of operation; and
Payment of the fee specified in Section 11090.
Any foreign or alien society desiring admission to this State shall have the qualifications required of domestic societies organized under this chapter.
If the commissioner refuses to issue such license, he shall reduce his refusal to writing, file the same in his office and furnish a copy thereof, together with a statement of his reason therefor, to the secretary or corresponding officer of the society.
The commissioner shall act as prescribed in Section 11093 when upon investigation he finds that a domestic society:
Has exceeded its power;
Has failed to comply with any provision of this chapter;
Is not fulfilling its contracts in good faith;
Has a membership of less than 400 after an existence of one year; or
Is transacting business fraudulently or in a manner hazardous to its members, creditors, the public or the business.
If the commissioner finds that any of the conditions set forth in Section 11092 exist in respect to a domestic society, he or she shall, in an order to show cause, notify the society of his or her findings and wherein those conditions exist and shall set a date after a reasonable period of time on which it shall show cause why it should not be enjoined from carrying on any business until the overt act or violation complained of shall have been corrected, or why an action in quo warranto should not be commenced against the society.
If on such date the society does not present good and sufficient reason why it should not be so enjoined or why such action should not be commenced, the commissioner may present the facts relating thereto to the Attorney General who shall, if he or she deems the circumstances warrant, commence an action to enjoin the society from transacting business or in quo warranto.
The court shall thereupon notify the society of a hearing. If after a full hearing it appears that the society should be so enjoined or liquidated or a receiver appointed, the court shall enter the necessary order.
If the court orders the society enjoined, the commissioner shall suspend its certificate of authority. Thereafter such society shall have no authority to do business in this State until:
The commissioner finds that the overt act or violation complained of has been corrected;
The costs of such action, if any, have been paid by the society;
The court has dissolved its injunction; and
The commissioner has reinstated the certificate of authority.
If the court orders the society liquidated, it shall be enjoined from carrying on any further business, whereupon the receiver of the society shall proceed at once to take possession of the books, papers, money and other assets of the society and, under the direction of the court, proceed forthwith to close the affairs of the society and to distribute its funds to those entitled thereto.
The commissioner shall act as prescribed in Section 11098 when upon investigation he finds that a foreign or alien society transacting or applying to transact business in this State:
Has exceeded its powers;
Has failed to comply with any provisions of this chapter;
Is not fulfilling its contracts in good faith; or
Is conducting its business fraudulently or in a manner hazardous to its members or creditors or the public.
If the commissioner finds that any of the conditions set forth in Section 11097 exist in respect to a foreign or alien society, he shall, in an order to show cause, notify the society of his findings wherein such conditions exist and shall set a date after a reasonable period of time on which it shall show cause why its certificate of authority should not be suspended, revoked or refused. If on such date the society does not present good and sufficient reason why its authority to do business in this State should not be suspended, revoked or refused, he may suspend or refuse the certificate of authority of the society to do business in this State until satisfactory evidence is furnished to him that such suspension or refusal should be withdrawn or he may revoke the authority of the society to do business in this State. Nothing contained in this section shall be taken or construed as preventing any such society from continuing in good faith all contracts made in this State during the time it was legally authorized to transact business herein.
Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 applies to any society, except as otherwise provided in this chapter.
Every society operating under the provisions of this chapter and issuing a policy or certificate of insurance may appoint agents to represent it.
Except as otherwise provided in Sections 11102 and 11103, such agents and such societies are subject to Chapter 5 (commencing with Section 1621) of Part 2 of Division 1 and those agents shall be licensed as life agents. Those agents are also subject to Sections 750, 751, and 760.5, and the terms “insurance agent” and “life agent” as used in those sections include the agents of those societies.
Chapter 5 (commencing with Section 1621) of Part 2 of Division 1 does not apply to any of the following, nor shall any of the following be required to be licensed as life agents:
Any officer of a local lodge of a society, while acting as such, if that officer (1) does not effect insurance, (2) solicits or negotiates only as a part of, and in connection with, the business of a fraternal agent licensed in accordance with the provisions of Section 11101, and (3) is not remunerated on a commission basis.
Any member of a society who does not effect insurance and whose solicitation or negotiation is incidental to the securing of new members for the society and whose only remuneration therefor consists of prizes in the form of merchandise or payments of a nominal amount. This subdivision does not exempt from the provisions of Chapter 5 nor from the license requirement of Section 11101 any person remunerated on a regular salary or commission basis or employed either full or part time for the purpose of soliciting or negotiating fraternal benefit insurance.
Any person directly employed by a society at the home or a branch office thereof who does not solicit or negotiate fraternal benefit insurance and who receives no commissions but who may, as a part of his or her regular employment, sign policies, certificates, or other evidences of fraternal benefit insurance.
Any person whose employment does not include the solicitation, negotiation, or effecting of fraternal benefit insurance contracts and who does not sign policies, certificates, or any other evidences of those contracts.
The examination requirements of Article 7 (commencing with Section 1675) of Chapter 5 of Part 2 of Division 1 shall not apply to a license to represent a fraternal benefit society if the individual insurance licensee of a society meets either of the following conditions:
Was in the service of a society on March 1, 1945, and licensed to represent a fraternal benefit society on January 1, 1952, and continuously thereafter.
Does not devote substantially full time to the sale of life insurance, accident and health or sickness insurance, or both, as provided in Section 1622, and is an individual part-time fraternal licensee, whether that insurance is provided by insurance policies or by fraternal benefit policies or certificates.
If an individual that is exempt from the examination requirements described in subdivision (a) and meets the condition described in paragraph (2) of subdivision (a) later intends, after securing a license pursuant to this section, to devote substantially full time to the sale of life insurance, accident and health or sickness insurance, or both, the society shall give notice to the commissioner.
Upon receiving notice, the commissioner shall send to the individual part-time fraternal insurance licensee a notice specifying when the examination fee shall be paid and when, not sooner than one month nor later than three months, the licensee shall qualify by examination. Failure to pass the examination or failure to appear pursuant to the commissioner’s notification shall result in a termination 45 days thereafter of all license privileges unless the licensee passes the examination within the 45-day period. The individual part-time fraternal insurance licensee shall not be permitted to retake the examination more than twice within that 45-day period.
Following termination pursuant to paragraph (1), the individual may remain licensed as a part-time fraternal insurance licensee until the licensee files a new application for the license and does either of the following:
Takes and passes the qualifying examination to become a life insurance agent, accident and health or sickness insurance agent, or both.
Demonstrates affirmatively to the commissioner that the individual will no longer devote substantially full time to the sale of life insurance, accident and health or sickness insurance, or both, to retain the individual part-time fraternal insurance license.
Every society authorized to do business in this State shall appoint in writing the commissioner and each successor in office to be its true and lawful attorney upon whom all lawful process in any action or proceeding against it shall be served, and shall agree in such writing that any lawful process against it which is served on said attorney shall be of the same legal force and validity as if served upon the society, and that the authority shall continue in force so long as any liability remain outstanding in this State. Copies of such appointment, certified by said commissioner, shall be deemed sufficient evidence thereof and shall be admitted in evidence with the same force and effect as the original thereof might be admitted.
Service may be made as provided in Article 1 (commencing with Section 12919) of Chapter 2 of Division 3.
An application for injunction against, proceedings for the dissolution of, or the appointment of a receiver for, any domestic society or branch thereof shall not be entertained by any court unless made by the Attorney General.
A fraternal benefit society, its members, employees, agents, delegates, directors, and officers by whatever name known are subject to Section 12924.
Any domestic society may be converted into and receive a certificate of authority as a mutual life insurance company by compliance with all of the requirements of the laws of this State pertaining to mutual life insurance companies, provided that the plan for such conversion has been approved by the commissioner. Such plan shall be prepared in writing, setting forth in full the terms and conditions thereof. The board of directors, or other executive body charged with the responsibility for the management of the society’s affairs, shall submit such plan to the supreme legislative and governing body of such association or society at any regular or special meeting thereof, by giving a full, true and correct copy of such plan of proposed conversion with the notice of such meeting. Such notice shall be given as provided in the laws of the society for the convocation of such supreme legislative and governing body in regular or special session, as the case may be. The affirmative votes of two-thirds of all members of such supreme legislative and governing body shall be necessary for the approval of such agreement. Such plan shall also have been approved by the vote of the majority of the members who vote at a meeting called for that purpose. Notice of such meeting of members together with a full, true and correct copy of such plan of proposed conversion shall be given by mailing such notice from the head office of the society at least 30 days prior to such meeting in a sealed envelope, postage prepaid, addressed to each member at his last known post-office address. Such members may vote either in person or by mail on ballots furnished by the society. No such conversion shall take effect unless and until approved by the commissioner. The commissioner may give such approval if he finds that the proposed change is in conformity with the requirements of law and is not prejudicial to the certificate holders of the society. Such action in approving or disapproving shall be subject to judicial review.
On such conversion:
Except as provided in (b) hereof all funds, assets and liabilities of any nature which theretofore were the funds, assets or liabilities of such society shall become the funds, assets and liabilities of such mutual life insurance company. In determining whether such mutual life insurance company meets the minimum capital and surplus requirements of this code, the commissioner shall consider such funds to be those of such mutual life insurance company. Such conversion shall likewise extinguish the assessment liability, if any, of the members, certificate holders or beneficiaries of such society.
If by reason of any contract right in any member, certificate holder or beneficiary which exists on the effective date of this chapter, the transfer of such funds or assets would violate such right then the assets or funds as to which such contract right pertains shall be segregated and held to discharge the liabilities of such mutual life insurance company to the persons entitled thereto. In this case such separate funds shall not be considered by the commissioner in determining if such mutual life insurance company meets minimum capital and surplus requirements, and the assessment liability, if any, of such member, certificate holder or beneficiary is not extinguished.
In addition to any other ground for disapproving such conversion, the commissioner may refuse to give such approval unless evidence satisfactory to him is submitted that:
The reserves on all certificates theretofore issued are sufficient to carry them to maturity either by reason of the amount thereof or by reason of action by such society pursuant to either subsection (c) hereof or Section 11111;
The plan of conversion will result in the availability of all funds and assets of the mutual life insurance company to the carrying out of the contracts of insurance whether transacted before or after conversion; and
The society has lawfully amended all outstanding certificates on which the member’s contribution was inadequate to carry such certificate to maturity without assessment. Such amendment shall accomplish that purpose by either increasing the amount of contribution or premium, by whatever name known, sufficiently or, at the option of the certificate holder, reducing the amount of his benefits sufficiently.
Any society may comply with subsection (a) of Section 11110 by deducting from its surplus an amount which, when added to the reserves on certificates theretofore issued, shall be sufficient to carry such certificates to maturity and establish and maintain after its conversion into a mutual life insurance company a special reserve in such an amount. The basis of such special reserve shall not be altered without the prior written consent of the commissioner. The commissioner shall give such consent only when he finds that such alteration will not impair nor imperil the purpose for which such special reserve is established. Any impairment of such reserve shall, to the extent thereof, be deemed a deficiency of required reserves and shall render the mutual life insurance company insolvent. No part of such special reserve shall be deemed to be a part of the capital paid in or of the surplus of the mutual life insurance company.
All decisions and findings of the commissioner made under the provisions of this chapter shall be subject to review by proper proceedings in any court of competent jurisdiction in this State.
ARTICLE 7. Financial Matters [11120. - 11146.]
When a society, or a class or section thereof, has assets equal to the reserves and credits on its policies, it may collect periodical or other contributions from the members of the society, class or section which, with interest accretions, will be sufficient to accomplish all the following:
Pay the claims arising from its policies.
Pay for the expense of management of the society.
Maintain a fund sufficient to meet its accrued liabilities.
Maintain assets equal to the reserves and credits.
Societies not operating pursuant to this section shall comply with Section 11121.
Unless it operates under Section 11120, a society, or class or section thereof, shall collect from its members both stated contributions expressly segregated for the mortuary or disability funds and stated contributions expressly segregated for the expense or management funds. Both of such contributions may be included in the member’s periodical payment to the society. The society shall not use the money in the mortuary or disability funds nor the interest accretions thereon for expense purposes.
Any society may create, maintain, invest, disburse and apply any special fund or funds necessary to carry out any purpose permitted by the laws of the society. The funds may include hospital and help, sanitaria, home, thrift, pension for the society’s employees, patriotic, educational and relief funds, in accordance with the society’s laws.
A society may, if authorized by a resolution of its supreme legislative or governing body, establish and operate one or more separate accounts and issue contracts on a variable basis to persons as specified in Section 11041, subject to compliance with the applicable laws. To the extent a society finds it necessary to comply with federal or state law, or regulations issued under state or federal law, a society may do the following:
Adopt special procedures for conducting the business of the separate account.
Provide special voting and other rights for a person with a beneficial interest in the special account, including, but not limited to, rights and procedures relating to investment policy, investment advisory services, selecting certified public accountants, and selecting a committee to manage the account.
Any such society may own real estate and buildings within or without the state of its incorporation, for any purposes for which it may use funds. It may receive gifts and bequests for such purposes and may be named in policies as beneficiary in trust for such purposes.
Unless otherwise provided in the contracts of the members, such funds shall be held, invested, and disbursed for the use and benefit of the society, and no member or beneficiary shall have or acquire individual rights therein or become entitled to any apportionment thereof.
Every domestic society shall invest its funds only in securities permitted by the laws of this State for the investment of the assets of life insurers issuing nonassessable policies on a reserve basis. Such securities shall be valued according to the methods used in valuing similar securities held by such insurers.
An admitted foreign society shall invest its funds either under the same restrictions as domestic societies or in accordance with the laws of the state in which it is incorporated. Any admitted foreign society may deposit securities in accordance with the laws of any state.
An admitted foreign society organized under the laws of any jurisdiction other than a state of the United States shall at all times maintain with a trustee in the United States, in trust for the benefit and security of all its policyholders and creditors in the United States, assets as prescribed in Section 11128. Such assets are designated “trusteed assets.”
The value of the trusteed assets referred to in Section 11127 shall be equal to the sum of all of the following:
All of the indebtedness of that society in the United States having a fixed maturity.
The percentage, specified in subdivision (c), of that part of the tabular reserve which is applicable to its United States business in force.
If the valuation report prescribed by Section 11133 indicates that the degree of actuarial solvency of the society is 100 percent or greater, the percentage prescribed in subdivision (b) is 100 percent. Otherwise the percentage prescribed in subdivision (b) is that percentage, less than 100 percent, which is indicated in the valuation report to be the degree of that society’s actuarial solvency. The society may maintain those trusteed assets in excess of the value herein prescribed.
The commissioner may require any society specified in Section 11127 to file with him annually and at such other times as he may determine, and in such form as he may prescribe, a statement showing the extent to which such society’s policyholders and creditors in the United States are protected by trusteed assets in the United States.
Every society transacting business in this state shall annually, on or before the first day of March, unless for cause shown such time has been extended by the commissioner, file with the commissioner, in such form as he may require, a statement under oath of its president, secretary or treasurer, or corresponding officers, of its affairs, financial condition and operations during the calendar year ending on the thirty-first day of December last preceding. Such statement shall contain items showing the reserve liabilities on all outstanding certificates classified according to the various mortality standards and interest assumptions for such certificates. The commissioner is authorized and empowered to address any additional inquiries to any such society in relation to its doings or condition, or any other matter connected with its transaction relative to the business contemplated by this chapter, and such officers of such society, as the commissioner may require, shall promptly reply in writing, and under oath, if so required to all such inquiries.
A synopsis of its annual statement and valuation report providing an explanation of the facts concerning the condition of the society thereby disclosed shall be printed and mailed to each benefit member of the society not later than June 1st of each year, or, in lieu thereof, such synopsis may be published in the society’s official paper and the issue containing same mailed to each benefit member of the society.
In addition to the annual report required by Section 11131, each society shall annually, on or before the first day of March, file with the commissioner a valuation of its certificates in force on December 31st last preceding: Provided, the commissioner may, in his discretion for cause shown, extend the time for filing such valuation for not more than two calendar months. Such report of valuation shall show, as reserve liabilities, the difference between the present mid-year value of the promised benefits provided in the certificates of such society in force and the present mid-year value of the future net rates as the same are in practice actually collected, not including therein any value for the right to make extra assessments and not including any amount by which the present mid-year value of future net contributions exceeds the present mid-year value of promised benefits on individual certificates. At the option of any society, in lieu of the above, the valuation may show the net tabular value which, in the case of monthly contributions, may be the means of the terminal reserve values for the end of the preceding and of the current certificate years. Such net tabular value as to certificates issued prior to the effective date of this chapter shall be determined in accordance with the provisions of law applicable thereto as of the date of issuance thereof and as to certificates issued on or after said date shall be not less than the reserves determined according to the commissioners’ reserve valuation method as hereinafter defined. If the rate or payment (by whatever name known) charged is less than the tabular net rate according to the basis of the valuation used, an additional reserve equal to the present value of the deficiency in such rates shall be set up and maintained as a liability.
Except as otherwise provided in Section 10489.6, reserves according to the commissioners’ reserve valuation method, for the life insurance and endowment benefits of certificates providing for a uniform amount of insurance and requiring the payment of uniform rates shall be the excess, if any, of the present value, at the date of valuation, of such future guaranteed benefits provided for by such certificates, over the then present value of any future modified net rates therefor. The modified net rates for any such certificate shall be such uniform percentage of the respective contract payment for such benefits that the present value, at the date of issue of the certificate, of all such modified net rates shall be equal to the sum of the then present value of such benefits provided for by the certificate and the excess of (a) over (b), as follows:
A net level annual payment equal to the present value at the date of issue, of such benefits provided for after the first certificate year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such certificate on which a payment falls due; provided, however, that such net level annual payment shall not exceed the net level annual payment on the 19-year payment whole life plan for insurance of the same amount at an age one year higher than the age at issue of such certificate.
A net one-year term payment for such benefits provided for in the first certificate year.
Provided that for any certificate issued on or after January 1, 1986, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for such excess and which provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than such excess premium, the reserve according to the commissioners reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined herein as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than such excess premium shall be the greater of the reserve as of such policy anniversary calculated as described in the preceding paragraph and the reserve as of such policy anniversary calculated as described in that paragraph, but with (i) the value defined in subdivision (a) of that paragraph being reduced by 15 percent of the amount of such excess first year premium, (ii) all present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date, (iii) the policy being assumed to mature on such date as an endowment, and (iv) the cash surrender value provided on such date being considered as an endowment benefit. In making the above comparison the mortality and interest bases stated in Sections 11136 and 11136.1 shall be used.
Reserves according to the commissioners’ reserve valuation method for (1) life insurance certificates providing for a varying amount of insurance or requiring the payment of varying rates, (2) group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as now or hereafter amended, (3) disability and accidental death benefits in all certificates and contracts, and (4) all other benefits, except life insurance and endowment benefits in life insurance certificates, shall be calculated by a method consistent with the principles of the first paragraph of this section, except that any extra premiums charged because of impairments or special hazards shall be disregarded in the determination of modified net premiums.
The present value of deferred payments due under incurred claims or matured certificates shall be deemed a liability of the society and shall be computed upon the mortality and interest basis assumed by the society for such valuation.
Except as otherwise provided in Section 10489.4, such valuation shall be certified by a competent actuary or, at the expense of the society, verified by the actuary of the insurance supervisory official of the state of domicile of the society, and the legal minimum standard of valuation shall be as follows:
All benefits promised by certificates issued prior to September 22, 1952, and the rates therefor shall be valued in accordance with the provisions of law applicable thereto as of the date of issuance, but not lower than the standards and interest assumptions used in the calculation of rates for such benefits.
The minimum standard for the valuation of all certificates issued after September 21, 1952, and prior to January 1, 1972, shall be 3 percent per annum interest; in the case of certificates issued on and after January 1, 1972, and prior to January 1, 1980, the minimum standard for the valuation of all such certificates shall be 4 percent per annum interest; and in the case of certificates issued on and after January 1, 1980, the minimum standard for the valuation of all single premium certificates shall be 512 percent per annum interest and for the valuation of all other such certificates shall be 412 percent per annum interest, and the following tables:
For all ordinary certificates of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such certificates—the American Men Ultimate Table of Mortality, with Bowerman’s or Davis’ Extension thereof, or, at the option of the society, the Commissioners 1941 Standard Ordinary Mortality Table or the Commissioners 1958 Standard Ordinary Mortality Table, using actual age of the insured for male risks and an age not more than six years younger than the actual age of the insured for female risks, and for such policies issued on or after the operative date of Section 10163.2 (i) the Commissioners 1980 Standard Ordinary Mortality Table, or (ii) at the election of the company for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors, or (iii) any ordinary mortality table, adopted after 1980 by the National Association of Insurance Commissioners, or its successor, that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such policies.
For all industrial life insurance certificates issued on the standard basis, excluding any disability and accidental death benefits in such certificates—the 1941 Standard Industrial Mortality Table, for such certificates issued prior to the operative date of Section 10163.2, and for such policies issued on or after such operative date, the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table, adopted after 1980 by the National Association of Insurance Commissioners, or its successor, that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such policies.
For annuity and pure endowment certificates, excluding any disability and accidental death benefits in such certificates—the 1937 Standard Annuity Mortality Table, or the Annuity Mortality Table for 1949 Ultimate, or the Individual Annuity Mortality Table for 1971, or any individual annuity mortality table, adopted after 1980 by the National Association of Insurance Commissioners, or its successor, that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such contracts, or any modification of any of these tables approved by the commissioner.
For disability benefits in or supplementary to ordinary certificates—Hunter’s Disability Table or the Class 3 Disability Table (1926), modified to conform to the contractual waiting period, or the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries with due regard to the type of benefit, or the 1964 Commissioners Disability Table, or any tables of disablement rates and termination rates, adopted after 1980 by the National Association of Insurance Commissioners, or its successor, that are approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such policies. Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance certificates.
For accidental death benefits in or supplementary to certificates—The Inter-Company Double Indemnity Mortality Table or the 1959 Accidental Death Benefits Table, or any accidental death benefits table, adopted after 1980 by the National Association of Insurance Commissioners, or its successor, that is approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such policies. Any such table shall be combined with a mortality table permitted for calculating the reserves for life insurance certificates.
For temporary accident and health benefits in or supplementary to certificates—Class 3 Disability Table (1926) with Conference Modifications or the 1964 Commissioners Disability Table, or any tables of disablement rates and termination rates, adopted after 1980 by the National Association of Insurance Commissioners, or its successor, that are approved by regulation promulgated or bulletin issued by the commissioner for use in determining the minimum standard of valuation for such policies.
For life insurance issued upon the substandard basis and other special benefits—such tables as may be approved by the commissioner.
The commissioner may, in his discretion, accept other standards for valuation if he finds that the reserves produced thereby will not be less in the aggregate than reserves computed in accordance with the minimum valuation standard prescribed. Whenever the mortality experience under the certificates valued on the same mortality table is in excess of the expected mortality according to such table for a period of three consecutive years, the commissioner may require additional reserves when in his judgment deemed necessary on account of such certificates.
Notwithstanding the provisions of subdivisions (a) and (b), any society, with the consent of the insurance supervisory official of the state of domicile of the society, and under such conditions, if any, which he may impose, may establish and maintain reserves on its certificates in excess of the reserves required thereunder, but the contractual rights of any insured member shall not be affected thereby.
Whenever the commissioner finds from any financial statement or valuation report made to him or her by any society authorized to do business in this state or from a filed report on examination of any such society that the admitted assets of the society are less than the sum of its required reserves and accrued liabilities, the commissioner shall determine the amount of that deficiency and shall issue a written requisition to the society to remove, repair, or make good that deficiency within such period as he or she shall designate, not less than 30 days nor more than six months from the service of the requisition, except that if the commissioner believes the interests of the certificate holders of such society will best be served by extending the period of time beyond six months, he or she may do so for such period or periods of time as he or she in his or her discretion deems best. The commissioner may also by official order prohibit the society, while that deficiency exists, from issuing any new contracts of insurance in this state, and in case of a domestic society, from issuing any new contracts in this state or elsewhere. If the society fails or is unable to make good the deficiency within the time specified in the order, the commissioner shall proceed against the society under the provisions of Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 on the ground that its further transaction of business will be hazardous to its certificate holders, its creditors, or the public. In the case of a foreign society the commissioner may also, or in lieu of that proceeding, revoke its certificate of authority to do business in this state or refuse to issue a renewal certificate of authority.
The commissioner, or any person he may appoint, shall have the power of visitation and examination into the affairs of any domestic society. He may employ assistants for the purpose of such examination, and he, or any person he may appoint, shall have free access to all the books, papers and documents that relate to the business of the society. The minutes of the proceedings of the supreme governing or legislative body and of the board of directors or corresponding body of a society shall be in the English language. In making any such examination the commissioner may summon and qualify as witnesses under oath and examine its officers, agents and employees or other persons in relation to the affairs, transactions and condition of the society. The report of the commissioner or in his discretion a summary thereof, and such recommendations or statements of the commissioner as may accompany such report, shall be read at the first meeting of the board of directors or corresponding body of the society following the receipt thereof, and if directed so to do by the commissioner shall also be read at the first meeting of the supreme legislative or governing body of the society following the receipt thereof. The expense of each examination and of each valuation, including compensation and actual expense of examiners, shall be paid by the society examined or whose certificates are valued, upon statements furnished by the commissioner.
No report of examination shall be adopted by the commissioner or filed by him as an official document except after a notice is given and a hearing held thereon, if demanded, in accordance with the provisions of Section 11141. The commissioner in his determination made upon the basis of his findings from the record of such hearing may direct the society to comply with such recommendations or take such other corrective steps as may be contained therein. In any action or proceeding in the name of the commissioner or instituted in his behalf against the society, such report, if adopted by the commissioner and filed as an official document shall be admissible in evidence and shall be prima facie evidence of the facts stated therein. Nothing herein contained shall preclude the commissioner from instituting any proceeding under Section 11137 of this chapter at any time or from using as proof in such proceeding any report of examination or part thereof, whether or not such report has been adopted and filed.
The commissioner, or any person whom he may appoint, may examine any foreign society, transacting or applying for admission to transact business in this State. He may employ assistants and he, or any person he may appoint, shall have free access to all books, papers and documents that relate to the business of the society. He may summon, qualify as witnesses under oath and examine any persons in relation to the affairs, transactions and condition of the society. He may in his discretion accept, in lieu of such examination, the examination of the insurance department of the state, territory, district, province or country where such society is organized. The compensation and actual expenses of the examiners making any examination or general or special valuation shall be paid by the society examined or by the society whose certificates obligations have been valued, upon statements furnished by the commissioner.
Pending, during or after an examination or investigation of a society, either domestic or foreign, the commissioner shall make public no financial statement, report or finding, nor shall he permit to become public any financial statement, report or finding affecting the status, standing or rights of any society, until a copy thereof shall have been served upon the society at its principal office and the society shall have been afforded a reasonable opportunity to answer any such financial statement, report or finding, and to make such showing in connection therewith as it may desire.
No person shall cause or permit to be made, issued or circulated in any form:
Any misrepresentation or false or misleading statement concerning the terms, benefits or advantages of any fraternal insurance contract now issued or to be issued in this State; or the financial condition of any society or the legal reserve system upon which it operates; or any other matter concerning any society;
Any false or misleading estimate or statement concerning the dividends or shares of surplus paid or to be paid by any society on any insurance contract; or
Any incomplete comparison of an insurance contract of one society with an insurance contract of another society or insurer for the purpose of inducing the lapse, forfeiture or surrender of any insurance contract.
A comparison of insurance contracts is incomplete if it does not compare in detail:
The gross rates, and the gross rates less any dividend or other reduction allowed at the date of the comparison;
Any increase in cash values, and all the benefit provided by each contract for the possible duration thereof as determined by the life expectancy of the insured.
A comparison of insurance contracts is incomplete if it omits from consideration:
Any benefit or value provided in the contract,
Any differences as to amount or period of premiums or payments,
Any differences in limitations or conditions or provisions which directly or indirectly affect the benefits.
In any determination of the incompleteness or misleading character of any comparison or statement, it shall be presumed that the insured had no knowledge of any of the contents of the contract involved.
Any person who violates any provision of Sections 11142 to 11145 or knowingly receives any compensation or commission by or in consequence of such violation, shall upon conviction be punished by a fine not exceeding one thousand dollars ($1,000), or by imprisonment in the county jail for not more than six months, or by both fine and imprisonment.
ARTICLE 8. Violations and Penalties [11160. - 11165.]
Compensation shall not be paid to any employee or officer by whatever name known of either of the parties to any contract of merger, consolidation or reinsurance for directly or indirectly aiding in effecting such contract. Except as fully expressed in such contract or itemized statement of expenses approved by the supervising insurance authorities, compensation for negotiating, aiding or promoting such a consolidation, merger or reinsurance shall not be paid to any person.
It is a felony, punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, for any officer, director, agent or employee of any fraternal benefit society to, directly or indirectly, for himself or as partner or agent of others:
Borrow any of the funds of such society.
Become endorser or surety for loans by the society to others.
In any manner be obligor for moneys borrowed or loaned by such society.
It is a felony, punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, for any officer, trustee, agent or employee of a fraternal benefit society to ask, receive, or consent or agree to receive anything of value for procuring or endeavoring to procure a loan to any person from the trust funds of, or funds belonging to, a fraternal benefit society.
Any person not authorized pursuant to Section 11013 who solicits membership for, or in any manner assists in procuring membership in, any nonadmitted fraternal benefit society is guilty of a misdemeanor and punishable by fine not less than one hundred dollars ($100) nor more than four hundred dollars ($400).
Any person who knowingly or willfully makes any false or fraudulent statement or representation in or with reference to any application for membership, or for the purpose of obtaining money or benefit from any fraternal benefit society is guilty of a misdemeanor and punishable by fine not less than one hundred dollars ($100) nor exceeding one thousand dollars ($1,000), or imprisonment in the county jail not less than 30 days nor exceeding one year, or both.
CHAPTER 10A. Firemen's, Policemen's,or Peace Officers’ Benefit and Relief Associations [11400. - 11407.]
Firemen's, policemen’s or peace officers’ benefit and relief associations now existing, or that may be formed hereafter for the purpose of aiding their members or dependents of their members in case of sickness, accident, distress, or death, shall be subject to this chapter, to the extent not preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA). An association that operates strictly in accordance with this chapter shall not be subject to any other provision of this code or to any law of this state relating to insurance, whether now existing or hereafter enacted, except when expressly designated in that law.
An association shall not operate or do business in this state without a certificate of authority. The commissioner shall issue a certificate of authority to any association unless the commissioner determines, after examination, that it does not comply with the provisions of this chapter. The filing fee for the application for the certificate of authority shall be one thousand four hundred ten dollars ($1,410).
An association shall renew its certificate of authority within 30 days after a change in name or address or before a merger.
The commissioner may revoke the certificate of authority for an association that failed to renew its certificate of authority in compliance with subdivision (b), after giving reasonable written notice mailed to the last address of the association registered with the department.
The commissioner may revoke the certificate of authority for an association that has a dissolved, suspended, or otherwise inactive status according to the records of the Secretary of State, after giving reasonable written notice mailed to the last address of the association registered with the department.
To obtain a reissue of a certificate of authority revoked pursuant to this subdivision, an association shall apply to the commissioner pursuant to subdivision (a).
Each association that holds a certificate of authority pursuant to this chapter and that issues long-term disability or long-term care policies or contracts shall submit to the commissioner the opinion of a qualified actuary as to whether the reserves and related actuarial items that support the policies or contracts issued pursuant to this chapter, including policies and contracts issued by entities established by these associations that provide benefits described in this chapter, are expected to be adequate to satisfy contractual provisions, are based on reasonable assumptions, and are based on actuarial standards of practice published by the American Academy of Actuaries and the Actuarial Standards Board. An association that holds a certificate of authority pursuant to this chapter shall file its opinion no later than July 1, 2021, and that opinion shall have been completed no earlier than December 31, 2019. Thereafter, an association shall submit a new actuary opinion to the commissioner within no more than four years from the date of its last opinion on file with the commissioner.
An association is considered to have issued a long-term care or disability policy or contract if it self-funds all or part of the resulting obligation. An association that markets long-term policies or contracts issued by an insurer that is admitted by the department to offer insurance products in the state is exempt from this reporting requirement.
An association seeking a certificate of authority pursuant to this chapter shall file an opinion, to the extent feasible, that establishes that it would have adequate resources to provide benefits described in this chapter as required to satisfy its proposed contractual obligations.
The opinion required by subdivision (a) shall include supporting memoranda from the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts, when considered in light of the assets held by the association with respect to the reserves and related actuarial items, including, but not limited to, the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, shall make adequate provision for the association’s obligations under the policies and contracts, including, but not limited to, the benefits and any administrative and operating expenses associated with the policies and contracts.
The opinion required by subdivision (a) shall be governed by the following provisions:
It shall include supporting memoranda consistent with actuarial standards of practice published by the American Academy of Actuaries and the Actuarial Standards Board.
If the association fails to provide an opinion and supporting memoranda to the commissioner that meets the requirements of this section, the commissioner shall notify the association of the deficiencies in the filing, and shall make a specific request that identifies the issues that should be addressed in an amended filing. The requests shall be consistent with actuarial standards of practice published by the American Academy of Actuaries and the Actuarial Standards Board.
Documents, materials, or other information, including the opinion with supporting memoranda, submitted pursuant to this section that are in the possession or control of the Department of Insurance and that are obtained by, created by, or disclosed to the commissioner or any other person pursuant to this section, are recognized by this state as being proprietary and to contain trade secrets. Those documents, materials, or other information shall be confidential by law and privileged, shall not be subject to disclosure by the commissioner pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), and shall not be subject to subpoena or discovery from the commissioner or admissible into evidence, in a private civil action if obtained from the commissioner. The commissioner shall not otherwise make those documents, materials, or other information public without the prior written consent of the association.
An association that self-funds all or part of the benefits provided under this chapter shall include the following language, or other language approved by the commissioner, in all contracts that are not regulated by the department, and in certificates evidencing coverage under those contracts, in capital letters and in a minimum of 12-point type:
“ALL OR A PORTION OF THE BENEFITS PROVIDED BY THIS CONTRACT ARE NOT SUBJECT TO REGULATION BY THE CALIFORNIA DEPARTMENT OF INSURANCE, AND THE CONTRACT IS NOT GUARANTEED BY THE CALIFORNIA LIFE AND HEALTH INSURANCE GUARANTEE ASSOCIATION.”
Each association that holds a certificate of authority pursuant to this chapter and that issues long-term disability or long-term care policies or contracts shall, upon written request from a member, make available to that member the contract for benefits, certificate evidencing coverage thereunder, or other plan document that describes the benefits being provided to that member, within 30 days of the request.
Such association may be incorporated or unincorporated, but if incorporated it shall neither issue nor be authorized to issue shares of stock.
The membership of such association shall consist solely of the following or any combination thereof:
Members of police departments of municipal or public corporations or districts.
Members of fire departments of municipal or public corporations or districts.
Peace or law enforcement officers who are regular and salaried officers or employees of the state or of a single county or other political subdivision or public or municipal corporation.
Persons who are emergency medical services personnel and employed by a fire department of a city, county, or district.
Persons who at the time of becoming members of such association were qualified pursuant to subdivisions (a), (b), (c), or (d) of this section.
Such association shall not pay, promise or agree to pay, either directly or indirectly, any consideration of any nature for the solicitation or procuring of members or applications for membership.
The trustees, directors or governing body of such association, by whatever name their office is known or designated, shall be elected by the membership of the association.
Moneys or property directly or indirectly contributed to such association by its members shall not be paid out as benefits to any persons other than its members, their dependents, or beneficiaries nominated in writing by them.
Such association shall be supported mainly by contributions from its members, whether in the form of fees, dues, assessments, or otherwise, and by donations made to it from time to time.
CHAPTER 11. Change by Assessment Plan Insurer to Reserve Plan [11420. - 11490.]
ARTICLE 1. Authorization and Effect [11420. - 11422.]
Any domestic insurer providing life insurance upon the assessment plan may transform itself into an incorporated life insurer issuing policies on a reserve basis with such name as its directors or trustees determine. If incorporated, such insurer may make the transformation by amendment of its articles and by-laws, either by a majority vote of its directors or trustees or in any other lawful manner. If unincorporated it may make the transformation by incorporating.
After completing such transformation and procuring from the commissioner a certificate of authority to transact business in this State as an incorporated insurer issuing policies on a reserve basis, it may incur the obligations and enjoy the benefits of such insurer.
The transformed insurer is a continuation of the original insurer. Its officers elected before or during the transformation serve through their respective terms as provided in the articles and by-laws under which they were elected. Their successors shall be elected and serve as the law and its articles and by-laws provide after the transformation. Such transformation shall not affect existing suits, rights or contracts.
ARTICLE 2. Capital Adjustments [11440. - 11443.]
Any insurer so reorganized shall have assets representing a paid-in capital represented by shares of stock apart from any assets described in Section 11441. At least two hundred thousand dollars ($200,000) of that capital shall be paid up before the insurer issues any policies on the reserve plan.
All assets belonging before transformation to any such insurer or arising or accruing from policies issued upon the assessment plan, shall be used only for the benefit of the holders of such policies. Such assets shall not be used or considered as any part of the paid in capital provided for by section 11440.
If, at or after the time of the transformation, it appears, either from the last preceding annual report by such insurer to the commissioner, or from an investigation made by the commissioner, that the present value of the contributions to be received from the holders of policies on the assessment plan, together with all assets owned by the insurer that have been accumulated from assessments paid by members on that plan, are not equal to the present value of the benefits, including all matured liabilities, to be derived by members under the assessment plan, the insurer shall set aside and maintain a fund for the purpose set forth in section 11443. Such fund together with the present value of contributions and assets, shall equal the present value of such benefits.
The fund required by Section 11442 shall be used for the payment of matured liabilities arising under the assessment plan when other assets applicable thereto are exhausted. It may be derived from the excess over two hundred thousand dollars ($200,000) of the paid-in capital of the insurer. It need be maintained only during the existence of conditions set forth in Section 11442.
ARTICLE 3. Transfer of Insurance [11460. - 11460.]
Members of the insurer who are in good standing prior to the transformation may thereafter transfer their insurance, without change of amount and without medical examination, from the assessment plan to the nonassessable reserve basis at the reserve rates. The interest and the assets of the insurer credited to the person so transferring shall become a part of the assets of the insurer on the reserve basis.
ARTICLE 4. Powers of Insurer After Transformation [11470. - 11472.]
The insurer, after such transformation, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it.
Such insurer shall exercise all the rights and powers and perform all the duties necessary to protect rights and contracts existing prior to reorganization.
The commissioner shall exercise the powers and discharge the duties, concerning any such insurer, that are applicable to domestic insurers issuing policies of the same class. He or she shall issue a certificate of authority to transact the proper classes of insurance in this state to any such insurer which is solvent as to its reserve basis policies under Article 13 (commencing with Section 980) of Chapter 1 of Part 2 of Division 1, and has fully complied with the laws of this state.
ARTICLE 5. Valuation of Policies [11490. - 11490.]
Any life insurer which has transformed its business pursuant to this chapter shall value its assessment policies according to the standard of valuation which would be used in the absence of the transformation, and shall value its nonassessable reserve basis policies according to the standard of valuation set forth in Article 3 (commencing with Section 10478) of Chapter 5. The various kinds of insurance written shall be governed by the provisions of this code applicable thereto.
CHAPTER 12. Grants and Annuities Societies [11520. - 11524.]
The following organizations and persons may receive transfers of property, conditioned upon their agreement to pay an annuity to the transferor or the transferor’s nominee, after obtaining from the commissioner a certificate of authority so to do:
Any charitable, religious, benevolent or educational organization, pecuniary profit not being its object or purpose, after being in active operation for at least 10 years; provided, nevertheless, that 10 years of active operation shall not be required in case of:
A nonprofit corporation organized and controlled by a hospital licensed by the State Department of Health Services as a general acute care hospital pursuant to Chapter 2 (commencing with Section 1250) of Division 2 of the Health and Safety Code; and
An incorporated educational institution offering courses of instruction beyond high school, organized pursuant to Section 94757 of the Education Code, and which is, and for at least one year has been, qualified pursuant to Chapter 7 (commencing with Section 94700) of Part 59 of the Education Code to issue diplomas or degrees as defined in Sections 94724 and 94726 of that code;
Every organization or person maintaining homes for the aged for pecuniary profit.
This section applies to organizations subject to and operating under Chapter 10 (commencing with Section 1770) of Division 2 of the Health and Safety Code.
This section shall become operative on January 1, 1997.
A person shall not transact in this state the business described in this chapter without first procuring a certificate of authority from the commissioner for that purpose. Application for that certificate shall be made on a form prescribed by the commissioner accompanied by a filing fee of four thousand two hundred thirty-three dollars ($4,233). The certificate shall not be granted until the applicant conforms to the requirements of this chapter and the laws of this state prerequisite to its issue. After the issuance, the holder shall continue to comply with the requirements of this chapter and the laws of this state. When a hearing is held under this section the proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted therein.
Subject to the annual fee provisions herein, every certificate of authority issued or held under this chapter shall be for an indefinite term and, unless sooner revoked by the commissioner, shall terminate upon occurrence of any of the following:
Upon the holder’s ceasing to exist as a separate entity.
Upon the winding up or dissolution, or expiration or forfeiture of the corporate existence of a corporate holder thereof.
Upon winding up or dissolution of a holder not a corporation.
In any event upon surrender by the holder of its certificate of authority and cancellation of the same by the commissioner.
The commissioner shall not cancel a surrendered certificate of authority until he or she is satisfied by examination, or otherwise, that the former holder has discharged its annuity liabilities to residents of this state or satisfactorily reinsured the same.
Notwithstanding the preceding provisions for a certificate of authority of indefinite term, each holder of a certificate of authority under this chapter shall owe and pay in advance to the commissioner an annual fee of one hundred thirty-six dollars ($136), on account of a certificate of authority until its final termination or revocation. The fee shall be for annual periods commencing on July 1 of each year and ending on June 30 of each year and shall be due on each March 1 and shall be delinquent on and after each April 1.
Each holder of a certificate of authority shall also be subject to the payment in advance of the following fees, as appropriate:
Two hundred eighty-three dollars ($283) for each amended certificate of authority caused by a change of the name of the holder.
Two hundred twelve dollars ($212) for the services and expenses of the commissioner in connection with the filing of amended articles by a holder.
Eight hundred forty-nine dollars ($849) for all services and expenses of the commissioner in connection with the withdrawal of a holder of a certificate of authority under this chapter.
Upon the receipt of a notice of filing of a petition by or against a certificate holder under the United States Bankruptcy Code for bankruptcy or reorganization, the commissioner shall cease imposing, billing, or collecting the annual fees due under this chapter and this section to the certificate holder.
Upon notice of the suspension of the corporate status of the certificate holder for a period of 12 months by the Secretary of State, the commissioner shall terminate the certificate of authority and shall deem the certificate to be terminated.
Before granting a certificate of authority or amended certificate of authority as a grants and annuities society to any applicant, the commissioner shall consider the qualifications of the applicant with respect to the following subjects:
Minimum net worth and working capital.
Lawfulness and quality of investments.
Financial stability.
Reinsurance agreements.
Competency, character, and integrity of management.
Ownership and control.
Fairness and honesty of methods of doing business.
Risk to the public.
Upon consideration of all relevant qualifications, the commissioner shall issue a certificate of authority to an applicant, unless the commissioner finds that the applicant is materially deficient with respect to one or more of the subjects set forth in subdivision (a).
Upon granting to such organization or person a certificate of authority to receive such transfers, the commissioner shall require it to establish and maintain a reserve fund adequate to meet the future payments under its outstanding annuity contracts and in any event not less than an amount computed as follows:
In the case of annuities payable under agreements made prior to January 1, 1950, in accordance with the standard of valuation based upon McClintock’s table of mortality among annuitants, with interest assumption at 312 percent per annum.
In the case of annuities payable under agreements made on and after January 1, 1950, in accordance with the standard of valuation based upon the 1937 Standard Annuity Table, with interest assumption at 212 percent per annum, or other table of mortality derived from recent annuity experience, with interest assumption not higher than is currently yielded on safe securities, as may be prescribed by the commissioner.
For any failure on its part to establish and maintain such reserve fund, the commissioner shall revoke its certificate of authority.
The funds and other property, together with interest and dividends thereon and proceeds therefrom, conditioned upon issuance of the certificate holder’s contracts to pay annuities, shall be maintained under a separate trust agreement for reserves held for the benefit of California annuitants and shall be held legally and physically segregated from the other assets of the certificate holder. The amendments to this subdivision enacted during the 1993 portion of the 1993–94 Regular Session shall apply to any organization that is issued a new certificate of authority on or after January 1, 1994. Any grants and annuities society that holds a certificate of authority on January 1, 1994, and that is not in compliance with this subdivision as of that date, shall comply with these amendments by January 1, 1998.
Nothing in subdivision (a) shall prevent the certificate holder from withdrawing from time to time, pursuant to an appropriate resolution of its board of trustees, that amount or amounts as are determined, in a manner which is satisfactory to the commissioner, to be excess over and above its reserve required to be maintained under the provisions of Section 11521.
If the grants and annuities society will manage and direct investment of the reserve funds required under Section 11521, the California reserves may be held under a declaration of trust stating that the grants and annuities society will hold the funds in trust and invest funds or property held in trust in accordance with the requirements of this code. If a bank will manage or direct the investment of the California reserves fund, a trust agreement shall be executed with that institution that will act as a trustee.
The reserve required by the table of commensurate values for each annuity contract issued must be invested in investments specified in Sections 1170 through 1182 except that a certificate holder may invest in investment companies registered under the federal Investment Company Act of 1940, and in securities, including interests in those investment companies, listed and traded on the New York Stock Exchange, the American Stock Exchange or regional stock exchanges or the National Market System of the Nasdaq Stock Market or successors to such exchanges or market having the same qualifications, to the extent of the lesser of net worth (assets over liabilities and reserves) of the certificate holder or 50 percent of these general investments. This section does not permit investment in options or commodity exchanges.
The certificate holder may invest in other investments as permitted by and subject to the written consent of the commissioner.
Prior to admission each applicant shall file with the commissioner an accurate and complete financial statement consisting of a balance sheet and income and expense statement, showing the current condition of the applicant and sworn to by the officer of the applicant having the responsibility for preparing the statement.
If the applicant is already transacting a grants and annuities business in another state, an accurate and complete financial statement showing the condition of the present grants and annuities business, sworn to by the officer having the responsibility for preparing the statement, shall be submitted.
One hundred and twenty days after the end of their fiscal year, every certificate holder, except a certificate holder that also holds a certificate of authority pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1, shall make and file with the commissioner an accurate and complete financial statement, consisting of a balance sheet and income and expense statement, showing the current condition of the certificate holder’s grants and annuities operation on a form prescribed by the commissioner.
The commissioner may, in his discretion and after hearing, require the disposal of any investment made in violation of the provisions of this chapter; pending disposal pursuant to such order, no value shall be allowed for such investment in any financial statement or report required to be filed with the commissioner and purporting to show the financial condition of the owner thereof for the purpose of determining whether such owner is solvent or insolvent.
The commissioner may adopt reasonable rules and regulations as may be necessary to carry out the provisions of this chapter pursuant to the provisions of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. Pursuant to these provisions, the commissioner may also amend or repeal the rules and regulations.
Nothing contained in Section 11521, 11521.1, 11521.2, 11521.4, 11523.6, or paragraph (6) of subdivision (a) of Section 11523 shall apply to any grants and annuities certificate holder that also holds a certificate of authority pursuant to Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1. A grants and annuities certificate holder subject to this section shall display clearly and conspicuously, and in the type specified, the disclosure required by paragraph (7) of subdivision (a) of Section 11523 in all agreements issued under this chapter.
Every organization or person holding a certificate of authority to receive transfers under this chapter shall make and file with the commissioner information regarding each agreement entered into between the permit or certificate holder and the transferor. The information requested by the commissioner shall be provided in the number, form, and format, at the intervals, and by the methods prescribed by the commissioner. The organization or person shall pay a basic fee to the commissioner for the filing of the requested information. The basic fee as provided in this section shall be established by rules and regulations adopted by the commissioner pursuant to Section 11521.5 for information filed by the organization or person where information is filed regarding up to 10 agreements within any calendar quarter. Thereafter, within each calendar quarter, the fee for information filed regarding each agreement shall be as follows: 50 percent of the basic fee for information filed regarding 11 to 20 agreements filed; 20 percent of the basic fee for information filed regarding 21 to 30 agreements filed; 10 percent of the basic fee for information filed regarding 31 to 40 agreements filed; and 5 percent of the basic filing fee for information filed regarding 41 or more agreements.
The fees as provided herein shall be paid with the filing of the information regarding the agreements by the organization or person.
The annuity agreement shall show each of the following:
The value of the property transferred.
The amount of annuity agreed to be paid to the transferor or his nominee.
The manner in which, and the intervals at which, the annuity is to be paid.
The age, in years, at or nearest the date of the agreement, of the person during whose life the annuity is to be paid.
The effective date of the agreement.
The signature of each donor.
The following clause, in at least 12-point boldface type, located on the same page as and in the immediate proximity of the donor signature line: “Annuities are subject to regulation by the State of California. Payments under this agreement, however, are not protected or otherwise guaranteed by any government agency or the California Life and Health Insurance Guarantee Association.
Every organization or person holding a certificate of authority to receive transfers under this chapter shall annually certify to the commissioner that all agreements entered into during the time period covered by the certification show all of the information set forth in subdivision (a). The certification shall be in the number, form, and format, by the method, and at the time prescribed by the commissioner. The commissioner may from time to time as he or she deems necessary require that a copy of each agreement be submitted to the department.
Any person holding a certificate of authority under this chapter may reinsure its total liability under an annuity agreement (as defined in Section 11523) with an admitted insurer for a single premium. In such event, such certificate holder may take credit for such reinsurance in reduction of the amount of the reserve fund it is required to maintain under the provisions of Section 11521, subject to the following conditions:
Such certificate holder shall file with the commissioner a copy of the reinsurance contract specifying which annuity agreement previously filed pursuant to Section 11522 is thereby reinsured.
Such certificate holder shall enter into a written agreement with the annuitant and the reinsurer agreeing that if it should for any reason be unable to continue the making of the annuity payments required by its annuity agreement, the annuitant shall receive payments directly from the reinsurer and that such reinsurer shall be credited with all such direct payments in the accounts between it and such reinsurer.
Any commission granted by the reinsurer on the reinsurance shall be payable only to the certificate holder which shall pay no commission directly or on account of such reinsurance.
No grants and annuities society applying for admission to this state, or transacting in this state, the business described in this chapter shall transact or be authorized to transact a variable annuity business as described in Section 10506.
Except as prescribed in this chapter, such organization or person shall be otherwise exempt from the provisions of this code and other insurance laws of this state, except the provisions of Sections 730 to 736, inclusive, Sections 790 to 790.10, inclusive, Section 1011, Sections 1012 to 1044, and Sections 1056.5 to 1061. The cost and expense of examining such organization or person shall be paid as prescribed in Section 736.
CHAPTER 13. Voluntary Mutualization of Incorporated Life and Life and Disability Insurers Having a Capital Stock and Issuing Nonassessable Policies on a Reserve Basis [11525. - 11533.]
ARTICLE 1. Authority and Requirements to Mutualize [11525. - 11528.]
A solvent domestic incorporated insurer having a paid-in capital represented by outstanding shares of capital stock and issuing, on a reserve basis, nonassessable policies of life insurance or of both life and disability insurance, may convert itself into an incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter.
Such plan shall include appropriate proceedings for amending the insurer’s articles of incorporation to give effect to the acquisition, by said insurer, for the benefit of its policyholders or any class or classes thereof, of the outstanding shares of its capital stock and the conversion of the insurer from a stock corporation into a nonstock corporation for the benefit of its members. The members of such nonstock corporation shall be the policyholders from time to time of the class or classes for whose benefit the stock of the insurer was acquired, and the policyholders of such other class or classes as may be specified in such corporation’s articles of incorporation as they may be amended from time to time. Such plan shall be:
Adopted by a vote of a majority of the directors.
Approved by the vote of the holders of at least a majority of the outstanding shares at a special meeting of shareholders called for that purpose, or by the written consent of such shareholders.
Submitted to the commissioner and approved by him in writing.
Approved by a majority vote of all the policyholders of the class or classes for whose benefit the stock is to be acquired voting at an election by the policyholders called for that purpose, subject to the provisions of Section 11528. The terms “policyholder” and “policyholders” as used in this chapter shall be deemed to mean the person or persons insured under an individual policy of life insurance, or of disability insurance, or of any combination of life and disability insurance. They shall also include the person or persons to whom any annuity or pure endowment is presently or prospectively payable by the terms of an individual annuity or pure endowment contract, except where the policy or contract declares some other person to be the owner or holder thereof, in which case such other person shall be deemed the policyholder. In any case where such policy or contract names two or more persons as joint insureds, payees, owners or holders thereof, the persons so named shall be deemed collectively to be but one policyholder for the purpose of this chapter. In any case where a policy or contract shall have been assigned by assignment absolute on its face to an assignee other than the insurer, and such assignment shall have been filed at the principal office of the insurer at least 30 days prior to the date of any election or meeting referred to in this chapter, then such assignee shall be deemed at such election or meeting to be the policyholder. For the purpose of this chapter the terms “policyholder” and “policyholders” include the employer to whom, or a president, secretary or other executive officer of any corporation or association to which a master group policy has been issued, but exclude the holders of certificates or policies issued under or in connection with a master group policy. Beneficiaries under unmatured contracts shall not as such be deemed to be policyholders.
Filed in the office of the Insurance Commissioner after having been approved as provided in subdivisions (b), (c) and (d) of this section.
The commissioner shall examine the plan submitted under subdivision (c) of Section 11526. The commissioner shall not approve the plan unless in the commissioner’s opinion the rights and interests of the insurer, its policyholders, and shareholders are protected and the commissioner is satisfied that the plan will be fair and equitable in its operation.
The election prescribed by subdivision (d) of Section 11526, shall be called by the board of directors or the president and every policyholder of the class or classes for whose benefit the stock is to be acquired, whose insurance shall have been in force for at least one year prior to the election shall have one vote, regardless of the number of policies or amount of insurance the policyholder holds, and regardless of whether the policies are policies of life insurance or policies of disability insurance. Notice of the election shall be given to policyholders entitled to vote by mail from the principal office of the insurer at least 30 days prior to the date set for the election, in a sealed envelope, postage prepaid, addressed to the policyholder at that person’s last known address.
Voting shall be by one of the following methods:
At a meeting of those policyholders, held pursuant to the notice, by ballot in person or by proxy.
If not by the method described in subdivision (a), then by mail pursuant to a procedure and on forms to be prescribed by the plan.
The election shall be conducted under the direction and supervision of three impartial and disinterested inspectors appointed by the insurer and approved by the commissioner. In case any person appointed as inspector fails to appear at the meeting or fails or refuses to act at the election, the vacancy, if occurring in advance of the convening of the meeting or in advance of the opening of the mail vote, may be filled in the manner prescribed for the appointment of inspectors and, if occurring at the meeting or during the canvass of the mail vote, may be filled by the person acting as chairperson of the meeting or designated for that purpose in the plan. The decision, act, or certificate of a majority of the inspectors shall be effective in all respects as the decision, act, or certificate of all. The inspectors of election shall determine the number of policyholders, the voting power of each, the policyholders represented at the meeting or voting by mail, the existence of a quorum, and the authenticity, validity, and effect of proxies. They shall receive votes, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result, and do such other acts as are proper to conduct the vote with fairness to all policyholders. The inspectors of election shall, before commencing performance of their duties, subscribe to and file with the insurer and with the commissioner an oath that they, and each of them, will perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practicable. On the request of the insurer, the commissioner, a policyholder or his or her proxy, the inspectors shall make a report in writing of any challenge or question or matter determined by them and execute a certificate of any fact found by them. They shall also certify the result of the vote to the insurer and to the commissioner. Any report or certificate made by them shall be prima facie evidence of facts stated therein. All necessary expenses incurred in connection with the election shall be paid by the insurer. For the purpose of this section, a quorum shall consist of 5 percent of the policyholders of the insurer entitled to vote at the election.
ARTICLE 2. Execution of Plan [11529. - 11533.]
In carrying out any such plan, the insurer may acquire any shares of its own stock by gift, bequest or purchase. Any shares so acquired shall, unless as a result of such acquisition all of the shares of the insurer shall have been acquired, be acquired in trust for the policyholders of the class or classes for whose benefit the plan provides that the stock of the insurer shall be acquired as hereinafter provided. Such shares shall be assigned and transferred on the books of such insurer to three or more trustees appointed by the insurer and approved by the commissioner under a trust agreement approved by the commissioner. Such trustees shall hold such stock in trust until all of the outstanding shares of capital stock of such insurer have been acquired, but for not longer than 30 years with such extensions of not more than five years each as may be granted by the commissioner. Such extensions may be granted by the commissioner if the plan so provides and if in his opinion the plan of acquisition of all of such stock can be completed within a reasonable period. Such trustees shall vote such stock at all corporate meetings at which stockholders have the right to vote. When all of the outstanding shares of capital stock of such insurer have been acquired, all said shares shall be canceled, the certificate of amendment of the insurer’s articles of incorporation giving effect thereto shall be filed in accordance with the provisions of Chapter 9 (commencing with Section 1300) of Division 1 of Title 1, of the Corporations Code, and the insurer shall become a nonstock corporation for the profit of its members and such trust shall thereupon terminate. Thereafter such corporation shall be conducted for the mutual benefit, ratably, of its policyholders of the class or classes for whose benefit the stock was acquired and shall have power to issue nonassessable policies on a reserve basis subject to all provisions of law applicable to incorporated life insurers or life and disability insurers, as the case may be, issuing nonassessable policies on a reserve basis. Policies so issued may be upon the basis of full or partial participation therein as agreed between the insurer and the insured.
Upon the termination of any such voting trusts, either in accordance with its terms or as hereinabove provided, such plan of mutualization shall terminate, unless theretofore completed. Upon such termination, unless the plan of mutualization provides for the disposition of the shares acquired by the insurer under such plan or for the disposition of the proceeds thereof, the shares held by such trustees shall be disposed of in accordance with an order of the superior court of the county in which is located the principal office of such insurer, made upon a verified application of the commissioner.
Any such plan of mutualization may provide for the creation of a voting trust under a trust agreement for the holding and voting by three or more trustees of any portion or all of the shares of the insurer not acquired upon the adoption of such plan. The voting trustees shall be named in accordance with such plan or, if no provision is made therein for the naming of such trustees, then by the insurer. The voting trust agreement and voting trustees shall be subject to the approval of the commissioner. Any or all of the trustees under such voting trust agreement may be the same person or persons as any or all of the trustees referred to in Section 11529. Such voting trust agreement shall provide that in the event of acquisition by the insurer of any of the shares of stock held thereunder in accordance with the provisions of the plan, such shares so acquired together with the voting rights thereof shall be transferred by the trustees named under the provisions of this section to the trustees named under the provisions of Section 11529. Any voting trust agreement created pursuant to the provisions of this section may be made irrevocable for not longer than thirty (30) years and thereafter until the termination of the trust provided for in Section 11529. The trust created pursuant to the provisions of this section shall terminate in any event upon termination of the trust provided for in Section 11529. Upon the termination of the trust created pursuant to the provision of this section, any shares held in such trust shall revert to the persons entitled thereto by law.
Every payment for the acquisition of any shares of the capital stock of such insurer, the purchase price of which is not fixed by such plan, shall be subject to the prior approval of the commissioner. Neither such plan, nor any such payment, may be approved by the commissioner unless he finds that the rights and interests of the insurer, its policyholders, and shareholders are protected.
The trustees referred to in section 11529 shall file with such insurer and with the commissioner a verified acceptance of their appointments and verified declarations that they will faithfully discharge their duties as such trustees. All dividends and other sums received by said trustees on the shares held by them, after paying the necessary expenses of executing their trust, shall be immediately repaid to such insurer for the benefit of all who are, or may become, policyholders of such insurer of the class or classes for whose benefit the stock of such insurer was acquired and entitled to participate in the profits thereof and shall be added to and become a part of the assets of such insurer.
Such insurer, after mutualization, shall be a continuation of the original insurer, and such mutualization shall not affect such insurer’s certificate of authority nor existing suits, rights or contracts except as provided in said plan for the acquisition of the outstanding shares of the capital stock of such insurer, approved as provided in this chapter. Such insurer, after mutualization, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and to protect rights and contracts existing prior to mutualization, subject to the effect of said plan. The board of directors of such insurer, prior to mutualization, may adopt amendments to its bylaws to take effect upon mutualization.
An annual meeting of members shall be held at 10 o'clock in the morning of the fourth Tuesday of March of each year at the principal office of the insurer, unless a different time or place be provided in the by-laws.
Special meetings of the members, for any purpose or purposes whatsoever, may be called at any time by the president, or by the board of directors, or by one or more members holding not less than one-fifth of the voting power of such insurer, or by such other officers or persons as the by-laws authorize.
Notice of all meetings of members whether annual or special shall be given in writing to the members entitled to vote by the secretary, or an assistant secretary, or other person charged with that duty, or if there be no such officer, or in case of his neglect or refusal, by any director or member. At the option of the insurer such notice may be imprinted on premium notices or receipts or on both.
A notice may be given by such insurer to any member either personally, or by mail, or other means of written communication, charges prepaid, addressed to such member at his address appearing on the books of the insurer, or given by him to the insurer for the purpose of notice. If a member gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the insurer is situated, or if published at least once in some newspaper of general circulation in the county in which said office is located.
Notice of any meeting of members shall be sent to each member entitled thereto not less than seven days before such meeting, unless the bylaws provide otherwise.
Notice of any meeting of members shall specify the place, the day, and the hour of the meeting and the general nature of the business to be transacted.
Notice of an annual meeting to be held at the time and place specified in Section 11532.1 shall be sufficiently given if published at least once in each of four successive weeks in a newspaper of general circulation in the county in which the principal office of such insurer is located, and if so published no other notice of such meeting shall be required.
The presence in person or by proxy of 5 per cent of the members entitled to vote at any meeting shall constitute a quorum for the transaction of business, unless otherwise provided in the by-laws.
Each such member shall have one vote at any meeting of members regardless of the number of policies or the amount of insurance that such member holds and regardless of whether such policies are policies of life insurance, or of disability insurance, or both. Any member entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary of such insurer.
The directors of the insurer in office at the time the insurer is mutualized as provided in this chapter shall continue in office until the first annual meeting of members. At the first annual meeting of members and at each annual meeting thereafter directors shall be elected by the members for the term or terms authorized by this chapter.
The articles of incorporation or the bylaws may provide that the directors may be divided into two or more classes whose terms of office shall expire at different times, but no term shall continue longer than six years. In the absence of such provisions, each director, except members of the board of directors at the time the insurer is mutualized, shall be elected for a term of one year. All directors shall hold office for the term for which they are elected and until their successors are elected and qualified. A director may, but need not be a member or policyholder of the insurer of which he is acting as director. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, and each director so elected shall hold office until the next annual meeting.
All insurers mutualized under the provisions of this chapter shall be subject to all other applicable provisions of this code and to the provisions of the general corporation law as provided in Section 1140 of this code.
The provisions of Article 8 of Chapter 1 of Part 2 of Division 1 of this code shall not apply to any of the following:
Shares of the capital stock of such insurer acquired as provided in section 11529 and assigned and transferred to the trustees as is provided in said section, and the assignment and transfer of said shares as so provided.
Any certificate or other instrument issued to a policyholder of such mutualized insurer conferring or evidencing membership in such mutualized insurer or conferring or evidencing such member’s right to participate in the profits or share in the assets of such mutualized insurer by virtue of his membership therein, and the issuance of such certificate or other instrument.
The plan for the acquisition of the outstanding shares of the capital stock of such insurer authorized by the provisions of this chapter, the submission of said plan to the commissioner and to the policyholders of such insurer as provided in this chapter, and the approval and carrying out of said plan or any part thereof in accordance with the provisions of this chapter.
CHAPTER 14. Conversion of an Incorporated Mutual Life or Life and Disability Insurer into an Incorporated Stock Life Insurer Issuing Policies on a Reserve Basis [11535. - 11549.]
ARTICLE 1. Authority and Requirements to Convert [11535. - 11549.]
A domestic incorporated mutual life insurer, or life and disability insurer, issuing nonassessable policies on a reserve basis may be converted into an incorporated stock life or stock life and disability insurer issuing, on a reserve basis, nonassessable policies of life insurance or of both life and disability insurance. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this chapter.
A domestic incorporated mutual insurer not referred to in subdivision (a) and that is not a medical malpractice mutual insurer as defined in subdivision (i) of Section 4097.01, which may be referred to in this chapter as a mutual property-casualty insurer, may be converted into an incorporated stock property-casualty insurer. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this chapter. A medical malpractice mutual insurer as defined in subdivision (i) of Section 4097.01 may not convert to a stock insurer under this chapter.
A mutual holding company may be converted into a stock corporation. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this chapter.
As part of the conversion authorized in this section, a domestic incorporated mutual insurer may merge with an incorporated stock insurer, if the merging insurers comply with the provisions of this code applicable to their participation in the merger, or may transfer its domicile to any other state, if the insurer complies with Section 709.5.
The definitions in this section apply to the following terms when used in this chapter.
“Adoption date” means the date the board of directors adopts the plan of conversion.
“Converted company” means the converted insurer or converted mutual holding company, as the case may be.
“Converted insurer” means the incorporated stock insurer into which a mutual insurer has been converted or merged or redomiciled in accordance with the provisions of this chapter.
“Converted mutual holding company” means the stock corporation into which a mutual holding company has been converted in accordance with this chapter.
“Converting mutual life company” means, for a plan of conversion under this chapter, the mutual life insurer or mutual holding company that is converting under such a plan.
“Effective date” means, for the conversion of a mutual life insurer, the date upon which the conversion of the mutual life insurer is effective, as specified in the commissioner’s amendment to the mutual life insurer’s certificate of authority issued in accordance with Section 11542, as a result of conversion proceedings under this chapter. For the conversion of a mutual holding company, “effective date” means the date upon which the conversion of a mutual holding company is effective, as specified in the amended articles of incorporation of the mutual holding company filed with the Secretary of State in accordance with Section 11542, as a result of conversion proceedings under this chapter.
“Eligible members” means, for the conversion of a mutual life insurer, the members of the mutual life insurer who are of record on the mutual life insurer’s adoption date. For the conversion of a mutual holding company, “eligible members” means the members of the mutual holding company who are of record on the mutual holding company’s adoption date.
“Member” means a person who, by the records of the mutual company and by its articles of incorporation or bylaws, is deemed to be a holder of a membership interest in the mutual company. For a mutual life insurer, a plan of conversion may provide that the term “member” also includes a person who is the owner of a policy issued or assumed by an insurer, that, pursuant to court order, is to be merged into the converted company. On and after the effective date of a plan of conversion that creates a mutual holding company, the term “member” means a member of a mutual holding company, as provided in Section 11542.1.
“Membership interests” means the interests of members arising under this code and the articles of incorporation and bylaws of the mutual company or otherwise by law. Membership interests include the right to vote for directors of the mutual company and the right to vote on any plan of merger, consolidation, reinsurance, or transfer of assets and liabilities of the mutual company. Membership interests do not include members’ rights in surplus, if any.
“Mutual company” means, in the case of a plan of conversion, the mutual life insurer, mutual property-casualty insurer, or mutual holding company that is converting pursuant to such plan.
“Mutual holding company” means a corporation organized under the laws of this state subject to the General Corporation Law as set forth in the Corporations Code. The articles of incorporation of a mutual holding company shall contain provisions stating the following:
It is a mutual holding company organized under this chapter.
One purpose of the mutual holding company is to hold not less than 51 percent of the voting stock of a stock holding company, which in turn holds all of the voting stock of a converted life insurer.
It is not authorized to issue voting stock.
Its members have the rights specified in Section 11542.1 and in its articles of incorporation and bylaws.
“Mutual insurer” means, in the case of a plan of conversion under this chapter, the mutual life insurer or mutual property-casualty insurer that is converting pursuant to such plan.
“Mutual life insurer” means a domestic incorporated mutual life insurer, or domestic mutual life and disability insurer, that issues nonassessable policies on a reserve basis.
“Person” means an individual, partnership, firm, association, corporation, joint-stock company, limited liability company, trust, government or governmental agency, state or political subdivision of a state, public or private corporation, board, association, estate, trustee, or fiduciary, or any similar entity.
“Plan of conversion” or “plan” means a plan adopted by a mutual company in compliance with this chapter.
“Policy” means an individual or group policy of insurance issued by a life insurer. If a policy of a mutual life insurer takes a form other than an individual form but holders of certificates or other interests under the policy are treated by the mutual life insurer as if they were holders of individual policies, the mutual life insurer may provide in its plan of conversion under this chapter that such a certificate or other interest is deemed to be a policy and deem the holder of the certificate or other interest to be an owner of a policy. Such a provision shall be for the sole purpose of determining the rights, if any, of policyholders of the mutual life insurer to vote upon and receive consideration under the plan of conversion and may not affect the other voting rights and qualifications of members of the mutual life insurer.
“Policyholder” means the holder of a policy other than a reinsurance contract.
“Rights in surplus,” for a mutual life insurer, means rights of members of the insurer to a return of that portion of the surplus that has not been apportioned or declared by the board of directors for policyholder dividends. “Rights in surplus” includes rights of members of the insurer to a distribution of surplus in liquidation or conservation of the insurer under this code, or in a dissolution or winding up. “Rights in surplus,” for a mutual holding company, means rights of members of the company to a return of any surplus that has not been apportioned or declared by its board of directors for member dividends. “Rights in surplus” includes rights of members of the mutual holding company to a distribution of surplus in liquidation or conservation of the insurer under this code, or in a dissolution or winding up. “Rights in surplus” does not include any right expressly conferred solely by the terms of an insurance policy.
“Stock holding company” means a corporation authorized to issue one or more classes of capital stock, the corporate purposes of which include holding all of the voting stock in an insurer that has been converted from a mutual life insurer to a stock life insurer in proceedings under Section 11537.2 in which a mutual holding company is formed.
“Voting stock” means securities of any class or any ownership interest having voting power for the election of directors, trustees, or management of a person, other than securities having voting power only because of the occurrence of a contingency. All references to a specified percentage of voting stock of any person mean securities having the specified percentage of the voting power in that person for the election of directors, trustees, or management of that person, other than securities having voting power only because of the occurrence of a contingency.
The plan of conversion shall include appropriate proceedings for amending the mutual company’s articles of incorporation to give effect to the conversion from a nonstock corporation into a stock corporation. The plan shall be:
Approved by a resolution of the majority of the board of directors. The resolution shall specify the reasons for and the purposes of the proposed conversion of the mutual company and the manner in which the conversion is expected to benefit and serve the best interests of the policyholders, for a mutual insurer, or members, for a mutual holding company.
Submitted to the commissioner for consent in writing, subject to the provisions of Section 11538, by an application executed by an authorized officer of the mutual company and accompanied by the following documents, or true and correct copies of the documents:
The proposed plan of conversion.
The proposed articles of incorporation of each corporation that is a constituent corporation of the conversion.
The proposed bylaws of each corporation that is a constituent corporation of the conversion.
A list of the officers and directors, together with their biographies in the form customarily required by the commissioner, of each corporation that is a constituent corporation of the conversion.
The resolution of the board of directors of the mutual company, certified by the secretary of the board of directors, authorizing the conversion under this chapter.
Financial statements, which may be prepared on a pro forma basis, in the form required by the commissioner.
For a conversion of a mutual insurer, a plan of operations for the converted insurer.
A summary of the plan of conversion and drafts of written materials to be mailed to members seeking their approval of the plan.
Other relevant information that the commissioner may require.
Approved by a majority vote of the members of the mutual company voting at a meeting of the members called for that purpose, subject to the provisions of Section 11539.
For the conversion of a mutual property-casualty insurer, the plan for conversion shall include the following:
A fair and reasonable formula, approved by the commissioner, for determining the equity of each eligible member in the insurer. The equity shall be based upon an appraisal of the fair value of the insurer by one or more qualified disinterested persons appointed by the insurer with the approval of the commissioner. Those persons shall consider the assets and liabilities of the insurer and any factors bearing on the value of the mutual insurer.
Each eligible member of the mutual insurer shall be given a preemptive right to acquire his or her proportionate part of all of the proposed capital stock of the insurer, within a designated reasonable period, by applying upon the purchase of such part the amount of his or her equity as determined under the formula described in subdivision (a).
The members entitled to participate in the purchase of stock or distribution of assets shall be limited to all current policyholder members whose policies have been of record for not less than one year prior to the date the board of directors adopted the plan of conversion.
Each member not applying his or her equity upon the purchase price of stock shall elect to receive either a cash payment or a certificate of contribution. The cash payment shall not be greater than 50 percent of his or her equity as determined by the formula in subdivision (a). The certificate of contribution shall be in an amount equal to 100 percent of his or her equity, as determined by the formula in subdivision (a), shall bear interest at the rate established in Section 10489.4 for minimum standard valuation of all life insurance policies of more than 20 years’ duration issued in the year, and shall be repayable within 10 years or, if necessary under the terms of the plan, later, only on written approval of the commissioner and only out of surplus in excess of an amount established in the plan. Any member not electing to receive cash or purchase stock shall be deemed to have elected to receive a certificate of contribution. The stock purchased, cash payment, or certificate of contribution shall constitute full payment and discharge of the member’s equity or property interest in the mutual insurer, and, notwithstanding any other provision of law, the member shall have no other rights with respect thereto.
The number of shares to be authorized for the new stock insurer, their par value, and the method for determining the price at which the shares will be offered to eligible members, to the end that the plan, when completed, would provide for the converted insurer paid-in capital and surplus in an amount not less than the minimum paid-in capital and surplus required of a domestic stock insurer upon initial authorization to transact like kinds of insurance.
Provision for the offering to others of shares not purchased by eligible members within the designated period referred to in subdivision (b) at a price not less than the offering price to members.
For the conversion of a mutual life insurer, the plan of conversion shall provide for either a mutual holding company in compliance with Section 11537.2 or for consideration in compliance with Section 11537.3. For the conversion of a mutual holding company, the plan of conversion shall provide for consideration in compliance with Section 11537.3.
A plan of conversion adopted by a mutual life insurer for the establishment of a mutual holding company shall provide that the mutual life insurer will become a stock life insurer, that the members of the mutual life insurer will become members of a mutual holding company, that the mutual holding company will acquire at least 51 percent of the voting stock of the stock holding company, and that the stock holding company will acquire all of the voting stock of the converted insurer.
A plan of conversion adopted by a converting mutual life company shall include the following:
The plan provides that each member’s membership interests and rights in surplus are extinguished and each eligible member will receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of a corporation which will issue the subscription rights, or, in lieu thereof, shares of capital stock or other securities of the issuer, cash, premium credits, or credits to policy account values having an aggregate value equal to the aggregate exercise price of the subscription rights that otherwise would have been allocated to the member. The issuer is either (A) the converted insurer, (B) a corporation, the voting stock of which is owned by the mutual life insurer or the mutual holding company, as the case may be, or by any other persons, that will acquire in the conversion all the voting stock of the converted insurer, or (C) a corporation, all of the voting stock of which is owned by the mutual holding company into which both the mutual holding company and the stock holding company will be merged.
The subscription rights are allocated in whole shares among the eligible members. The subscription rights, capital stock, cash, premium credits, and credits to policy account values are allocated among the eligible members using a fair and equitable formula. This formula will either (A) allocate a fixed component per capita among eligible members (specifying how joint owners will be treated for this purpose) and allocate a variable component among eligible members in proportion to the cash value of policies held by them, or (B) allocate the subscription rights, capital stock, cash, or credits in any other manner that the commissioner may approve.
The plan specifies or authorizes the board of directors of the converting mutual life company to set the expiration date of the subscription rights, if any, allocated by the plan. The exercise price per share of the subscription rights is 50 percent of the price per share at which the capital stock of the issuer is first offered to the public in the offering referred to in subdivision (d), as fixed at the time of the offering by the boards of directors of the converting mutual life company and the issuer or committees of the boards.
The plan provides that any eligible member not exercising the subscription rights, if any, allocated to the member will instead receive alternative forms of consideration having an aggregate value equal to the aggregate exercise price of the subscription rights allocated to the member. The alternative forms of consideration may include shares of capital stock of the issuer, cash, premium credits, or credits to policy account values. The choices available to the eligible member shall be specified in the plan. The choices available may take into account the type of policy, size of policy, tax status of the member, and other factors that the commissioner determines are appropriate.
The plan provides that the issuer will make a public offering of its capital stock at a price determined by the boards of directors of the converting mutual life company and the issuer. The number of shares to be offered is determined according to the plan and may include any shares issuable upon exercise of subscription rights that are not exercised. The plan may also provide for the issue and sale of securities of the issuer to other persons at the time of the public offering. However, any plan provisions pertaining to the issuance and sale of securities to the insurer’s officers, directors, employees, agents, and employee benefit plans for their benefit shall be subject to Section 11540.
The plan of a mutual life insurer may provide for the establishment, for policyholder dividend purposes only, of a closed block. The closed block will consist of all of the participating individual policies of life insurance of the mutual life insurer in force on the effective date of the plan for which the insurer had an experience-based dividend scale payable in the year in which the plan is adopted. Assets of the insurer shall be allocated to the closed block in an amount that produces cash-flows, together with anticipated revenues from the closed block business, expected to be sufficient (1) to support the closed block business, including payment of claims and those expenses and taxes specified in the plan and (2) to provide for continuation of dividend scales in effect on the adoption date if the experience underlying the scales continues, and for appropriate adjustments in the scales if the experience changes. The plan may provide for conditions under which the converted insurer may cease to maintain the closed block and its allocated assets. Regardless of such a cessation, the obligation under the policies constituting the closed block business remain the obligations of the converted insurer. Dividends on those policies shall be apportioned by the board of directors of the converted insurer in accordance with the terms of the policies.
In lieu of the provisions contemplated by subdivisions (a) to (d), inclusive, a plan may be adopted by a converting mutual life company that:
Is fair and equitable to the members of the converting mutual life company and provides for consideration to the members having a value equal to or greater than the value of the consideration that would have been payable to the members pursuant to a plan of conversion contemplated by subdivisions (a) to (d), inclusive.
Has been approved by a resolution of the majority of the board of directors that specifies the basis on which the board of directors of the converting mutual life company finds that adopting the plan of conversion under this subdivision meets the requirements of paragraph (1).
Provides that each member’s membership interests and rights in surplus are extinguished and each eligible member will receive, without payment by the member, consideration that is allocated among the eligible members using a fair and equitable formula. This formula will either (A) allocate a fixed component per capita among eligible members, specifying how joint owners will be treated for this purpose, and allocate a variable component among eligible members in proportion to the cash value of policies held by them, or (B) allocate the consideration in any other manner that the commissioner may approve.
Provides that eligible members may receive one or more kinds of consideration, including shares of capital stock of the converting mutual life company or shares of capital stock (or interests in shares of capital stock) of a corporation that, after the conversion, directly or indirectly, controls the converted insurer, cash, premium credits, or credits to pay policy account values, as set forth in the plan.
Provides for either of the following:
The conversion of the converting mutual life company into a domestic stock corporation.
The conversion of the converting mutual life company by means of a merger (i) in the case of a mutual life insurer into a domestic stock corporation, provided the corporation has been issued a certificate of authority, or (ii) in the case of a converting mutual holding company into a domestic or foreign stock corporation, and, in the case of that merger:
The merger and conversion shall be subject to the provisions of this chapter other than subdivisions (a) to (d), inclusive.
(II) Chapter 11 (commencing with Section 1100), Chapter 12 (commencing with Section 1200), and Chapter 13 (commencing with Section 1300), of Division 1 of the Corporations Code shall not apply to the converting mutual life company in the merger except that Section 1107 of the Corporations Code shall apply.
(III) The merger and conversion shall become effective upon the filing of appropriate instruments with the Secretary of State.
The plan may also provide for the converted company, or a corporation that will directly or indirectly control the converted insurer after the conversion, to issue and sell its securities to other persons at the time of the conversion. Any plan provisions pertaining to the issuance and sale of securities to the insurer’s officers, directors, employees, agents, and employee benefit plans for their benefit shall be subject to Section 11540.
The commissioner shall examine the plan submitted pursuant to subdivision (b) of Section 11536. As a part of the examination the commissioner may order a hearing on the plan after written notice of the hearing to the mutual company, and its members, all of whom shall have the right to appear at the hearing. The commissioner may require as a condition of consent that the mutual company make modifications of the proposed plan that the commissioner finds necessary for the protection of policyholders. The commissioner shall consent to the plan if he or she finds all of the following:
For the conversion of a mutual insurer, the plan is fair and equitable to the insurer and its policyholders.
For the conversion of a mutual holding company, the plan is fair and equitable to the company, its members, and the policyholders of the converted insurer.
The plan does not violate the law.
The converted insurer will, after the conversion, satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed.
For the conversion of a converting mutual life company, the commissioner may appoint one or more actuarial, financial, or other consultants, including legal counsel, as the commissioner finds necessary to advise the commissioner in making the determination of whether the proposed plan of conversion meets the applicable requirements of this chapter. The converting mutual life company is responsible for the reasonable fees and expenses of any actuarial, financial, or other consultants, including legal counsel, appointed, and for the mailing and publication of notices to the mutual company and its members.
The meeting of members prescribed by subdivision (c) of Section 11536 shall be called by the board of directors, the chairperson of the board, or the president of the mutual company. Notice of the meeting shall be given to eligible members by mail at least 30 days prior to the date set for the meeting to members of the mutual company of record on the date the plan of conversion was adopted by the board of directors. Voting shall be by ballot, in person or by proxy. A quorum shall consist of 5 percent of the members of the mutual company entitled to vote at the meeting.
Nothing in this chapter shall be deemed to prohibit the inclusion in the plan of conversion of provisions under which the insurer’s officers, directors, employees, agents, and employee benefit plans for their benefit may be entitled, in accordance with reasonable classifications of those individuals and employee benefit plans as may be included in the plan, to purchase for cash, at the same price as offered to the public in the initial public offering, voting stock not purchased by members upon exercise of subscription rights. Nothing in this chapter shall be deemed to prohibit the establishment of stock option, incentive, and share ownership plans customary for publicly traded companies in the same and similar industries. The plan may not permit those persons to acquire more than 25 percent of the voting stock issued pursuant to the plan for a mutual life insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a mutual life insurer having assets of two hundred million dollars ($200,000,000) or less.
For the conversion of a mutual property-casualty insurer, subdivision (f) of Section 11537 does not prohibit the inclusion in the conversion plan of provisions under which the individuals comprising the insurer’s management, employees and agents are entitled to purchase for cash, at the same price as offered to the insurer’s members, shares of stock not taken by members on the preemptive offering to members, in accordance with such reasonable classifications of such individuals as may be included in the plan. The plan may not provide for such individuals to acquire in excess of 25 percent of the shares of stock issued pursuant to the plan for a mutual insurer having assets in excess of two hundred million dollars ($200,000,000) or 35 percent for a mutual insurer having assets of two hundred million dollars ($200,000,000) or less.
No director, officer, agent, or employee of the mutual company shall receive any fee, commission, or other valuable consideration whatsoever, other than regular salary and compensation, for in any manner aiding, promoting, or assisting in the conversion except as set forth in the plan approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants, and actuaries for services performed in the independent practice of their professions, even though they may also be directors of the mutual company.
At any time before that plan of conversion becomes effective as provided in Section 11542, the mutual company may, by resolution of a majority of the board of directors, amend the plan of conversion or withdraw the plan of conversion. Any plan amendment shall require the written consent of the commissioner. For a plan amendment, all references in this chapter to the plan of conversion shall be deemed to refer to the plan as amended, but no amendment shall be deemed to change the adoption date of the plan of conversion. No amendment may change the plan of conversion in a manner that the commissioner determines is materially disadvantageous to policyholders of the mutual life insurer or members of the mutual holding company, unless a further public hearing is held on the plan as amended, if the amendment is made after the initial public hearing, or if the plan as amended is submitted for reconsideration by the members if the amendment is made after the plan has been approved by the members.
Upon consent by the commissioner to the plan of conversion of a mutual insurer and filing of the plan of conversion in accordance with the provisions of this chapter, the commissioner shall issue a new certificate of authority to the converted insurer. Upon issuance of the certificate of authority to a mutual insurer and subject to subdivision (a) of Section 110 of the Corporations Code, the Secretary of State shall accept for filing the articles of incorporation, certificate of amendment of articles of incorporation, or agreement of merger and officers’ certificates of the converted insurer for the conversion of a mutual insurer. For a plan of conversion in accordance with Section 11537.2, the Secretary of State shall accept for filing the articles of incorporation of the mutual holding company and the stock holding company. Upon consent to the plan of conversion of a mutual holding company and filing of the plan of conversion in accordance with the provisions of this chapter, the Secretary of State shall accept for filing the articles of incorporation or certificate of amendment of articles of incorporation of the converted mutual holding company. The plan is effective upon the filing of the articles of incorporation or certificate of amendment of articles of incorporation.
Upon the effective date of the plan of conversion of a mutual property-casualty insurer, the mutual insurer shall immediately become a stock corporation. The converted insurer shall be a continuation of the original mutual insurer, and the conversion shall in no way annul, modify, or change any of the original mutual insurer’s existing suits, rights, contracts, or liabilities except as provided in the approved conversion plan. The insurer, after conversion, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and shall retain the rights and contracts existing prior to conversion, subject to the effect of the plan.
Upon the effective date of the plan of conversion of a mutual life insurer in accordance with Section 11537.3, the mutual life insurer immediately becomes a stock corporation, all membership interests and rights in surplus are extinguished, and members eligible to exercise subscription rights or receive other consideration under the plan of conversion are entitled to receive the consideration in exchange for their membership interests and liquidation of their rights in surplus. The converted insurer is a continuation of the original mutual life insurer, and the conversion in no way annuls, modifies, or changes any of the original mutual life insurer’s existing suits, rights, contracts, or liabilities, except as provided in the plan of conversion. The insurer, after conversion, shall exercise all the rights and powers and perform all the duties conferred or imposed by law upon insurers writing the classes of insurance written by it, and shall retain the rights and contracts existing prior to conversion, subject to the effect of the plan.
Upon the effective date of the plan of conversion of a mutual holding company, all membership interests and rights in surplus are extinguished, members eligible to receive consideration under the plan of conversion are entitled to receive the consideration in exchange for their membership interests and liquidation of their rights in surplus, and the plan otherwise becomes effective in accordance with its terms. The conversion in no way annuls, modifies, or changes any of the converting mutual holding company’s existing suits, rights, contracts, or liabilities, except as provided in the approved plan of conversion.
Upon the effective date of a plan of conversion in accordance with Section 11537.2, the mutual life insurer immediately becomes a stock corporation, the membership interests and rights in surplus of its members are extinguished, the members of the mutual life insurer immediately become members of the mutual holding company, all of the voting stock initially issued by the converted insurer is owned by the stock holding company, and all of the voting stock initially issued by the stock holding company is owned by the mutual holding company. The stock holding company may thereafter, subject to compliance with Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1, issue securities to other persons. After the effective date, owners of policies that are issued by a stock insurer that has been converted from a mutual life insurer pursuant to proceedings under this chapter shall become members of the mutual holding company immediately upon issuance of the policies. Any person may be a member of a mutual holding company.
From the effective date, the mutual holding company shall hold at least 51 percent of the issued and outstanding voting stock of the stock holding company and the stock holding company thereafter shall at all times hold all of the issued and outstanding voting stock of the converted insurer. The stock holding company may issue additional voting stock to the mutual holding company and, in addition, to other persons an amount of voting stock and securities convertible into voting stock, if in the aggregate, the issued and outstanding voting stock of the stock holding company not held by the mutual holding company does not exceed 49 percent of the issued and outstanding voting stock of the stock holding company. For purposes of the 49-percent limitation, any issued and outstanding securities of the stock holding company that are convertible into voting stock are considered issued and outstanding voting stock.
The commissioner shall retain jurisdiction over the mutual holding company organized pursuant to this chapter. Except as provided in this code, a mutual holding company is subject to the provisions of the General Corporation Law in like manner with other corporations. However, provisions of that law referring to shareholders or members shall be applied as though those provisions referred to the members of a mutual holding company.
With respect to the management, records, and affairs of a mutual holding company and except as otherwise provided in this chapter, a member of a mutual holding company has the same character of rights and relationship as a stockholder has toward a domestic stock life insurer subject to the provisions of this code.
Each member of a mutual holding company is entitled to one vote on each matter coming to a vote at any meeting of members, regardless of the number of policies that the member holds.
Notice of all meetings of members, whether annual or special, shall be given in writing to the members entitled to vote. The notice shall be given by the secretary, assistant secretary, or other persons charged with that duty. If there is no such officer, or if he or she neglects or refuses this duty, notice may be given by any director. At the option of the converted insurer, the notice may be imprinted on premium notices or receipts or on both. A notice may be given to any member either personally, or by mail, or other means of written communication, charges prepaid, addressed to the member at his or her address appearing on the books of the insurer or given by the member to the converted insurer for the purpose of notice. If a member gives no address, and if there is no address on the books of the insurer, notice shall be deemed to have been given the member if sent by mail or other means of written communication addressed to the place where the principal office of the converted insurer is situated, or if published at least once in a newspaper of general circulation in the county in which the office is located and in the newspaper that has the largest daily circulation in this state. Notice of any meeting of members shall be sent to each member entitled to notice not less than 14 days before a meeting. Notice of any meeting of members shall specify the place, the day, and the hour of the meeting and the general nature of the business to be transacted. For any member who gives no address and has no address on the books of the insurer, notice of an annual meeting to be held at the time and place specified is deemed adequate if published at least once in each of four successive weeks in a newspaper of general circulation in the county in which the principal office of the converted insurer is located and in the newspaper that has the largest daily circulation in this state. If the notice is so published, no other notice of the meeting is required.
The presence in person or by proxy of 5 percent of the members of a mutual holding company entitled to vote at any meeting constitutes a quorum for the transaction of all business of the mutual holding company, including, but not limited to, the amendment of the articles of incorporation or bylaws of the mutual holding company.
Any required member approval shall be by the affirmative vote of a majority of the members who vote, or a higher percentage of the members as may be required by law or the articles of incorporation, a quorum being present.
The articles of incorporation or the bylaws of the mutual holding company may provide that the directors may be divided into two or more classes whose terms of office shall expire at different times. No term shall continue longer than six years. In the absence of such provisions, each director shall be elected for a term of one year. All directors shall hold office for the term for which they are elected and until their successors are elected and qualified. A director may, but need not, be a member of the mutual holding company of which he or she is acting as director. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum. Each director so elected shall hold office until the next annual meeting.
If any proceedings under Article 14 (commencing with Section 1010), Article 14.3 (commencing with Section 1064.1), Article 14.5 (commencing with Section 1065.1), or Article 15.5 (commencing with Section 1077), of Chapter 1 of Part 2 of Division 1, are brought naming as a party a stock insurer created as a result of proceedings authorized by this chapter, the mutual holding company formed as part of the conversion automatically becomes a party to the proceedings. All of the assets of the mutual holding company, including, but not limited to, its interest in the stock holding company formed pursuant to this chapter, are deemed assets of the estate of the stock life insurer to the extent necessary to satisfy claims of persons against the stock life insurer who have claims falling within the priorities established in paragraphs (1) to (5), inclusive, of subdivision (a) of Section 1033. Claims of persons in their capacity as members of the mutual holding company shall be claims falling within the priority established in paragraph (6) of subdivision (a) of Section 1033. A mutual holding company may not dissolve, liquidate, or wind up and dissolve without the prior written approval of the commissioner or the court pursuant to proceedings brought pursuant to Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of Division 1.
Membership interests in a mutual holding company are exempt from Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1. A description of the membership interests and related factual disclosure shall not be considered to be an inducement to buy insurance in violation of Section 10430. Any promise of returns, profits, or distributions, or representations with regard to the benefits of membership, made as an inducement in connection with the issuance and delivery of a policy is subject to Section 10430 and the remedy provided in Section 10433.
Prior to, and for a period of five years following, the effective date of the plan of conversion, no person or group of persons acting in concert shall directly or indirectly offer to acquire or acquire in any manner the beneficial ownership of 5 percent or more of any class of voting securities of a converted insurer or of a person that controls, as defined by subdivision (c) of Section 1215, the converted insurer, without the prior consent of the commissioner. Any application for that approval shall contain information as the commissioner may require and shall be accompanied by a filing fee in an amount equal to the filing fee specified in Section 1215.2.
In the event of any violation of this section, or of any action that, if consummated, would constitute a violation, all voting securities of the converted insurer or of the person acquired by any person in excess of the maximum amount permitted to be acquired by the person pursuant to this subdivision shall be deemed to be nonvoting securities of the converted insurer or of that person. The violation or action may be enforced or enjoined by an appropriate proceeding commenced by the converted insurer, a person, the commissioner, any policyholder or stockholder of the converted insurer, or the person on behalf of the converted insurer or the person in the superior court in the judicial district in which the converted insurer has its home office or in any other court having jurisdiction. The court may issue any order it finds necessary to cure the violation or to prevent the proposed action. In addition to the foregoing, whenever it appears to the commissioner that any person has committed a violation of this section, the commissioner may proceed as provided in Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 to take possession of the property of the converted insurer and to conduct the business thereof.
For the purposes of this section, “beneficial ownership,” with respect to voting securities, means the sole or shared power to vote, or direct the voting of, voting securities or the sole or shared power to dispose, or direct the disposition, of voting securities.
For the purposes of this section, “voting security” includes voting stock as defined in Section 11535.1, any preorganization certificate or subscription, including subscription rights issued pursuant to a plan of conversion, or any security convertible, with or without consideration, into voting security, or carrying any warrant or right to subscribe for, or purchase any, voting security, or any such warrant or right.
For the purposes of this section, “offer” includes an offer to buy or acquire, solicitation of an offer to sell, tender offer for, or request or invitation for tenders of a security or interest in a security for value.
Unless otherwise provided in the plan of conversion, the directors and officers of the mutual company shall serve as directors and officers of the converted company until new directors and officers have been duly elected and qualified pursuant to the articles of incorporation and bylaws of the stock company.
Notwithstanding any other provision of law and except as otherwise provided in subdivision (b), actions concerning any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this chapter or any acts taken or proposed to be taken under this chapter shall be commenced within one year after the plan of conversion or plan amendment is filed in the office of the commissioner pursuant to subdivision (d) of Section 11536 or subdivision (a) of Section 11542, or six months from the effective date of the plan of conversion, whichever is later. If the plan of conversion is withdrawn, the actions or acts shall be commenced within six months from the date the board of directors approves a resolution to withdraw the plan. If an action concerns or arises out of a plan amendment or proposed plan amendment made under Section 11546, the applicable time period is measured from the filing, effective date, or approval of withdrawal of the plan amendment, whichever is later.
Judicial review of any act of the commissioner or any other governmental body or officer concerning or arising out of any plan of conversion, proposed plan of conversion, plan amendment, or proposed plan amendment under this chapter may only be had by filing a petition for a writ of mandate within 30 days of the date of the act. However, any petition seeking judicial review shall be filed no later than 30 days from the effective date of the plan of conversion or plan amendment, whichever is the subject of the petition.
The offer or sale of securities issued pursuant to the plan of conversion developed and approved in accordance with the provisions of this chapter, shall be exempt from Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1.
The commissioner shall have the authority from time to time, to make, amend and rescind such rules and regulations as may be necessary to carry out the provisions of this chapter. The commissioner shall also have the authority to charge and collect from the insurer for the actual amount of expenses reasonably incurred by the state in discharge of the commissioner’s duties hereunder.
Upon completion of the act of conversion and issuance of the certificate of authority under Section 11542, the Secretary of State shall accept for filing a verified copy of the amended articles of incorporation.
The amended articles of incorporation of a converted company that have been adopted pursuant to a plan of conversion and filed with the Secretary of State in accordance with Section 11542 may be further amended after the effective date pursuant to applicable law. The plan of conversion may be amended in other respects after the effective date of the plan as specified in this section. Such an amendment shall take effect upon filing with the Secretary of State after compliance with the following:
Approval by a resolution of the majority of the board of directors of the converted company. The resolution shall specify the reasons for and the purposes of the proposed amendment.
Submission to the commissioner for consent in writing, subject to the provisions of Section 11538.
For the conversion of a mutual insurer, approval by a majority of those current policyholders of the corporation who were members of the former mutual insurer and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 11536 and who vote at a meeting called for that purpose.
For the conversion of a mutual holding company, approval by a majority of those current members of the corporation who were members of the former mutual holding company and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 11536 and who vote at a meeting called for that purpose.
Filed in the office of the commissioner after having been consented to and approved as contemplated by paragraphs (2), (3) and (4).
If an amendment proposed under subdivision (a) would adversely affect the rights of one or more classes of members , but not all such members, then only the members of each class whose rights would be adversely affected by the proposed amendment are entitled to vote on the proposed plan amendment.
A policyholder or member meeting prescribed by paragraph (3) or (4) of subdivision (a) shall be called by the board of directors, the chairperson of the board, or the president of the converted company. Notice of the meeting shall be given to policyholders or members entitled to vote at the meeting by mail at least 30 days prior to the date set for the meeting. Voting shall be by ballot, in person or by proxy. A quorum consists of 5 percent of the policyholders or members of the converted company entitled to vote at the meeting.
At any time before the plan amendment becomes effective, the converted company may, by resolution of a majority of the board of directors, amend the plan amendment or withdraw its plan amendment. For an amendment to a plan amendment, all references in this section to the plan amendment shall be deemed to refer to the plan amendment as amended. Any amendment of the plan amendment shall require the written consent of the commissioner. No amendment shall be deemed to change the date of adoption of the plan amendment. No amendment made after approval by the policyholders or members as provided in paragraph (3) or (4) of subdivision (a) may change the plan amendment in a manner that the commissioner determines is materially disadvantageous to any of the affected policyholders or members unless the plan amendment as amended is submitted for reconsideration under the procedures prescribed for the original plan amendment policyholder or member approval.
If the name of a mutual life insurer converting to a stock insurer pursuant to this chapter includes the word mutual, the new stock insurer may continue to use the word mutual in its name if the name includes a word or words that identify the new stock insurer as a stock insurer and the commissioner finds that the continued use of the word mutual in its name is not likely to mislead or deceive the public.
Pursuant to this section, a mutual holding company may merge into a foreign mutual holding company that is domiciled in a state to which the converted insurer has transferred its domicile or will transfer its domicile concurrently with the merger. The merger shall be effected pursuant to an agreement of merger between the mutual holding company and the foreign mutual holding company in accordance with the General Corporation Law, to the extent not inconsistent with this section. The merger shall take effect upon filing the agreement of merger with the California Secretary of State after compliance with the following:
Approval of the agreement of merger by a resolution of the majority of the board of directors of the mutual holding company and signing of the agreement of merger by the parties thereto.
Approval of an amendment to the converted insurer’s plan of conversion in accordance with Section 11547 by a resolution of the majority of the board of directors of the converted insurer in order to reflect appropriately the merger and transfer of domicile.
Submission of the agreement of merger and the amendment to the commissioner for consent in writing.
Approval of the agreement of merger by a majority of the members of the mutual holding company who vote at a meeting called for that purpose.
Approval of the amendment by a majority of the members of the mutual holding company who were members of the converted insurer and were entitled to vote on the original plan of conversion approved pursuant to subdivision (c) of Section 11536 and who vote at a meeting called for the purpose.
Filing of the agreement of merger in the office of the commissioner after having been consented to and approved as contemplated by paragraphs (2), (3), (4), and (5).
The submission to the commissioner prescribed in paragraph (3) of subdivision (a) shall be accompanied by a filing fee of eight thousand one hundred dollars ($8,100), evidence that the foreign mutual holding company that will survive the merger is qualified as a foreign corporation under the General Corporation Law, and any other relevant information that the commissioner may require.
The meetings of members prescribed in paragraphs (4) and (5) of subdivision (a) and shall be called by the board of directors, the chairperson of the board, or the president of the mutual holding company, and may be combined at a single meeting with separate voting by those eligible to vote on the matters referred to in paragraphs (4) and (5) of subdivision (a). Notice of the meeting shall be given by mail to members entitled to vote at the meeting at least 30 days prior to the date set for the meeting. Voting shall be by ballot, in person, or by proxy. A quorum for each such matter consists of 5 percent of the members of the mutual holding company entitled to vote at the meeting on the matter.
The commissioner shall consent to any proposed merger and amendment if he or she determines that the merger will be fair and equitable to the mutual holding company and its members.
PART 3. LIABILITY, WORKERS' COMPENSATION, AND COMMON CARRIER LIABILITY INSURANCE [11550. - 11895.]
CHAPTER 1. General Regulations [11550. - 11629.88.]
ARTICLE 1. Reserves of Insurers [11550. - 11557.]
As used in this article, the term “liability” means liability and common carrier liability insurance.
As used in this article, the term “compensation” means workers’ compensation insurance.
As used in this article, the term “earned premium,” means the amount remaining of the gross premiums charged on all policies written, including all determined excess and additional premiums, after deducting the aggregate of:
Return premiums other than premiums returned to policyholders as dividends.
Reinsurance premiums and premiums on policies canceled.
Unearned premiums on policies in force.
As used in this article, the terms “loss payments,” and “loss expense payments,” mean all payments to claimants or on account of claims. Such payments include but are not restricted to those for:
Medical and surgical attendance.
Legal expense.
Salaries and expenses of investigators, adjusters and field men.
Rents.
Stationery, telegraph and telephone charges.
Postage.
Salaries and expenses of office employees.
Home office expenses, and all other payments made on account of claims, whether or not such payments are allocated to specific losses.
In estimating the condition of any insurer admitted to transact such liability or compensation insurance, the commissioner shall charge as liabilities, among any other items, the following:
All outstanding indebtedness of such insurer.
A premium reserve on policies in force, equal to the unearned portions of the gross premiums charged for covering the risks and computed on each respective risk from the date of the issuance of the policy.
Proper reserves for outstanding losses, computed as set forth in this article.
An insurer transacting such compensation or liability insurance shall include the following schedules in its annual statement required by law:
A schedule showing distribution of unallocated liability loss expense payments.
A schedule showing distribution of unallocated compensation loss expense payments.
A schedule of its experience under policies of such insurance, in such form as the commissioner prescribes.
Each insurer transacting insurance covering liability for malpractice of any person licensed under the Dental Practice Act (Chapter 4 (commencing with Section 1600) of Division 2 of the Business and Professions Code), under the Medical Practice Act (Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code), or under the State Bar Act (Chapter 4 (commencing with Section 6000) of Division 3 of the Business and Professions Code), shall report all of the following statistics to the commissioner, by profession and by medical specialty, upon request of the commissioner:
The total number of doctors or lawyers written during the immediately preceding calendar year.
The total amount of premiums received from insureds, both written and earned (as reported in the annual statement), during the immediately preceding calendar year.
The number of claims reported to the insurer for the first time separately by the year the claim occurred, and the number of claims reported closed during a previous calendar year which were reopened separately by the year the claim occurred.
The total number of claims outstanding, together with the monetary amount reserved for loss and allocated loss expense, in the annual statement as of December 31 of the calendar year next preceding, separately stated by the year the claim occurred.
The number of claims closed with payment to the claimant during the calendar year next preceding, to be reported by the year the claim occurred, (2) the total monetary amount paid thereon, reported by the year the claim occurred, and (3) the total allocated loss expense paid thereon, reported by the year the claim occurred.
The monetary amount paid on claims during the calendar year next preceding, to be reported separately by the year the claim occurred, with allocated loss expense paid, to be reported separately by the year the claim occurred.
The number of claims closed without payment to the claimant during the calendar year next preceding, by the year the claim occurred, and the allocated loss expense paid thereon, separately by the year the claim occurred.
The monetary amount reserved in the annual statement for the calendar year next preceding on claims incurred but not reported to the insurer.
The number of lawsuits filed against the insurer’s insureds, and the number of doctors, included therein, during the calendar year next preceding, to be separately reported by the year the claim occurred.
A distribution by size of payment for those claims closed during the calendar year next preceding, showing the number of claims and total amount paid for each monetary category, as determined by the commissioner.
The reserve for outstanding losses and loss expenses under such liability or compensation insurance shall be determined in accordance with the regulations of the commissioner promulgated pursuant to Section 923.5.
Whenever the reserves for outstanding liability or compensation losses and loss expenses of any insurer, computed pursuant to this article, seem inadequate to the commissioner, he shall require such insurer to maintain additional reserves.
ARTICLE 2. Actions on Policies Containing Liability Provisions [11580. - 11589.5.]
A policy insuring against losses set forth in subdivision (a) shall not be issued or delivered to any person in this state unless it contains the provisions set forth in subdivision (b). Such policy, whether or not actually containing such provisions, shall be construed as if such provisions were embodied therein.
Unless it contains such provisions, the following policies of insurance shall not be thus issued or delivered:
Against loss or damage resulting from liability for injury suffered by another person other than (i) a policy of workers’ compensation insurance, or (ii) a policy issued by a nonadmitted Mexican insurer solely for use in the Republic of Mexico.
Against loss of or damage to property caused by draught animals or any vehicle, and for which the insured is liable, other than a policy which provides insurance in the Republic of Mexico, issued or delivered in this state by a nonadmitted Mexican insurer.
Such policy shall not be thus issued or delivered to any person in this state unless it contains all the following provisions:
A provision that the insolvency or bankruptcy of the insured will not release the insurer from the payment of damages for injury sustained or loss occasioned during the life of such policy.
A provision that whenever judgment is secured against the insured or the executor or administrator of a deceased insured in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.
A policy insuring against legal liability arising from the rendering of professional services by an insured licensed pursuant to the provisions of Division 2 (commencing with Section 500) of the Business and Professions Code, or Chapter 4 (commencing with Section 6000) of Division 3 of the Business and Professions Code, and which generally limits the coverage thereof to liability for only those claims that are first made against the insured while the policy is in force, shall not be issued or delivered to any person in this state unless the application or proposal therefor complies with subdivision (b) and the policy complies with subdivision (c).
The form of application or proposal for any such policy described in subdivision (a) shall recite prominently and conspicuously at the heading thereof that it is an application or proposal for a claims-made policy.
Each such policy described in subdivision (a) shall contain on the face page thereof a prominent and conspicuous legend or statement substantially to the following effect:
NOTICE
“Except to such extent as may otherwise be provided herein, the coverage of this policy is limited generally to liability for only those claims that are first made against the insured while the policy is in force. Please review the policy carefully and discuss the coverage thereunder with your insurance agent or broker.”
A liability insurer may review bills submitted for the defense of its insured, but shall not compensate a reviewer based on any of the following:
A percentage of the amount by which a bill is reduced for payment.
The number of claims or the cost of services for which the reviewer has denied authorization or payment.
An agreement that no compensation will be due unless one or more bills are reduced for payment.
Any additional insured endorsement issued by an admitted or nonadmitted insurer for the benefit of a public agency in connection with, collateral to, or affecting any construction contract to which the provisions of subdivision (b) of Section 2782 of the Civil Code apply, shall not provide any duty of indemnity coverage for the active negligence of the additional insured in any case where an agreement to indemnify the additional insured would be invalid under subdivision (b) of Section 2782 of the Civil Code. In any case where a claim or loss encompasses the negligence of the original insured and the active negligence of the additional insured that is not covered because of this section, the insurer’s obligation shall be limited to obligations permitted by this section.
Any contract requirement that requires a promisor to procure insurance that is invalid under this section shall be invalid.
The Legislature declares that the public policy of this state in regard to provisions authorized or required to be included in policies affording automobile liability insurance or motor vehicle liability insurance issued or delivered in this state shall be as stated in this article, that this article expresses the total public policy of this state respecting the content of such policies, and that no provision of this article or of the Vehicle Code shall apply to policies affording automobile liability insurance or motor vehicle liability insurance in the Republic of Mexico issued or delivered in this state by a nonadmitted Mexican insurer. The Legislature further declares that it is the intent of the Legislature that the requirements set forth in Article 2 (commencing with Section 16450) of Chapter 3 of Division 7 of the Vehicle Code shall apply only to an owner’s policy or operator’s policy of liability insurance certified as provided in Section 16431 of the Vehicle Code as proof of ability to respond in damages, and that the requirements set forth in Article 4 (commencing with Section 11620) of Chapter 1 of Part 3 of Division 2 of the Insurance Code shall apply only to automobile liability insurance policies issued under the California Assigned Risk Plan. Except as provided above, any other policy issued or delivered in this state affording liability insurance with respect to ownership, maintenance, or use of a motor vehicle shall comply with the requirements set forth in Sections 11580, 11580.1, and 11580.2.
Except as may be otherwise provided in this article:
The term “motor vehicle” means any vehicle designed for use principally upon streets and highways and subject to motor vehicle registration under the laws of this state.
The term “insured” shall include the person or persons to whom any policy subject to this article is issued as named insured and any other person to whom coverage is afforded under the terms of any such policy.
The term “bodily injury” shall include sickness or disease, including death resulting therefrom.
The term “automobile” means any self-propelled motor vehicle, with neither more than nor less than four wheels, designed for use principally upon streets and highways and subject to motor vehicle registration under the laws of this state.
The term “arrest” shall have the same meaning as set forth in Section 834 of the Penal Code.
The term “operated by” or “when operating” shall be conclusively presumed to describe the conduct of the person sitting immediately behind the steering controls of the motor vehicle. The person shall be conclusively presumed to be the sole operator of the motor vehicle.
The term “use” when applied to a motor vehicle shall only mean operating, maintaining, loading, or unloading a motor vehicle.
The word “terms” when used with reference to a policy or endorsement includes the provision of coverage, exclusions, restrictions, conditions, deductions, and limits.
Unless otherwise provided in this code, the term “leased motor vehicle” means a motor vehicle leased or rented by a lessor licensed to lease motor vehicles under a written contract for a period of six months or longer.
Except when required by a conditional sales vendor, no person or entity who is licensed pursuant to Chapter 5 (commencing with Section 1621) of Part 2 of Division 1 and who holds an appointment by, or transacts insurance with, an insurer which is admitted to issue a policy of automobile liability insurance, as described in Section 16054 of the Vehicle Code, or a motor vehicle liability policy, as described in Section 16450 of the Vehicle Code, or any policy or coverage described in Section 660, shall require any insured to purchase or maintain automobile collision coverage, as defined in Section 660, for the insured motor vehicle as a condition to the issuance or maintenance of comprehensive coverage for such motor vehicle, unless such policy requires the purchase of both such coverages.
This section shall apply only to those policies and coverages issued or renewed on or after the effective date of this section.
As used in this section, “comprehensive coverage” means coverage for loss or damage to the insured motor vehicle resulting from a cause other than collision or upset.
With respect to disclosure of the fact of an arrest for any violation of the Vehicle Code or of a city or county ordinance or resolution relating to vehicles or their operators or owner which did not result in a conviction, the issuer, or his agency or employee, of any policy of automobile liability insurance (as described in Section 16056 of the Vehicle Code), any motor vehicle liability policy (as described in Section 16450 of the Vehicle Code), or any policy or coverage described in Section 660, shall not inquire of an applicant whether he has been arrested under such circumstances or to condition the issuance of any such policy on the applicant’s making such disclosure.
Any policy of automobile liability insurance shall contain a notice stating limits of future coverage. The notice shall be prominently displayed on the first page of the policy or in related documents which are provided to the policyholder.
For the purposes of this section:
“Automobile liability insurance policy” means a policy of automobile liability insurance, and any other policy of automobile insurance that contains as a component automobile liability insurance, but limited to those policies that are defined in Section 660.
“Limits of future coverage” means specified reasons for which the insurer may cancel or refuse to renew the policy or increase the premium for the same coverage.
“Notice” means the specific information specified in paragraph (2) or a clear and concise reference to the exact location of the information in the policy or in related documents provided to the policyholder.
For the purposes of notice of cancellation, the insurer shall list those grounds for valid notice of cancellation as specified in Section 661.
For the purposes of nonrenewal or premium increase, the insurer shall state the reasons for this action which shall include, if applicable, but not be limited to, the following:
A change in the location of garaging of an insured vehicle.
A change in the use of the insured vehicle.
Convictions for violating any provision of the Vehicle Code or the Penal Code relating to the operation of a motor vehicle.
The payment made by an insurer due to a claim filed by an insured or a third party.
A statement shall be included in the nonrenewal section that some nonrenewals and premium increases may result from reasons that are not specified in subdivision (d) for an insurer that are both lawful and not unfairly discriminatory.
Any automobile liability insurer that is responsible for coverage for ordinary, reasonable, and necessary medical transportation services provided to an insured, or on behalf of an insured, to a valid claimant is liable for those charges to the person performing those services. The insurer may discharge this obligation by making payment to the person performing the medical transportation services or to the insured or on behalf of the insured to the claimant.
Any insured or claimant who has received payment, which includes charges for medical transportation services, from an insurer for a loss relating to a vehicle is liable for those charges to the person performing those services.
As used in this section, “child passenger restraint system” means a system as described in Section 27360 of the Vehicle Code.
Every policy of automobile liability insurance, as described in Section 16054 of the Vehicle Code, shall provide liability coverage for replacement of a child passenger restraint system that was damaged or was in use by a child during an accident for which liability coverage under the policy is applicable due to the liability of an insured.
Every policy of automobile liability insurance that provides uninsured motorist property damage coverage, as described in paragraph (2) of subdivision (a) of Section 11580.26, shall provide coverage for replacement of a child passenger restraint system that was damaged or was in use by a child during an accident for which uninsured motorist property damage coverage under the policy is applicable due to the liability of an uninsured motorist.
Every policy that provides automobile collision coverage, as described in Section 660, or every policy that provides automobile physical damage coverage, as described in Section 660, shall include a child passenger restraint system within the definition of covered property, if the child passenger restraint system was in use by a child during an accident or, if the child passenger restraint system was in the vehicle and it sustained a loss covered by the policy.
Upon the filing of a claim pursuant to a policy described in subdivision (b), (c), or (d), unless otherwise determined, an insurer shall have an obligation to ask whether a child passenger restraint system was in use by a child during an accident or was in the vehicle at the time of a loss that is covered by the policy, and an obligation to replace the child passenger restraint system or reimburse the claimant for the cost of purchasing a new passenger restraint system in accordance with this section if it was in use by a child during the accident or if it sustained a covered loss while in the vehicle.
An insured, upon acquiring a replacement child passenger restraint system, may surrender the child passenger restraint system that was replaced to the nearest office of the Department of the California Highway Patrol.
No policy of automobile liability insurance described in Section 16054 of the Vehicle Code covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be issued or delivered in this state on or after the effective date of this section unless it contains the provisions set forth in subdivision (b). However, none of the requirements of subdivision (b) shall apply to the insurance afforded under the policy (1) to the extent that the insurance exceeds the limits specified in subdivision (a) of Section 16056 of the Vehicle Code, or (2) if the policy contains an underlying insurance requirement, or provides for a retained limit of self-insurance, equal to or greater than the limits specified in subdivision (a) of Section 16056 of the Vehicle Code.
Every policy of automobile liability insurance to which subdivision (a) applies shall contain all of the following provisions:
Coverage limits not less than the limits specified in subdivision (a) of Section 16056 of the Vehicle Code.
Designation by explicit description of, or appropriate reference to, the motor vehicles or class of motor vehicles to which coverage is specifically granted.
Designation by explicit description of the purposes for which coverage for those motor vehicles is specifically excluded.
Provision affording insurance to the named insured with respect to any owned or leased motor vehicle covered by the policy, and to the same extent that insurance is afforded to the named insured, to any other person using the motor vehicle, provided the use is by the named insured or with his or her permission, express or implied, and within the scope of that permission, except that: (A) with regard to insurance afforded for the loading or unloading of the motor vehicle, the insurance may be limited to apply only to the named insured, a relative of the named insured who is a resident of the named insured’s household, a lessee or bailee of the motor vehicle, or an employee of any of those persons; and (B) the insurance afforded to any person other than the named insured need not apply to: (i) any employee with respect to bodily injury sustained by a fellow employee injured in the scope and course of his or her employment, or (ii) any person, or to any agent or employee thereof, employed or otherwise engaged in the business of selling, repairing, servicing, delivering, testing, road-testing, parking, or storing automobiles with respect to any accident arising out of the maintenance or use of a motor vehicle in connection therewith. As used in this chapter, “owned motor vehicle” includes all motor vehicles described and rated in the policy.
In addition to any exclusion provided in paragraph (3) of subdivision (b), the insurance afforded by any policy of automobile liability insurance to which subdivision (a) applies, including the insurer’s obligation to defend, may, by appropriate policy provision, be made inapplicable to any or all of the following:
Liability for bodily injury to an insured or liability for bodily injury to an insured whenever the ultimate benefits of that indemnification accrue directly or indirectly to an insured.
Liability for damage to property owned, rented to, transported by, or in the charge of, an insured. A motor vehicle operated by an insured shall be considered to be property in the charge of an insured.
Liability for any bodily injury or property damage with respect to which insurance is or can be afforded under a nuclear energy liability policy.
Any motor vehicle or class of motor vehicles, as described or designated in the policy, with respect to which coverage is explicitly excluded, in whole or in part.
“The insured” as used in paragraphs (1), (2), (3), and (4) shall mean only that insured under the policy against whom the particular claim is made or suit brought. “An insured” as used in paragraphs (5) and (6) shall mean any insured under the policy including those persons who would have otherwise been included within the policy’s definition of an insured but, by agreement, are subject to the limitations of paragraph (1) of subdivision (d).
Notwithstanding paragraph (4) of subdivision (b), or Article 2 (commencing with Section 16450) of Chapter 3 of Division 7 of, or Article 2 (commencing with Section 17150) of Chapter 1 of Division 9 of, the Vehicle Code, the insurer and any named insured may, by the terms of any policy of automobile liability insurance to which subdivision (a) applies, or by a separate writing relating thereto, agree as to either or both of the following limitations, the agreement to be binding upon every insured to whom the policy applies and upon every third-party claimant:
He or she is a resident of the same household as the named insured.
As a result of operating the insured motor vehicle of the named insured, he or she is jointly sued with the named insured.
He or she is an insured under a separate automobile liability insurance policy issued to him or her as a named insured, which policy does not provide a defense to the named insured.
An agreement made by the insurer and any named insured more than 60 days following the inception of the policy excluding a designated person by name shall be effective from the date of the agreement and shall, with the signature of a named insured, be conclusive evidence of the validity of the agreement.
That agreement shall remain in force as long as the policy remains in force, and shall apply to any continuation, renewal, or replacement of the policy by the named insured, or reinstatement of the policy within 30 days of any lapse thereof.
Nothing in this section or in Section 16054 or 16450 of the Vehicle Code shall be construed to constitute a homeowner’s policy, personal and residence liability policy, personal and farm liability policy, general liability policy, comprehensive personal liability policy, manufacturers’ and contractors’ policy, premises liability policy, special multiperil policy, or any policy or endorsement where automobile liability coverage is offered as incidental to some other basic coverage as an “automobile liability policy” within the meaning of Section 16054 of the Vehicle Code, or as a “motor vehicle liability policy” within the meaning of Section 16450 of the Vehicle Code, nor shall this section apply to a policy that provides insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle in the Republic of Mexico issued or delivered in this state by a nonadmitted Mexican insurer, notwithstanding that the policy may provide automobile or motor vehicle liability coverage on insured premises or the ways immediately adjoining.
On and after January 1, 1976, no policy of automobile liability insurance described in subdivision (a) shall be issued, amended, or renewed in this state if it contains any provision that expressly or impliedly excludes from coverage under the policy the operation or use of an insured motor vehicle by the named insured in the performance of volunteer services for a nonprofit charitable organization or governmental agency by providing social service transportation. This subdivision shall not apply in any case in which the named insured receives any remuneration of any kind other than reimbursement for actual mileage driven in the performance of those services at a rate not to exceed the following:
For the 1980–81 fiscal year, the maximum rate authorized by the California Victim Compensation and Government Claims Board shall also be known as the “base rate.”
For each fiscal year thereafter, the greater of either (A) the maximum rate authorized by the Department of General Services or (B) the base rate as adjusted by the California Consumer Price Index.
No policy of insurance issued under this section may be canceled by an insurer solely for the reason that the named insured is performing volunteer services for a nonprofit charitable organization or governmental agency consisting of providing social service transportation.
For the purposes of this section, “social service transportation” means transportation services provided by private nonprofit organizations or individuals to either individuals who are senior citizens or individuals or groups of individuals who have special transportation needs because of physical or mental conditions and supported in whole or in part by funding from private or public agencies.
Notwithstanding paragraph (4) of subdivision (b), or Article 2 (commencing with Section 16450) of Chapter 3 of Division 7 of, or Article 2 (commencing with Section 17150) of Chapter 1 of Division 9 of, the Vehicle Code, a Mexican nonadmitted insurer and any named insured may, by the terms of any policy of automobile insurance for use solely in the Republic of Mexico to which subdivision (a) applies, or by a separate writing relating thereto, agree to the limitation that coverage under that policy shall not apply to any person riding in or occupying a vehicle owned by the insured or driven by another person with the permission of the insured. The agreement shall be binding upon every insured to whom the policy applies and upon any third-party claimant.
No policy of automobile insurance that provides insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle solely in the Republic of Mexico issued by a nonadmitted Mexican insurance company, shall be subject to, or provide coverage for, those coverages provided in Section 11580.2.
Subject to the approval of the Insurance Commissioner, every admitted insurer issuing or renewing motor vehicle liability policies as defined in Section 16054 or 16450 of the Vehicle Code shall, at the time of offering to issue or offering to renew any such policy, disclose to the applicant in writing as a freestanding document, which brings attention to the applicant, all discounts, if any, that are available from the insurer for that insurance and for any related insurance provided under that policy. The insurer shall disclose any discounts for good drivers, senior drivers, students, multiple cars, and any other discounts that are available from that insurer. The disclosure shall be required for personal lines of motor vehicle insurance.
Every insurer that sells insurance through licensed agents or brokers shall disclose in writing to the agents and brokers all of the discounts that are required to be disclosed to the applicant under this section, and shall require its agents and brokers to make the disclosures required by this section.
The department shall not prohibit an insurer from electing to inspect physically a motor vehicle for purposes of issuing a policy for collision or comprehensive coverage. The inspection of the motor vehicle shall be at no cost to the insured. The information ascertained from that inspection may only be used to determine the extent of insurability for collision or comprehensive coverage for the motor vehicle. If an insurer elects to conduct an inspection prior to offering comprehensive and collision insurance pursuant to this section, the insurer shall inspect every motor vehicle for which coverage is requested if the vehicle was not previously insured under a policy of comprehensive and collision coverage. An insurer may exempt from this requirement new motor vehicles if a copy of the sales contract is delivered to the insurer within five business days of the purchase of the new motor vehicle. The inspection shall be done by the insurer or its agent, and shall be performed not more than 20 miles from the address where the vehicle is insured, and during normal business hours.
No policy of bodily injury liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle, except for policies that provide insurance in the Republic of Mexico issued or delivered in this state by nonadmitted Mexican insurers, shall be issued or delivered in this state to the owner or operator of a motor vehicle, or shall be issued or delivered by any insurer licensed in this state upon any motor vehicle then principally used or principally garaged in this state, unless the policy contains, or has added to it by endorsement, a provision with coverage limits at least equal to the limits specified in subdivision (m) and in no case less than the financial responsibility requirements specified in Section 16056 of the Vehicle Code insuring the insured, the insured’s heirs or legal representative for all sums within the limits that he, she, or they, as the case may be, shall be legally entitled to recover as damages for bodily injury or wrongful death from the owner or operator of an uninsured motor vehicle. The insurer and any named insured, prior to or subsequent to the issuance or renewal of a policy, may, by agreement in writing, in the form specified in paragraph (2) or paragraph (3), (1) delete the provision covering damage caused by an uninsured motor vehicle completely, or (2) delete the coverage when a motor vehicle is operated by a natural person or persons designated by name, or (3) agree to provide the coverage in an amount less than that required by subdivision (m) but not less than the financial responsibility requirements specified in Section 16056 of the Vehicle Code. Any of these agreements by any named insured or agreement for the amount of coverage shall be binding upon every insured to whom the policy or endorsement provisions apply while the policy is in force, and shall continue to be so binding with respect to any continuation or renewal of the policy or with respect to any other policy that extends, changes, supersedes, or replaces the policy issued to the named insured by the same insurer, or with respect to reinstatement of the policy within 30 days of any lapse thereof. A policy shall be excluded from the application of this section if the automobile liability coverage is provided only on an excess or umbrella basis. Nothing in this section shall require that uninsured motorist coverage be offered or provided in any homeowner policy, personal and residents’ liability policy, comprehensive personal liability policy, manufacturers’ and contractors’ policy, premises liability policy, special multiperil policy, or any other policy or endorsement where automobile liability coverage is offered as incidental to some other basic coverage, notwithstanding that the policy may provide automobile or motor vehicle liability coverage on insured premises or the ways immediately adjoining.
The agreement specified in paragraph (1) to delete the provision covering damage caused by an uninsured motor vehicle completely or delete the coverage when a motor vehicle is operated by a natural person or persons designated by name shall be in the following form:
“The California Insurance Code requires an insurer to provide uninsured motorists coverage in each bodily injury liability insurance policy it issues covering liability arising out of the ownership, maintenance, or use of a motor vehicle. Those provisions also permit the insurer and the applicant to delete the coverage completely or to delete the coverage when a motor vehicle is operated by a natural person or persons designated by name. Uninsured motorists coverage insures the insured, his or her heirs, or legal representatives for all sums within the limits established by law, that the person or persons are legally entitled to recover as damages for bodily injury, including any resulting sickness, disease, or death, to the insured from the owner or operator of an uninsured motor vehicle not owned or operated by the insured or a resident of the same household. An uninsured motor vehicle includes an underinsured motor vehicle as defined in subdivision (p) of Section 11580.2 of the Insurance Code.”
The agreement may contain additional statements not in derogation of or in conflict with the foregoing. The execution of the agreement shall relieve the insurer of liability under this section while the agreement remains in effect.
The agreement specified in paragraph (1) to provide coverage in an amount less than that required by subdivision (m) shall be in the following form:
“The California Insurance Code requires an insurer to provide uninsured motorists coverage in each bodily injury liability insurance policy it issues covering liability arising out of the ownership, maintenance, or use of a motor vehicle. Those provisions also permit the insurer and the applicant to agree to provide the coverage in an amount less than that required by subdivision (m) of Section 11580.2 of the Insurance Code but not less than the financial responsibility requirements. Uninsured motorists coverage insures the insured, his or her heirs, or legal representatives for all sums within the limits established by law, that the person or persons are legally entitled to recover as damages for bodily injury, including any resulting sickness, disease, or death, to the insured from the owner or operator of an uninsured motor vehicle not owned or operated by the insured or a resident of the same household. An uninsured motor vehicle includes an underinsured motor vehicle as defined in subdivision (p) of Section 11580.2 of the Insurance Code.”
The agreement may contain additional statements not in derogation of or in conflict with this paragraph. However, it shall be presumed that an application for a policy of bodily injury liability insurance containing uninsured motorist coverage in an amount less than that required by subdivision (m), signed by the named insured and approved by the insurer, with a policy effective date after January 1, 1985, shall be a valid agreement as to the amount of uninsured motorist coverage to be provided.
As used in subdivision (a), “bodily injury” includes sickness or disease, including death, resulting therefrom; “named insured” means only the individual or organization named in the declarations of the policy of motor vehicle bodily injury liability insurance referred to in subdivision (a); as used in subdivision (a) if the named insured is an individual “insured” means the named insured and the spouse of the named insured and, while residents of the same household, relatives of either while occupants of a motor vehicle or otherwise, heirs and any other person while in or upon or entering into or alighting from an insured motor vehicle and any person with respect to damages he or she is entitled to recover for care or loss of services because of bodily injury to which the policy provisions or endorsement apply; as used in subdivision (a), if the named insured is an entity other than an individual, “insured” means any person while in or upon or entering into or alighting from an insured motor vehicle and any person with respect to damages he or she is entitled to recover for care or loss of services because of bodily injury to which the policy provisions or endorsement apply. As used in this subdivision, “individual” shall not include persons doing business as corporations, partnerships, or associations. As used in this subdivision, “insured motor vehicle” means the motor vehicle described in the underlying insurance policy of which the uninsured motorist endorsement or coverage is a part, a temporary substitute automobile for which liability coverage is provided in the policy or a newly acquired automobile for which liability coverage is provided in the policy if the motor vehicle is used by the named insured or with his or her permission or consent, express or implied, and any other automobile not owned by or furnished for the regular use of the named insured or any resident of the same household, or by a natural person or persons for whom coverage has been deleted in accordance with subdivision (a) while being operated by the named insured or his or her spouse if a resident of the same household, but “insured motor vehicle” shall not include any automobile while used as a public or livery conveyance. As used in this section, “uninsured motor vehicle” means a motor vehicle with respect to the ownership, maintenance or use of which there is no bodily injury liability insurance or bond applicable at the time of the accident, or there is the applicable insurance or bond but the company writing the insurance or bond denies coverage thereunder or refuses to admit coverage thereunder except conditionally or with reservation, or an “underinsured motor vehicle” as defined in subdivision (p), or a motor vehicle used without the permission of the owner thereof if there is no bodily injury liability insurance or bond applicable at the time of the accident with respect to the owner or operator thereof, or the owner or operator thereof be unknown, provided that, with respect to an “uninsured motor vehicle” whose owner or operator is unknown:
The bodily injury has arisen out of physical contact of the automobile with the insured or with an automobile that the insured is occupying.
The insured or someone on his or her behalf has reported the accident within 24 hours to the police department of the city where the accident occurred or, if the accident occurred in unincorporated territory then either to the sheriff of the county where the accident occurred or to the local headquarters of the California Highway Patrol, and has filed with the insurer within 30 days thereafter a statement under oath that the insured or his or her legal representative has or the insured’s heirs have a cause of action arising out of the accident for damages against a person or persons whose identity is unascertainable and set forth facts in support thereof. As used in this section, “uninsured motor vehicle” shall not include a motor vehicle owned or operated by the named insured or any resident of the same household or self-insured within the meaning of the Financial Responsibility Law of the state in which the motor vehicle is registered or that is owned by the United States of America, Canada, a state or political subdivision of any of those governments or an agency of any of the foregoing, or a land motor vehicle or trailer while located for use as a residence or premises and not as a vehicle, or any equipment or vehicle designed or modified for use primarily off public roads, except while actually upon public roads.
As used in this section, “uninsured motor vehicle” also means an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits specified therein because of insolvency. An insurer’s solvency protection shall be applicable only to accidents occurring during a policy period in which its insured’s motor vehicle coverage is in effect where the liability insurer of the tortfeasor becomes insolvent within one year of the accident. In the event of payment to any person under the coverage required by this section and subject to the terms and conditions of the coverage, the insurer making the payment, shall to the extent thereof, be entitled to any proceeds that may be recoverable from the assets of the insolvent insurer through any settlement or judgment of the person against the insolvent insurer.
Nothing in this section is intended to exclude from the definition of an uninsured motor vehicle any motorcycle or private passenger-type four-wheel drive motor vehicle if that vehicle was subject to and failed to comply with the Financial Responsibility Law of this state.
The insurance coverage provided for in this section does not apply either as primary or as excess coverage:
To bodily injury of the insured with respect to which the insured or his or her representative shall, without the written consent of the insurer, make any settlement with or prosecute to judgment any action against any person who may be legally liable therefor.
In any instance where it would inure directly or indirectly to the benefit of any workers’ compensation carrier or to any person qualified as a self-insurer under any workers’ compensation law, or directly to the benefit of the United States, or any state or any political subdivision thereof.
To establish proof of financial responsibility as provided in Section 16054 of the Vehicle Code.
To bodily injury of the insured while occupying a motor vehicle owned by an insured or leased to an insured under a written contract for a period of six months or longer, unless the occupied vehicle is an insured motor vehicle. “Motor vehicle” as used in this paragraph means any self-propelled vehicle.
To bodily injury of the insured when struck by a vehicle owned by an insured, except when the injured insured’s vehicle is being operated, or caused to be operated, by a person without the injured insured’s consent in connection with criminal activity that has been documented in a police report and that the injured insured is not a party to.
To bodily injury of the insured while occupying a motor vehicle rented or leased to the insured for public or livery purposes.
Subject to paragraph (2) of subdivision (c), the policy or endorsement may provide that if the insured has insurance available to the insured under more than one uninsured motorist coverage provision, any damages shall not be deemed to exceed the higher of the applicable limits of the respective coverages, and the damages shall be prorated between the applicable coverages as the limits of each coverage bear to the total of the limits.
The policy or endorsement added thereto may provide that if the insured has valid and collectible automobile medical payment insurance available to him or her, the damages that the insured shall be entitled to recover from the owner or operator of an uninsured motor vehicle shall be reduced for purposes of uninsured motorist coverage by the amounts paid or due to be paid under the automobile medical payment insurance.
The policy or an endorsement added thereto shall provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration. The arbitration shall be conducted by a single neutral arbitrator. An award or a judgment confirming an award shall not be conclusive on any party in any action or proceeding between (i) the insured, his or her insurer, his or her legal representative, or his or her heirs and (ii) the uninsured motorist to recover damages arising out of the accident upon which the award is based. If the insured has or may have rights to benefits, other than nonoccupational disability benefits, under any workers’ compensation law, the arbitrator shall not proceed with the arbitration until the insured’s physical condition is stationary and ratable. In those cases in which the insured claims a permanent disability, the claims shall, unless good cause be shown, be adjudicated by award or settled by compromise and release before the arbitration may proceed. Any demand or petition for arbitration shall contain a declaration, under penalty of perjury, stating whether (i) the insured has a workers’ compensation claim; (ii) the claim has proceeded to findings and award or settlement on all issues reasonably contemplated to be determined in that claim; and (iii) if not, what reasons amounting to good cause are grounds for the arbitration to proceed immediately. The arbitration shall be deemed to be a proceeding and the hearing before the arbitrator shall be deemed to be the trial of an issue therein for purposes of issuance of a subpoena by an attorney of a party to the arbitration under Section 1985 of the Code of Civil Procedure. Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure shall be applicable to these determinations, and all rights, remedies, obligations, liabilities and procedures set forth in Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure shall be available to both the insured and the insurer at any time after the accident, both before and after the commencement of arbitration, if any, with the following limitations:
Whenever in Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure, reference is made to the court in which the action is pending, or provision is made for application to the court or obtaining leave of court or approval by the court, the court that shall have jurisdiction for the purposes of this section shall be the superior court of the State of California, in and for any county that is a proper county for the filing of a suit for bodily injury arising out of the accident, against the uninsured motorist, or any county specified in the policy or an endorsement added thereto as a proper county for arbitration or action thereon.
Any proper court to which application is first made by either the insured or the insurer under Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure for any discovery or other relief or remedy, shall thereafter be the only court to which either of the parties shall make any applications under Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure with respect to the same accident, subject, however, to the right of the court to grant a change of venue after a hearing upon notice, upon any of the grounds upon which change of venue might be granted in an action filed in the superior court.
A deposition pursuant to Chapter 9 (commencing with Section 2025.010) of Title 4 of Part 4 of the Code of Civil Procedure may be taken without leave of court, except that leave of court, granted with or without notice and for good cause shown, must be obtained if the notice of the taking of the deposition is served by either party within 20 days after the accident.
Subdivision (a) of Section 2025.280 of the Code of Civil Procedure is not applicable to discovery under this section.
For the purposes of discovery under this section, the insured and the insurer shall each be deemed to be “a party to the action,” where that phrase is used in Section 2025.260 of the Code of Civil Procedure.
Interrogatories under Chapter 13 (commencing with Section 2030.010) of Title 4 of Part 4 of the Code of Civil Procedure and requests for admission under Chapter 16 (commencing with Section 2033.010) of Title 4 of Part 4 of the Code of Civil Procedure may be served by either the insured or the insurer upon the other at any time more than 20 days after the accident without leave of court.
Nothing in this section limits the rights of any party to discovery in any action pending or that may hereafter be pending in any court.
The insurer paying a claim under an uninsured motorist endorsement or coverage shall be entitled to be subrogated to the rights of the insured to whom the claim was paid against any person legally liable for the injury or death to the extent that payment was made. The action may be brought within three years from the date that payment was made hereunder.
An insured entitled to recovery under the uninsured motorist endorsement or coverage shall be reimbursed within the conditions stated herein without being required to sign any release or waiver of rights to which he or she may be entitled under any other insurance coverage applicable; nor shall payment under this section to the insured be delayed or made contingent upon the decisions as to liability or distribution of loss costs under other bodily injury liability insurance or any bond applicable to the accident. Any loss payable under the terms of the uninsured motorist endorsement or coverage to or for any person may be reduced:
By the amount paid and the present value of all amounts payable to him or her, his or her executor, administrator, heirs, or legal representative under any workers’ compensation law, exclusive of nonoccupational disability benefits.
By the amount the insured is entitled to recover from any other person insured under the underlying liability insurance policy of which the uninsured motorist endorsement or coverage is a part, including any amounts tendered to the insured as advance payment on behalf of the other person by the insurer providing the underlying liability insurance.
Suit for bodily injury has been filed against the uninsured motorist, in a court of competent jurisdiction.
Agreement as to the amount due under the policy has been concluded.
The insured has formally instituted arbitration proceedings by notifying the insurer in writing sent by certified mail, return receipt requested. Notice shall be sent to the insurer or to the agent for process designated by the insurer filed with the department.
Within five years from the institution of the arbitration proceeding.
If the insured has a workers’ compensation claim arising from the same accident, within three years of the date the claim is concluded, or within the five-year period set forth in subparagraph (A), whichever occurs later.
The doctrines of estoppel, waiver, impossibility, impracticality, and futility apply to excuse a party’s noncompliance with the statutory timeframe, as determined by the court.
Parties to the insurance contract may stipulate in writing to extending the time to conclude arbitration.
Notwithstanding subdivisions (b) and (i), in the event the accident occurs in any other state or foreign jurisdiction to which coverage is extended under the policy and the insurer of the tortfeasor becomes insolvent, any action authorized pursuant to this section may be maintained within three months of the insolvency of the tortfeasor’s insurer, but in no event later than the pertinent period of limitation of the jurisdiction in which the accident occurred.
Notwithstanding subdivision (i), any insurer whose insured has made a claim under his or her uninsured motorist coverage, and the claim is pending, shall, at least 30 days before the expiration of the applicable statute of limitation, notify its insured in writing of the statute of limitation applicable to the injury or death. Failure of the insurer to provide the written notice shall operate to toll any applicable statute of limitation or other time limitation for a period of 30 days from the date the written notice is actually given. The notice shall not be required if the insurer has received notice that the insured is represented by an attorney.
As used in subdivision (b), “public or livery conveyance,” or terms of similar import, shall not include the operation or use of a motor vehicle by the named insured in the performance of volunteer services for a nonprofit charitable organization or governmental agency by providing social service transportation as defined in subdivision (f) of Section 11580.1. This subdivision shall apply only to policies of insurance issued, amended, or renewed on or after January 1, 1976.
Coverage provided under an uninsured motorist endorsement or coverage shall be offered with coverage limits equal to the limits of liability for bodily injury in the underlying policy of insurance, but shall not be required to be offered with limits in excess of the following amounts:
A limit of thirty thousand dollars ($30,000) because of bodily injury to or death of one person in any one accident.
Subject to the limit for one person set forth in paragraph (1), a limit of sixty thousand dollars ($60,000) because of bodily injury to or death of two or more persons in any one accident.
Underinsured motorist coverage shall be offered with limits equal to the limits of liability for the insured’s uninsured motorist limits in the underlying policy, and may be offered with limits in excess of the uninsured motorist coverage. For the purposes of this section, uninsured and underinsured motorist coverage shall be offered as a single coverage. However, an insurer may offer coverage for damages for bodily injury or wrongful death from the owner or operator of an underinsured motor vehicle at greater limits than an uninsured motor vehicle.
If an insured has failed to provide an insurer with wage loss information or medical treatment record releases within 15 days of the insurer’s request or has failed to submit to a medical examination arranged by the insurer within 20 days of the insurer’s request, the insurer may, at any time prior to 30 days before the actual arbitration proceedings commence, request, and the insured shall furnish, wage loss information or medical treatment record releases, and the insurer may require the insured, except during periods of hospitalization, to make himself or herself available for a medical examination. The wage loss information or medical treatment record releases shall be submitted by the insured within 10 days of request and the medical examination shall be arranged by the insurer no sooner than 10 days after request, unless the insured agrees to an earlier examination date, and not later than 20 days after the request. If the insured fails to comply with the requirements of this subdivision, the actual arbitration proceedings shall be stayed for at least 30 days following compliance by the insured. The proceedings shall be scheduled as soon as practicable following expiration of the 30-day period.
This subdivision applies only when bodily injury, as defined in subdivision (b), is caused by an underinsured motor vehicle. If the provisions of this subdivision conflict with subdivisions (a) through (o), the provisions of this subdivision shall prevail.
As used in this subdivision, “an insured motor vehicle” is one that is insured under a motor vehicle liability policy, or automobile liability insurance policy, self-insured, or for which a cash deposit or bond has been posted to satisfy a financial responsibility law.
“Underinsured motor vehicle” means a motor vehicle that is an insured motor vehicle but insured for an amount that is less than the uninsured motorist limits carried on the motor vehicle of the injured person.
This coverage does not apply to any bodily injury until the limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury have been exhausted by payment of judgments or settlements, and proof of the payment is submitted to the insurer providing the underinsured motorist coverage.
When bodily injury is caused by one or more motor vehicles, whether insured, underinsured, or uninsured, the maximum liability of the insurer providing the underinsured motorist coverage shall not exceed the insured’s underinsured motorist coverage limits, less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury.
The insurer paying a claim under this subdivision shall, to the extent of the payment, be entitled to reimbursement or credit in the amount received by the insured from the owner or operator of the underinsured motor vehicle or the insurer of the owner or operator.
If the insured brings an action against the owner or operator of an underinsured motor vehicle, he or she shall forthwith give to the insurer providing the underinsured motorist coverage a copy of the complaint by personal service or certified mail. All pleadings and depositions shall be made available for copying or copies furnished the insurer, at the insurer’s expense, within a reasonable time.
Underinsured motorist coverage shall be included in all policies of bodily injury liability insurance providing uninsured motorist coverage issued or renewed on or after July 1, 1985. Notwithstanding this section, an agreement to delete uninsured motorist coverage completely, or with respect to a person or persons designated by name, executed prior to July 1, 1985, shall remain in full force and effect.
Regardless of the number of vehicles involved whether insured or not, persons covered, claims made, premiums paid or the number of premiums shown on the policy, in no event shall the limit of liability for two or more motor vehicles or two or more policies be added together, combined, or stacked to determine the limit of insurance coverage available to injured persons.
If a suit for bodily injury has been filed against an uninsured motorist in a court of competent jurisdiction, notice in writing of the suit shall be provided the insurer of the insured plaintiff within a reasonable time after the insured knew or should have known of the uninsured status of the motorist, but in no event shall that notice be required before two years from the date of the accrual of the cause of action on which the claim is based. Failure of the insured or his or her representative to give notice shall not be a basis for denial of the uninsured motorist benefits in the absence of proof of prejudice by the insurer.
The Legislature hereby finds that this section is declarative of existing law. It is the intent of the Legislature to abrogate the holdings in cases such as State Farm Mutual Auto. Ins. Co. v. Patton, 194 Cal. App. 3d 626, to the extent that they are inconsistent with this section. Those decisions are abrogated and shall not apply to any matters not final.
A private passenger motor vehicle insured by its owner pursuant to a policy of insurance subject to Section 11580.1 or 11580.2 shall not be classified as a commercial vehicle, for-hire vehicle, permissive use vehicle, or livery solely because its owner allows it to be used for personal vehicle sharing as long as all of the following circumstances apply:
The personal vehicle sharing is conducted pursuant to a personal vehicle sharing program.
The annual revenue received by the vehicle’s owner that was generated by the personal vehicle sharing of the vehicle does not exceed the annual expenses of owning and operating the vehicle, including depreciation, interest, lease payments, auto loan payments, insurance, maintenance, parking, fuel, cleaning, automobile repair, and costs associated with personal vehicle sharing, including, but not limited to, the installation, operation, and maintenance of computer hardware and software, signage identifying the vehicle as a personal sharing vehicle, and any fees charged by a personal vehicle sharing program.
The owner of the private passenger motor vehicle does not knowingly place the vehicle into commercial use, as defined by Section 675.5, by a personal vehicle sharing user while engaged in personal vehicle sharing.
For purposes of this section the following definitions apply:
“Personal vehicle sharing” means the use of private passenger motor vehicles by persons other than the vehicle’s owner, in connection with a personal vehicle sharing program.
“Personal vehicle sharing program” means a legal entity qualified to do business in the State of California engaged in the business of facilitating the sharing of private passenger vehicles for noncommercial use by individuals within the state.
“Private passenger motor vehicle” means a vehicle that is insured, or is subject to being insured, under a personal automobile liability insurance policy insuring a single individual or individuals residing in the same household, as the named insured, or meets the requirements of Section 16058 of the Vehicle Code, but does not include a vehicle with fewer than four wheels.
A personal vehicle sharing program shall, for each vehicle that it facilitates the use of, do all of the following:
Use only private passenger vehicles.
Facilitate the installation, operation, and maintenance of computer hardware and software and signage, necessary for a vehicle to be used in a personal vehicle sharing program, including payment of the cost of damage or theft of that equipment and any damage caused to the vehicle by the installation, operation, and maintenance of that equipment.
Notwithstanding any other law or any provision in a private passenger motor vehicle owner’s automobile insurance policy, in the event of a loss or injury that occurs during any time period when the vehicle is under the operation and control of a person, other than the vehicle owner, pursuant to a personal vehicle sharing program, or otherwise under the control of a personal vehicle sharing program, the personal vehicle sharing program shall assume all liability of the owner and shall be considered the owner of the vehicle for all purposes. Nothing in this section limits the liability of the personal vehicle sharing program for its acts or omissions that result in injury to any persons as a result of the use or operation of a personal vehicle sharing program.
A personal vehicle sharing program shall continue to be liable pursuant to subdivision (d) until both of the following occur:
The private passenger motor vehicle is returned to a location designated by the personal vehicle sharing program.
The earliest of one of the following occurs:
The expiration of the time period established for the particular use of the vehicle.
The intent to terminate the personal vehicle sharing use is verifiably communicated to the personal vehicle sharing program.
The vehicle’s owner takes possession and control of the vehicle.
The personal vehicle sharing program shall assume liability for a claim in which a dispute exists as to who was in control of the vehicle when the loss occurred giving rise to the claim, and the vehicle’s private passenger motor vehicle insurer shall indemnify the personal vehicle sharing program to the extent of its obligation under the applicable insurance policy, if it is determined that the vehicle’s owner was in control of the vehicle at the time of the loss.
If the owner of the vehicle is named as a defendant in a civil action for a loss or injury that occurs during any time period when the vehicle is under the operation and control of a person other than the vehicle’s owner pursuant to a personal vehicle sharing program, or otherwise under the control of a personal vehicle sharing program, the personal vehicle sharing program shall have the duty to defend and indemnify the vehicle’s owner, subject to the provisions of subdivisions (d) and (f).
Notwithstanding any other law or any provision in a vehicle owner’s automobile liability insurance policy, while a private passenger motor vehicle is used by a person other than its owner pursuant to personal vehicle sharing facilitated through a personal vehicle sharing program, all of the following shall apply:
The insurer of that vehicle on file with the Department of Motor Vehicles may exclude any and all coverage afforded pursuant to its policy.
The primary and excess insurer or insurers of the owners, operators, and maintainers of the private passenger motor vehicle used in a personal vehicle sharing program shall have the right to notify an insured that it has no duty to defend or indemnify any person or organization for liability for any loss that occurs during use of the vehicle in a personal vehicle sharing program.
A policy of insurance that is subject to Section 11580.1 or 11580.2 shall not be canceled, voided, terminated, rescinded, or nonrenewed solely on the basis that the private passenger motor vehicle has been made available for personal vehicle sharing pursuant to a personal vehicle sharing program that is in compliance with this section.
A personal vehicle sharing program shall, for each vehicle that it facilitates the use of, do all of the following:
Provide both of the following during all times that the vehicle is engaged in personal vehicle sharing:
Insurance coverages for the vehicle and operator at a minimum of forty-five thousand dollars ($45,000) for bodily injury or death for one person, ninety thousand dollars ($90,000) for bodily injury or death for all persons, and fifteen thousand dollars ($15,000) for property damage.
On and after January 1, 2031, the personal vehicle sharing program shall not provide liability coverage less than three times the minimum insurance requirements for private passenger vehicles set forth in Section 16056 of the Vehicle Code.
The ability for the vehicle owner and operator to obtain or purchase additional insurance in excess of the minimum mandatory coverage and limits pursuant to subparagraph (A), including comprehensive and collision coverages or contractual protections.
Provide the vehicle owner and any person that operates the vehicle pursuant to a personal vehicle sharing program with a written disclosure of all of the following:
The terms and conditions contained in this section, including any applicable insurance requirements, coverages, coverage gaps, protections, limits, and exclusions.
The minimum mandatory coverage and limits that the personal vehicle sharing program is required to provide to owners and operators pursuant to Section 16056 of the Vehicle Code.
The coverages and limits provided by the personal vehicle sharing program.
The requirement that the personal vehicle sharing program provide the vehicle owner and any person that operates the vehicle pursuant to a personal vehicle sharing program with the option to purchase or obtain additional limits, coverages, or protections.
Disclose all of the following in writing to the vehicle owner:
That the vehicle owner may have chosen higher limits, different coverages, or both, on their personal automobile insurance policy than those being provided by the personal vehicle sharing program, and, if so, that they have the option to purchase or obtain higher limits or optional coverages or protections.
That their personal automobile insurance may expressly exclude coverage for a vehicle while it is being operated pursuant to a personal vehicle sharing program in accordance with subdivision (h) of Section 11580.24.
That if their personal automobile insurer does not expressly exclude coverage for vehicle sharing, it may still deny coverage for an accident occurring during vehicle sharing if the annual revenue from the personal vehicle sharing program to the vehicle owner exceeds the vehicle owner’s annual expense of owning and operating the vehicle, as provided in subdivision (a) of Section 11580.24.
A person who violates this section is liable to the state for a civil penalty, to be determined by the commissioner, not to exceed five thousand dollars ($5,000) for each violation or, if the violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
The duties and obligations imposed by this act are cumulative with any other duties or obligations imposed under any other law, and shall not be construed to relieve any party from a duty or obligation imposed under any other law.
A penalty imposed pursuant to subdivision (b) is appealable by means of any remedy provided by Section 12940 or by the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code).
The hearing shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that the hearings may be conducted by an administrative law judge in the administrative law bureau of the department when the proceedings involve a common question of law or fact with another proceeding arising under this code that may be conducted by the administrative law bureau’s administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted under the Administrative Procedure Act.
The person shall be entitled to have the proceedings and the order reviewed by means of any remedy provided by Section 12940 or by the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code).
No motor vehicle insured pursuant to a policy of insurance issued under Section 11580.1 or 11580.2 shall be classified as a common carrier, livery, or for-hire vehicle solely for the reason that the named insured is performing volunteer services for a nonprofit charitable organization or governmental agency consisting of providing social service transportation as defined in subdivision (f) of Section 11580.1.
Except where a named insured has agreed pursuant to Section 11580.2 to delete the coverages provided by that section, no policy of bodily injury liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle, except where the policy provides insurance in the Republic of Mexico issued or delivered in this state by nonadmitted Mexican insurers, and except a policy insuring a commercial vehicle as defined in Section 260 of the Vehicle Code, shall be issued or delivered in this state to the owner or operator of a motor vehicle, or shall be issued or delivered by any insurer licensed in this state upon any motor vehicle then principally used or principally garaged in this state, unless a named insured has been offered the following coverage:
Where the policy of motor vehicle liability insurance includes collision coverage as defined in subdivision (d) of Section 660, coverage which provides that the deductible amount, if any, to be paid by the named insured under the collision coverage shall be payable by the insurer in the event of collision involving a vehicle owned by the named insured and insured under the policy, and an uninsured motor vehicle.
Where the policy of motor vehicle liability insurance does not include collision coverage as defined in subdivision (d) of Section 660, coverage for property damage to the insured motor vehicle, but not including personal property contained therein, caused by the owner or operator of an uninsured motor vehicle. As used in this subdivision, “property damage” means payment for loss or damage to the insured motor vehicle resulting from collision, not to exceed its actual cash value or three thousand five hundred dollars ($3,500), whichever is less, for which loss or damage the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle. Property damage does not include compensation for loss of use of the motor vehicle. As used in this subdivision, the term “insured motor vehicle” means the motor vehicle described in the underlying insurance policy of which the uninsured motorist property damage coverage or endorsement applies.
Every payment by an insurer under either coverage provided in paragraphs (1) and (2) of subdivision (a) shall be payable under the terms and conditions set forth in the policy, and shall be made only where the collision involves actual, direct physical contact between the insured and the uninsured motor vehicle and the owner or operator of the uninsured motor vehicle is identified or the uninsured motor vehicle is identified by its license number, provided that the insured or someone on his or her behalf shall have reported the accident within 10 business days to his or her insurer or their agent and, provided further, that it is also determined by the insured and insurer or, in the event of disagreement, by arbitration conducted by a single neutral arbitrator, when the insured has formally instituted arbitration proceedings within one year from the date of the accident, that the insured is legally entitled to recover the amount of the payments for property damage from the owner or operator of the uninsured motor vehicle. No cause of action shall exist against either an insured or insurer from exercising the right to request arbitration of a claim under this section or Section 11580.2.
Any named insured, prior to or subsequent to the issuance or renewal of a policy, may elect not to accept the type of coverage provided by this section or the insurer and any named insured may agree in writing to waive this coverage when a motor vehicle is used or operated by a person or persons designated by name. That election shall be binding upon every insured to whom the policy or endorsement provisions apply while the policy is in force and shall continue to be so binding, with respect to any continuation or renewal of the policy, or with respect to any other policy which extends, changes, supersedes, or replaces the policy issued to the named insured by the same insurer or with respect to reinstatement of the policy within 30 days of any lapse thereof. A policy shall be excluded from the application of this section if the only coverage, with respect to the use of any motor vehicle, is limited to the contingent liability arising out of the use of nonowned motor vehicles or if the automobile liability coverage is provided only on an excess or umbrella basis.
An insurer paying a claim under any coverage required by this section shall be entitled to be subrogated to the rights of the insured to whom the claim was paid against any person legally liable for the damage to the insured motor vehicle to the extent that payment was made. The action may be brought within three years from the date that payment was made pursuant to this section.
In the event of a covered loss to a vehicle that is insured for the coverage described in paragraph (2) of subdivision (a) and also insured for collision coverage, the collision coverage shall pay for the covered loss and the insurance described in paragraph (2) of subdivision (a) shall only pay any deductible not covered by the collision coverage not to exceed three thousand five hundred dollars ($3,500).
As used in this section, “uninsured motor vehicle” means any motor vehicle with respect to the ownership, maintenance, or use of which there is no property damage liability insurance or bond applicable at the time of the accident, or there is applicable insurance or bond but the company writing the insurance or bond denies coverage thereunder or refuses to admit coverage thereunder, except conditionally or with reservation, or a motor vehicle used without the permission of the owner thereof if there is no property damage liability insurance or bond applicable at the time of the accident with respect to the owner or operator thereof. A motor vehicle which has at least the minimum property damage liability limits required pursuant to Section 16056 of the Vehicle Code shall not be held to be an uninsured motor vehicle even when the property damage liability limits are not sufficient to compensate for all property damage caused by the owner or operator of the vehicle. As used in this section, “uninsured motor vehicle” shall not include a motor vehicle owned or operated by any insured or any resident of the named insured’s household or self-insured within the meaning of the financial responsibility provisions of the state in which the motor vehicle is registered or which is owned by the United States of America, Canada, a state or political subdivision of any government, or an agency of any of the foregoing, or a land motor vehicle or trailer operated on rails or crawler treads or while located for use as a residence for premises and not as a vehicle, or a farm-type tractor or equipment designed for use principally off public roads, except while actually upon public roads. As used in this section, “uninsured motor vehicle” also means an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits specified therein because of insolvency. An insurer’s solvency protection shall be applicable only to accidents occurring during a policy period in which its insured’s motor vehicle coverage is in effect where the liability insurer of the tortfeasor becomes insolvent within one year of the accident. In the event of payment to any person under the coverage required by this section and subject to the terms and conditions of the coverage, the insurer making the payment shall, to the extent thereof, be entitled to any proceeds which may be recoverable from the assets of the insolvent insurer through any settlement or judgment of the person against the insolvent insurer.
The offer of coverage required by this section shall be made only for policies issued or renewed on or after July 1, 1984.
Any insurer whose insured has made a claim under either coverage provided in paragraphs (1) and (2) of subdivision (a), and that claim is pending, shall, at least 30 days before the expiration of the applicable statute of limitation, notify its insured in writing of the statute of limitation applicable to the property damage. Failure of the insurer to provide the written notice shall operate to toll any applicable statute of limitation until 30 days after the date the written notice is actually given. The notice shall not be required if the insurer has received notice that the insured is represented by an attorney.
For purposes of insurance, a motor vehicle insured pursuant to a policy of insurance issued under Section 11580.1 or 11580.2 shall not be classified as a common carrier, commercial vehicle, for-hire vehicle, permissive use vehicle, or livery solely for the reason that the named insured is operating or using the insured motor vehicle to provide public social services, as defined in Section 10051 of the Welfare and Institutions Code, or social service transportation, as defined in subdivision (f) of Section 11580.1.
This section does not impair, affect, or change the rights, duties, or obligations of the employer of the named insured.
When an insured entitled to recovery under uninsured motorists’ coverage is a minor, an arbitration award upon the minor’s claim is deemed to be a compromise and is governed by Part 8 (commencing with Section 3300) of Division 4 of the Probate Code; provided, however, that the court may disapprove the award only on the grounds specified in Section 1286.2 of the Code of Civil Procedure.
In any action or arbitration proceeding to determine whether an insured shall be entitled to recovery of damages under uninsured motorist coverage, the certificate of the Department of Motor Vehicles that the owner or operator of the motor vehicle alleged to have been an uninsured motor vehicle at the time of the accident has not established financial responsibility, as provided in Section 16020 of the Vehicle Code, shall be admissible in evidence to create a rebuttable presumption that such vehicle was an uninsured motor vehicle at the time of the accident.
No award made in an arbitration proceeding instituted pursuant to Section 11580.2 shall be deemed to be res judicata or collateral estoppel in any court action which may be pending or brought by the insured against the owner or operator of an uninsured motor vehicle.
Where a policy of liability insurance covering the ownership, maintenance, or use of a motor vehicle or aircraft contains a provision indicating that coverage is extended to accidents, occurrences, and loss arising in Mexico, the policy shall contain an additional provision, either on the face of the policy or by an endorsement attached thereto stating as follows:WARNING
Unless you have automobile or aircraft insurance written by a Mexican insurance company, you may spend many hours or days in jail, if you have an accident in Mexico. Insurance coverage should be secured from a company licensed under the laws of Mexico to write such insurance in order to avoid complications and some other penalties possible under the laws of Mexico, including the possible impoundment of your automobile or aircraft.
The Legislature declares it to be the public policy of this state to avoid so far as possible conflicts and litigation, with resulting court congestion, between and among injured parties, insureds, and insurers concerning which, among various policies of liability insurance and the various coverages therein, are responsible as primary, excess, or sole coverage, and to what extent, under the circumstances of any given event involving death or injury to persons or property caused by the operation or use of a motor vehicle.
The Legislature further declares it to be the public policy of this state that Section 11580.9 of the Insurance Code expresses the total public policy of this state respecting the order in which two or more of such liability insurance policies covering the same loss shall apply, and such public policy is not to be changed or modified by any provision of the Vehicle Code except in those express cases where the requirements of Article 2 (commencing with Section 16450) of Chapter 3 of Division 7 of the Vehicle Code apply with regard to a policy of liability insurance certified as provided in Section 16431 of the Vehicle Code.
Where two or more policies affording valid and collectible automobile liability insurance apply to the same motor vehicle in an occurrence out of which a liability loss shall arise, and one policy affords coverage to a named insured engaged in the business of selling, repairing, servicing, delivering, testing, road-testing, parking, or storing motor vehicles, then both of the following shall be conclusively presumed:
If, at the time of loss, the motor vehicle is being operated by any person engaged in any of these businesses, or by his or her employee or agent, the insurance afforded by the policy issued to the person engaged in the business shall be primary, and the insurance afforded by any other policy shall be excess.
If, at the time of loss, the motor vehicle is being operated by any person other than as described in paragraph (1), the insurance afforded by the policy issued to any person engaged in any of these businesses shall be excess over all other insurance available to the operator as a named insured or otherwise.
Where two or more policies apply to the same loss, and one policy affords coverage to a named insured who in the course of his or her business rents or leases motor vehicles without operators, it shall be conclusively presumed that the insurance afforded by that policy to a person other than the named insured or his or her agent or employee, shall be excess over and not concurrent with, any other valid and collectible insurance applicable to the same loss covering the person as a named insured or as an additional insured under a policy with limits at least equal to the financial responsibility requirements specified in Section 16056 of the Vehicle Code. The presumption provided by this subdivision shall apply only if, at the time of the loss, the involved motor vehicle either:
Qualifies as a “commercial vehicle.” For purposes of this subdivision, “commercial vehicle” means a type of vehicle subject to registration or identification under the laws of this state and is one of the following:
Used or maintained for the transportation of persons for hire, compensation, or profit.
Designed, used, or maintained primarily for the transportation of property.
Has been leased for a term of six months or longer.
Where two or more policies are applicable to the same loss arising out of the loading or unloading of a motor vehicle, and one or more of the policies is issued to the owner, tenant, or lessee of the premises on which the loading or unloading occurs, it shall be conclusively presumed that the insurance afforded by the policy covering the motor vehicle shall not be primary, notwithstanding anything to the contrary in any endorsement required by law to be placed on the policy, but shall be excess over all other valid and collectible insurance applicable to the same loss with limits up to the financial responsibility requirements specified in Section 16056 of the Vehicle Code. In that event, the two or more policies shall not be construed as providing concurrent coverage, and only the insurance afforded by the policy or policies covering the premises on which the loading or unloading occurs shall be primary and the policy or policies shall cover as an additional insured with respect to the loading or unloading operations all employees of the owner, tenant, or lessee while acting in the course and scope of their employment.
Except as provided in subdivisions (a), (b), and (c), where two or more policies affording valid and collectible liability insurance apply to the same motor vehicle or vehicles in an occurrence out of which a liability loss shall arise, it shall be conclusively presumed that the insurance afforded by that policy in which the motor vehicle is described or rated as an owned automobile shall be primary and the insurance afforded by any other policy or policies shall be excess.
Any insurance policy which, under the terms of subdivisions (a) to (d), inclusive, applies as excess coverage may provide with respect to any primary policy or to any loss to which primary insurance is not valid and collectible in whole or in part, that the excess policy shall apply only to the extent necessary to provide the insured with the coverage limits specified in Section 16056 of the Vehicle Code.
The presumptions stated in subdivisions (a) to (d), inclusive, may be modified or amended only by written agreement signed by all insurers who have issued a policy or policies applicable to a loss described in these subdivisions and all named insureds under these policies.
Where two or more personal policies affording valid and collectible liability insurance apply to the same motor vehicle in an occurrence out of which a loss shall arise, and one policy, as defined in subdivision (a) of Section 660, is primary, either by its terms or by operation of law, and one or more of the personal policies providing liability insurance, as defined in Section 108, are excess, either by their terms or by operation of law, then the following shall apply:
Each insurer shall pay its share of the defense costs. Each insurer’s share of the defense costs shall be the percentage of the total defense costs equal to the amount of damage paid by that insurer as a percentage of total damages paid by all insurers whose policies apply to that motor vehicle.
The term “defense costs” means, for purposes of this subdivision, reasonable attorney’s fees and expenses, investigation expenses, expert witness fees, and costs allowable under Section 1033.5 of the Code of Civil Procedure.
Notwithstanding subdivision (b), when two or more policies affording valid and collectible automobile liability insurance apply to a power unit and an attached trailer or trailers in an occurrence out of which a liability loss shall arise, and one policy affords coverage to a named insured in the business of a trucker, defined as any person or organization engaged in the business of transporting property by auto for hire, then the following shall be conclusively presumed: If at the time of loss, the power unit is being operated by any person in the business of a trucker, the insurance afforded by the policy to the person engaged in the business of a trucker shall be primary for both power unit and trailer or trailers, and the insurance afforded by the other policy shall be excess.
For purposes of this article, a certificate of self-insurance issued pursuant to Section 16053 of the Vehicle Code or a deposit of cash made pursuant to Section 16054.2 of the Vehicle Code or a bond in effect pursuant to Section 16054 of the Vehicle Code or a report of governmental ownership or lease filed pursuant to Section 16051 of the Vehicle Code shall be considered a policy of automobile liability insurance. However, this subdivision does not establish or provide the basis for any other form of liability for or upon a self-insurer or other person or entity holding, issuing, or establishing any form of security as described herein.
Any liability insurer issuing or renewing an automobile liability policy or a motor vehicle liability policy within the meaning of subdivision (a) of Section 16054 of the Vehicle Code shall provide written notice to the named insured of the policy identification number that may be used for verifying financial responsibility for purposes of Section 16028 of the Vehicle Code. This notice may be provided in a written binder, if any, or in the policy documents provided upon issuance or renewal of the policy. The insurer shall provide at least two copies of the notice to the insured and shall, upon request and payment of the reasonable cost thereof, provide additional copies.
Upon any proceeding supplementary to execution, such judgment debtor may be required to exhibit any policy carried by him, insuring him against the liability for the loss or damage for which judgment was obtained.
No settlement made under a motor vehicle liability insurance policy of a claim against any insured thereunder arising from any accident or other event insured against for damage to or destruction of property owned by another person shall be construed as an admission of liability by the insured, or the insurer’s recognition of such liability, with respect to any other claim arising from the same accident or event.
No advance payment or partial payment of damages made by any person, or made by his insurer under liability insurance as defined in subdivision (a) of Section 108, as an accommodation to an injured person or on his behalf to others or to the heirs at law or dependents of a deceased person because of an injury or death claim or potential claim against any person or insured shall be construed as an admission of liability by the person claimed against, or of that person’s or the insurer’s recognition of such liability, with respect to such injured or deceased person or with respect to any other claim arising from the same accident or event. Any such payments shall, however, constitute a credit and be deductible from any final settlement made or judgment rendered with respect to such injured or deceased person which does not expressly take into account such advance payments. Any person, including any insurer, who makes such an advance or partial payment, shall at the time of beginning payment, notify the recipient thereof in writing of the statute of limitations applicable to the cause of action which such recipient may bring against such person as a result of such injury or death, including any time limitations within which claims are required to be made against the state or any local public entity when such payments are made on behalf of such public entities. Failure to provide such written notice shall operate to toll any such applicable statute of limitations or time limitations from the time of such advance or partial payment until such written notice is actually given. That notification shall not be required if the recipient is represented by an attorney.
No policy of insurance issued or delivered in this state covering any loss, expense or liability arising out of the ownership, maintenance, or use of an aircraft shall exclude or deny coverage because the aircraft is operated in violation of federal or civil air regulations, or any state law or local ordinance, nor shall any policy exclude or deny coverage which the insured is obligated to provide according to law.
This section does not prohibit the use of specific exclusions or conditions in any such policy which relates to any of the following:
Certification of an aircraft in a stated category by the Federal Aviation Administration.
Certification of a pilot in a stated category by the Federal Aviation Administration.
Establishing requirements for pilot experience.
Establishing limitations on the use of the aircraft.
Any person licensed under Division 6 (commencing with Section 11401) of the Agricultural Code with respect to his operation of an aircraft for the purpose of applying pest control materials or substances by dusting, spraying or any other manner whereby such materials or substances are applied through the medium of aircraft.
No policy of insurance for residential property located within California shall be issued or delivered, and no existing policy of insurance for residential property located within California shall be renewed, unless the policy complies with the requirements of subdivision (b).
If the policy includes any liability insurance, or if a liability insurance policy is issued in connection with the policy, the policy shall cover liability incurred by the insured in connection with the use of the residential property for a polling place for any state or local election, under the same terms and conditions as for other liability covered by the policy.
On and after the effective date of this section, each insurer licensed to issue automobile liability insurance or common carrier liability insurance, and selling or offering for sale automobile liability insurance or common carrier liability insurance to a transit district organized under Part 3 (commencing with Section 30000) of Division 10 of the Public Utilities Code, shall, as a condition of obtaining or retaining a license to transact business in this state, offer uninsured motorist coverage identical in all respects to that set forth in Section 11580.2 with regard to private passenger motor vehicles, except that the insurer and such transit district, as the case may be, may not agree to waive such coverage.
No insurer subject to subdivision (a) shall refuse to issue uninsured motorist coverage to any such transit district which applies to it therefor.
Each insurer subject to this section may charge such premium rate for providing uninsured motorist coverage to such transit district as will be sufficient for it to meet the costs of providing such coverage.
No insurer authorized to do business in this state and to provide professional liability insurance to persons lawfully engaged in the practice of medicine or osteopathic medicine, health plans, and to partnerships or corporations lawfully engaged in the operation of hospitals, sanitariums, clinics, or other health care facilities, shall refuse to issue or renew insurance at rates which are not excessive or unfairly discriminatory as defined in Section 1852 to those persons, partnerships or corporations, solely on the grounds that those persons, partnerships or corporations have entered, or intend to enter, into valid written agreements with patients or prospective patients for the arbitration of cases or controversies arising out of the professional or business relationships between those persons, partnerships or corporations and said patients.
No insurer who provides professional liability insurance for physicians and surgeons or dentists shall increase the premium for such insurance, impose a surcharge with respect to such insurance, or otherwise require additional compensation for such insurance, or institute or increase a deductible amount payable by the insured, because a notice of intention to commence an action has been given pursuant to Section 364 of the Code of Civil Procedure, unless a complaint has been served on the physician and surgeon or dentist with respect to such action.
For the purposes of this section, “professional liability insurance” means insurance against liability for damages caused by any act or omission of a physician and surgeon or dentist in rendering professional services within this state issued by any insurer, including, but not limited to, a joint underwriting association, cooperative corporation or reciprocal or interinsurance exchange.
An insurer shall not refuse to issue or renew, nor shall terminate, professional liability insurance for a health care provider in this state, solely based on any prohibited bases for discrimination set forth in subdivision (d).
With respect to policies issued in this state and that provide professional liability coverage for damages arising from services offered or performed in multiple states, if a health care provider offers or performs the services described in paragraph (1) of subdivision (d) in a state where those services are unlawful, nothing in this section shall be construed to prohibit an insurer from terminating, or refusing to issue or renew, a health care provider’s professional liability coverage in that state where the unlawful services are offered or performed.
An insurer shall not increase premium, impose a surcharge or other additional compensation or cost, or institute or increase a deductible amount or other cost sharing payable by an insured, solely based on any prohibited bases for discrimination set forth in subdivision (d). Nothing in this section shall be construed to supersede, modify, or otherwise affect in any way the provisions of Article 10 (commencing with Section 1861.01) of Chapter 9 of Part 2 of Division 1 and implementing regulations, as applicable.
An insurer providing professional liability insurance for health care providers in this state shall not deny coverage for liability for damages arising from offering or performing abortion, contraception, gender-affirming health care, or care related to those health care services, if those services are within the scope of the insured’s license, the services are lawful in the state where they are offered or performed, and the policy would otherwise cover liability for such damages arising from performing or rendering other professional services within the insured’s scope of license.
For purposes of this section, “prohibited bases for discrimination” include all of the following:
A health care provider offers or performs abortion, contraception, gender-affirming health care, or care related to those health care services, that are lawful in this state, including, but not limited to, those that may be unlawful in another state.
Another state’s laws create potential or actual liability for abortion, contraception, gender-affirming health care, or care related to those health care services offered or performed in this state.
Legal or administrative action taken in another state against a health care provider concerning abortion, contraception, gender-affirming health care, or care related to those health care services, results or resulted in a judgment, conviction, or disciplinary action against the provider, if those health care services, as provided, are or would be lawful and consistent with the applicable standard of care in this state.
This section applies to professional liability insurance marketed, offered, issued, amended, or renewed in this state for health care providers in this state.
For purposes of this section, the following definitions shall apply:
“Health care provider” means a person licensed under Division 2 (commencing with Section 500) of the Business and Professions Code to perform or render health care services in this state.
“Offer or perform” means to offer, perform, provide, prescribe, dispense, furnish, or otherwise render health care items or services, as well as to aid or assist in the rendering of those items or services.
“Professional liability insurance” means insurance against liability for damages caused by any act or omission of a person licensed to provide health care services in rendering professional services within this state issued by any insurer, including, but not limited to, a joint underwriting association, cooperative corporation, or reciprocal or interinsurance exchange.
No insurer who provides professional liability insurance for persons licensed under the provisions of Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code shall exclude from coverage under that policy liability arising from the breach of the duty of the licensee arising under Article 2 (commencing with Section 2079) of Chapter 3 of Title 6 of Part 4 of Division 3 of the Civil Code. Notwithstanding the foregoing, an insurer may exclude coverage against liability arising out of a dishonest, fraudulent, criminal, or malicious act, error, or omission committed by, at the direction of, or with the knowledge of the insured.
For the purposes of this section, “professional liability insurance” means insurance against liability for damages caused by any act or omission of a real estate licensee in rendering professional services in this state.
ARTICLE 2.5. Personal Liability Insurance Providing Workers’ Compensation Coverage for Household Employees [11590. - 11593.]
Except as provided in Section 11591, no policy providing comprehensive personal liability insurance may be issued or renewed in this state on or after January 1, 1977, unless it contains a provision for coverage against liability for the payment of compensation, as defined in Section 3207 of the Labor Code, to any person defined as an employee by subdivision (d) of Section 3351 of the Labor Code. Any such policy in effect on or after January 1, 1977, whether or not actually containing such provisions, shall be construed as if such provisions were embodied therein. However, such coverage shall not apply if any other existing, valid and collectible, workers’ compensation insurance for such liability is applicable to the injury or death of such employee.
Notwithstanding the provisions of subdivision (f) of Section 1851, the rates, classifications, and rating systems for the workers’ compensation insurance covering those persons defined as employees by subdivision (d) of Section 3351 of the Labor Code, and the insurers issuing such insurance coverage, shall be subject to the provisions of Chapter 9 (commencing with Section 1850) of Part 2 of Division 1.
The premium charge for the coverage required by Section 11590 shall not be separately stated from that charged for other coverage under the policy in the insured’s copy of the following: premium notice, policy, endorsement or memorandum of insurance.
ARTICLE 3. Capital Requirements of Reserve Basis Insurers [11600. - 11602.]
Except as restricted by its charter, such an incorporated insurer, having such a paid-in capital, may transact all three of such insurances.
Any such insurer which on July 26, 1919, was authorized by its charter to transact liability insurance may transact workers’ compensation and common carrier liability insurance as though expressly permitted by its charter to do so.
ARTICLE 4. Assigned Risk Plans [11620. - 11627.]
The commissioner, after a public hearing, shall approve or issue a reasonable plan for the equitable apportionment, among insurers admitted to transact liability insurance, of those applicants for automobile bodily injury and property damage liability insurance who are in good faith entitled to but are unable to procure that insurance through ordinary methods. The commissioner shall require the payment of one thousand four hundred ten dollars ($1,410), in advance, as a fee for the filing of amendments to the plan with the commissioner. The commissioner may approve or issue reasonable amendments to the plan that are approved by the plan’s advisory committee, if he or she first holds a public hearing to determine whether the amendments are in keeping with the intent and purpose of this section. All those insurers shall subscribe to the plan and its amendments and participate in the plan.
Judicial review of a change to the plan, including rate revision proceedings, shall be in accordance with Section 1858.6.
The adoption of the plan referenced in subdivision (a), and any amendments thereto, is not subject to the requirements of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), unless written or oral comments submitted pursuant to subdivision (e) raise regulatory standards set forth in subdivisions (a), (b), (c), (d), (e), and (f) of Section 11349 of the Government Code.
The commissioner shall provide notice of any hearing pursuant to subdivision (a) by doing all of the following at least 45 days prior to the hearing:
Publishing the notice in the California Regulatory Notice Register.
Mailing the notice to the parties on the department’s regulations mailing list.
Posting the notice on the department’s public Internet Web site.
Interested parties may present written or oral comments at the hearing, or may submit written comments to the contact person identified in the hearing notice by the date and time posted in the notice. Before adopting any amendments to the plan, the commissioner shall consider all comments received on or before the day of the hearing.
In the event an insurer discontinues writing automobile liability insurance in this state but retains its license to write that business, it shall continue to pay plan assessments and receive plan assignments until its quota or quotas established by its writings prior to discontinuance of business has or have been filled. However, if the automobile liability business of an insurer discontinuing the writing of that business in this state has been transferred to or reinsured by another insurer, the latter shall receive and assume the plan assignments and plan assessments of the insurer discontinuing business, as established by its writings prior to the transfer or agreement of reinsurance, until its quota or quotas has or have been filled, unless another insurer is allowed to assume those obligations.
An insurer that is no longer licensed to write automobile liability insurance in this state shall have its plan business treated in the same manner as its voluntary business and shall not receive new assignments.
The runoff of existing plan business shall be conducted in an orderly manner with policies nonrenewed upon the next anniversary date.
An insurer that elects to surrender its license or has its license to do business in this state revoked shall comply with the following requirements:
If an insurer elects to leave this state by surrendering its license to write automobile insurance, it shall submit to the plan’s advisory committee as a condition precedent to the surrender of its license, a plan that disposes of the insurer’s quota of plan assignments established by its voluntary writings, and provides for the handling of its outstanding assigned risk policies, including payment of claims, by appropriate financial arrangements or reinsurance agreements. The plan’s advisory committee shall evaluate the plan that is submitted and shall advise the commissioner as to whether or not it recommends acceptance or rejection by the commissioner of the plan.
In the event an insurer’s license to do business in this state is revoked by the commissioner, the insurer shall submit to the plan’s advisory committee a plan that disposes of the insurer’s quota of plan assignments established by its voluntary writings, and provides for the handling of its outstanding assigned risk policies, including payment of claims, by appropriate financial arrangements or reinsurance agreements. The plan’s advisory committee shall evaluate the plan that is submitted and shall advise the commissioner as to whether or not it recommends acceptance or rejection by the commissioner of the plan.
If all insurers in a group are under the same ownership and management, or a group elects to be treated as a single insurer and an insurer in the same group is no longer licensed, that insurer shall comply with the provisions of this section.
Insurer groups under the same ownership may elect to be treated as one insurer for purposes of participating in the plan and receiving its assignments and assessments pursuant to this article.
New plan assignments to a participating insurer may be suspended or a participating insurer may be relieved of its obligation to renew existing assigned risk policies at expiration when a valid order of suspension is issued by the commissioner and the suspension of assignments or policy renewals is approved by the commissioner. Prior to the approval of a suspension of assignments or policy renewals, the plan’s advisory committee shall advise the commissioner as to whether or not it recommends approval or denial of the suspension.
If an insurer granted relief pursuant to subdivision (a) resumes writing business in this state, its quota shall reflect the plan assignments it would have received and the assigned risk renewal policies it would have issued during its period of suspension. The required assignment adjustment shall be spread over a period of three or more years, as determined by the commissioner. Prior to determining this assignment adjustment, the plan’s advisory committee shall advise the commissioner as to whether or not it recommends approval or denial of the adjustment.
The adjustment of the insurer’s quota shall be a percentage of the insurer’s under-assignments as determined by the commissioner. Prior to determining this adjustment, the plans’s advisory committee shall advise the commissioner as to whether or not it recommends approval or denial of the adjustment. After the approved period of adjustment has expired, the insurer’s normal quota will resume unless the insurer shows good cause to and receives approval from the commissioner for extension of the adjustment period. Prior to this approval, the plan’s advisory committee shall advise the commissioner as to whether or not it recommends approval or denial of this extension.
In the event proceedings have been initiated by the commissioner to have an insurer declared insolvent, and a receiver or liquidator has been appointed, the plan shall reimburse any insured of that insurer for the unearned premium on any assigned risk policy then in force, upon submission of satisfactory evidence from the insured that the policy was in force at the time of the declaration of insolvency and that the requisite premium had been paid.
The amount expended by the plan to remit unearned premium to insureds shall be deemed a cost of administration of the plan and shall be apportioned as provided in the plan adopted and approved pursuant to this article. The plan shall be subrogated in the liquidation proceedings to the right of reimbursement of all insureds to whom unearned premium has been remitted. In the event that the insurer is subsequently found by the court not to be insolvent, the proceedings are dismissed, and the receiver or liquidator has been discharged, the insurer shall be assessed by the plan for the total amount expended by the plan for return of unearned premiums.
A plan shall require the issuance of a policy affording coverage in the amount of fifteen thousand dollars ($15,000) for bodily injury to, or death of, each person as a result of any one accident and, subject to that limit as to one person, the amount of thirty thousand dollars ($30,000) for bodily injury to, or death of, all persons as a result of any one accident, and the amount of five thousand dollars ($5,000) for damage to property of others as a result of any one accident, or in those minimum amounts as are necessary to provide exemption from the security requirements of Section 16021 of the Vehicle Code or for which proof of ability to respond in damages or adequate protection against liability is otherwise required by law, but shall not require the issuance of a policy affording coverage in excess of those amounts.
For a policy or bond issued or renewed on or after January 1, 2025, a plan shall require the issuance of a policy affording coverage in the amount of thirty thousand dollars ($30,000) for bodily injury to, or death of, each person as a result of any one accident and, subject to that limit as to one person, the amount of sixty thousand dollars ($60,000) for bodily injury to, or death of, all persons as a result of any one accident, and the amount of fifteen thousand dollars ($15,000) for damage to property of others as a result of any one accident, or in those minimum amounts as are necessary to provide exemption from the security requirements of Section 16021 of the Vehicle Code or for which proof of ability to respond in damages or adequate protection against liability is otherwise required by law, but shall not require the issuance of a policy affording coverage in excess of those amounts.
For a policy or bond issued or renewed on or after January 1, 2035, a plan shall require the issuance of a policy affording coverage in the amount of fifty thousand dollars ($50,000) for bodily injury to, or death of, each person as a result of any one accident and, subject to that limit as to one person, the amount of one hundred thousand dollars ($100,000) for bodily injury to, or death of, all persons as a result of any one accident, and the amount of twenty-five thousand dollars ($25,000) for damage to property of others as a result of any one accident, or in those minimum amounts as are necessary to provide exemption from the security requirements of Section 16021 of the Vehicle Code or for which proof of ability to respond in damages or adequate protection against liability is otherwise required by law, but shall not require the issuance of a policy affording coverage in excess of those amounts.
The plan shall provide for effective dates for coverage consistent with all of the following:
Except as provided in this section, in no event shall coverage be effective prior to the date and time of execution of the application forms. Postage meter or United States Postal Service postmarks shall not be recognized by the plan as establishing effective dates.
When the applicant requires that coverage be effective immediately, the effective date and time shall be established using an electronic effective date procedure established by the plan. The plan shall establish a future effective date using the electronic effective date procedure. The future effective date option shall be available upon request by an applicant. An applicant may request a future effective date of 45 days or less from the date of application completion.
The manager of the plan shall ensure access at no cost to the user as part of the electronic effective date procedure. The manager shall maintain sufficient capacity to service, in a timely manner, applications received by means of the electronic effective date procedure.
The electronic effective date procedure shall be available only to producers of record who are certified by the plan and shall include a procedure to prevent fraudulent applications.
A producer of record shall have a duty to comply with the requirements of this section within 24 hours of the date and time the application is completed and executed.
Coverage for vehicles shall become effective at the date and time the application is transmitted through the plan’s electronic effective date procedure if and only if all of the following requirements are met:
If the application is made without using the electronic effective date procedure or if there is not compliance with the provisions of subdivision (c), coverage shall be effective in accordance with an alternative procedure established by the plan, but not later than 12:01 a.m. on the date following receipt of the application in the plan office unless a later date is requested.
If the applicant desires coverage on a date later than that which would otherwise be fixed pursuant to this section, the applicant shall indicate that date and the plan manager shall fix the effective date of coverage as of 12:01 a.m. on the desired date of coverage. However, no date shall be later than 45 days after the date of application.
The effective date for coverage for an additional vehicle to be added to an in-force policy or for other coverage to be added to an in-force policy shall not be subject to the requirements of this section, but shall be governed by the terms of the policy and other applicable laws and regulations.
In order to provide evidence of a requested effective date, the plan shall establish a procedure for the maintenance of appropriate records of all risks for which the producer of record has designated the time and date of coverage.
Where the plan’s electronic effective date procedure is disrupted due to failure of transmission or receiving equipment due to fire, earthquake, explosion, civil unrest, or similar disaster or emergency, the producer of record may bind coverage up to one day prior to the time the application forms and required deposit are mailed to the plan manager, as established by the United States Postal Service postmark on the envelope in which the application was enclosed.
Notwithstanding any other provision of this section, where the producer of record discovers a material error in an application, the producer of record shall be authorized to rescind coverage bound for a period up to 24 hours after the date and time established pursuant to the plan’s electronic effective date procedure.
To ensure compliance with the electronic effective date procedure, application forms shall contain the following statement in 12-point boldface type:
IMPORTANT NOTICE
THIS POLICY IS NOT EFFECTIVE UNTIL YOUR APPLICATION IS ELECTRONICALLY TRANSMITTED TO THE PLAN BY YOUR AGENT OR BROKER. THE FOLLOWING CONDITIONS MUST ALSO BE MET:
BOTH YOU AND YOUR AGENT OR BROKER MUST SIGN AND DATE A PROPERLY COMPLETED APPLICATION.
YOUR AGENT OR BROKER MUST TRANSMIT YOUR APPLICATION TO THE PLAN WITHIN TWO DAYS OF ITS COMPLETION.
YOU MAY REQUEST THAT YOUR AGENT OR BROKER TRANSMIT THE DOCUMENTS IN YOUR PRESENCE TO ENSURE IMMEDIATE COVERAGE, PROVIDED THE ABOVE REQUIREMENTS ARE MET.
IF THE ABOVE REQUIREMENTS ARE NOT MET, THE EFFECTIVE DATE OF YOUR COVERAGE MAY BE DELAYED.
To assist the commissioner in carrying out the purposes of this article, an advisory committee composed of 15 members is created. The commissioner shall administer and operate the plan as authorized by law. The commissioner shall consult with the advisory committee on a regular basis on policy matters affecting the operation of the plan.
Eight members representing subscribing insurers shall be elected annually by subscribing insurers. The commissioner shall appoint the noninsurer members. Four members shall represent the public. Two members shall represent producers. The remaining member is the commissioner or his or her designee.
Each insurer representative serving shall be either (A) a salaried employee or officer of the named insurer or (B) a salaried employee or officer of another insurer from a group of insurance companies under the same management as the named insurer. A salaried employee or officer of the holding company of the named insurer may also be designated as the representative. At least two insurer representatives shall be employed by insurers having their principal headquarters located in California. At least two insurer representatives shall represent companies who have average annual automobile liability premiums in California below one hundred million dollars ($100,000,000) in the prior three years. At least one insurer representative shall represent an insurer with average annual automobile liability premiums in California exceeding one hundred million dollars ($100,000,000) in the prior three years. At least one insurer representative shall represent an insurer with average annual automobile liability premiums in California exceeding seven hundred million dollars ($700,000,000) in the prior three years.
Public members shall be paid two hundred fifty dollars ($250) per meeting and shall be reimbursed all reasonable expenses incurred.
The commissioner shall remove members for nonattendance. Unless satisfactory excuse is made in writing to the commissioner in a timely manner, nonattendance shall mean the failure to appear at more than two regularly scheduled meetings in a 12-month period. Should the member who is removed represent a company or agency, another representative from the company or agency may not be appointed for a period of not less than two years.
The advisory committee with the approval of the commissioner shall appoint a manager to carry out the purposes of this article, employ sufficient personnel to provide services necessary to the operation of the plan, and contract for the provision of statistical and actuarial services.
The cost of the plan, including any personnel and contracting costs, shall be fairly apportioned among the subscribing insurers to whom assignments may be made. The costs associated shall be directly attributable to the management of the plan and directly related to its programs. In consultation with the advisory committee, the commissioner shall develop, issue, and adopt regulations to carry out the purposes of this article.
Notwithstanding this act, which changes the status of the governing committee to that of an advisory committee, the committee shall have the right to retain counsel of its choice pursuant to a selection process adopted by the committee and the right and necessary standing to bring and defend actions in judicial and administrative proceedings related to the plan in the name of the plan, with all powers attendant thereto including the right to retain consultants, counsel, and expert witnesses of its choice.
Groups of insurers not under common ownership or management may form a limited assignment distribution arrangement. Each arrangement shall have one servicing carrier that writes assigned risk business on behalf of the members of the arrangement in return for consideration from the other participating carriers for not writing the business.
No insurer may act as a servicing carrier except with the continuing approval of the commissioner.
Each servicing carrier shall have a surplus of at least ten million dollars ($10,000,000).
Upon the approval of the commissioner of a servicing carrier under this section, the plan shall make all assignments that otherwise would be made to a participant to the servicing carrier for that participant.
The commissioner shall impose a filing fee for the filing necessary to obtain approval pursuant to this section, which fee shall be limited to that sufficient to defray the costs of the department in connection with considering the application.
The plan shall contain:
Standards for determining eligibility of applicants for insurance, including a requirement of a certificate of eligibility as provided in Section 11624.08, and in establishing those standards the following may be taken into consideration in respect to the applicant or any other person who may reasonably be expected to operate the applicant’s automobile with his or her permission:
His or her criminal conviction record.
His or her record of suspension or revocation of a license to operate an automobile.
His or her automobile accident records.
His or her age and mental, physical and moral characteristics which pertain to his or her ability to safely and lawfully operate an automobile.
The condition or use of the automobile.
Procedures for making application for insurance, for apportionment of eligible applicants among the subscribing insurers and for appeal to the commissioner by persons who believe themselves aggrieved by the operation of the plan.
A provision that the organization administering the plan shall notify the Department of Insurance regarding the name of each applicant for insurance who is rejected by the assigned risk plan and the statutory grounds for the rejection. The information contained in that notification shall be for the confidential use of the Department of Insurance.
Rules and regulations governing the administration and operation of the plan.
Provisions showing the basis upon which premium charges shall be made, and the manner of payment thereof. Premium charges for the plan shall not be excessive, inadequate, nor unfairly discriminatory, and shall be actuarially sound so as to result in no subsidy of the plan. In no event shall the commissioner be required to approve a plan rate that includes a provision for operating profits greater than zero dollars. The commissioner shall not be required to allow a contingency provision with respect to a plan rate if the commissioner takes final action on an application for a rate change within 180 days from the date the application is submitted to the commissioner by the plan’s advisory committee. The plan shall include procedures for notifying within a reasonable time the agent, broker, or solicitor who obtained insurance under the plan for the insured of any nonpayment of premium to the insurer when notice of the nonpayment is sent to the insured pursuant to Section 662.
Any other provisions as may be necessary to carry out the purpose of this article.
The plan shall require a certificate of eligibility to accompany the application for coverage. The certificate shall indicate whether or not the applicant meets the criteria for the purchase of a good driver discount policy as set forth in Section 1861.025 and, if so, the name of the insurer and the insurer’s representative that denied the applicant automobile insurance coverage.
The fact that an applicant has specified in the certificate of eligibility a particular insurer as having denied automobile insurance coverage shall not, by itself, be sufficient to sustain a finding in a formal action brought by the commissioner under Section 1858.1 that the specified insurer in fact denied the applicant automobile insurance coverage in violation of paragraph (1) of subdivision (b) of Section 1861.02. The certificate shall be signed by the applicant under penalty of perjury to verify its accuracy, and shall only be required with applications for personal lines automobile insurance through the plan. The agent or broker shall also be required to sign the certificate of eligibility indicating that he or she has reviewed the certificate for completeness.
Upon a determination by the plan that a certificate of eligibility is defective due to an omission or mistake which is immaterial to determining the eligibility of the applicant for coverage, the plan shall immediately provide written notice of the defect or defects to the insured and to the agent or broker of record. The notice shall inform the applicant that he or she has 10 days from the postmark date of the notice to correct the defect and postmark the correction or missing information for return to the plan.
In the event that the defect is not corrected within that 10-day time period, the policy is void from inception. Providing a photocopy of the application or certificate denoting the specific defect or defects shall be adequate to comply with the requirement to specify the defects in the certificate.
For purposes of this section, failure to provide a required telephone number, time of day, producer number, producer signature, date or information that is omitted but can be determined by questions answered or information provided in other sections of the application or documents submitted as part of the application, shall be considered an omission or mistake immaterial to determining the eligibility of the applicant for the plan coverage. A certificate of eligibility that is submitted to the plan as to which the applicant did not demonstrate a good faith effort in completing or where the applicant has made a willful misrepresentation shall not be subject to this section. In the event that the defect is material to determining the eligibility of the applicant for coverage, the policy is void from inception.
An insurer shall mail a policy within 30 days of the receipt of an assignment.
Upon the determination of an insurer to whom an assignment is made that the application of an insured is defective, the insurer shall immediately give written notice of the defect to the insured and to the agent or broker of record that the insured has 15 days from the mailing of the notice of defect to correct the defect.
An insurer shall acknowledge in writing within 15 days the receipt of a request for the endorsement of an assigned risk policy. The mailing of the endorsement within 15 days of receipt shall constitute acknowledgement of receipt.
Upon receipt of a completed request for an endorsement that contains all information necessary for the issuance of an endorsement, the insurer shall issue and mail the endorsement to the insured within 30 days of the request for the endorsement.
As used in this section, “endorsement” means an amendment of a policy, such as a loss payee endorsement, the addition or deletion of insureds, or the addition or deletion of coverage.
Any return premium checks due to an insured or to a lender subject to the provisions of subdivision (g) of Section 673 on account of a cancellation or endorsement shall be mailed within 30 days of the effective date of the cancellation or endorsement.
Every insurer to whom an assignment is made shall do all of the following:
Provide policyholders with information on how to report claims.
Provide brokers and agents with a toll-free telephone number or accept their collect calls for the purpose of providing agents and brokers with a means of communicating with the insurer in order to rectify errors in applications or endorsements for assigned-risk coverage.
Reply in writing within 15 days to complaints disputing the amount of premium charged for coverage under this article.
No insurance agent, broker or solicitor shall make any charge to the applicant, directly or indirectly, for furnishing any person the necessary application forms, technical assistance and services necessary to perfect an application through the plan other than such commission as is paid by the insurer pursuant to the provisions of such plan.
Every insurer, agent, or broker assigned an application by the plan may conclusively rely on the acceptance, rejection, or waiver of coverages stated in the application signed by the applicant. A policy shall only be issued for the coverages, limits, and deductibles stated in the application assigned by the plan. This section shall apply to all applications assigned by the plan which are submitted to the plan by a person licensed pursuant to Chapter 5 (commencing with Section 1621) of Part 2 of Division 1.
Within 60 days after the effective date of any policy issued or renewed under this article, the insurer shall obtain from the Department of Motor Vehicles, or from a subscribing loss underwriting exchange carrier, a report on the applicant and any other person who may reasonably be expected to operate the applicant’s motor vehicle with the permission of the applicant. Any premium adjustments that occur as a result of the inspection of the reports shall be billed within the same 60-day period. This section does not apply to amendments of a policy other than upon original issuance or renewal.
If an insurer admitted to transact liability insurance fails to subscribe to the plan or to any amendments thereto, the commissioner shall give 10 days’ written notice to such insurer to so subscribe. If such insurer fails to comply with such notice, then the commissioner may, after hearing upon notice, suspend the certificate of authority of such insurer to transact liability insurance in this State until such insurer does so subscribe. Proceedings under this section shall be conducted in accordance with Chapter 5, Part 1, Division 3, Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
If the commissioner, after hearing upon not less than ten (10) days’ notice, finds that any insurer has failed to perform any of the duties required of it by this article or by the plan, other than those duties enumerated in Section 11625, he may issue an order to such insurer specifying in what manner and to what extent he finds the insurer to have so failed and requiring, within a reasonable time, not less than 10 days, compliance with such requirements. If within the period specified in the order the insurer fails to comply with such order, such insurer shall, in addition to any other penalty provided by law, forfeit to the State a penalty of five hundred dollars ($500) for each such failure. The commissioner may bring an action in his own name against the insurer to collect the said penalty.
No insurer shall downgrade the rating, or otherwise adversely affect the insurability, of a person insured under Section 11622.1 solely because of that person’s participation in the assigned risk plan or because that person contracts with a person insured under Section 11622.1.
An insurer violating subdivision (a) is subject to the penalties set forth in Section 11626, and shall restore the insurance rating, insurability, and coverage of any person harmed by the violation.
In this article, “insurer” includes reciprocal or interinsurance exchanges.
ARTICLE 5. Motor Vehicle Liability Insurance [11628. - 11629.5.]
No admitted insurer that is licensed to issue and issuing motor vehicle liability policies, as defined in Section 16450 of the Vehicle Code, shall fail or refuse to accept an application for that insurance, to issue that insurance to an applicant therefor, or issue or cancel that insurance under conditions less favorable to the insured than in other comparable cases, except for reasons applicable alike to persons of every characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code, including, but not limited to, language, or persons of the same geographic area; nor shall any characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code, including, but not limited to, language, or location within a geographic area, of itself, constitute a condition or risk for which a higher rate, premium, or charge may be required of the insured for that insurance.
As used in this section “geographic area” means a portion of this state of not less than 20 square miles defined by description in the rating manual of an insurer or in the rating manual of a rating bureau of which the insurer is a member or subscriber. In order that geographic areas used for rating purposes may reflect homogeneity of loss experience, a record of loss experience for the geographic area shall include the breakdown of actual loss experience statistics by ZIP Code area (as designated by the United States Postal Service) within each geographic area for family owned private passenger motor vehicles and lightweight commercial motor vehicles, under 112-ton load capacity, used for local service or retail delivery, normally within a 50-mile radius of garaging, and that are not part of a fleet of five or more motor vehicles under one ownership. A record of loss experience for the geographic area, including that statistical data by ZIP Code area, shall be submitted biennially to the commissioner for examination by each insurer licensed to issue and issuing motor vehicle liability policies, motor vehicle physical damage policies, or both. Loss experience shall include separate loss data for each type of coverage, including liability or physical damage coverage, underwritten. The biennial report shall include the insurer’s statewide loss ratio, loss adjustment expense ratio, expense ratio, and combined ratio on its assigned-risk business. Statewide summary data shall be submitted annually to the commissioner. An insurer may satisfy its obligation to report statistical data under this subdivision by providing its loss experience data and statewide expense ratio and combined ratio on its assigned-risk business to a rating or advisory organization for submission to the commissioner. This data shall be made available to the public by the commissioner biennially after examination. However, the data shall be released in aggregate form by ZIP Code or statewide basis in order that no individual insurer’s loss experience for any specific geographic area be revealed. Differentiation in rates between geographical areas shall not constitute unfair discrimination.
All information reported to the department pursuant to this subdivision shall be confidential.
As used in this section:
“Language” means the inability to speak, read, write, or comprehend the English language.
“Dependents” shall include, but not be limited to, issue regardless of generation.
“Spouse” shall be determined without regard to current marital status.
The commissioner may require insurers with combined ratios on statewide assigned-risk business that are 10 percent above the mean combined ratio for all plan participants to also report the following:
The reason for the excessive ratio.
A plan for reducing the ratio, and when the reduction can be expected to occur. The commissioner may require insurers subject to this subdivision to provide periodic reports on the progress in reducing the combined ratio.
Considering the occupation of the applicant or insured as a condition or risk for which a higher rate or discounted rate may be required or offered for coverage in the course and scope of his or her occupation.
Charging a deviated rate to any classification of risks involving a specific occupation, or grouping thereof, if the rate meets the requirements of Chapter 9 (commencing with Section 1850.4) of Part 2 of Division 1 and is based upon actuarial data that demonstrates a significant actual historical differential between past losses or expenses attributable to the specific occupation, or grouping thereof, and the past losses or expenses attributable to other classification of risks. For purposes of compiling that actuarial data for a specific occupation or grouping thereof, a person shall be deemed employed in the occupation in which that data is compiled if any of the following is true:
The majority of his or her employment during the previous year was in the occupation.
The majority of his or her aggregate earnings for the immediate preceding three-year period were derived from the occupation.
The person is a member in good standing of a union that is an authorized collective bargaining agent for persons engaged in the occupation.
Nothing in this section shall be construed to include in the definition of “occupation” any status or activity that does not result in remuneration for work done or services performed, or self-employment in a business operated out of an applicant’s or insured’s place of residence or persons engaged in the renting, leasing, selling, repossessing, rebuilding, wrecking, or salvaging of motor vehicles.
Nothing in this section shall limit or restrict the ability of an insurer to refuse to accept an application for or refuse to issue or cancel insurance for the reason that it is a commercial vehicle or based upon the consideration of a vehicle’s size, weight, design, or intended use.
It is the intent of the Legislature that actuarial data by occupation may be examined for credibility by the commissioner on the same basis as any other automobile insurance data that he or she is empowered to examine.
Except as provided in Article 4 (commencing with Section 11620), nothing in this section or in Article 10 (commencing with Section 1861.01) of Chapter 9 of Part 2 of Division 1 or in any other provision of this code, shall prohibit an insurer from limiting the issuance or renewal of insurance, as defined in subdivision (a) of Section 660, to persons who engage in, or have formerly engaged in, governmental or military service or segments of categories thereof, and their spouses, dependents, direct descendants, and former dependents or spouses.
The term “military service” includes, but is not limited to, officers, warrant officers, and enlisted persons, officer and warrant officer candidates, cadets or midshipmen at a service academy, cadets or midshipmen in advance Reserve Officer Training Corps programs or on Reserve Officer Training Corps program scholarships, National Guard officer candidates, students in government-sponsored precommissioning programs, and foreign military officers while on temporary duty in the United States.
Any person subject to regulation by the commissioner pursuant to this code who fails to comply with a data call required by the department pursuant to subdivision (a) shall be liable to the state for a civil penalty in an amount not exceeding five thousand dollars ($5,000) for each 30-day period that the person is not in compliance, unless the failure to comply is willful, in which case the civil penalty shall be in an amount not to exceed ten thousand dollars ($10,000) for each 30-day period that the person is not in compliance, but not to exceed an aggregate amount of one hundred thousand dollars ($100,000). The commissioner shall collect the amount so payable and may bring an action in the name of the people of the State of California to enforce collection. These penalties shall be in addition to other penalties provided by law.
This section shall be known and may be cited as the “Rosenthal Auto Insurance Nondiscrimination Law.”
Based on the actuarial and loss experience data available to each insurer, including the driving records of mature driver improvement course graduates, as recorded by the Department of Motor Vehicles, every admitted insurer shall provide for an appropriate percentage of reduction in premium rates for motor vehicle liability insurance for principal operators who are 55 years of age or older and who produce proof of successful completion of the mature driver improvement course provided for and approved by the Department of Motor Vehicles pursuant to Section 1675 of the Vehicle Code.
The insured shall enroll in and successfully complete the course described in subdivision (a) once every three years in order to continue to be eligible for an appropriate percentage of reduced premium.
The percentage of premium reduction required by subdivision (a) shall be reassessed by the insurer upon renewal of the insured’s policy. The insured’s eligibility for any percentage of premium reduction shall be effective for a three-year period from the date of successful completion of the course described in subdivision (a), except that the insurer may discontinue the reduced premium rate if the insured is in any case:
Involved in an accident for which the insured is at fault, as determined by the insurer.
Convicted of a violation of Division 11 (commencing with Section 21000) of the Vehicle Code, except Chapter 9 (commencing with Section 22500) of that division, or of a traffic related offense involving alcohol or narcotics.
The percentage of premium rate reduction required by subdivision (a) does not apply in the event the insured enrolls in, and successfully completes, an approved course pursuant to a court order provided for in Section 42005 of the Vehicle Code. Nothing in this subdivision precludes an insured from also enrolling in a driver improvement course.
No admitted insurer, licensed to issue motor vehicle liability policies as defined in Section 16450 of the Vehicle Code, shall fail or refuse to accept an application from a handicapped person for such insurance, or to issue such insurance to a handicapped applicant therefor solely because of handicap, or to issue or cancel such insurance under conditions less favorable to handicapped persons than nonhandicapped persons; nor shall a handicap itself constitute a condition or risk for which a higher rate, premium, or charge may be required of a handicapped person for such insurance.
As used in this section, “handicapped person” and “handicapped applicant” refer only to persons who have suffered an impairment of physical ability because of amputation or loss of function which impairment has been compensated for, when necessary, by vehicle equipment adaptation or modification; or who have suffered an impairment of hearing which impairment has been compensated for, when necessary, either by sensory equipment adaptation or modification; or who have suffered an impairment of speech; provided, that the insurer may require a handicapped applicant for such insurance or the renewal of such insurance to furnish proof that he or she has qualified for a new or renewed drivers license through the California Department of Motor Vehicles since the occurrence of the handicapping condition.
If such insurer can justify a higher rate, premium, or charge for handicapped persons with actuarial evidence, a higher rate, premium, or charge may be required.
No admitted insurer, licensed to issue motor vehicle liability policies as defined in Section 16450 of the Vehicle Code, shall fail or refuse to accept an application for that insurance, or to issue that insurance, on the basis that the owner of the motor vehicle to be insured is blind. However, notwithstanding any other provision of law, an admitted insurer may exclude from coverage under the policy the unlicensed owner of a motor vehicle who is blind for injuries and damages incurred while the insured vehicle is operated by an unlicensed owner who is blind.
Nothing in this section shall prohibit an insurer from applying its usual and customary underwriting and rating criteria with respect to the operators of the vehicle to be insured, including, but not limited to, the loss experience the insurer has had with respect to the insured vehicle.
No insurer shall raise the premiums of an insured blind person or shall cancel the policy of an insured blind person solely on the basis that the operators of the insured vehicle are changed frequently.
Each separate act of an insurer or its agent in violation of Section 11628 or 11628.5 shall render the insurer liable in damages in the amount of one hundred dollars ($100), plus a reasonable allowance for attorneys’ fees incurred in connection with the prosecution of the action, which may be recovered in an action at law brought for that purpose by the person aggrieved by any such act.
Any insurer which has refused to issue to an applicant a policy of insurance in violation of Section 11628 or 11628.5 and which has been required to pay damages for the violation pursuant to Section 11629 shall pay as additional damages the amount by which the rates which the applicant found it necessary to pay to obtain other insurance exceed the rates of the insurer.
ARTICLE 5.5. California Low-Cost Automobile Insurance Program [11629.7. - 11629.88.]
There is established, within the California Automobile Assigned Risk Plan established under Section 11620, a low-cost automobile insurance program for all counties in California.
The commissioner, after a public hearing, shall approve or issue a reasonable plan for the equitable apportionment, among insurers required to participate in the California Automobile Assigned Risk Plan established under Section 11620, of persons who are eligible to purchase through the program a low-cost automobile insurance policy, as described in Section 11629.71. The program shall be conducted in conjunction with the California Automobile Assigned Risk Plan established under Section 11620.
A low-cost automobile insurance policy for purposes of the program established under this article shall have all of the following attributes:
The policy shall offer coverage in the amount of ten thousand dollars ($10,000) for bodily injury to, or death of, each person as a result of any one accident and, subject to that limit as to one person, the amount of twenty thousand dollars ($20,000) for bodily injury to, or death of all persons as a result of any one accident, and the amount of three thousand dollars ($3,000) for damage to property of others as a result of any one accident.
The coverage required by Section 11580.2 shall be made available to the consumer. However, an insurer may charge a premium for that coverage in addition to the premium set forth in Section 11629.72. Notwithstanding the coverage amounts required by Section 11580.2 and Section 16056 of the Vehicle Code, uninsured motorist coverage issued in conjunction with a low-cost automobile policy under the program, with coverage limits at least equal to the limits of liability in the underlying low-cost automobile policy, shall satisfy the requirements of Section 11580.2 and the financial responsibility requirements of Sections 4000.37, 16021, and 16431 of the Vehicle Code.
Medical payments coverage shall be made available to the consumer. However, an insurer may charge a premium for that coverage in addition to the premium set forth in Section 11629.72.
The policy shall have an initial term of one year, renewable on an annual basis thereafter.
The policy shall cover the person named in the policy, and to the same extent that insurance is provided to the named insured, any other person using the automobile, provided the use is with his or her permission, express or implied, and within the scope of that permission, except that the policy shall not cover members of the named insured’s household who do not satisfy the requirements of subdivisions (b) to (e), inclusive, of Section 11629.73.
The policy shall provide coverage for an automobile with a value of twenty-five thousand dollars ($25,000) or less, as evidenced by the value given to the automobile by the Department of Motor Vehicles in assessing vehicle license fees, or another method of determining market value adopted by the California Automobile Assigned Risk Plan Advisory Committee (CAARP Advisory Committee) and approved by the commissioner.
The annual rate offered under the program for each of the counties in California shall be established at a date according to the discretion of the commissioner. Surcharges, as a percentage of the base rate, shall be added to the base rate and that percentage shall be set at the discretion of the commissioner, if the named insured or a resident of the household of the named insured will be a driver of the automobile covered under the low-cost policy, and is a person 16 years of age or older to whom any of the following applies:
Is an unmarried individual between 16 and 24 years of age.
Operates a vehicle with a driver’s license issued by the Department of Motor Vehicles pursuant to Section 12801.9 of the Vehicle Code and has fewer than three years of driving history.
Has fewer than three years of driving history.
Has not been continually licensed to drive for the past three years.
The California Automobile Assigned Risk Plan shall make available to an insured under the program, subject to approval by the commissioner, a premium installment option pursuant to which an insured is required to pay not more than 20 percent of the total policy cost upon issuance of the low-cost policy, followed thereafter by seven other payments. The plan may make additional payment plans available, subject to approval by the commissioner.
No other premium financing arrangement shall be permitted.
Rates for policies issued under the program in each county or city and county shall be reviewed and revised as follows:
Rates shall be set with respect to the program so as to result in no projected subsidy by policyholders in one county of policyholders in any of the other counties.
Commencing on January 1, 2015, and annually thereafter through January 1, 2017, the California Automobile Assigned Risk Plan shall submit the loss and expense data, together with a proposed rate and the surcharge authorized by subdivision (a) for the low-cost automobile policy for the program, to the commissioner for approval in accordance with this chapter. The commissioner shall act on the recommendation within 90 days.
After the January 1, 2017, rate filing, subsequent rate filings are mandatory if the rate indication is a change of greater than 7 percent from the previous filing, or at the discretion of the CAARP Advisory Committee if the rate indication is a change of less than 7 percent.
A low-cost automobile insurance policy under the program shall only be available for purchase by persons who satisfy the following eligibility requirements:
The person shall be in a household with an annual gross household income that does not exceed 250 percent of the federal poverty level, as defined in Part 6.2 (commencing with Section 12693) or as defined in an equivalent manner that is approved by the commissioner.
The person shall be no less than 16 years of age and have been continuously licensed to drive an automobile for the previous three years, except that a person who has not been continually licensed to drive or has fewer than three years of driving history may qualify for the surcharge under subdivision (a) of Section 11629.72.
The person shall have not more than one of either, but not both, of the following within the previous three years:
A property damage only accident in which the driver was principally at fault.
A point for a moving violation.
The person shall not have on record within the previous three years, an at-fault accident involving bodily injury or death.
The person shall not have a felony or misdemeanor conviction for a violation of the Vehicle Code on the person’s motor vehicle record.
The person shall not be a student claimed as a dependent of another person for federal or state income tax purposes, unless the student resides at the same address where the student is claimed as a dependent.
A person who meets the requirements of subdivision (a) of Section 11629.73, and who claims that he or she meets the requirements of subdivisions (b) to (e), inclusive, of Section 11629.73 based entirely or partially on a driver’s license and driving experience obtained other than in the United States or Canada, shall be entitled to a rebuttable presumption that he or she is qualified to purchase a low-cost automobile insurance policy under the program if he or she has been licensed to drive pursuant to a license obtained in the United States or Canada for at least the previous 18 months and meets the criteria of subdivisions (b) to (e), inclusive, for that period.
Application may be made through any producer certified by the plan. The applicant, in order to demonstrate financial eligibility to purchase a low-cost automobile insurance policy under the program, shall present at the time of applying for the policy documents deemed appropriate to confirm proof of income or other reliable evidence from a governmental agency or governmental means-tested program of the applicant’s gross annual household income.
The applicant shall certify that the representations made in the documents submitted as proof of financial eligibility and in the application for the policy are true, correct, and contain no material misrepresentations or omissions of fact to the best knowledge and belief of the applicant.
The certified producer shall forward the application, supporting documents, and the applicant’s certification to the California Automobile Assigned Risk Plan.
An agent or broker, hereafter referred to as a producer, who conducts business in a county in which a low-cost automobile insurance policy is available pursuant to this article shall inform every new prospective automobile insurance policyholder who requests a minimum limits or basic limits insurance policy, or coverage to meet California’s minimum limits automobile insurance requirements, that the low-cost automobile insurance policy may be available for qualifying motorists. The information may be provided orally if the producer has been contacted by telephone, or in writing, but shall be communicated to the policyholder prior to the application for automobile insurance coverage in the language in which the producer has otherwise communicated with the consumer.
If the consumer requests more information about the low-cost program the producer shall do either of the following:
If the producer is California Automobile Assigned Risk Plan certified, provide the consumer with an explanation in an information pamphlet produced by the California Automobile Assigned Risk Plan and approved and provided by the Department of Insurance of the qualifications, cost, and coverage provided by the policy. If the consumer qualifies for the low-cost policy and wishes to purchase the policy, the California Automobile Assigned Risk Plan certified producer shall provide the application and, upon completion, submit the application, supporting documents, and the applicant’s certification to the California Automobile Assigned Risk Plan. The submittal of the California Automobile Assigned Risk Plan application may be in addition to any other coverage offered or applied for through the producer.
If the producer is not California Automobile Assigned Risk Plan certified, the producer shall provide the consumer with the toll-free telephone number for the California Automobile Assigned Risk Plan or the program’s Internet Web site address as an option to coverage offered by the producer.
A certified producer shall provide to an applicant for a low-cost automobile insurance policy under this article a notice relating to coverage under the policy. The notice shall be provided in a separate document at the time of application and include the following statement in 14-point boldface type:“Notice
This policy provides liability coverage for injuries or death caused to other persons in the total amount of ten thousand dollars ($10,000) per person in any one accident, and up to a total amount of twenty thousand dollars ($20,000) for all persons in any one accident. The policy also provides up to three thousand dollars ($3,000) in liability coverage for property damage in any one accident.
These limits are very low compared to coverage outside of the low-cost automobile program.
If you are at fault for an accident where the damage exceeds the coverage provided by this policy, you can be held personally responsible for the losses.
If you want higher coverage limits, you must purchase a different policy.
This policy does not cover damage to your own vehicle caused by you or anyone else. The plan offers uninsured motorist coverage as an option. However, comprehensive coverage and collision coverage are only available for purchase outside of the program.
This policy does not cover your bodily injury or your death. You do have the option to purchase uninsured motorist bodily injury coverage in the total amount of ten thousand dollars ($10,000) per person in any one accident and up to a total amount of twenty thousand dollars ($20,000) for all persons in any one accident. You also have the option to purchase medical payments coverage in the amount of one thousand dollars ($1,000) per person in any one accident.
This policy does not cover any other driver in your household who meets any of the following criteria:
Is under 16 years of age.
Has less than three years of continuously licensed driving experience (unless the policy includes a surcharge for this driver).
Has more than one at-fault property damage only accident in which the driver was principally at fault in the last three years.
Has more than one point for a moving violation in the last three years.
Has both one at-fault property damage only accident in which the driver was principally at fault and one point for a moving violation in the last three years.
Has had an at-fault accident in the previous 3 years involving bodily injury or death.
Has a felony or misdemeanor conviction from a violation of the Vehicle Code on their motor vehicle record.”
When the certified producer establishes delivery of the disclosure form specified in subdivision (a) by obtaining the signature of the applicant or insured, there shall be a conclusive presumption that the certified producer has complied with the disclosure requirements of this section.
For a low-cost automobile insurance policy issued pursuant to the program, certified producers shall be entitled to the same commission rate as is paid by the California Automobile Assigned Risk Plan for private passenger, nonfleet risks under Article 4 (commencing with Section 11620). The commission rate prescribed in this paragraph shall only be in effect until the conditions described in paragraph (2) are fulfilled.
Effective upon the setting of policy rates in 2015 pursuant to Section 11629.72, for a low-cost automobile insurance policy issued pursuant to the program, certified producers shall be entitled to a commission rate of 12 percent or fifty dollars ($50), whichever is greater.
Notwithstanding subdivision (a), the commissioner may at any time establish a commission for a low-cost automobile insurance policy issued pursuant to the program and may make the commission effective on any policy originated within an entire year, or any portion of a year, as is needed to provide an incentive to certified producers to sell low-cost automobile insurance to eligible applicants. The commissioner shall not establish a commission pursuant to this subdivision if the commissioner determines that setting the commission rate will result in a lower commission than the commission paid by the California Automobile Assigned Risk Plan for private passenger, nonfleet risks under Article 4 (commencing with Section 11620).
No other fees of any kind may be charged or collected pursuant to this section and the sale of a low-cost policy under this article shall not be conditioned on the purchase of any other product or service.
A low-cost automobile insurance policy issued pursuant to the program shall be canceled only for the following reasons:
Nonpayment of premium.
Fraud or material misrepresentation affecting the policy or the insured.
The purchase of additional automobile liability insurance coverage in violation of subdivision (a) of Section 11629.78.
The purchase or maintenance of automobile liability insurance coverage other than a low-cost policy for any additional vehicles in the insured’s household, in violation of subdivision (b) of Section 11629.78.
A policy shall be nonrenewed only for the following reasons:
A substantial increase in the hazard insured against.
The insured no longer meets the applicable eligibility requirements. In this regard, the eligibility of an insured shall be recertified by the California Automobile Assigned Risk Plan after the first year of eligibility, and every three years thereafter by the insurer that issued the policy.
An insured under the program shall not purchase automobile liability insurance coverage that is in addition to the liability coverage provided by the low-cost policy. However, the insured may purchase any other additional type of automobile insurance coverage, such as uninsured motorist coverage or collision coverage outside the plan.
No more than two low-cost policies per person are permitted.
The California Automobile Assigned Risk Plan shall report to the commissioner on an annual basis, and at those additional times as it deems prudent, on the status of the program. The report shall include data regarding new policies, renewed policies, and policy cancellations or nonrenewals.
The department shall combine the reports pursuant to subdivision (a) with the report required by Section 11629.85 and submit the combined report to the Legislature on or before March 15, 2024, and on or before March 15 every five years thereafter.
A report submitted pursuant to subdivision (b) shall be submitted in compliance with Section 9795 of the Government Code.
Nothing in this article is intended to amend or otherwise affect or interpret any provision of Proposition 103, approved by the electors on November 8, 1988, and no provision of that initiative measure applies to this article.
Notwithstanding Section 10231.5 of the Government Code, on or before March 15, 2024, and on or before March 15 every year thereafter, the commissioner shall prepare and propose a plan in a report setting forth the methods the commissioner intends to implement to inform households eligible for the program about the availability of low-cost automobile insurance.
The commissioner shall submit the report identified in paragraph (1) to the Legislature on an annual basis on or before March 15, 2024, March 15, 2025, and March 15, 2026, and every five years thereafter, beginning with the report due on or before March 15, 2031.
The report identified in paragraph (1) shall be posted on the department’s and the California Automobile Assigned Risk Plan’s internet websites, beginning with the report due on or before March 15, 2024.
The plan shall include, at a minimum, a brief description of methods proposed to be used, anticipated costs, sources of revenue, goals, targets, objectives, and a justification of the proposed methods. The plan shall also explain how the department proposes to work in cooperation with the California Automobile Assigned Risk Plan, the social service agencies, the Department of Motor Vehicles, and community-based organizations in order to inform eligible households of the existence of the program.
The plan shall also include all of the following:
The commissioner’s determination regarding whether the program has been successful, based on the criteria specified in subdivision (d), and an explanation regarding that success or lack thereof.
In cooperation with the California Automobile Assigned Risk Plan, structural characteristics of the program that may require statutory revision in order for the program to succeed or to improve upon existing success.
Impediments to success of the program that can reasonably be overcome by revision to the strategies adopted by the department.
A detailed explanation of the department’s use for the program of funds assessed pursuant to Section 1872.81 for the reporting period.
For the previous five calendar years, a list of the total low-cost auto premiums for each county in which the program was available.
The program is successful if the following occur:
Any written or oral advertisements, including, but not limited to, paid or unpaid commercial or noncommercial advertising, by the department with reference to the low-cost automobile insurance program shall reference the department and shall not reference the commissioner by name or office, or include the commissioner’s voice, image, or likeness. The department shall not participate with any nongovernmental entity that produces or intends to produce advertisements or educational material that include the name of the commissioner or their voice, image, or likeness, and that are intended to make eligible households aware of the existence of low-cost automobile insurance.
A report submitted pursuant to subdivision (a) shall be submitted in compliance with Section 9795 of the Government Code.
A California Automobile Assigned Risk Plan certified producer may accept and process an application to purchase a low-cost automobile insurance policy under this program through an Internet Web site, in accordance with this section and regulations adopted by the department pursuant to this section.
Any producer seeking certification to accept and process low-cost automobile insurance policy applications through an Internet Web site shall notify the California Automobile Assigned Risk Plan of its intentions to do so prior to accepting any applications to the program.
Prior to accepting payment and upon transmitting any information from the consumer, the producer’s Internet Web site shall include a clear explanation of whether the consumer will be afforded insurance coverage upon payment and, if not, when the consumer will receive coverage and how he or she will receive notice of coverage.
A producer accepting and processing applications through an Internet Web site shall be entitled to the same commission available to a producer selling a low-cost automobile insurance policy by any other means acceptable under the law.
Any producer accepting and processing applications through an Internet Web site is subject to the laws and rules governing this program and is liable for any errors and omissions related to the transaction of insurance to the same extent as a producer selling a low-cost automobile insurance policy by any other means acceptable under the law.
Any consumer information required by this article may be accepted by electronic means after the department adopts regulations implementing this section and only if the information is submitted in accordance with those regulations.
The California Automobile Assigned Risk Plan shall coordinate with the department in order to develop a system for receiving and assigning policies issued through Internet Web sites.
The California Automobile Assigned Risk Plan may request, and the department may include in its plan submitted pursuant to Section 11629.85, up to fifty thousand dollars ($50,000) from the department’s existing consumer outreach fund to be used for the sole purpose of implementing this section.
The department shall, in consultation with the CAARP Advisory Committee, establish and maintain a consumer-oriented internet website that provides all of the following:
Referral to a list of certified agents or brokers with an office in the same geographic area as the consumer who may be contacted to purchase a low-cost automobile insurance policy.
Information about the eligibility requirements, benefits, and limits of the low-cost automobile insurance policy.
Notification that if a consumer does not qualify for the low-cost automobile insurance policy, other policies may be available from producers or insurers, and directing the consumer to the department’s automobile insurance premium comparison internet web page.
An applicant shall not be required to provide a copy of the applicant’s or other household member’s driver’s license, if the Department of Insurance finds that there is another suitable means of verifying the driver’s licensure.
CHAPTER 2. Workers’ Compensation Policies [11630. - 11665.]
ARTICLE 1. Definitions [11630. - 11631.]
As used in this chapter, the term “compensation” means the benefits insured by workers’ compensation insurance.
As used in this chapter, the term “insurer” includes the State Compensation Insurance Fund.
ARTICLE 2. Policy Provisions [11650. - 11665.]
Every contract insuring against liability for compensation and every compensation policy is conclusively presumed to contain all of the provisions required by this article.
Every such contract or policy shall contain a clause to the effect that the insurer will be directly and primarily liable to any proper claimant for payment of any compensation for which the employer is liable, subject to the provisions, conditions and limitations of the policy.
Every such contract or policy shall contain a clause to the effect that, as between the employee and the insurer, notice to or knowledge of the occurrence of the injury on the part of the employer will be deemed notice or knowledge, as the case may be, on the part of the insurer.
Every such contract or policy shall contain a clause to the effect that jurisdiction of the employer will, for the purpose of the law imposing liability for compensation, be jurisdiction of the insurer.
Every such contract or policy shall contain a clause to the effect that the insurer will in all things be bound by and subject to the orders, findings, decisions or awards rendered against the employer under the provisions of the law imposing liability for compensation, subject to the provisions, conditions and limitations of the policy. The insurance contract shall govern as between the employer and insurer as to payments by either in discharge of the employer’s liability for compensation.
Such policy shall not contain any provisions relieving the insurer from payment when the employer becomes insolvent or obtains a discharge in bankruptcy, or otherwise, during the period that the policy is in operation or the compensation remains owing.
Such policy shall also provide that the employee has a first lien upon any amount which becomes owing to the employer from the insurer on account of the policy, and that in case of the legal incapacity or inability of the employer to receive the money and pay it to the claimant, the insurer will pay it directly to the claimant. To the extent of such payment, the obligations of the employer to the claimant are thereby discharged.
Upon request of the State Department of Social Services, the State Compensation Insurance Fund may issue one workers’ compensation insurance policy insuring all recipients of in-home supportive services under Article 7 (commencing with Section 12300), Chapter 3, Part 3, Division 9 of the Welfare and Institutions Code for whom and to the extent that the State Department of Social Services has an obligation to perform or assure the performance of rights, duties and obligations relating to such services as specified in Section 12302.2 of the Welfare and Institutions Code.
In order to permit employees of small farms to be brought under the provisions of the Workers’ Compensation Law, employers of agricultural labor who are members of any nonprofit agricultural association or who are members of, or stockholders in, any nonprofit cooperative agricultural marketing association of producers, some or all of whom may not be required to carry compensation insurance, may, under such conditions as the commissioner may prescribe in order to effectuate the purpose of Article 2, Chapter 3, of this part, be insured under a group compensation insurance policy.
An insurer may issue a workers’ compensation policy insuring an organization or association of employers as a group if the organization or association complies with the following conditions:
Files with the commissioner or a licensed workers’ compensation rating organization designated by him or her the following:
A copy of its articles of incorporation and bylaws or its agreement of association and rules and regulations governing the conduct of its business, all certified by the custodian of the originals thereof.
A statement setting forth its reasons for desiring insurance as a group.
A statement certifying that at least 75 percent of its regular membership is engaged in a common trade or business, and an agreement that the percentage of membership will be maintained during the time that a group workers’ compensation policy issued to the organization or association is in force.
An agreement that only those members who are engaged in a common trade or business shall be named by the organization or association in any statement to the commissioner, a licensed workers’ compensation rating organization, or insurer as eligible for insurance as a member of the group, and an agreement that it will immediately notify its insurer if any member of the organization fails to remain a member in good standing in accordance with the basic law, rules, and regulations of the organization or association.
A statement in writing undertaking to establish and maintain a safety committee which, by education and otherwise, will seek to reduce the incidence and severity of accidents.
An agreement in writing duly executed stating that, if the insurer notifies the organization or association of the nonpayment of a premium by an insured member of the organization or association within 60 days after the premium was due, the organization or association may be liable to pay to the insurer the amount of any past due premium that does not exceed the amount of the dividends that are due to the organization or association or its members from the insurer.
However, this agreement shall not be required, nor shall an organization or association be liable for payment, unless the governing board of the organization or association and the insurer agree in writing to use dividends due for the payment of past due premiums. The organization or association shall promptly notify the insurer of the known insolvency of any member of the group plan, and shall request, upon learning of the insolvency, removal of the member from the group plan. A copy of the resolution of the governing board of the organization or association authorizing the execution of the agreement shall be filed with the commissioner or a licensed workers’ compensation rating organization designated by the commissioner and with any insurer issuing a group policy.
“Common trade or business,” as used in this article, shall mean:
In agricultural enterprises, operations in which the principal payroll of the employer develops under any combination of the classifications of the Manual of Rules, Classifications and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner as applicable to farms, nurserymen, cultivating or gardening of flowers, and classifications embracing other operations that may be conducted by a nonprofit cooperative association composed of producer members and combinations of nonprofit cooperative agricultural marketing associations having a central organization composed of member associations.
In the building and construction industry, operations in the construction or repair of commercial or residential buildings or in general engineering construction in which the principal payroll develops under any combination of the classifications applicable to the construction or repair as they appear in the Manual of Rules, Classifications and Basic Rates for Workers’ Compensation Insurance approved by the Insurance Commissioner. Commercial buildings, as defined in this paragraph, shall mean any nonresidential buildings.
In the transportation and warehousing industry, operations in which the principal payroll of the employer develops under any combination of the classifications of the Manual of Rules, Classifications and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner as applicable to for-hire motor carriers subject to regulation by the Public Utilities Commission and warehousemen.
In the timber and lumber industry, operations in which the principal payroll of the employer develops under any combination of the classifications of the Manual of Rules, Classifications and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner as applicable to land clearing, logging or lumbering, log, chip, and lumber hauling, planing or molding mills, sawmills or shingle mills, veneer or veneer products manufacturing, box or box shook manufacturing, cabinet works, door, door frame, or sash manufacturing and wood fiber preparation. However, no classification applicable to for-hire motor carriers under the provisions of paragraph (3) of this subdivision shall be included in any combination of classifications authorized by this paragraph.
For public agencies providing industrial, domestic, or agricultural water service, operations in which the principal payroll of the employer develops under any combination of the classifications of the Manual of Rules, Classifications and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner as applicable to irrigation, drainage, reclamation, or waterworks operations.
For sheltered workshops and rehabilitation facilities licensed pursuant to Section 1191.5 of the Labor Code, operations in which the principal payroll of the employer develops under any combination of classifications of the Manual of Rules, Classifications and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner.
For all other enterprises, operations in which the principal payroll develops under a single manual classification or a combination of classifications under which a group policy may be issued pursuant to subdivision (d).
For manufacturing facilities as identified in Sector 31 to 33, inclusive, of the North American Industry Classification System (NAICS), operations in which the principal payroll of the employer develops under any combination of classifications of the Manual of Rules, Classifications, and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner applicable to establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products.
Except as provided in subdivision (d), “principal payroll,” for the purpose of this section, means not less than 51 percent of the total payroll for the preceding policy year or, in the case of an employer who has no preceding full year’s payroll, not less than 51 percent of his or her estimated annual payroll. Principal or estimated annual payroll shall not include the payroll of those employees set forth in the standard exceptions contained in the Manual of Rules, Classifications, and Basic Rates of Workers’ Compensation Insurance approved by the Insurance Commissioner.
An insurer may issue a workers’ compensation policy insuring an organization or association of employers as a group if, in addition to complying with the conditions set forth in subdivision (a), the organization or association has had at least 50 percent of its present membership for at least one year prior to the issuance of the policy, and not less than 75 percent of the payroll of each employer to be insured under the group policy developed under the same two manual classifications, or either of them, for the preceding policy year or, in the case of an employer who has had no preceding full-year’s payroll, not less than 75 percent of his estimated annual payroll develops under the classification or classifications. However, no classification applicable to for-hire motor carriers under the provisions of paragraph (3) of subdivision (b) shall be included in any combination of classifications authorized by this subdivision.
Each member of an organization insured under a group policy shall be treated as a single and separate entity as respects rates, classifications and rating plans.
Two or more policies whose experience is combined for any purpose whatsoever, shall be considered group insurance and subject to the provisions of this article unless employers insured by such policies are engaged in operations having a common pay roll or where any rating plan or rating system and the rules applicable to them approved by the commissioner under the provisions of Article 2, Chapter 3, Part 3, Division 2, require or permit the insurance of more than one employer in a single policy.
To encourage and facilitate the participation of agencies, entities or institutions, public or private, in economic opportunity programs authorized under Public Law 88-452, insurers may insure the workers’ compensation liability to enrollees of sponsoring agencies pursuant to Chapter 9 (commencing with Section 4201) of Part 1 of Division 4 of the Labor Code under a master policy, subject to the approval of the Insurance Commissioner.
Subject to the provisions of Sections 11659 and 11660, limited workers’ compensation policies may be issued insuring either the whole or any part of the liability of any employer for compensation, provided that the policy is previously approved, as to substance and form, by the commissioner. Subject to those provisions, the policy may restrict or limit the insurance in any manner whatsoever.
A workers’ compensation insurance policy or endorsement shall not be issued by an insurer to any person in this state unless the insurer files a copy of the form or endorsement with the rating organization pursuant to subdivision (e) of Section 11750.3 and 30 days have expired from the date the form or endorsement is received by the commissioner from the rating organization without notice from the commissioner, unless the commissioner gives written approval of the form or endorsement prior to that time.
If the commissioner notifies the insurer that the filed form or endorsement does not comply with the requirements of law, specifying the reasons for his or her opinion, it is unlawful for the insurer to issue any policy or endorsement in that form.
The withdrawal of a policy form or endorsement by the commissioner pursuant to this section shall not affect the status of the policyholder as having secured payment for compensation or affect the substitution of the insurer for the policyholder in workers’ compensation proceedings as set forth in the provisions of Chapter 4 (commencing with Section 3700) of Part 1 of Division 4 of the Labor Code during the period of time in which the policy form or endorsement was in effect.
This section shall not apply to limited policies submitted for approval to the commissioner pursuant to Section 11657.
An insurer that intends to use a dispute resolution or arbitration agreement to resolve disputes arising in California out of a workers’ compensation insurance policy or endorsement issued to a California employer shall disclose to the employer, contemporaneously with any written quote that offers to provide insurance coverage, that choice of law and choice of venue or forum may be a jurisdiction other than California and that these terms are negotiable between the insurer and the employer. The disclosure shall be signed by the employer as evidence of receipt where the employer accepts the offer of coverage from that insurer.
After compliance with paragraph (1), a dispute resolution or arbitration agreement may be negotiated by the insurer and the employer before any dispute arises.
Nothing in this section is intended to interfere with any authority granted to the Insurance Commissioner under current law.
Failure by the insurer to observe the requirements of subdivision (a) shall result in a default to California as the choice of law and forum for resolution of disputes arising in California.
For purposes of this section, a “California employer” means an employer whose principal place of business is in California and whose California payroll constitutes the majority of the employer’s payroll for purposes of determining premium under the policy.
This section shall apply to workers’ compensation policies issued or renewed on or after July 1, 2012.
Such approved form of policy, limited pursuant to Section 11657, shall not be otherwise limited except by indorsement thereon in accordance with a form prescribed by the commissioner or in accordance with rules adopted by the commissioner. Such indorsement form shall not be subject to Section 11658. Before prescribing such indorsement form or adopting such rule, the commissioner shall consult concerning it with the Workers’ Compensation Appeals Board.
An insurer shall not insure against the liability of the employer for the additional compensation recoverable for serious and willful misconduct of the employer or his agent. An insurer may, however, provide insurance against the expense of defending any suit for serious and willful misconduct against an employer or his agent.
An insurer shall not insure an employer against his liability for additional compensation arising out of injuries to illegally employed persons under 16 years of age, as provided for by Part 4 (commencing with Section 1171) of Division 2 of the Labor Code.
An insurer shall not insure an employer against his or her obligation to reimburse the insurer for the amount of increase in indemnity payment as provided for by subdivision (e) of Section 4650 of the Labor Code. Every contract insuring against liability for compensation and every compensation policy shall provide that the insured employer is obligated to reimburse the insurer for the amount of increase in indemnity payment required by Section 4650 of the Labor Code, if the late indemnity payment which gives rise to the increase in the amount of payment is due less than seven days after the insurer receives the completed claim form from the employer.
An insurer shall not report the amount of any increase in indemnity required by Section 4650 of the Labor Code as incurred indemnity to the Insurance Commissioner’s designated statistical agent.
Whenever any employer is insured against liability for compensation with any insurer, such insurer is subrogated to the rights of the employer to recover losses arising out of any of the following acts by the insurer:
Assuming the liability of the employer for compensation in the manner provided by the law relating thereto.
Payment of any compensation for which the employer is liable.
Such insurer may enforce any such subrogated rights in its own name.
As between insurers of general and special employers, one which insures the liability of the general employer is liable for the entire cost of compensation payable on account of injury occurring in the course of and arising out of general and special employments unless the special employer had the employee on his or her payroll at the time of injury, in which case the insurer of the special employer is solely liable. For the purposes of this section, a self-insured or lawfully uninsured employer is deemed and treated as an insurer of his or her workers’ compensation liability.
Upon receiving a written request from an insured or the agent or broker of record where authorized by the insured, an insurer shall provide a premium and loss history report to the requesting party for the account’s tenure or the three-year period ending with the inception of the current policy period, whichever is shorter, plus loss experience during the current policy period that is in force if any of the following occur.
The policy is canceled or nonrenewed.
The policyholder requests the information within 60 days prior to the renewal date of an existing policy.
The policyholder’s current insurer’s rating is downrated by a nationally recognized insurance rating service to a financial rating below secure or good or to a rating that would negatively impact the ability of the policyholder to conduct its business operations.
The policyholder’s current insurer is conserved by the department under Section 1011, or is ordered to cease writing business under Sections 1065.1 and 1065.2.
The premium and loss history report, and the loss experience information for the current policy period, shall be provided within 10 business days of receiving the request.
This section applies only to workers’ compensation insurance.
This section shall not apply to a policyholder who, through automated or other means, is provided direct, ongoing access to claims information by the insurer.
For purposes of this section, a loss history report includes, but is not limited to, a list of individual claims detailed by date of claim and total incurred and paid losses.
This section applies only to policies of workers’ compensation insurance.
A notice of nonrenewal shall be in writing and shall be delivered or mailed to the producer of record and to the named insured at the mailing address shown on the policy. The time periods and procedures in subdivision (a) of Section 1013 of the Code of Civil Procedure shall be applicable if the notice is mailed.
An insurer, at least 30 days, but not more than 120 days, in advance of the end of the policy period, shall give notice of nonrenewal, and the reasons for the nonrenewal, if the insurer intends not to renew the policy.
If an insurer fails to give timely notice required by subdivision (c), the policy of insurance shall be continued, with no change in its premium rate, for a period of 60 days after the insurer gives the notice.
A notice of nonrenewal shall not be required in any of the following situations.
The transfer of, or renewal of, a policy without a change in its terms or conditions or the rate on which the premium is based between insurers that are members of the same insurance group.
The policy has been extended for 90 days or less, if the notice required in subdivision (c) has been given prior to the extension.
The named insured has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.
The policy is for a period of no more than 60 days and the insured is notified at the time of issuance that it may not be renewed.
The named insured requests a change in the terms or conditions or risks covered by the policy within 60 days prior to the end of the policy period.
The insurer has made a written offer to the insured to renew the policy at a premium rate increase of less than 25 percent.
If the premium rate in the governing classification for the insured is to be increased 25 percent or greater and the insurer intends to renew the policy, the insurer shall provide a written notice of a renewal offer not less than 30 days prior to the policy renewal date. The governing classification shall be determined by the rules and regulations established in accordance with subdivision (c) of Section 11750.3.
For purposes of this section, “premium rate” means the cost of insurance per unit of exposure prior to the application of individual risk variations based on loss or expense considerations such as scheduled rating and experience rating.
An insurer who issues a workers’ compensation insurance policy to a roofing contractor holding a C-39 license from the Contractors’ State License Board shall perform an annual payroll audit for the contractor. This audit shall include an in-person visit to the place of business of the roofing contractor to verify whether the number of employees reported by the contractor is accurate. The insurer may impose a surcharge on each policyholder audited under this subdivision in an amount necessary to recoup the reasonable costs of conducting the annual payroll audits.
The commissioner shall direct the rating organization designated as his or her statistical agent to compile pertinent statistical data on those holding C-39 licenses, as reported by the appropriate state entity, on an annual basis and provide a report to him or her each year. The data shall track the total annual payroll and loss data reported on those holding C-39 licenses in accordance with the standard workers’ compensation insurance classifications applicable to roofing operations. The data shall include the number of employers, total payroll, total losses, and the losses per one hundred dollars ($100) of payroll by the employers’ annual payroll intervals as follows:
1 to4,9995,000 to9,99910,000 to14,99915,000 to19,99920,000 to24,99925,000 to29,99930,000 to39,99940,000 to49,99950,000 to74,99975,000 to99,999100,000 to199,999200,000 to299,999300,000 to399,999400,000 to499,999500,000 to599,999600,000 to699,999700,000 to799,999800,000 to899,999900,000 to999,9991,000,000 to1,099,9991,100,000 to1,199,9991,200,000 to1,299,9991,300,000 to1,399,9991,400,000 to1,499,9991,500,000 or more
The report shall also be provided to the Legislature by the commissioner, in compliance with Section 9795 of the Government Code.
CHAPTER 3. Regulation of Business of Workers’ Compensation Insurance [11690. - 11761.]
ARTICLE 1. Deposits by Workers’ Compensation Insurers [11690. - 11703.]
For purposes of this article:
“Compensable workers’ compensation claim” means a claim where the claimant is entitled to benefits under the workers’ compensation law of the state.
“Delinquency proceeding” means any proceeding commenced against an insurer for the purpose of liquidating, rehabilitating, reorganizing, or conserving that insurer, where there has not been a court order finding the insurer insolvent.
“Receiver” means liquidator, rehabilitator, or conservator, as appropriate.
In order to provide protection to the workers of this state in the event that the insurers issuing workers’ compensation insurance to employers fail to pay compensable workers’ compensation claims when due, except in the case of the State Compensation Insurance Fund, every insurer desiring admission to transact workers’ compensation insurance, or workers’ compensation reinsurance business, or desiring to reinsure the injury, disablement, or death portions of policies of workers’ compensation insurance under the class of disability insurance shall, as a prerequisite to admission, or ability to reinsure the injury, disablement, or death portion of policies of workers’ compensation insurance under the class of disability insurance, deposit cash instruments or approved interest-bearing securities or approved stocks readily convertible into cash, investment certificates, or share accounts issued by a savings and loan association doing business in this state and insured by the Federal Deposit Insurance Corporation, certificates of deposit, or savings deposits in a bank licensed to do business in this state, or approved letters of credit that perform in material respects as any other security allowable as a form of deposit for purposes of a workers’ compensation deposit and that meet the standard set forth in Section 922.5, or approved securities registered with a qualified depository located in a reciprocal state as defined in Section 1104.9, with that deposit to be in an amount and subject to any exceptions as set forth in this article. The deposit shall be made from time to time as demanded by the commissioner and may be made with the Treasurer, or a bank or savings and loan association authorized to engage in the trust business pursuant to Division 1 (commencing with Section 99) or Division 2 (commencing with Section 5000) of the Financial Code, or a trust company. A deposit of securities registered with a qualified depository located in a reciprocal state as defined in Section 1104.9 may only be made in a bank or savings and loan association authorized to engage in the trust business pursuant to Division 1 (commencing with Section 99) or Division 2 (commencing with Section 5000) of the Financial Code, or a trust company, licensed to do business and located in this state that is either domiciled in and has a principal place of business in this state, or is a national bank association with a trust office located in this state, that is a qualified custodian as defined in paragraph (1) of subdivision (a) of Section 1104.9, and that maintains deposits of at least seven hundred fifty million dollars ($750,000,000). The deposit shall be made subject to the approval of the commissioner under those rules and regulations that he or she shall promulgate. The deposit shall be maintained at a deposit value specified by the commissioner, but in any event no less than one hundred thousand dollars ($100,000), nor less than the reserves required of the insurer to be maintained under any of the provisions of Article 1 (commencing with Section 11550) of Chapter 1, relating to loss reserves on workers’ compensation business of the insurer in this state, nor less than the sum of the amounts specified in subdivision (a) of Section 11693, whichever is greater. The deposit shall be for the purpose of paying compensable workers’ compensation claims under policies issued by the insurer or reinsured by the admitted reinsurer and expenses as provided in Section 11698.02, in the event the insurer or reinsurer fails to pay those claims when they come due. If the insurer providing the deposit is domiciled in a state where a state statute, regulation, or court decision provides that, with respect to covered claims within the deductible amount that are paid by a guarantee association after the entry of an order of liquidation under large deductible workers’ compensation policies, any part of the reimbursement proceeds, other than the reasonable expenses of the receiver related to treatment of deductible policy arrangements of insurance companies in liquidation, owed by insureds on those deductible amounts, whether paid directly or through a draw of collateral, are general assets of the estate, then the amount of the insurer’s deposit pursuant to this article shall be calculated based on the gross amount of that insurer’s liabilities for loss and loss adjustment expenses under those policies without regard to the deductible, and those reserves shall not be reduced by any collateral or reimbursement obligations insureds were required to provide under those policies.
This section does not require that the deposit be calculated based on gross amounts of liabilities described above if the domiciliary state does not have an existing statute, regulation, or court decision providing that the reimbursement proceeds described above are general assets of the estate.
Each insurer or reinsurer desiring to have the ability to reinsure the injury, disablement, or death portions of policies of workers’ compensation under the class of disability insurance shall provide prior notice to the commissioner, in the manner and form prescribed by the commissioner of its intent to reinsure that insurance. In the event of late notice, a late filing fee shall be imposed on the reinsurer pursuant to Section 924 for failure to notify the commissioner of its intent to reinsure workers’ compensation insurance.
If the deposit required by this section is not made with the Treasurer, then the depositor shall execute a trust agreement in a form approved by the commissioner between the insurer, the institution in which the deposit is made or, where applicable, the qualified custodian of the deposit, and the commissioner, that grants to the commissioner the authority to withdraw the deposit as set forth in Sections 11691.2, 11696, 11698, and 11698.3. The insurer shall also execute and deliver in duplicate to the commissioner a power of attorney in favor of the commissioner for the purposes specified herein, supported by a resolution of the depositor’s board of directors. The power of attorney and director’s resolution shall be on forms approved by the commissioner, shall provide that the power of attorney cannot be revoked or withdrawn without the consent of the commissioner, and shall be acknowledged as required by law.
The commissioner shall require payment, in advance, of a fee of two hundred eighty-three dollars ($283) for the initial filing of a trust agreement with a bank, savings and loan association, or trust company on deposits made pursuant to subdivision (a); for each amendment, supplement, or other change to the deposit agreement; for receiving and processing deposit schedules pursuant to this section; and for each withdrawal, substitution, or any other change in the deposit.
The commissioner shall require payment, in advance, of a fee of four hundred twenty-four dollars ($424) for the initial filing of each letter of credit utilized pursuant to subdivision (a). In addition, the commissioner shall require payment, in advance, of a fee of two hundred eighty-three dollars ($283) annually for each amendment of a letter of credit.
Any workers’ compensation insurer that deposits cash or cash equivalents pursuant to this section shall be entitled to a prompt refund of those deposits in excess of the amount determined by the commissioner pursuant to subdivision (a). The commissioner shall cause to be refunded any deposits determined by the commissioner to be in excess of the amount required by subdivision (a) within 30 days of that determination. In the alternative, an insurer may use any excess deposit funds to offset a demand by the commissioner to increase its deposit due to the failure of a reinsurer to make a deposit pursuant to this section.
An admitted insurer reinsuring business covered in this article (hereafter referred to as reinsurer) shall identify to the commissioner, in a form prescribed by the commissioner, amounts deposited for credit in the name of each ceding insurer.
All reinsurance agreements covering claims and obligations under business covered by this article, and allowable for purposes of granting a ceding carrier a deposit credit, shall include a provision granting the commissioner, in the event of a delinquency proceeding, receivership, or insolvency of a ceding insurer, any sums from a reinsurer’s deposit that are necessary for the commissioner to pay those reinsured claims and obligations, or to ensure their payment by the California Insurance Guarantee Association, deemed by the commissioner due under the reinsurance agreement, upon failure of the reinsurer for any reason to make payments under the policy of reinsurance. The commissioner shall give 30 days’ notice prior to drawing upon these funds of an intent to do so. Notwithstanding the commissioner’s right to draw on these funds, the reinsurer shall otherwise retain its right to determine the validity of those claims and obligations and to contest their payment under the reinsurance agreement. Prior to a reinsurer’s deposit being drawn upon, in whole or in part, by the department, the department shall provide a reinsurer with an explanation of procedures that a reinsurer may use to explain to the department why the use of the reinsurer’s deposit may not be appropriate under the reinsurance agreement.
A reinsurer entering into a contract identified in paragraph (2), beginning on or after January 1, 2005, may not cede claims or obligations assumed from a ceding insurer unless the deposit securing the ceded claims or obligations is governed by paragraph (2) or, upon approval of the commissioner, would secure the ceded claims or obligations in all material respects and in the same manner as a deposit identified in paragraph (2) above.
All sums received from the reinsurer by the commissioner for those claims paid by the California Insurance Guarantee Association shall be held separate and apart from and not included in the general assets of the insolvent insurer, and shall be transferred to the California Insurance Guarantee Association upon receipt by the commissioner. In the event of a final judgment or settlement adverse to the drawing of funds by the commissioner pursuant to paragraph (2) or (3), the California Insurance Guarantee Association shall repay funds it obtained to pay covered claims and shall, if necessary, either levy a surcharge as needed or seek legislative approval to levy the surcharge if the California Insurance Guarantee Association is already levying the maximum surcharge permissible under law.
If a reinsurer has not maintained deposits as required by subdivision (a) in amounts equal to the amounts of deposit credits claimed by its ceding insurers, the commissioner, after notifying the reinsurer and its ceding insurers of the deposit shortfall and allowing 15 days from the date of the notice for the deposit shortfall to be corrected, may disallow all or a portion of the reserve credits claimed by the ceding insurers. A ceding insurer disallowed a reserve credit pursuant to this provision shall immediately make the deposit required by this section.
For interest-bearing securities that are debt securities and include principal payment features prior to maturity that are utilized pursuant to subdivision (a), all principal payments received shall be retained as part of the deposit.
Withdrawal of any amount of the deposit required under subdivision (a) that results in a reduction of the required amount of the deposit may only occur with the prior written consent of the commissioner.
The fees for filing a schedule of securities with the Treasurer, and making a deposit of the same, and for each withdrawal, substitution, or any other change in the securities comprising this deposit with the Treasurer, shall be paid to the commissioner for the costs of review and approval of deposits, and shall be the same as are prescribed by Article 11 (commencing with Section 939) of Chapter 1 of Part 2 of Division 1.
All other reasonable charges made by the Treasurer for servicing securities deposited with him or her shall be paid to the Treasurer by the insurer that has deposited the security, and shall not be charged to the commissioner.
The deposit required pursuant to Section 11691 shall be security for the payment of the insurer’s obligations on worker’s compensation insurance transacted in this state. The deposit shall not be withdrawn except upon the written order of the commissioner to use the proceeds thereof in payment of compensable worker’s compensation claims and expenses as provided in Section 11698.02, or as otherwise provided in this article, but shall be forthwith payable to the commissioner or at the direction of the commissioner by the Treasurer or the bank, savings and loan association, or trust company approved by the commissioner upon that order. No deposit so placed with a bank, savings and loan association, or trust company shall be subject to any lien or claim asserted by it or be subject to any disposition obligation, demand, liability, cause of action, judgment, or other claim, or cost or expense attendant thereon, other than as is permitted by the commissioner. Notwithstanding any other provisions of this code, the deposit shall be retained by the Treasurer or the bank, savings and loan association, or trust company approved by the commissioner and only released in accordance with the provisions of this article or pursuant to regulations or a written order of the commissioner.
The commissioner shall establish a list of all insurers or reinsurers authorized to reinsure the injury, disablement, or death portions of policies of workers’ compensation insurance under the class of disability insurance. An insurer or reinsurer shall be authorized to reinsure the injury, disablement, or death portions of policies of workers’ compensation insurance under the class of disability insurance if it has complied with Section 11691. The commissioner shall publish a master list of those insurers or reinsurers at least semiannually. Any insurer or reinsurer providing the notification and deposit required by Section 11691, shall be added by addendum to the list at the time of approval, and shall be incorporated into the master list at the next date of publication. The list and addenda required by this section shall be published so that they are readily accessible to insurers and producers. The list and addenda required by this section shall also contain a notice that if an insurer enters into a contract of reinsurance with an insurer or reinsurer reinsuring the injury, disablement, or death portions of policies of workers’ compensation insurance under the class of disability insurance that is not authorized pursuant to this section, the ceding insurer may not be able to claim that reinsurance for reserve credit.
A certificate of authority to transact workers’ compensation insurance in this state shall not be issued nor renewed to any insurer until the deposit required pursuant to Section 11691 is approved by the commissioner.
On and after the effective date of this article, the commissioner shall collect a late filing fee from any admitted insurer or reinsurer that fails to deposit the securities when required by this code in the following amount:
If the deposit shortfall is outstanding for less than 31 days, 0.5 percent of the deposit shortfall, but in no event not less than six hundred dollars ($600).
If the deposit shortfall is outstanding for more than 30 days but less than 61 days, an additional late filing fee in the amount of 1 percent of the deposit shortfall, but in no event not less than one thousand two hundred dollars ($1,200) shall be due.
If the deposit shortfall is outstanding for 61 days or greater, an additional late filing fee of 1.5 percent of the deposit shortfall for every 30-day period thereafter, or fraction thereof, but in no event shall this portion of the late filing fee for each additional 30-day period or fraction thereof be less than three thousand dollars ($3,000). The late filing fees provided herein are in addition to all other rights and remedies granted the commissioner by this article.
The deposit required pursuant to Section 11691 shall be adjusted on or prior to March 31 of each year in an amount as follows:
Not less than the sum of the following amounts computed, less credits and deductions allowable with respect to reinsurance in admitted insurers, as provided under Section 11691, as of the close of the last preceding December 31 or as of any calendar quarter end as directed by the commissioner pursuant to Section 11694 in respect to workers’ compensation insurance written subject to the workers’ compensation laws of this state:
The aggregate of the present values at 6 percent interest, or at the rate of the company’s investment yield as determined by the NAIC Insurance Regulatory Information System Ratio Number 5 for Property and Casualty Companies, whichever is lower, of the determined and estimated future payments upon compensation claims not included in paragraph (2), including in those claims both benefits and loss expenses.
The aggregate of the amounts computed as follows:
For each of the preceding three years, 65 percent of the earned compensation premiums for that year less all loss and loss expense payments made upon claims incurred in the corresponding year from that 65 percent; except that the amount for each year shall not be less than the present value at 6 percent interest of the determined and the estimated unpaid claims incurred in that year, including both benefits and loss expenses.
Not less than one hundred thousand dollars ($100,000).
If the aggregate amount computed under subdivision (a) exceeds fifty thousand dollars ($50,000), not more than double the aggregate amount.
The commissioner may utilize securities valuation software programs or services to validate the value of securities held in workers’ compensation deposits of insurers authorized to transact workers’ compensation insurance in California as direct writers or reinsurers, or reinsurers of workers’ compensation under the class of disability.
After the first annual statement to the commissioner covering business of the insurer for a full year in this state, the deposit required pursuant to Section 11691 shall be computed from the figures shown in the last preceding report of business as of December 31, filed with the commissioner, and shall be reported to the commissioner on or before March 1 of each year in a form and manner prescribed by the commissioner. Notwithstanding anything to the contrary in this article, should the commissioner determine that there has been a material change in the insurer’s ultimate liability for future payments upon compensable workers’ compensation claims in this state, at the commissioner’s discretion, the amount of the deposit shall then be fixed by the commissioner at the amount that he or she deems sufficient to secure the payment of the insurer’s ultimate obligations on its workers’ compensation insurance transacted in this state, and upon notification from the commissioner the insurer shall immediately, but in no event less than 30 days after notification, increase the deposit as directed.
On or before March 1 and May 15 of each year, the insurers or reinsurers subject to Section 11694 shall file a report in the form and manner prescribed by the commissioner that valuates and details the deposit as of December 31 of the preceding year and March 31 of the current year. The commissioner may require additional reporting by any insurer or reinsurer when it is deemed necessary.
Where an admitted insurer has voluntarily ceased to do in this state the business for which a deposit is required pursuant to Section 11691, the deposit shall be fixed by the commissioner at the amount that he or she deems sufficient for the protection of the beneficiaries of the policies of that insurer.
In the event an insurer not in a delinquency proceeding fails to pay any compensable workers’ compensation claim against it, or fails to pay, to the extent of its liability as a reinsurer, any compensable workers’ compensation claim covered by a policy wholly or partly reinsured by it, the commissioner shall use the proceeds of the deposit required pursuant to Section 11691 to pay all those compensable workers’ compensation claims and related expenses as described in Section 11698.02.
The payment of a workers’ compensation claim by the commissioner shall constitute a satisfaction of the claim to the extent of the payment made. In the event any judgment is entered on the claim, the commissioner shall file a proportionate satisfaction thereof in the office of the clerk of the court wherein the judgment is entered.
In the event any one of the eventualities described in paragraph (1), (2), (3), or (4), transpires, the commissioner shall immediately take control or possession of the deposit required pursuant to Section 11691 and may use the deposit to pay or procure the payment of those compensable workers’ compensation claims against the insurer, and those expenses described in Section 11698.02. The proceeds of the deposit shall in that event inure to the commissioner as a trust to be held separate and apart from all other assets of the insurer held by the commissioner. They shall be used only for the purposes set forth and in accordance with the procedures established in this article. Once it is determined that there are no remaining undischarged liabilities for compensable workers’ compensation claims or it is actuarially demonstrated that the deposit exceeds those liabilities, the commissioner shall transfer the remaining amount of the deposit to the general assets of the estate.
If the commissioner is named conservator of that insurer pursuant to Article 14 (commencing with Section 1011) of Chapter 1 of Part 2 of Division 1.
The proper court has appointed the commissioner ancillary receiver of the insurer or reinsurer.
A delinquency proceeding has been instituted by the proper court against the insurer or reinsurer.
If it appears to the commissioner that any of the conditions set forth in Section 1011 exist or that irreparable loss and injury to the property and business of the insurer or reinsurer has occurred or may occur unless the commissioner acts immediately without notice and before applying to the court for any order.
If the commissioner has proceeded under subdivision (a) or Section 11696 or 11698.3 and a deposit of securities registered with a qualified depository located in a reciprocal state and in the custody of a qualified custodian pursuant to Section 1104.9 cannot be released to the commissioner according to the terms of the agreement entered into pursuant to Section 11691 or the requirements of Section 11691.2 because of a delinquency proceeding initiated in the reciprocal state in which the qualified depository is located, or, if the deposit of securities registered with a qualified depository has been executed upon at any time by any creditor of an insurer and that execution has been affirmed by a written opinion of a court of competent federal appellate jurisdiction, the commissioner may, after a public hearing and upon a finding that deposits of securities registered with that depository do not allow the commissioner to discharge his or her responsibilities as set forth in this chapter, require workers’ compensation insurers authorized to transact insurance in this state to cease and desist making any further deposits authorized by Section 11691 in approved securities registered with that depository. For the purposes of this subdivision, the term “delinquency proceeding” shall have the same meaning as contained in subdivision (b) of Section 1064.1.
When the commissioner is authorized to proceed under Section 11698 he or she may do either of the following:
The proceeds of the deposit required pursuant to Section 11691 shall be used solely to pay compensable workers’ compensation claims under the insured or reinsured policies, allocated claims expense necessary to pay those claims, and the expenses connected with all proceedings or actions permitted or required by this article in furtherance of the payment of those claims, or should the commissioner pursuant to subdivision (a) of Section 11698.01 enter into reinsurance and assumption agreements with one or more reinsurers, the proceeds of the deposit shall be used to reimburse those reinsurers.
From time to time and in any event at or prior to the time of the filing of his or her petition for discharge as receiver, the commissioner shall do the following:
File with the Workers’ Compensation Appeals Board an accounting of all trust funds received and used from the proceeds of the deposit required pursuant to Section 11691.
File with the court an accounting of all funds received and used as expenses from the general funds of the insurer.
If the commissioner enters into a reinsurance and assumption agreement as provided in subdivision (a) of Section 11698.01, that agreement shall provide for all of the following:
The reinsurance and assumption of all those obligations by the reinsuring and assuming insurers.
If there is more than one reinsurer the proportion of all those obligations assumed by each reinsurer and a method for the actual processing and payment of those obligations by the reinsurers or their representatives.
The reimbursement of the reinsuring and assuming insurers from the deposit of the insurer in the delinquency proceeding. The provision shall conform with Section 11698.21 and shall not be effective unless approved by the Workers’ Compensation Appeals Board.
The amounts, if any, to be paid the reinsurers from the general funds of the insurer. If the agreement provides that amounts from the general funds of the insurer are to be paid to the reinsurers, those payments shall be approved by the court where the delinquency proceedings are pending.
Any other matters as are necessary and proper to achieve the purposes of the reinsurance and assumption agreement.
The reimbursement provision referred to in subdivision (c) of Section 11698.2 shall provide for the transfer of the securities in the deposit to the deposits of the reinsurers. Thereafter, except as provided in subdivision (b), the deposit of the reinsuring and assuming insurers shall be security for the payment of all of those obligations assumed by the agreement as well as those obligations on workers’ compensation insurance transacted in this state by the reinsurer, provided, however, that in determining the amount which shall remain on deposit as security for those obligations that are reinsured and assumed, the method prescribed by paragraph (1) of subdivision (a) of Section 11693 shall be used without any limitation as to time. In providing for the transfer of the securities the agreement may provide for their direct transfer to the deposit account of the reinsurers, or, if the securities deposited are in denominations or units as to make the equitable transfer to more than one reinsurer impossible, it may provide either for a formula under which the transfers may be made and differences in value reconciled by payments or credits among the reinsurers or for the sale of those securities by the commissioner and the reinvestment of the proceeds in other securities in amounts that can be so equitably transferred.
The agreement shall provide that if it appears that the market value of the securities on deposit will exceed the obligations assumed by the reinsurers, the commissioner may withhold the transfer of a portion of the deposit and may after a two-year period enter into a final settlement with the reinsurers with respect thereto at which time any excess in that deposit shall be transferred to the general assets of the insurer in the delinquency proceeding.
The commissioner shall not enter into an agreement with an insurer if its reinsurance and assumption of liability will impair its solvency or render its further transaction of business hazardous under subdivision (d) of Section 1011.
If the insurer is a member insurer of the California Insurance Guarantee Association (the association) and has been the subject of an order of liquidation or receivership with a finding of insolvency which has been entered by a court of competent jurisdiction the association then becomes obligated to pay compensable workers’ compensation claims arising under the insurer’s policies, which are otherwise “covered claims” as defined in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 2. The commissioner shall immediately take control or possession of the deposit required pursuant to Section 11691 and shall transfer the deposit to the association.
The association shall use the proceeds of the deposit and any interest earned thereon, for the payment of compensable workers’ compensation claims arising under the insolvent insurer’s policies and which are otherwise covered claims, as defined in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 2, and all expenses related thereto.
The association shall make a full report and accounting of the disposition of the deposit on or in the form and at the times as the commissioner shall request, including a report of all interest income earned on the deposit.
At the time all of the insolvent insurer’s California workers’ compensation claims liabilities are discharged, or at the time it is actuarially determined that the remaining proceeds, and any interest earned thereon, exceed those liabilities, the association shall return the surplus to the insolvent insurer’s estate.
Unless the deposit required pursuant to Section 11691 is withdrawn by the commissioner pursuant to the authority granted him or her by this article, it, or any remainder thereof, may be repaid to the insurer either upon satisfactory showing to the commissioner that every liability to pay compensable workers’ compensation claims has been assumed and reinsured with a solvent admitted insurer or fully paid and discharged. In the event the insurer remains admitted for workers’ compensation insurance, or desires to reinsure the injury, disablement, or death portions of policies of workers’ compensation under the class of disability insurance, then it must maintain at least the minimum deposit required by Section 11691.
The commissioner may revoke the certificate of authority to transact workers’ compensation insurance or to reinsure the injury, disablement, or death portions of policies of workers’ compensation under the class of disability insurance in this state of any insurer failing to comply with the requirements of this article. The power vested in the commissioner by this section is additional to any and all other powers and remedies vested in the commissioner by law. Failure to make the deposit required by this article within the required time shall be deemed to constitute a condition of hazard as set forth in Section 1011.
The provisions of this article shall not apply to workers’ compensation insurance covering those persons defined as employees by subdivision (d) of Section 3351 of the Labor Code.
An insurer desiring to write workers’ compensation insurance shall maintain or provide occupational safety and health loss control consultation services pursuant to Section 6354.5 of the Labor Code.
ARTICLE 2. State Rate Supervision [11730. - 11742.]
The following definitions govern the construction and meaning of the terms used in this article:
“Classification system” or “classification” means a plan, system, or arrangement for recognizing differences in exposure to hazards among industries, occupations, or operations of insurance policyholders.
“Expenses” means that portion of any rate attributable to acquisition, field supervision, collection expenses, general expenses, taxes, licenses, and fees.
“Experience rating” means a rating procedure utilizing past insurance experience of the individual policyholder to forecast future losses by measuring the policyholder’s loss experience against the loss experience of policyholders in the same classification to produce a prospective premium credit, debit, or unity modification.
“Loss trending” means any procedure for projecting developed losses to the average date of loss for the period during which the policies are to be effective.
“Market” means the interaction between buyers and sellers of workers’ compensation insurance within this state pursuant to the provisions of this article.
“Pure premium rate” means that portion of the rate which represents the loss cost per unit of exposure, including loss adjustment expense.
“Rate” means the cost of insurance per exposure base unit, prior to any application of individual risk variations based on loss or expenses considerations and does not include minimum premiums.
“Rating organization” means an entity licensed by the commissioner pursuant to Section 11751.1.
“Statistical plan” means the plan, system, or arrangement used in collecting data.
“Supplementary rate information” means any manual or plan of rates, classification system, rating schedule, minimum premium, policy fee, rating rule, rating plan, and any other similar information needed to determine the applicable premium for an insured.
“Supporting information” means the experience and judgment of the filer and the experience or data of other insurers or organizations relied on by the filer, the interpretation of any statistical data relied on by the filer, descriptions of methods used in making the rates, and any other similar information required to be filed by the commissioner.
This article applies to workers’ compensation insurance and employers’ liability insurance written in connection therewith.
Rates shall be adequate to cover an insurer’s losses and expenses. Rates shall not tend to create a monopoly in the market. For the purpose of this section, the rates of any individual insurer, other than the State Compensation Insurance Fund, are presumed to create a monopoly in the market if the insurer has a market share, based on a percentage of statewide workers’ compensation premium, equivalent to 20 percent or more of the premium written by all insurers other than the State Compensation Insurance Fund.
Rates shall not be unfairly discriminatory. Rates are unfairly discriminatory if, after allowing for practical limitations, price differentials fail to reflect equitably the difference in expected losses and expenses. A rate of an insurer shall not be deemed unfairly discriminatory because different premiums result for policyholders with like loss exposures but different expenses, or like expenses but different loss exposures, as long as the rate reflects the differences with reasonable accuracy.
In determining whether rates comply with Section 11732, the following criteria shall apply:
Due consideration may be given to past and prospective loss and expenses experience within this state, to catastrophe hazards and contingencies, to events or trends within this state, to loadings for leveling premium rates over time or for dividends or savings to be allowed or returned by insurers to their policyholders, members or subscribers, and to all other relevant factors, including judgment.
The expense provisions included in the rates to be used by an insurer shall reflect the operating methods of the insurer and, so far as is credible, its own actual and anticipated expense experience.
The rates may contain a provision for contingencies and an allowance permitting a reasonable profit. In determining the reasonableness of profit, consideration shall be given to all investment income attributable to premiums and the reserves associated with those premiums.
Every workers’ compensation insurer shall adhere to a uniform experience rating plan filed with the commissioner by a rating organization designated by the commissioner and subject to his or her disapproval.
The commissioner shall designate a rating organization to assist him or her in gathering, compiling, and reporting relevant statistical information, and to develop a classification system. An insurer may develop its own classification system upon which a rate may be made or adopt the classification system developed by the designated rating organization; provided, however, that any classification system developed by an insurer must be filed with the commissioner 30 days prior to its use. The commissioner shall disapprove a classification system filed by an insurer pursuant to this section if the insurer fails to demonstrate that the data thereby produced can be reported consistent with the uniform statistical plan or the classification system developed by the rating organization. Every workers’ compensation insurer shall record and report its workers’ compensation experience to the designated rating organization as set forth in the uniform statistical plan approved by the commissioner.
The designated rating organization shall develop and file manual rules, subject to the approval of the commissioner, reasonably related to the recording and reporting of data pursuant to the uniform statistical plan, uniform experience rating plan, and any classification systems that may be in effect. Every workers’ compensation insurer shall adhere to the approved manual rules and experience rating plan in writing and reporting its business. No insurer shall agree with any other insurer or with a rating organization to adhere to manual rules that are not reasonably related to the recording and reporting of data pursuant to the uniform statistical plan or classification system developed by the rating organization.
The designated rating organization shall also develop and file with the commissioner a weekly premium per employee for each classification used or proposed for use by that organization. The weekly premium shall be developed by applying the proposed rate for each classification to the state average weekly wage. For the purpose of this section, “state average weekly wage” means the average weekly wage paid by employers to employees covered by unemployment insurance as reported by the United States Department of Labor for California for the 12 months ending March 31 of the calendar year preceding the year in which the injury occurred.
Every insurer shall file with the commissioner all rates and supplementary rate information that are to be used in this state. The rates and supplementary rate information shall be filed not later than 30 days prior to the effective date. Upon application by the filer, the commissioner may authorize an earlier effective date. To the extent possible, rates and supplementary rate information shall be based upon supporting information derived from the experience or data of the insurer, rating organization, advisory organization, or other insurers. For the purposes of this subdivision, “rating organization” shall have the same meaning as set forth in subdivision (b) of Section 11750.1, and “advisory organization” shall have the same meaning as set forth in subdivision (e) of that section.
Rates filed pursuant to this section shall be filed in the form and manner prescribed by the commissioner. All rates, supplementary rate information, and any supporting information for rates filed under this article, as soon as filed, shall be open to public inspection at any reasonable time. Copies may be obtained by any person upon request and the payment of a reasonable charge.
Upon the written application of the insurer and insured, stating its reasons therefor, filed with the commissioner, a rate in excess of that provided by a filing otherwise applicable may be used on any specific risk.
A copy of the deductible endorsement that is to be attached to the policy to effectuate deductible coverage.
Endorsement language that protects the rights of injured workers and ensures that benefits are paid by the insurer without regard to any deductible. The endorsement shall specify that the nonpayment of deductible amounts by the policyholder shall not relieve the insurer from the payment of compensation for injuries sustained by the employee during the period of time the endorsed policy was in effect. The endorsement shall provide that deductible policies for workers’ compensation insurance coverage shall not be terminated retroactively for the nonpayment of deductible amounts.
The endorsement shall provide that notwithstanding the deductible, the insurer shall pay all of the obligations of the employer for workers’ compensation benefits for injuries occurring during the policy period. Payment by the insurer of any amounts within the deductible shall be treated as an advancement of funds by the insurer to the employer and shall create a legal obligation for reimbursements, and may be secured by appropriate security.
The endorsement shall specify whether loss adjustment expenses are to be treated as advancements within the deductible to be reimbursed by the employer.
An explanation of premium reductions reflecting the type and level of the deductible shall be clearly set forth for the policyholder.
The filing shall provide that premium reductions for deductibles are determined before application of any experience modification, premium surcharge, or premium discount, and the premium reductions reflect the type and level of deductible consistent with accepted actuarial standards.
The filing shall provide that the nonpayment of deductible amounts by the insured employer to its insurer, or the failure to comply with any security-related terms of the policy, shall be treated under the policy in the same manner as the payment or nonpayment of the premium pursuant to paragraph (1) of subdivision (b) of Section 676.8.
The insurer shall report and record losses subject to the deductible as losses for purposes of ratemaking and application of an experience rating plan on the same basis as losses under policies providing first dollar coverage.
An experience rating plan shall contain reasonable eligibility standards, provide adequate incentives for loss prevention, and shall provide for sufficient premium differentials so as to encourage safety.
The commissioner shall establish, by regulation, those forms of collateral or security that an insurer may designate to secure the deductible amount of any policy of workers’ compensation insurance and the establishment of reserves and recognition of receivables for insurers writing workers’ compensation deductible policies.
The commissioner, by order, exempt from the requirements of the Administrative Procedure Act, shall establish those forms of security or collateral that the insurer may designate to secure the deductible amount of any policy of workers’ compensation insurance that provides for a deductible and the establishment of reserves and recognition of receivables for insurers writing workers’ compensation deductible policies. This authority shall expire if regulations required by subdivision (a) are not drafted and filed with the Office of Administrative Law by December 31, 1995; if the regulations are filed with the Office of Administrative Law by December 31, 1995, this authority shall expire December 31, 1996, or upon filing of the regulations with the Secretary of State, whichever is earlier.
The commissioner may disapprove a rate if the insurer fails to comply with the filing requirements under Section 11735.
The commissioner may disapprove rates if the commissioner determines that premiums charged, in the aggregate, resulting from the use of the rates or the rates as modified by any supplementary rate information, would be inadequate to cover an insurer’s losses and expenses, unfairly discriminatory, or tend to create a monopoly in the market pursuant to Section 11732, 11732.5, or 11733.
The commissioner shall disapprove rates if the commissioner determines that premiums charged, in the aggregate, resulting from the use of the rates or the rates as modified by any supplementary rate information would, if continued in use, tend to impair or threaten the solvency of an insurer. In determining whether the premium charged in the aggregate would, if continued in use, tend to impair or threaten the solvency of the insurer, the commissioner shall consider the insurer’s experience in other states.
If the commissioner intends to disapprove rates pursuant to subdivision (a) or (b), the commissioner shall serve notice on the insurer of the intent to disapprove and shall schedule a hearing to commence within 60 days of the date of the notice.
If the commissioner disapproves rates pursuant to subdivision (c), the commissioner shall immediately serve notice on the insurer of the disapproval. An insurer whose rates have been disapproved pursuant to that subdivision may, within 20 days of the date of the notice of disapproval, request a hearing, and the commissioner shall hold a hearing within 60 days of the date of the notice of disapproval.
Every insurer or rating organization shall provide within this state reasonable means whereby any person aggrieved by the application of its filings may be heard by the insurer or rating organization on written request to review the manner in which the rating system has been applied in connection with the insurance afforded or offered. If the insurer or rating organization fails to grant or reject the request within 30 days, the applicant may proceed in the same manner as if the application had been rejected. Any party affected by the action of the insurer or rating organization on the request may appeal, within 30 days after written notice of the action, to the commissioner who, after a hearing held within 60 days from the date on which the party requests the appeal, or longer upon agreement of the parties and not less than 10 days’ written notice to the appellant and to the insurer or rating organization, may affirm, modify, or reverse that action. If the commissioner has information on the subject from which the appeal is taken and believes that a reasonable basis for the appeal does not exist or that the appeal is not made in good faith, the commissioner may deny the appeal without a hearing. The denial shall be in writing, set forth the basis for the denial, and be served on all parties.
If the commissioner disapproves a rate, the commissioner shall issue an order specifying in what respects the rate fails to meet the requirements of this article and stating when, within a reasonable period thereafter, that rate shall be discontinued for any policy issued or renewed after a date specified in the order. The order shall be issued within 20 days after the notice prescribed in subdivision (e) is served. If a hearing is held pursuant to subdivision (d) or (e), the order shall be issued, instead, within 30 days after the close of the hearing. The order may include a provision for premium adjustment for the period after the effective date of the order for policies in effect on that date.
Whenever an insurer has no legally effective rates as a result of the commissioner’s disapproval of rates or other act, the commissioner shall specify interim rates for the insurer that protect the interests of all parties and may order that a specified portion of the premiums be placed in an escrow account approved by the commissioner. When new rates become legally effective, the commissioner shall order the escrowed funds or any overcharge in the interim rates to be distributed appropriately, except that refunds of less than ten dollars ($10) per policyholder shall not be required. However, if the commissioner has disapproved rates pursuant to subdivision (c), the commissioner shall order the insurer in the interim to use, at a minimum, the approved advisory pure premium rates pursuant to subdivision (b) of Section 11750, as modified by the uniform experience rating plan established pursuant to subdivision (c) of Section 11734, without any deviations on account of any supplementary rate information and reflecting the actual expenses of the insurer, until the time that a final determination of rates is adjudicated and ordered through a hearing.
Notwithstanding any other provision of law, an insurer may increase rates on policies with inception dates prior to January 1, 2003, in an amount no greater than the pure premium rate increase approved by the commissioner reflecting the cost of the change in benefit levels authorized by the act adding this subdivision.
A classification shall take no account of any physical impairment of employees or the extent to which employees may have persons dependent upon them for support.
An insurer shall not use any plan for the payment of dividends to policyholders by reason of a participating provision in a workers’ compensation insurance policy which is unfairly discriminatory.
Every insurer issuing workers’ compensation insurance policies under the laws of this state shall file annually with the rating organization designated by the commissioner information relating to dividend payments made to its policyholders. Information filed shall be in sufficient detail to permit the rating organization to prepare for the commissioner’s review and approval, a report showing in the aggregate for all companies premiums earned, losses incurred, and dividends paid the preceding calendar year under policies containing a participating provision, separately by premium size and loss ratio categories, as may reasonably be prescribed by the commissioner.
Information submitted by individual companies pursuant to this section shall be confidential and not subject to public disclosure under any law of this state.
Rates and supplementary rate information filed for use in this state pursuant to this article and Article 3 (commencing with Section 11750), as added and amended by Chapter 228 of the Statutes of 1993, shall not be effective prior to the first normal anniversary rating date of a policy on or after January 1, 1995. Rates, any rating plan or plans, and policy forms issued or approved prior to January 1, 1995, shall remain in effect only until the first normal anniversary rating date on or after January 1, 1995, as determined by a licensed rating organization pursuant to rules issued or approved by the commissioner in effect on July 16, 1993. Prior to January 1, 1995, no policy may be issued or renewed for a term of less than one year for the purpose of changing the normal anniversary date of the policy or the preceding policy. No policy may be canceled, amended, or rewritten for the purpose of avoiding this section.
Notwithstanding Section 7 of Chapter 228 of the Statutes of 1993, this section shall become operative January 1, 1994.
The Legislature finds and declares that the insolvencies of more than a dozen workers’ compensation insurance carriers have seriously constricted the market and led to a dangerous increase in business at the State Compensation Insurance Fund. Yet more than 200 insurance companies are still licensed to offer workers’ compensation insurance in California. Unfortunately, many employers do not know which carriers are offering coverage, and it is both difficult and time consuming to try to get information on rates and coverages from competing insurance companies. A central information source would help employers find the required coverage at the best competitive rate.
On or before July 1, 2004, the commissioner shall establish and maintain, on the Internet Web site maintained by the department, an online rate comparison guide showing workers’ compensation insurance rates for the 50 insurance companies writing the highest volume of business in this line during the two preceding years.
The online comparison shall display rates for each class set forth in the classification system adopted by the commissioner pursuant to Section 11734, shall include the effective date of each rate, and shall list the rates for each class from the lowest to the highest rate.
The rating organization designated by the commissioner as his or her statistical agent pursuant to Section 11751.5 shall determine the cost savings achieved in the 2003 workers’ compensation reform legislation. Each insurer shall certify, in the form and manner determined by the commissioner, that its rates reflect those cost savings. The certifications shall be made available to the public on the Internet Web site maintained by the department.
ARTICLE 3. Rating and Other Organizations [11750. - 11759.2.]
The purpose of this article is to promote the public welfare by regulating concert of action between insurers in collecting and tabulating rating information and other data that may be helpful in the making of adequate pure premium rates for workers’ compensation insurance and for employers liability insurance incidental thereto and written in connection therewith for all admitted insurers and in submitting them to the commissioner for approval; to authorize and regulate the existence and cooperation of qualified rating organizations to one of which each workers’ compensation insurer shall belong; to authorize and regulate cooperation between insurers, rating organizations and advisory organizations in ratemaking and other related matters to the end that the purposes of this chapter may be complied with and carried into effect.
Notwithstanding any other provision of law, within 60 days of receiving an advisory pure premium rate filing made pursuant to subdivision (b) of Section 11750.3, the Insurance Commissioner shall hold a public hearing, and within 30 days of the conclusion of the hearing, approve, disapprove, or modify the proposed rate.
As used in this article, unless a different meaning is manifest, the term:
“Insurer” means every insurer authorized to transact workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith in this state, including the State Compensation Insurance Fund;
“Rating organization” means any organization which has as its primary object or purpose the collecting of loss and expense statistics and other statistical information and data, the making of pure premium rates and those rating plans authorized by Section 11734 for workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith and presenting them to the commissioner for approval;
“Insurance” means workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith;
“Willful” or “willfully” in relation to an act or omission which constitutes a violation of this article means with actual knowledge or belief that such act or omission constitutes such violation and with specific intent to commit such violation.
“Advisory organization” means every person, group or organization, other than an insurer, whether located within or without this state, which prepares policy forms or underwriting rules incidental to or in connection with workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith or which collects and furnishes to admitted insurers or rating organizations loss statistics or other statistical information and data relating to workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith and acts in an advisory capacity to such insurers or rating organizations as distinguished from a ratemaking capacity. No duly authorized attorney at law acting in the usual course of his profession shall be deemed to be an advisory organization.
“Employer’s liability insurance incidental thereto and written in connection therewith” means insurance of any liability of employers for injuries to, or death of, employees arising out of, and in the course of, employment when this insurance is incidental to, and written in connection with, the workers’ compensation insurance issued to the same employer and covering the same employer interests.
The provisions of this article shall apply to all workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith in this state, except reinsurance.
A rating organization may be organized pursuant to this article and maintained in this state for the following purposes:
To provide reliable statistics and rating information with respect to workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith.
To collect and tabulate information and statistics for the purpose of developing pure premium rates to be submitted to the commissioner for issuance or approval.
To formulate rules and regulations in connection with pure premium rates and the administration of classifications and rating systems.
To inspect risks for classification or rate purposes and to furnish to the insurer and upon request of the employer and after notice to the insurer, to furnish to the employer full information concerning the rates applicable to the employer’s insurance.
To examine policies, daily reports, endorsements or other evidences of insurance for the purpose of ascertaining whether they comply with the provisions of law and to make reasonable rules governing their submission. A rating organization may develop loss data on behalf of its members to assist members in developing plans pursuant to subdivision (e) of Section 11735 and other loss sensitive plans.
Within one year after expiration of any workers’ compensation insurance policy, to initiate test audits of insured employer’s payrolls and insurer’s audits of those payrolls to check the accuracy and reliability thereof, and to examine all records relative thereto and premises of insured employers.
To exchange information and experience data with rating organizations, advisory organizations, and insurers in this and other states, with respect to ratemaking.
To become a member or subscriber of any lawfully authorized ratemaking or advisory organization whenever membership in the organization is necessary or helpful to the rating organization.
To perform all acts necessary, incidental, or convenient to carry out the foregoing purposes or the provisions of this chapter relating to rating organizations.
On and after January 1, 1952, a rating organization shall not conduct its operations in this state without first having filed with the commissioner a written application for and securing a license to act as a rating organization. Any rating organization may make application for and obtain a license as a rating organization if it meets the requirements for license set forth in this article. The fee for filing an application for a license as a rating organization is two hundred twenty-four dollars ($224) payable in advance to the commissioner. Every rating organization shall file with its application:
A copy of its constitution, its articles of incorporation, agreement of association, and of its bylaws, rules and regulations governing the conduct of its business, all certified by the custodian of the originals thereof.
A list of its members who shall not number less than five insurers authorized to write and writing workers’ compensation insurance in this state and whose combined experience shall be determined by the commissioner to be reasonably adequate for ratemaking purposes.
The name and address of a resident of this state upon whom notices of the commissioner or process affecting that rating organization may be served.
A statement of its qualifications as a rating organization.
To obtain and retain a license, a rating organization shall provide satisfactory evidence to the commissioner that it shall do all of the following:
Permit any insurer to become a member at a reasonable cost and without discrimination, or to withdraw therefrom.
Neither have nor adopt any rule or exact any agreement, the effect of which would be to require any member as a condition of membership to adhere to any rates.
Neither adopt any rule nor exact any agreement, the effect of which would be to prohibit or regulate the payment of dividends, savings, or unabsorbed premium deposits allowed or returned by insurers to their policyholders or members.
Neither practice nor sanction any plan or act of boycott, coercion, or intimidation.
Neither enter into nor sanction any contract or act by which any person is restrained from lawfully engaging in the insurance business.
Notify the commissioner promptly of every change in its constitution or articles of incorporation, agreement of association, or in its bylaws, rules and regulations governing the conduct of its business; its list of members; and the name and address of the resident of this state designated by it upon whom notices or orders of the commissioner or process affecting the organization may be served.
Agree that the commissioner or his or her representative may attend all meetings of the organization or any of its committees.
Agree to permit four members of the public, two representing organized labor and two representing insured employers, to serve on the managing or governing committee of the organization as specified in Section 11751.35.
Maintain reasonable records of the experience of its members and of the data, statistics or information collected or used in connection with the pure premium rates, classifications, manual rules, and policy and endorsement forms used by its members so that these records will be available at all reasonable times to enable the commissioner to determine whether the rating organization and its members comply with the provisions of this chapter applicable to them. These records shall be maintained in an office within this state. The commissioner may prescribe a uniform system for the keeping of the records which shall be reasonably adapted to the rating organization and its members’ method of operation and which shall be applicable to all rating organizations licensed under this article and their members.
The commissioner shall examine each application for license to act as a rating organization and the documents filed therewith and may make any further investigation of the applicant, its affairs and its proposed plan of business, as he deems desirable.
The commissioner shall issue the license applied for within 60 days of its filing with him if from such examination and investigation he is satisfied that:
a. The business reputation of the applicant and its officers is good.
b. The facilities of the applicant are adequate to enable it to furnish the services it proposes to furnish.
c. The applicant and its proposed plan of operation conform to the requirements of this chapter.
Otherwise, but only after hearing upon notice, the commissioner shall in writing deny the application and notify the applicant of his decision and his reasons therefor.
Licenses issued pursuant to this section shall remain in effect until suspended or revoked.
Notwithstanding Section 11751, each rating organization possessing a license of indefinite term pursuant to this article shall owe and pay to the commissioner an annual fee of one hundred fifty dollars ($150), in advance, on account of that license until its final termination. That fee shall be for annual periods commencing on July 1 of each year and ending on June 30 of each year and shall be due and payable on each March 1 and shall be delinquent on and after each April 1.
Subject to the approval of the commissioner, a rating organization licensed under this article may adopt any reasonable constitution, articles of incorporation, or agreement of association, and may make reasonable rules for the regulation of its members and the conduct of its business by bylaws or otherwise. In a rating organization of which the State Compensation Insurance Fund is a member, it shall be entitled without election to membership on the managing or governing committee and on the classification and rating committee thereof.
In addition, after consultation with the California Labor Federation, AFL-CIO, other statewide organized labor organizations, and statewide associations representing business, the commissioner shall appoint two public members representing insured employers and two public members representing organized labor to serve on the managing or governing committee of a rating organization. The bylaws of a rating organization shall permit a public member from time to time to designate in his or her stead a representative from the same employer organization or an affiliated employee union, as the case may be, to attend and participate in any meeting of the governing committee of a rating organization.
Four members of the public, two representing organized labor and two representing insured employers, appointed pursuant to subdivision (b) of Section 11751.3, shall be entitled to serve on the managing or governing committee of a rating organization licensed under this article. A public member shall be entitled to vote on all issues involving pure premium rates, classifications, rating plans, rating systems, manual rules and policy, and endorsement forms which are properly brought before the committee. A public member shall be removed by the commissioner only for cause.
In the event a public member is unable or unwilling to complete his or her term, after consultation with the California Labor Federation, AFL-CIO, other statewide organized labor organizations, and statewide organizations representing business, as the case may be, the commissioner shall appoint a successor from organized labor or an insured employer to complete the unexpired term.
The public members who serve on the governing committee of a rating organization licensed under this article together may, by a majority vote, retain experts who shall include a fellow of the Casualty Actuarial Society, to advise them on any matter specified in subdivision (a). The actuary hired may participate in all proceedings of the actuarial committee of the rating organization. The reasonable expense of retaining these experts shall not exceed one hundred thousand dollars ($100,000) per year and shall be paid from the budget of the department. The commissioner shall increase this amount annually to reflect any needed cost-of-living adjustments. The public members may submit information obtained from these experts, as well as any other information they deem appropriate, to the commissioner for his or her consideration in approving a change of any matter specified in subdivision (a).
In addition to the expenses authorized pursuant to subdivision (c), the public members who serve on the governing committee of a rating organization licensed under this article may expend up to an additional one hundred thousand dollars ($100,000) per year, which shall be paid by insurer members of the rating organization. Those funds shall be used to retain staff, who shall be hired by a majority vote of the public members.
From and after the taking effect of this act, it shall be the duty of every insurer to be a member of a rating organization. No insurer may at the same time belong to more than one rating organization licensed under this article.
The commissioner, after notice and hearing, may promulgate reasonable rules and statistical plans, which may be modified from time to time and which shall be used thereafter in the recording and reporting by insurers of their loss and expense experience in order that the experiences of all insurers may be made available in such form and detail as may be necessary to aid the commissioner in administering the provisions of Article 2 (commencing with Section 11730). The commissioner shall designate a rating organization licensed under this article as his or her statistical agent to gather and compile such experience statistics and all licensed rating organizations shall report the experience of their members to such designated rating organization. Subject to reasonable rules approved by the commissioner, such designated rating organization shall make such experience statistics, when compiled, available to all licensed rating organizations and may make a reasonable charge to other rating organizations for the expense incurred by it in combining, tabulating and compiling the experience of all workers’ compensation insurers.
If an insurer, the State Compensation Insurance Fund, a rating organization, or an advisory organization requests an official action by the commissioner under Chapters 2 (commencing with Section 11630), 3 (commencing with Section 11690), or 4 (commencing with Section 11770) of this part which he can lawfully consummate only after a noticed public hearing required by law, the commissioner shall require the request to be in writing and require the payment of five hundred ninety dollars ($590), in advance, as a fee for filing such request. Such fee shall be earned even if the request is denied or is granted in an altered form.
The rating organization designated the statistical agent pursuant to Section 11751.5 shall provide to the Director of Industrial Relations, upon request, any information in the possession of, or reasonably attainable by the rating organization, that would assist the Director of Industrial Relations to identify employers who fail to secure adequate insurance in violation of Section 3700 of the Labor Code. The information requested pursuant to this section shall be provided by the rating organization in a form and manner prescribed by the Director of Industrial Relations.
The rating organization designated the statistical agent pursuant to Section 11751.5 shall provide to the Registrar of Contractors of the Contractor’s State License Board, upon request, any information in the possession of, or reasonably attainable by, the rating organization that would assist in identifying licensed contractors who fail to secure adequate insurance in violation of Section 3700 of the Labor Code. The information requested pursuant to this section shall be provided by the rating organization in a form and manner prescribed by the Registrar of Contractors.
An insurer shall report to its rating organization as corrections or revisions of losses, pursuant to the unit statistical plan and uniform experience rating plans approved by the commissioner, if any of the following is applicable:
A loss record detail was incorrectly reported through mistake other than error of judgment.
One or more claims are declared noncompensable. A claim is declared noncompensable if any of the following applies:
There is an official ruling specifically holding that a claimant is not entitled to benefits under the workers’ compensation laws of the state, even though the claimant may have been awarded reimbursement for expenses incurred by the claimant in presenting the case.
No claim was filed during the period of limitation provided by the workers’ compensation laws for the filing of the claim, and the carrier, therefore, closes the claim.
Where the carrier contends, prior to the valuation date, that a claimant is not entitled to benefits under the workers’ compensation laws and the claim is officially closed because of the claimant’s failure to prosecute the claim.
The carrier has recovered in an action against a third party.
A death claim has been compromised over the sole issue of the applicability of the workers’ compensation laws of the state.
The exposure has been reassigned to another classification through the revision of an audit, in which case the insurer shall file with the revision of exposure a revision of losses that will reassign all claims to the appropriate classification.
A clerical error in either the classification assignment or the type of injury assignment of a given claim, or a group of claims, has been discovered by the insurer.
A clerical error in either the classification assignment or the type of injury assignment of a given claim has been discovered by the rating organization. The insurer shall, when notified by the rating organization, file a revision of losses or make satisfactory explanation.
A correction is made in a classification assignment of a given claim, or a group of claims, as a result of the organization test audit of an insured for which the experience has been submitted.
The claim has been determined to be a joint coverage claim in accordance with the unit statistical plan approved by the commissioner.
An insurer under a wrap-up insurance policy shall report workers’ compensation losses and payroll information for each contractor and subcontractor to its rating organization on a timely basis and in accordance with the uniform statistical plan. Within 10 days, upon request, the insurer shall provide to each contractor and subcontractor copies of the report covering workers’ compensation losses and payroll information for that contractor or subcontractor.
For the purposes of this section, a “wrap-up insurance policy” is an insurance policy, or series of policies, written to cover risks associated with a work of improvement, as defined in Section 8050 of the Civil Code, and covering two or more of the contractors or subcontractors that work on that work of improvement.
Whenever a claim or claims used in an experience rating are closed and reported pursuant to the unit statistical plan approved by the commissioner and are valued, in the aggregate, at an amount that is less than 60 percent of the highest reported aggregate value of all of these claims, then the experience rating shall be revised pursuant to the uniform experience rating plan approved by the commissioner based on the most current reported values for all claims used in the experience rating.
The commissioner may, as often as reasonable and necessary, make or cause to be made an examination of each rating or advisory organization to ascertain whether such organizations comply with the legal requirements applicable to it under this article.
In lieu of any such examination the commissioner may accept the report of an examination made by the insurance supervisory official of another state or the report of a representative designated by the National Association of Insurance Commissioners.
The officers, managers, agents and employees of any such organization may be examined by the commissioner at any time under oath and shall exhibit all books, records, accounts, documents or agreements governing its method of operation together with all data, statistics and information of every kind and character collected or considered by such organization in the conduct of the operations to which the examination relates.
The reasonable cost of any examination authorized by this article of any rating or advisory organization shall be paid by the organization examined.
Subject to subdivision (b), a licensed rating organization shall make available any policy information contained in its records to the following:
The Department of Industrial Relations.
Any other governmental agency if the Insurance Commissioner, after consultation with the licensed rating organization, approves the release of the policy information requested to the agency.
The Department of Industrial Relations and any other governmental agency shall specify to the licensed rating organization, in writing, the information requested, that the information requested is to be used to facilitate the agency’s performance of its constitutional or statutory duties, and that the information received will not be released to others, except in the discharge of a specific statutory or constitutional duty, or published without the prior written consent of the licensed rating organization. In addition, if the Insurance Commissioner’s approval is required for the release of the policy information requested, a written copy of the approval shall be submitted to the licensed rating organization.
As used in this section, “policy information” means information which is contained in a workers’ compensation policy, including, but not limited to, the identity and address of the employer, the identity of the insurer, the policy number, and the policy period.
Information obtained by a governmental agency pursuant to this section shall be confidential and not subject to public disclosure under any other law of this state.
No licensed rating organization or member thereof, or member of a committee of a licensed rating organization when acting in its capacity as a member of the committee, or officer or employee of a licensed rating organization, when acting within the scope of his or her employment, shall be liable to any person for injury, personal or otherwise, or damages caused or alleged to have been caused, either directly or indirectly, by the disclosure of information to a governmental agency pursuant to this section, or for the accuracy or completeness of the information so disclosed.
This section shall not be construed as implying the existence of liability in circumstances not defined in this section, nor as implying a legislative recognition that, except for enactment of this section, a liability has existed or would exist in the circumstances stated in this section.
This section shall not be construed as limiting any authority of a licensed rating organization to disclose information contained in its records to others.
A licensed rating organization shall make available, in writing, to an employer insured under a workers’ compensation policy, all policyholder information contained in its records upon request of the employer and after notice to the employer’s insurer.
As used in this section, “policyholder information” means all information relating to the employer’s loss experience, claims, classification assignments, and policy contracts. Policyholder information also includes information relating to rating plans, rating systems, manual rules, and any other information that impacts the policyholder’s pure premium rates.
If a licensed rating organization rejects an employer’s request for policyholder information, the rating organization shall notify the employer in writing of the reasons for the rejection. An employer whose request has been rejected in whole or in part may appeal to the commissioner in accordance with Section 11753.1. If the commissioner finds that the reasons for the rejection are not justified, he or she may order the rating organization to furnish that information to the employer.
No licensed rating organization or member of the organization, or member of a committee of a licensed rating organization when acting in its capacity as a member of the committee, or officer or employee of a licensed rating organization, when acting within the scope of his or her employment, is liable to any person for injury, personal or otherwise, or damages caused or alleged to have been caused, either directly or indirectly, by the disclosure of information to an employer under this section or for the accuracy or completeness of the information disclosed.
This section does not imply the existence of liability in circumstances not defined in this section, nor does it imply a legislative recognition that, except for enactment of this section, a liability has existed or would exist in the circumstances stated in this section.
This section does not limit any authority of a licensed rating organization to disclose information contained in its records to others.
There shall be established in all licensed rating organizations a policyholder ombudsman. The policyholder ombudsman shall be a person with sufficient knowledge of the workers’ compensation ratemaking process to provide information and assistance to policyholders in obtaining and evaluating the information provided in Article 2 (commencing with Section 11730) and this article, and in Sections 3761 and 3762 of the Labor Code. Every rating organization licensed in this state shall provide compensation for the ombudsman and necessary staff and other necessary resources to allow the ombudsman to provide prompt and complete service to workers’ compensation policyholders of this state. The policyholder ombudsman may advise the policyholder in any dispute with insurers or the rating organization that the ombudsman serves, or on appeal to the commissioner as provided in Section 11737.
For all policies of insurance issued or renewed on or after January 1, 1994, the insurer shall advise the policyholder in writing of the following:
The policyholder’s right to request a written report containing the information set forth in this section from the licensed rating organization of which the insurer is a member, and the policyholder’s right to contact the policyholder ombudsman to assist in obtaining and evaluating information relating to rates, together with the telephone number and address of the ombudsman, as well as the policyholder’s right to contact the department to resolve a dispute with an insurer, as provided in this section and Section 11737.
If a participating policy, that upon payment or nonpayment of a dividend the policyholder shall be provided a written explanation, in clear and understandable language, setting forth the basis of the calculation and expressing any dividend in both dollar amount and as a percentage of earned premium under the policy.
The date when the insurer is required to file the first unit statistical report with the licensed rating organization designated by the commissioner.
A licensed rating organization may make available experience rating information contained in its records to any insurer admitted to transact workers’ compensation insurance in this state or to any insurance agent or broker that is licensed to transact workers’ compensation insurance in this state, if the insurer, agent, or broker submits a written request to the licensed rating organization stating all of the following:
The requesting insurer is admitted to transact workers’ compensation insurance in this state or that the requesting agent or broker is licensed to transact workers’ compensation insurance in this state.
The information requested.
The information requested will be used to facilitate the transaction of workers’ compensation insurance by the insurer, agent, or broker.
The information received will not be released by the agent or broker to others, except to facilitate the transaction of workers’ compensation insurance by the requesting agent or broker.
The licensed rating organization may, but shall not be required to, verify that an insurer requesting information under this section is admitted to transact workers’ compensation insurance in this state or that an insurance agent or broker requesting information under this section is licensed to transact workers’ compensation insurance in this state.
For purposes of this section:
“Experience rating information” means information released on microfiche, at an Internet Web site or other electronic format, or in other forms or media by a licensed rating organization that identifies all experience-rated employers, and the experience ratings and classifications or experience modifications that apply or applied to those employers.
“Transaction,” as applied to workers’ compensation insurance, includes any of the following:
Solicitation.
Negotiations preliminary to execution of a contract of insurance.
Execution of a contract of insurance.
Resolution of matters arising out of the contract and subsequent to its execution.
Experience rating information made available pursuant to this section shall be confidential and shall not be used for any purpose other than to facilitate the transaction of workers’ compensation insurance by the insurer, agent, or broker receiving the information pursuant to this section.
Notwithstanding any other provision of law, including this section, a licensed rating organization may not enter into a contract or other agreement, including its constitution, articles of incorporation, or bylaws that prohibits information services companies in the business of publishing or providing experience rating information immediately prior to September 15, 1989, from continuing on or after September 15, 1989, to receive and provide to others experience rating information from whatever sources and in whatever forms or media.
No licensed rating organization, member of a licensed rating organization, member of a committee of a licensed rating organization when acting in its capacity as a member of the committee, or officer or employee of a licensed rating organization when acting within the scope of his or her employment, shall be liable to any person for injury, personal or otherwise, or damages caused or alleged to have been caused, either directly or indirectly, by the disclosure of information pursuant to this section, or to the members of those organizations, or for the accuracy or completeness of the information disclosed.
This section shall not be construed as implying the existence of liability in circumstances not defined in this section, nor as implying a legislative recognition that, except for the enactment of this section, a liability has existed or would exist in the circumstances stated in this section.
This section shall not be construed as limiting any authority of a licensed rating organization to disclose information contained in its records to others.
Notwithstanding any other provision of law, a licensed rating organization shall, pursuant to regulations adopted by the commissioner after notice and hearing, establish and maintain an Internet Web site for the purposes of assisting any person to determine whether an employer is insured for workers’ compensation.
An Internet Web site developed pursuant to this section shall not include any links to a commercial, for-profit Internet Web site, other than a link to the licensed rating organization’s homepage, and shall not contain any advertising other than the name, logo, and contact information of the licensed rating organization.
The Internet Web site shall:
Permit a person to submit a query for coverage information concerning a specified employer on a specified date. The specified date shall be within five years of the date of query.
Permit the query to specify an employer, using the name, address, or other identifying information of the employer, or combinations of identifying information, as may be provided by regulations adopted by the commissioner. Other identifying information may include, but need not be limited to, the employer’s federal employer identification number.
In response to the query, provide the name of the workers’ compensation insurer or insurers for the employer on the date specified in the query according to the most recent information available to the rating organization, subject to paragraph (7), and provide a contact address for the insurer from information available to the rating organization, or by providing a hypertext link to insurer information available on the department’s Internet Web site.
Be accessible for inquiries without charge. However, the commissioner may, at his or her discretion, permit the rating organization to impose access restrictions as necessary to deter the use of the Internet Web site for purposes other than those for which it was intended.
Contain a hypertext link to the Department of Industrial Relations’ Internet Web site for the purpose of locating employers who may be self-insured.
Include any disclaimers that the commissioner may prescribe.
Be updated to reflect policy information as soon as is reasonably feasible following submission of that information by insurers to the rating organization, as the commissioner shall require.
Include a disclaimer stating that the search results may not reflect recent changes in information.
Include a disclaimer stating that the failure of an employer to appear in response to a query does not mean that the employer does not have insurance or is operating in violation of California law.
Include the date that the Internet Web site was last updated.
A rating organization shall not be required to disclose on the Internet Web site any policy numbers, inception or expiration dates, or confidential information, as defined by the commissioner.
The Internet Web site specified in this section shall become operative no later than one year after the effective date of regulations adopted by the commissioner implementing this section.
The commissioner shall adopt regulations to implement this section no later than January 1, 2011. These regulations shall specify a method by which an employer may dispute through the rating organization or the employer’s insurance company the accuracy of the information displayed on the Internet Web site.
No rating organization, member of a rating organization, or member of a committee of a rating organization when acting within his or her capacity as a member of the committee, or officer or employee of a rating organization when acting within the scope of his or her employment, shall be liable to any person for injury, personal or otherwise, or damages caused, or alleged to have been caused, either directly or indirectly, by the good faith disclosure of information pursuant to this section, or for the accuracy or completeness of any information disclosed in good faith.
This section shall not be construed to create liability except as provided in this section, nor as a legislative recognition that, except for the enactment of this section, a liability would exist.
Nothing in this section shall be construed as limiting the authority of a rating organization to disclose information contained in its records to others.
The commissioner shall conduct a review and evaluation of the establishment and operation of the Internet Web site and an assessment of whether it is achieving its intended purpose and provide a written report on his or her findings no later than July 1, 2013. The report shall include, to the extent possible, statistics on usage, error rates, user complaints, and efforts undertaken by the commissioner to improve the operation of the Internet Web site. The commissioner shall present a copy of the report to the office of the President pro Tempore of the Senate, the Speaker of the Assembly, the Senate Committee on Banking, Finance and Insurance, the Assembly Committee on Insurance, the Department of Finance, and the Department of Industrial Relations and shall make it available on the Internet Web site of the Department of Insurance.
For all policies of insurance issued, or renewed for the first time on or after January 1, 1995, the insurer shall provide a notice, approved by the commissioner, to the policyholder, explaining in easily understandable language the workers’ compensation rating laws. For policies issued or renewed between January 1, 1994, and January 1, 1995, inclusive, the insurer shall include a notice to the policyholder, in easily understandable language, containing a summary of the changes in the rating laws enacted during the 1993–94 Regular Session of the Legislature.
The notice required by this section may be combined with the notice required by subdivision (h) of Section 11752.6.
Notwithstanding subdivision (d) of Section 11750.3, a rating organization shall provide a policyholder with written notification if it imposes a change in the classification assignment of the policyholder. The written notification shall be provided to the policyholder at the same time that it is provided to the insurer. A rating organization may satisfy this requirement by furnishing the policyholder with a copy of the notice that it provides to the insurer regarding the change in classification assignment.
No advisory organization shall conduct its operations in this State unless and until it has filed with the commissioner:
a. A copy of its constitution, articles of incorporation, agreement of association, and of its by-laws, rules and regulations governing its activities, all duly certified by the custodian of the originals thereof.
b. A list of its members and subscribers.
c. The name and address of a resident of this State upon whom notices or orders of the commissioner or process may be served.
Every such advisory organization shall notify the commissioner promptly of every change in its constitution, its articles of incorporation, agreement of association, and of its by-laws, rules and regulations governing the conduct of its business; its list of members and subscribers; and the name and address of the resident of this State designated by it upon whom notices or orders of the commissioner or process affecting such organizations may be served.
No such advisory organization shall engage in any unfair or unreasonable practice with respect to its activities.
Any person aggrieved by any decision, action, or omission to act of a rating organization may request that the rating organization reconsider the decision, action, or omission. If the request for reconsideration is rejected or is not acted upon within 30 days by the rating organization, the person requesting reconsideration may, within a reasonable time, appeal from the decision, action, or omission of the rating organization. The appeal shall be made to the commissioner by filing a written complaint and request for a hearing specifying the grounds relied upon. If the commissioner has information on the subject appealed from and believes that probable cause for the appeal does not exist or that the appeal is not made in good faith, the commissioner may deny the appeal without a hearing. The commissioner shall otherwise hold a hearing to consider and determine the matter presented by the appeal.
Any insurer adopting a change in the classification assignment of an employer that results in an increased premium shall notify the employer in writing, or if the insurance was transacted through an insurance agent or broker, the insurer shall notify the agent or broker who shall notify the employer in writing of the change and the reasons for the change. Any employer receiving this notice shall have the right to request reconsideration and appeal the reclassification pursuant to this section. The notice required by this section shall inform the employer of his or her rights pursuant to this section. No notification shall be required when the change is a result of a regulation adopted by the Department of Insurance or other action by or under the authority of the commissioner.
An insurer shall provide written notification of the revised classification assignment to an employer within 30 days after adoption.
If a change in a classification assignment on a workers’ compensation insurance policy is due to an erroneous classification and results in a decreased premium, the classification change shall become effective as of the inception date of a policy in effect on the date the revised classification assignment is published by an insurer or, if the classification is assigned by the designated rating organization, when the insurer and insured are notified in writing by the designated rating organization that the erroneous classification assignment is under review. The revised classification assignment shall be applied as of the inception date of a policy that expired no more than 12 months prior to the date the revised classification assignment was published or the insurer and insured were notified in writing by the designated rating organization that assigned the classification that the erroneous classification assignment was under review, provided that the erroneous classification assignment was applicable to that policy.
If a change in a classification assignment on a workers’ compensation insurance policy is due to an erroneous classification and results in an increased premium, the classification change shall become effective on the effective date of the erroneous classification assignment provided any of the following conditions occur:
The revised classification assignment is published within three months of the effective date or publication date of the erroneous assignment.
The insurer or, where applicable, the designated rating organization, was notified in writing within three months of the effective date or publication date of the erroneous classification assignment of a possible error.
The designated rating organization notified the insurer in writing within three months of the effective date or publication date of the erroneous classification assignment that the erroneous classification assignment was under review.
If one or more of the conditions set forth in paragraphs (1), (2), and (3) do not occur, the revised classification assignment shall become effective as of the date it is published unless the publication date is less than three months prior to the expiration date of the outstanding policy, in which case the revised classification assignment shall become effective as of the inception date of the policy that replaced the outstanding policy.
If a change in a classification assignment on a workers’ compensation policy is due to an insured’s change of operations, any resulting increase or decrease in premium shall become effective on the date of the change of operations.
Any insurer that violates this section shall be subject to civil penalties in an amount of up to five thousand dollars ($5,000) per violation.
Notwithstanding Section 1851.1, a workers’ compensation insurance rating organization licensed pursuant to the provisions of this article which does not make rates, rating plans or rating systems for insurance covering employers against their liability for compensation or damages under the United States Longshoremen’s and Harbor Workers’ Compensation Act (33 U.S.C. 901, et seq.) shall not be required to be licensed as a rating organization or registered as an advisory organization pursuant to the provisions of Chapter 9 (commencing with Section 1850) of Part 2 of Division 1, and shall have authority under its license as a workers’ compensation insurance rating organization issued pursuant to this article to:
Collect and tabulate loss and expense experience statistics and other information and data relating to insurance covering employers against their liability for compensation under the United States Longshoremen’s and Harbor Workers’ Compensation Act.
Furnish or exhange such information and experience data to or with rating organizations, advisory organizations and insurers in this and other states.
Adopt and enforce compliance by its insurer members with reasonable rules and statistical plans to be used in the recording and reporting by insurer members of their California longshoremen and harbor workers’ insurance loss and expense experience in order that such experience of all of its insurer members shall be available in such form and detail as will be of aid to the commissioner in the enforcement of and to its insurer members in complying with the provisions of Chapter 9 (commencing with Section 1850) of Part 2 of Division 1.
Engage in the same activities and carry out the same functions with respect to insurance covering the liability of employers for compensation or damages under the United States Longshoremen’s and Harbor Workers’ Compensation Act that it is authorized to engage in or carry out with respect to California workers’ compensation insurance generally under the provisions of this article other than the making of rates, rating plans and rating systems.
If the commissioner has good cause to believe that a rating or advisory organization or an insurer does not comply with the requirements of this article applicable to it, he shall, unless he has good cause to believe that such noncompliance is wilful, give notice in writing to such organization or insurer, stating therein in what manner and to what extent such noncompliance is alleged to exist and specifying therein a reasonable time, not less than 10 days thereafter, in which such noncompliance may be corrected. Notices under this section shall be confidential as between the commissioner and the organization or insurer unless a hearing is held under Section 11754.1.
If the commissioner has good cause to believe such noncompliance to be wilful, or if within the period prescribed by the commissioner in the notice required by Section 11754 the organization or insurer does not make such change as may be necessary to correct the noncompliance specified by the commissioner or establish to the satisfaction of the commissioner that such noncompliance does not exist, then the commissioner may hold a public hearing in connection therewith, provided that within a reasonable period of time, which shall not be less than 10 days before the date of such hearing, he shall mail written notice specifying the matters to be considered at such hearing to such organization or insurer. Such notice shall conform to the requirements for an accusation as prescribed by Section 11503 of the Government Code. If no notice has been given as provided in Section 11754 such notice shall state therein in what manner and to what extent noncompliance is alleged to exist. The hearing shall not include any additional subjects not specified in the notices required by Section 11754 or this section.
If, after a hearing pursuant to Section 11754.1, the commissioner finds:
a. That any rating or advisory organization or other organization authorized by this article or any insurer has violated the provisions of this article applicable to it, he may issue an order to such organization or insurer which has been the subject of the hearing, specifying in what respect such violation exists and stating when, within a reasonable period of time, the violation shall cease.
b. That any conditions prerequisite to the granting of a license to a rating organization no longer exist, he may issue an order to such organization which has been the subject of the hearing specifying the condition which has ceased to exist and stating when within a reasonable time the condition shall be complied with. If the condition is not complied with within the time specified the commissioner may suspend or revoke the license of such organization, in addition to any other penalty provided in this article.
c. That any rating organization has wilfully engaged in any fraudulent, dishonest act or practice, he may suspend or revoke the license of such organization, in addition to any other penalty provided for in this article.
In addition to other penalties provided in this code the commissioner may suspend or revoke the license of any rating organization or insurer which fails to comply within the time limited by such order or extension thereof which the commissioner may grant, with an order of the commissioner lawfully made by him pursuant to Section 11754.1 and effective pursuant to Section 11754.5.
Except as otherwise provided in this article, all proceedings in connection with the denial, suspension or revocation of a license of a rating organization or insurer under this article shall be conducted in accordance with the provisions of Chapter 5 of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all the powers granted to him therein.
No person, insurer, rating or advisory organization shall willfully withhold information from, or knowingly give false or misleading information to, the commissioner or to any rating organization, which will affect the rates, rating systems or premiums for workers’ compensation insurance and employer’s liability insurance incidental thereto and written in connection therewith.
In the event of the refusal by any insured employer to permit an audit or an examination provided for in subdivision (f) of Section 11750.3, the commissioner shall, upon the verified petition of the rating organization concerned, take such action as the commissioner may be authorized to take pursuant to and subject to the provisions of this code and of the Government Code.
Any person, insurer, or organization, who fails to comply with a final order of the commissioner under this article shall be liable to the state in an amount not exceeding fifty dollars ($50), but if the failure is willful, he, she, or it shall be liable to the state in an amount not exceeding five thousand dollars ($5,000) for the failure. The commissioner shall collect the amount so payable and may bring an action in the name of the people of the state of California to enforce collection. These penalties may be in addition to any other penalties provided by law.
A willful violation of the provisions of this article by any person is a misdemeanor.
Nothing in this article shall be construed to prohibit or regulate the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers. A plan for the payment of dividends, savings or unabsorbed premium deposits allowed or returned by insurers to their policyholders, members or subscribers shall not be deemed a rating plan or system.
No act done, action taken or agreement made pursuant to the authority conferred by this article shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance.
The provisions of this article shall not apply to the workers’ compensation insurance covering those persons defined as employees by subdivision (d) of Section 3351 of the Labor Code.
The Legislature hereby finds and declares as follows: The Legislature pursuant to its plenary power over workers’ compensation granted by Section 4 of Article XIV of the California Constitution has authorized classification of risks and premium rates and systems of merit rating for workers’ compensation insurance. The selective and discretionary inspection of locations, plants and operations of employers for classification and rating purposes, the gathering and compiling of experience statistics and other data by rating organizations licensed by the Insurance Commissioner, and the application of standards predicated upon the reliability of such classifications and merit rating data are essential to the proper functioning of the classifications of risks and premium rates and systems of merit rating which are regulated by the Insurance Commissioner as authorized by the Legislature.
In order to implement and facilitate the proper and adequate administration of such classifications of risks and rates and systems of rating by such licensed rating organizations and the Insurance Commissioner, it is important and in the public interest that licensed rating organizations and their officers and employees shall not be liable for injury or death or other damage caused or alleged to have been caused by their failure to inspect, or negligent or incomplete inspection of, an employer’s location, plant or operation for classification or rating purposes.
No licensed rating organization or member thereof in its character as a member, or officer or employee of such licensed rating organization when acting within the scope of his employment, shall be liable for injury or death or other damage proximately caused by a failure to inspect, or the manner or extent of inspection of, an employer’s locations, plants or operations for classification or rating purposes, or by such person’s comment, or failure to comment, on the subject matter or object of such inspection.
This section shall not be construed as implying the existence of liability in circumstances not defined in this section; nor as implying a legislative recognition that, except for the enactment of this section, a liability has existed or would exist in circumstances stated in this section.
A rating organization shall, no later than June 1 of each year, notify the Governor and the Legislature that a report containing an analysis of all losses and expenses for the prior year by all insurers who are members of the organization is available on request. The first report shall be due June 1, 1996. The report shall include, but not be limited to, the following:
An analysis of all medical costs identifying separately the amounts paid for medical treatment to hospitals and physicians, and the amounts paid for medical-legal expenses. The amounts paid for medical treatment to physicians shall also identify the amounts paid for each specialty authorized to provide medical services pursuant to Sections 3209.3, 3209.5, and 3209.8 of the Labor Code. The amounts paid for medical-legal evaluations shall also be subcategorized by specialty and shall identify average costs paid per claim.
An analysis of indemnity benefits paid for temporary disability, permanent total disability, permanent partial disability, life pensions, death benefits, and funeral expenses. The permanent partial disability benefits also shall be reported according to the degree of impairment in the following categories: .25 to 24.75 percent, 25 to 69.75 percent, and 70 to 99.75 percent.
An analysis of amounts paid for vocational rehabilitation subcategorized by amounts paid for maintenance allowance, evaluation, education and training.
An analysis of expenses of insurers categorized by loss adjustment, acquisition, general expenses, profit, and taxes. Amounts spent for defense attorneys’ expense shall be separately identified.
An analysis of attorney’s fees paid to applicant attorneys.
An analysis of workers’ compensation costs by the type of injury or illness generally following the injury classification in the Annual Redesigned Occupational Safety and Health Statistical Program used by the Department of Industrial Relations in its annual report on California work injuries and illnesses.
A licensed rating organization designated as the Insurance Commissioner’s statistical agent shall prepare a report to be submitted to the Insurance Commissioner by April 1, 2003, on the potential underreporting of workers’ compensation exposure in the taxicab industry. The report shall include an analysis of workers’ compensation exposure, loss, and premium in the taxicab industry. The licensed rating organization shall submit a report to the Governor, the Legislature, and the commissioner by May 1, 2003, that describes its findings.
A licensed rating organization designated as the insurance commissioner’s statistical agent may confer with state agencies, including, but not limited to, the Employment Development Department, in the preparation of the study. The state agencies shall provide all necessary statistical or other information requested by the licensed rating organization designated as the Insurance Commissioner’s statistical agent.
ARTICLE 4. Penalties for Misrepresentation [11760. - 11760.1.]
It is unlawful to make or cause to be made any knowingly false or fraudulent statement, whether made orally or in writing, of any fact material to the determination of the premium, rate, or cost of any policy of workers’ compensation insurance, for the purpose of reducing the premium, rate, or cost of the insurance. Any person convicted of violating this subdivision shall be punished by imprisonment in a county jail for one year, or pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or by a fine not exceeding fifty thousand dollars ($50,000), or double the value of the fraud, whichever is greater, or by both that imprisonment and fine.
Any person who violates subdivision (a) and who has a prior felony conviction of the offense set forth in that subdivision shall receive a two-year enhancement for each prior conviction in addition to the sentence provided in subdivision (a). The existence of any fact that would subject a person to a penalty enhancement shall be alleged in the information or indictment and either admitted by the defendant in open court, or found to be true by the jury trying the issue of guilt or by the court where guilt is established by plea of guilty or nolo contendere or by trial by the court sitting without a jury.
If an employer fails to provide for access by the insurer or its authorized representative to its records, to enable the insurer to perform an audit to determine the remuneration earned by the employer’s employees and by any of its uninsured subcontractors and the employees of any of its uninsured subcontractors during the policy period, the employer shall be liable to pay to the insurer a total premium for the policy equal to three times the insurer’s then-current estimate of the annual premium on the expiration date of the policy. The employer shall also be liable, in addition to the premium, for costs incurred by the insurer in its attempts to perform an audit, after the insured has failed upon the insurer’s third request during at least a 90-day period to provide access, and the insured has provided no compelling business reason for the failure. This section shall only apply if the insurer elects to comply with the conditions set forth in subdivision (d).
“Access” shall mean access at any time during regular business hours during the policy period and within three years after the policy period ends. “Access” may also include any other time mutually agreed upon by the employer and insurer.
The insurer shall have and follow regular and reasonable rules and procedures to notify employers of their duty to provide for access to records, and to contact employers to make appointments during regular business hours for that purpose.
Upon the employer’s failure to provide access after the insurer’s third request during at least a 90-day period, the insurer may notify the employer through its mailing of a certified, return-receipt, document of the increased premium and the total amount of the costs incurred by the insurer for its attempts to perform an audit as described under subdivision (a). Upon the expiration of 30 days after the delivery of the notice, collection by the insurer of the amount of premium and costs described under subdivision (a), less all premiums previously paid by the employer for the policy, shall be fully enforceable and executable.
If the employer provides for access to its records after having received the notice described in subdivision (d), and if the insurer then succeeds in performing the audit to its satisfaction, the insurer shall revise the total premium and costs payable for the policy by the employer to reflect the results of its audit.
ARTICLE 5. Standards Applicable to Claims Adjusters [11761. - 11761.]
The commissioner shall adopt regulations setting forth the minimum standards of training, experience, and skill that workers’ compensation claims adjusters must possess to perform their duties with regard to workers’ compensation claims. The regulations adopted pursuant to this section shall, to the greatest extent possible, encourage the use of existing private and public education, training, and certification programs.
Every insurer shall certify to the commissioner that the personnel employed by the insurer to adjust workers’ compensation claims, or employed for that purpose by any medical billing entity with which the insurer contracts, meet the minimum standards adopted by the commissioner pursuant to subdivision (a).
For the purposes of this section, “medical billing entity” means a third party that reviews or adjusts workers’ compensation medical bills for insurers.
For the purposes of this section, “insurer” means an insurer admitted to transact workers’ compensation insurance in this state, the State Compensation Insurance Fund, an employer that has secured a certificate of consent to self-insure pursuant to subdivision (b) or (c) of Section 3700 of the Labor Code, or a third-party administrator that has secured a certificate of consent pursuant to Section 3702.1 of the Labor Code.
CHAPTER 4. The State Compensation Insurance Fund [11770. - 11886.2.]
ARTICLE 1. Organization and Powers [11770. - 11805.]
The State Compensation Insurance Fund is continued in existence, to be administered by its board of directors for the purpose of transacting workers’ compensation insurance, and insurance against the expense of defending any suit for serious and willful misconduct, against an employer or his or her agent, and insurance to employees and other persons of the compensation fixed by the workers’ compensation laws for employees and their dependents. Any appropriation made therefrom or thereto before the effective date of this code shall continue to be available for the purposes for which it was made.
The Board of Directors of the State Compensation Insurance Fund is composed of 11 members, nine of whom shall be appointed by the Governor. The Governor shall appoint the chairperson. One of the members appointed by the Governor shall be from organized labor. The members appointed by the Governor, other than the labor member, shall have substantial experience in positions involving workers’ compensation, legal, investment, financial, corporate governance and management, accounting, or auditing responsibilities with entities of sufficient size as to make their qualifications relevant to an enterprise of the financial and operational size of the State Compensation Insurance Fund. At all times the board shall have a member with auditing background for the purposes of fulfilling the responsibility of the chair of the audit committee. A quorum is a majority of those appointed, provided that at no time shall a quorum be established with fewer than five members.
The Speaker of the Assembly shall appoint one member who shall represent organized labor, and the Senate Committee on Rules shall appoint one member who shall have been a policyholder of the State Compensation Insurance Fund, or an officer or employee of a policyholder, for one year immediately preceding the appointment, and must continue in this status during the period of his or her membership.
The Director of Industrial Relations shall be an ex officio, nonvoting member of the board, and shall not be counted as members of the board for quorum purposes or any other purpose.
Notwithstanding subdivision (c), the initial term of the members of the board added in the 2008 portion of the 2007–08 Regular Session shall be as follows:
One of the members appointed by the Governor shall serve an initial term of two years, one shall serve an initial term of four years, and two shall serve an initial term of five years.
The member appointed by the Senate Committee on Rules shall serve an initial term of four years.
The member appointed by the Speaker of the Assembly shall serve an initial term of three years.
The term of office of the members of the board, other than that of the director, shall be five years and they shall hold office until the appointment and qualification of their successors.
Each member of the board appointed pursuant to paragraphs (1) and (2) of subdivision (b) shall receive the compensation fixed pursuant to subparagraph (B).
Each board member described in subparagraph (A) shall be paid an annual compensation of fifty thousand dollars ($50,000), to be automatically adjusted beginning January 1, 2010, by multiplying the compensation in effect the prior June 30 by the percentage of inflation that occurred during the previous year, adding this amount to the annual compensation from the previous year, and rounding off the result to the nearest dollar. “Percentage of inflation” means the percentage of inflation specified in the Consumer Price Index for All Urban Consumers, as published by the Department of Industrial Relations, or its successor index.
Each member of the board of directors shall attend training approved by the board of directors that covers topics, including, but not limited to, the duties and obligations of members of a board of directors, corporate governance, ethics, board of director legal issues, insurance, finance and investment, and information technology. The training shall be conducted by persons or entities not affiliated with the State Compensation Insurance Fund.
No person who has had a direct or indirect interest in any transaction with the State Compensation Insurance Fund since the beginning of the last fiscal year of the fund, or who has a direct or indirect material interest in any proposed transaction with the fund, where the amount involved in the transaction exceeds one hundred twenty thousand dollars ($120,000) shall be eligible for appointment as a member of the board of directors of the fund. Once appointed, no member of the board of directors shall have a financial conflict of interest, as defined in Chapter 7 of Title 9 (commencing with Section 87100) of the Government Code, and every member shall be subject to Article 4 (commencing with Section 1090) of Chapter 1 of Division 4 of Title 1 of the Government Code, provided that the existence of a contract of insurance between the State Compensation Insurance Fund and the policyholder member appointed by the Senate Committee on Rules shall not constitute a conflict of interest pursuant to this subdivision. For purposes of board actions affecting generally applicable rates, a member of the board of directors shall not be deemed to have a financial interest, as defined in Article 4 (commencing with Section 1090) of Chapter 1 of Division 4 of Title 1 of, or pursuant to Chapter 7 (commencing with Section 87100) of Title 9 of, the Government Code, in a contract of insurance between the State Compensation Insurance Fund and an organization of which any member of the board of directors is an owner, officer, or employee.
The appointing authority of a member of the board may remove the member and make an appointment replacing the member for the duration of the term if the member ceases to discharge the duties of his or her office for the period of three consecutive board meetings.
The board of the State Compensation Insurance Fund shall create, at a minimum, an audit committee, an investment committee, a corporate governance committee, and other committees as the board determines are necessary.
The State shall not be liable beyond the assets of the State Compensation Insurance Fund for any obligations in connection therewith.
Any advertising of the State Compensation Insurance Fund shall include the following disclaimer: “The State Compensation Insurance Fund is not a branch of the State of California.”
There shall not be any liability in a private capacity on the part of the board of directors or any member thereof, or any officer or employee of the fund for or on account of any act performed or obligation entered into in an official capacity, when done in good faith, without intent to defraud and in connection with the administration, management or conduct of the fund or affairs relating thereto.
The fund shall be organized as a public enterprise fund.
The assets of the fund shall be applicable to the payment of losses sustained on account of insurance and to the payment of the salaries and other expenses charged against it in accordance with the provisions of this chapter.
The fund shall, after a reasonable time during which it may establish a business, be fairly competitive with other insurers, and it is the intent of the Legislature that the fund shall ultimately become neither more nor less than self-supporting. For that purpose loss experience and expense shall be ascertained and dividends or credits may be made as provided in this article.
The actual loss experience and expense of the fund shall be ascertained on or about the first of January in each year for the year preceding. If it is then shown that there exists an excess of assets over liabilities, necessary reserves, and a reasonable surplus for the catastrophe hazard, then a cash dividend may be declared to, or a credit allowed on the renewal premium of, each employer who has been insured with the fund.
Such cash dividend or credit is to be in an amount which the board of directors in its discretion considers to be the employer’s proportion of divisible surplus.
The fund may transact workers’ compensation insurance required or authorized by law of this state to the same extent as any other insurer. The fund shall be subject to the powers and authority of the commissioner to the same extent as any other insurer transacting workers’ compensation insurance, except where specifically exempted by reference. For purposes of Section 700, the fund shall be deemed admitted to transact this class of insurance.
The fund may insure California employers against their liability for compensation or damages for injury or death under the United States Longshoremen’s and Harbor Workers’ Compensation Act, or other federal or maritime laws, as fully as any private insurer.
The fund may also insure an employer against his or her liability for damages under the laws of the State of California arising out of bodily injury to or death of the employer’s employees occurring within the State of California if the fund also issues workers’ compensation insurance to the employer as to his or her employees.
The fund may also insure a California employer against his or her liability for workers’ compensation benefits, under the law of any other state, for California employees temporarily working outside of California on a specific assignment if the fund insures the employer’s other employees who work within California.
The fund is only authorized under this subdivision to insure an employer whose principal place of business is in California, provided the majority of the employer’s operations and employees are located within California, against his or her liability for workers’ compensation benefits, under the law of any other state, if the fund insures the employer’s employees who work within California.
The fund is only authorized pursuant to this subdivision to contract as a reinsurer with a ceding insurer that has responded to a request for proposal from the fund and is admitted to transact workers’ compensation insurance in California and in the out-of-state jurisdiction where the non-California employees are located. The fund may only contract for purposes of this subdivision if the ceding insurer meets all of the following criteria:
The insurer has an A minus (A-) rating or better from A.M. Best Company.
The insurer has substantial prior experience in transacting workers’ compensation business on another insurer’s behalf.
The insurer has a minimum surplus of one hundred million dollars ($100,000,000).
The fund shall not initiate paid advertising or solicit sponsorship of advertising campaigns to market or promote to prospective insureds the ability to insure qualified employers under the law of any other state.
The board of directors is hereby vested with full power, authority and jurisdiction over the State Compensation Insurance Fund. The board of directors may perform all acts necessary or convenient in the exercise of any power, authority or jurisdiction over the fund, either in the administration thereof or in connection with the insurance business to be carried on by it under the provisions of this chapter, as fully and completely as the governing body of a private insurance carrier. The principal office for the transaction of the business of the State Compensation Insurance Fund is located in the City and County of San Francisco.
The State Compensation Insurance Fund may acquire and own real property for a branch office in the City of Los Angeles when so determined by the board of directors, and may, if necessary, construct suitable buildings thereon in accordance with law.
All business and affairs of the fund shall be conducted in the name of the State Compensation Insurance Fund, and in that name, without any other name or title, the board of directors may perform the acts authorized by this chapter.
The State Compensation Insurance Fund may:
Sue and be sued in all actions arising out of any act or omission in connection with its business or affairs.
Enter into any contracts or obligations relating to the State Compensation Insurance Fund which are authorized or permitted by law.
Invest and reinvest the moneys belonging to the fund as provided by this chapter.
Conduct all business and affairs and perform all acts relating to the fund whether or not specifically designated in this chapter.
Commission an independent study, with the assistance of an investment banking firm, to determine the feasibility of the State Compensation Insurance Fund issuing bonds or securities. The study may include, among other things, the purpose for issuing bonds and any potential adverse consequences that may arise from that issuance.
In conducting the business and affairs of the fund, the president of the fund may do any of the following:
Enter into contracts of workers’ compensation insurance.
Sell annuities covering compensation benefits.
Decline to insure any risk in which the minimum requirements of the industrial accident prevention authorities with regard to construction, equipment, and operation are not complied with, or which is beyond the safe carrying of the fund. Otherwise, he or she shall not refuse to insure any workers’ compensation risk under state law, tendered with the premium therefor.
Reinsure any risk or any part thereof.
Cause to be inspected and audited the payrolls of employers applying to the fund for insurance.
Make rules for the settlement of claims against the fund and determine to whom and through whom the payments of compensation are to be made.
Contract with physicians and surgeons, and hospitals, for medical and surgical treatment and the care and nursing of injured persons entitled to benefits from the fund.
The board of directors shall appoint a president, a chief financial officer, a chief operating officer, a chief information technology officer, a chief investment officer, a chief risk officer, a general counsel, a chief medical officer, a chief actuarial officer, a chief claims operations officer, and a chief of internal affairs. The board may appoint a chief underwriting officer, a senior vice president of insurance services, an executive vice president of corporate claims, an executive vice president of strategic planning, and a pricing actuary. The board of directors shall set the salary for each position in amounts that are reasonably necessary to attract and retain individuals of superior qualifications. The board shall submit its salary-setting criteria, including salary surveys, to the Department of Human Resources. These positions shall not be subject to otherwise applicable provisions of the Government Code and the Public Contract Code, and for those purposes the fund shall not be considered a state agency or other public entity. The president shall manage and conduct the business and affairs of the fund under the general direction and subject to the approval of the board of directors, and shall perform other duties as the board of directors prescribes.
Section 87406 of the Government Code, the Milton Marks Postgovernment Employment Restrictions Act of 1990, shall apply to the fund. Members of the board, a person who held a position designated in subdivision (a), and any other person designated by the fund shall be deemed to be designated employees for the purpose of that act.
Both the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) and the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code) shall apply to the fund.
The board shall, by September 1, 2018, and subsequently on a biennial basis, make a report to the Legislature and to the committees of the Senate and Assembly having jurisdiction over insurance that provides any salary-setting criteria and salary surveys submitted to the Department of Human Resources pursuant to subdivision (a), and the salary and total compensation of each position appointed pursuant to subdivision (a), for the previous two fiscal years.
A report submitted pursuant to this subdivision shall be submitted in compliance with Section 9795 of the Government Code.
Notwithstanding any other provision of law to the contrary, the members of the Board of Directors of the State Compensation Insurance Fund and officers of the fund appointed by the board of directors, including, but not limited to, the president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, and general counsel, are prohibited from lobbying the fund for two years after leaving employment with the fund.
Notwithstanding any other provision of law to the contrary, any consulting for the fund by former members of the Board of Directors of the State Compensation Insurance Fund and former officers of the fund appointed by the board of directors, including, but not limited to, the president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, and general counsel, shall be approved by the board of directors.
Before entering on the duties of his or her office, the president shall qualify by giving an official bond approved by the board of directors in the sum of fifty thousand dollars ($50,000) and by taking and subscribing to an official oath. The approval of the board shall be by written endorsement on the bond. The bond shall be filed in the office of the Secretary of State.
The board of directors may delegate to the president of the fund, under those rules and regulations and subject to those conditions as it from time to time prescribes, any power, function, or duty conferred by law on the board of directors in connection with the fund or in connection with the administration, management, and conduct of the business and affairs of the fund. The president may exercise those powers and functions and perform those duties with the same force and effect as the board of directors, but subject to its approval.
The State Treasurer shall be custodian of all securities belonging to the State Compensation Insurance Fund, except as otherwise provided in this chapter. He or she shall be liable on his or her official bond for the safe keeping thereof.
All securities belonging to the fund shall be delivered to the State Treasurer and held by him or her until otherwise disposed of as provided in this chapter. Upon delivery of those securities into the custody of the State Treasurer, the securities shall be credited by the State Treasurer to the fund.
Expenditures made by the State Compensation Insurance Fund are exempted from the provisions of Part 3 (commencing with Section 900) of Division 3.6 of Title 1 of the Government Code.
The board of directors shall cause all moneys in the State Compensation Insurance Fund that are in excess of current requirements to be invested and reinvested, from time to time, in the same manner as provided for private insurance carriers pursuant to Article 3 (commencing with Section 1170) and Article 4 (commencing with Section 1190) of Chapter 2 of Part 2 of Division 1, but excluding Sections 1191, 1191.1, 1191.5, 1192.2, 1192.4, 1192.6, 1192.7, 1192.95, 1192.10, 1194.7, 1194.8, 1194.81, 1194.82, 1194.85, 1198, and 1199, and excluding Section 1192.9, except as provided in subdivision (d). Notwithstanding the foregoing, the State Compensation Insurance Fund may invest or reinvest an aggregated maximum of 20 percent of moneys that are in excess of the admitted assets over the liabilities and required reserves in the investments allowed pursuant to Sections 1191, 1192.4, 1192.6, 1192.10, 1194.7, and 1198.
Notwithstanding any other law, the State Compensation Insurance Fund may purchase general obligation bonds or other evidence of indebtedness issued by the state, including, but not limited to, warrants issued pursuant to Part 4 (commencing with Section 17000) of Division 4 of Title 2 of the Government Code or notes issued pursuant to Part 5 (commencing with Section 17300) of Division 4 of Title 2 of the Government Code, in any amount and to enter into purchase contracts with the state for this purpose.
Notwithstanding any other law, the State Compensation Insurance Fund may purchase Property Assessed Clean Energy (PACE) bonds, as defined in Section 26054 of the Public Resources Code.
The bonds or other evidence of indebtedness specified in paragraph (1), upon delivery to the State Compensation Insurance Fund, shall, for all purposes, be valid and binding obligations of the issuer thereof, be validly issued and outstanding in accordance with their stated terms, and not be deemed to be owned by or on behalf of the issuer thereof.
Notwithstanding any other law, the State Compensation Insurance Fund may invest in the discretionary investments authorized pursuant to Section 1210, but those investments shall not exceed the lesser of 2.5 percent of its admitted assets or 10 percent of moneys that are in excess of the admitted assets over the liabilities and required reserves.
Notwithstanding subdivision (a) or any other law, the State Compensation Insurance Fund may invest in money market mutual funds that comply with Section 1192.9, but shall not invest in a money market mutual fund that holds any assets in foreign investments, as defined in Section 1240. Investments in money market mutual funds made by the State Compensation Insurance Fund shall not exceed the lesser of 2.5 percent of its admitted assets or 10 percent of moneys that are in excess of the admitted assets over the liabilities and required reserves. The commissioner shall retain all remedies available, including the remedies in subdivision (d) of Section 1192.9, to enforce compliance by the State Compensation Insurance Fund with the money market mutual fund investment authority granted by this subdivision.
All moneys in the State Compensation Insurance Fund, in excess of current requirements and not otherwise invested, may be deposited by the board of directors from time to time in financial institutions authorized by law to receive deposits of public moneys.
The board of directors may, with the approval of the State Treasurer, authorize the establishment of an account or fund in the State Treasury in the name of the State Compensation Insurance Fund, but such moneys deposited with the State Treasurer are not state moneys within the intent of Section 16305.2 of the Government Code.
The State Controller shall keep a special ledger account pertaining to the State Compensation Insurance Fund. In the State Controller’s general ledger this account may appear as a cash account, like other accounts of funds in the State Treasury, and only the actual cash credited or deposited to the credit of the State Compensation Insurance Fund shall be entered in the account.
The assets, premiums, reserves, investment income, and any and all property of whatsoever kind derived or acquired by the fund from its transaction of its workers’ compensation insurance business shall not be used, attached or levied upon in any manner whatsoever by any person to satisfy claims or any other obligations or liability incurred, arising out of, or related to, the fund’s transaction of insurance pursuant to the United States Longshoremen’s and Harbor Workers’ Act.
All premiums, reserves, investment income, and all property of whatsoever kind derived or acquired by the fund from its transaction of insurance pursuant to the United States Longshoremen’s and Harbor Workers’ Compensation Act shall be maintained and identified in separate accounts and records.
All claims, costs of doing business, liabilities, expenses, and obligations arising out of or related to the fund’s transaction of insurance pursuant to the United States Longshoremen’s and Harbor Workers’ Compensation Act shall be paid and charged to the income of whatsoever nature derived from its United States Longshoremen’s and Harbor Workers’ Compensation Act insurance business only.
Joint or shared use of office building space, whether owned, leased or rented, and the joint use of all furniture, automobiles, office equipment, supplies and services shall be charged to each class of insurance business on an equitable and proportional basis.
The State Compensation Insurance Fund shall report annually to the Legislature as soon after the close of the calendar year as is feasible, with respect to its experience handling United States longshoremen’s and harbor workers’ insurance pursuant to this chapter, including, but not limited to, a statement of resources and liabilities at the close of each annual period commencing December 31, 1979.
ARTICLE 2. Rates [11820. - 11822.]
Subject to the provisions of Article 2 (commencing with Section 11730) of Chapter 3, the board of directors shall establish the rates to be charged by the State Compensation Insurance Fund for insurance issued by it. These rates shall be fixed with due regard to the physical hazards of each industry, occupation, or employment.
Within each class of business insured such rates shall be fixed, so far as practicable, in accordance with the following elements:
Bodily risk or safety, or other hazard of the plant, premises or work of each insured employer.
The manner in which the work is conducted.
A reasonable regard for the accident experience and history of each such insured.
A reasonable regard for the insured’s means and methods of caring for injured persons.
Such rates shall take no account of the extent to which the employees in any particular establishment have or have not persons dependent upon them for support.
The rates fixed by the board of directors shall be that percentage of the payroll of any employer which, in the long run and on the average, will produce a sufficient sum, when invested in a way as to realize the maximum return consistent with safe and prudent management practices:
To carry all claims to maturity. The rates shall be based upon the “reserve” and not upon the “assessment” plan.
To meet the reasonable expenses of conducting the business of the fund.
To produce a reasonable surplus to cover the catastrophe hazard.
ARTICLE 3. Policies [11840. - 11846.]
The insurance contracts or policies of the State Compensation Insurance Fund may be either limited or unlimited. The insurance contracts or policies may be issued for like periods as are allowed by law to other workers’ compensation insurers or, in the form of stamps or tickets or otherwise, for one month, for any number of months less than one year, for one day, for any number of days less than one month or during the performance of any particular work, job or contract. The rates charged shall be proportionately greater for a shorter than for a longer period and a minimum premium charge shall be fixed in accordance with a reasonable rate for insuring one person for one day.
Nothing in this chapter shall prevent:
Any applicant for insurance from being covered temporarily until the application is finally acted upon.
An insured from surrendering any policy at any time and having returned to him the difference between the premium paid and the premium at the customary short term for the shorter period which such policy has already run.
The State Compensation Insurance Fund may issue policies including, with their employees, employers who perform labor incidental to their occupations, and including also members of the families of such employers engaged in the same occupation.
Such policies covering employers shall insure to such employers and working members of their families the same compensations provided for their employees, and at the same rates.
The estimations of the wage values, respectively, of such insured employers and members of their families shall be reasonable and shall be separately stated in and added to the valuation of the pay rolls upon which their premium is computed.
The policies may likewise be sold to self-employing persons and to casual employees. The insureds, for the purpose of the insurance, shall be deemed to be employees within the meaning of the workers’ compensation laws.
ARTICLE 4. Reports and Statements [11860. - 11860.]
Each quarter the president of the State Compensation Insurance Fund shall make a report to the Governor of the business done by the State Compensation Insurance Fund during the previous quarter and a statement of the fund’s resources and liabilities at the close of that previous quarter. The State Compensation Insurance Fund shall, at its own expense, hire a recognized firm of certified public accountants to audit annually the books and records of the State Compensation Insurance Fund and cause an abstract summary thereof to be published one or more times in at least two newspapers of general circulation in the state. The president of the fund shall additionally provide the commissioner with all reports required by law to be made to him or her by other insurers.
ARTICLE 5. Coverage of Public Employers [11870. - 11874.]
The state, any agency, department, division, commission, board, bureau, officer or other authority thereof, and each county, city and county, city, school district, irrigation district, any other district established by law, or other public corporation or quasi public corporation within the state, including any public utility operated by a private corporation may insure against its liability for compensation with the State Compensation Insurance Fund. Where the state or any agency, department, division, commission, board, bureau, officer or authority thereof is the insured, the premium for that insurance shall be a proper charge against any moneys appropriated for the support of or expenditure by the insured, except that in the case of an insured supported by or authorized to expend moneys appropriated out of more than one fund, the insured, with the approval of the Director of Finance, may determine the proportion of the premium to be paid out of each fund. In that case the insured, with the approval of the Director of Finance, may pay the entire premium out of any of those funds and thereafter the funds used for payment shall be reimbursed in proper proportion out of the other funds. In case a county, city and county, city, school district, irrigation district, or other district established by law, or other public corporation or quasi public corporation within the state is the insured, the premium therefor shall be a proper charge against the general fund of the insured.
The State Compensation Insurance Fund may enter into a master agreement with the Department of Human Resources to render services in the adjustment and disposition of claims for workers’ compensation to any state agencies, including any officer, department, division, bureau, commission, board or authority, not insured with the fund.
The master agreement shall provide for rendition of services at a uniform rate to all agencies, except that the rate for the Department of the California Highway Patrol may be fixed independently of the uniform rate.
The fund may, in accordance with the agreement, adjust and dispose of claims for workers’ compensation made by an officer or employee of any state agency not insured with the fund.
The fund may make all expenditures, including payment to claimants for medical care or for adjustment or settlement of claims, necessary to the adjustment and final disposition of claims. The agreement shall provide that the state agency whose officer or employee is a claimant shall reimburse the fund for the expenditures and for the actual cost of services rendered.
The fund may in its own name, or in the name of the state agency for which the services are performed, do any and all things necessary to recover on behalf of the state agency for which it renders service any and all amounts which an employer might recover from third persons under Chapter 5 (commencing with Section 3850) of Part 1 of Division 4 of the Labor Code, or which an insurer might recover pursuant to Section 11662 including the right to commence and prosecute actions, to file, pursuant to Chapter 5 (commencing with Section 3850) of Part 1 of Division 4 of the Labor Code, liens for whatever sums would be recoverable by suit against a third person, to intervene in other court proceedings, and to compromise claims and actions before or after commencement of suit or after entry of judgment when in the opinion of the fund full collection cannot be enforced.
The fund may annually enter into agreements with state agencies for service to be rendered to the fund. These state agencies include, but shall not be limited to: the Department of Finance, Department of General Services, State Personnel Board, and the Public Employees’ Retirement System. If these agencies and the fund cannot agree upon the cost of services provided by the agreements, the Department of General Services shall be requested to arrive at an equitable settlement.
Except as provided by subdivision (b), the fund shall not be subject to the provisions of the Government Code made applicable to state agencies generally or collectively, unless the section specifically names the fund as an agency to which the provision applies.
The fund shall be subject to the provisions of Chapter 10.3 (commencing with Section 3512) of Division 4 of Title 1 of, Division 10 (commencing with Section 7920.000) of Title 1 of, Chapter 6.5 (commencing with Section 8543) of Division 1 of Title 2 of, Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of, the Government Code, and Division 5 (commencing with Section 18000) of Title 2 of the Government Code, with the exception of all of the following provisions of that division:
Article 1 (commencing with Section 19820) and Article 2 (commencing with Section 19823) of Chapter 2 of Part 2.6 of Division 5.
Sections 19849.2, 19849.3, 19849.4, and 19849.5.
Chapter 4.5 (commencing with Section 19993.1) of Part 2.6 of Division 5.
Except as provided in subdivisions (d) and (e) for the period from July 1, 2012, to June 30, 2013, inclusive, and for the period from July 1, 2020, to June 30, 2021, inclusive, and notwithstanding any provision of the Government Code or any other provision of law, the positions funded by the State Compensation Insurance Fund are exempt from any hiring freezes and staff cutbacks otherwise required by law. This subdivision is declaratory of existing law.
Notwithstanding any other law, employees of the fund shall, without limitation, be subject to any and all reductions in state employee compensation imposed by the Legislature on other state employees for the period from July 1, 2012, to June 30, 2013, inclusive, and for the period from July 1, 2020, to June 30, 2021, inclusive, regardless of the means adopted to effect those reductions.
With the exception of the reductions authorized in subdivision (d), if any provision of this section, or any practice or procedure adopted pursuant to this section, is in conflict with the provisions of a memorandum of understanding reached pursuant to Section 3517.5 of the Government Code, the memorandum of understanding shall be controlling without further legislative action, except that if the provisions of a memorandum of understanding require the expenditure of funds, the provisions shall not become effective unless approved by the Legislature in the annual Budget Act.
On the effective date of this act the Controller shall draw his or her warrant in favor of the State Compensation Insurance Fund for the total amount of the funds in the custody of the Treasurer belonging to the State Compensation Insurance Fund, and the Treasurer shall pay that warrant.
ARTICLE 6. Penalties [11880. - 11881.]
It is unlawful to make or cause to be made any knowingly false or fraudulent statement, whether made orally or in writing, of any fact material to the determination of the premium, rate, or cost of any policy of workers’ compensation insurance issued or administered by the State Compensation Insurance Fund for the purpose of reducing the premium, rate, or cost of the insurance. Any person convicted of violating this subdivision shall be punished by imprisonment in a county jail for one year, or pursuant to subdivision (h) of Section 1170 of the Penal Code for two, three, or five years, or by a fine not exceeding fifty thousand dollars ($50,000), or double the value of the fraud, whichever is greater, or by both that imprisonment and fine.
Any person who violates subdivision (a) and who has a prior felony conviction of the offense set forth in that subdivision shall receive a two-year enhancement for each prior conviction in addition to the sentence provided in subdivision (a). The existence of any fact that would subject a person to a penalty enhancement shall be alleged in the information or indictment and either admitted by the defendant in open court, or found to be true by the jury trying the issue of guilt or by the court where guilt is established by plea of guilty or nolo contendere or by trial by the court sitting without a jury.
Whenever in Chapter 4, Part 3, Division 2 of the Insurance Code the term “State Industrial Accident Commission” or “Industrial Accident Commission” or “commission” or “director” or similar designation occurs, it means the Board of Directors of the State Compensation Insurance Fund except when such meaning is inconsistent with the intent and context of said chapter.
ARTICLE 7. Transfer of Ownership [11885. - 11886.2.]
The Director of Finance is hereby authorized to act as agent for the state and, in that capacity, to sell a portion of, or otherwise obtain value for, the State Compensation Insurance Fund’s assets and liabilities. That authorized sale or other disposition shall be transacted with an entity that the director, in consultation with the State Treasurer, determines will provide the best combination of each of the following:
The highest price for the State Compensation Insurance Fund’s workers’ compensation insurance assets and liabilities or the best value to the General Fund, or both.
The greatest security for the payment of the purchase price.
Demonstrated competence and professional qualifications for the continued satisfactory performance of the workers’ compensation insurance services offered for sale or other disposition.
Prior to releasing any Notice of Request for Qualifications, a majority of the State Compensation Insurance Fund Board of Directors shall concur that the assets and liabilities that are identified by the Director of Finance, in consultation with the State Treasurer, in subdivision (a) are appropriate for sale or other disposition.
Notwithstanding any other law, the process for sale or other disposition shall include the steps the director, in consultation with the State Treasurer, deems necessary or convenient to achieve the ends set forth in this section. The process shall include, but not necessarily be limited to, all of the following:
The satisfaction of criteria established by the director, in consultation with the State Treasurer, consistent with achieving the best price or other value for those workers’ compensation insurance assets and liabilities. These criteria shall include any pertinent requirements of the State Compensation Insurance Fund Board of Directors.
A Notice of Request for Qualifications sent by the Director of Finance to each firm currently providing workers’ compensation insurance coverage to California employers and any entity proposed by the State Compensation Insurance Fund Board of Directors. In addition, it shall be advertised in the State Contracts Register pursuant to Sections 14827.1 and 14827.2 of the Government Code. This notice shall include a description of the workers’ compensation insurance program, a summary description of the workers’ compensation insurance assets and liabilities offered for sale or other disposition, and a description of the due diligence review process to provide potential purchasers with further information regarding the workers’ compensation insurance assets and liabilities offered for sale or other disposition, the selection criteria on which the transaction will be based, the submission requirements and deadlines, and a Department of Finance contact name and telephone number for more information. A copy of the Notice of Request for Qualifications shall be provided to the Joint Legislative Budget Committee within seven days of its release.
The evaluation by the director, in consultation with the State Treasurer, of all statements timely submitted in response to the Notice of Request for Qualifications sent pursuant to paragraph (2), using the criteria contained in the notice, and, based on those statements, the establishment of a qualified participant list.
For purposes of Section 11772, any action by the board of directors related to any transaction contemplated by this article, including, but not limited to, any approvals of such transactions, shall be deemed to be in good faith.
The Director of Finance shall notify the Joint Legislative Budget Committee in writing within seven days of completing a sale pursuant to subdivision (a).
In order to accomplish the purpose of this article, the State Compensation Insurance Fund and its board of directors shall participate fully in good faith with the Director of Finance, and the Director of Finance shall act in good faith in carrying out the duties prescribed by this article.
Notwithstanding any other law, the approval of neither the Attorney General, nor the Insurance Commissioner, nor the Director of General Services is required for execution and implementation of the sale or other disposition of the assets and liabilities of the State Compensation Insurance Fund or any other agreement authorized by this article.
The Director of Finance shall deposit all proceeds of any sale of, or any funds achieved through any other disposition of, the State Compensation Insurance Fund’s workers’ compensation insurance assets and liabilities under this article, less any costs related to that transaction, into the General Fund.
The proceeds of any sale of, or any funds achieved through any other disposition of, the State Compensation Insurance Fund’s workers’ compensation insurance assets and liabilities are not “proceeds of taxes” as that term is used in subdivision (c) of Section 8 of Article XIII B of the California Constitution. The disbursement of these proceeds is not subject to the limitations imposed by that article.
Notwithstanding any other law, the Director of Finance is authorized to enter into agreements with firms or individuals to act as advisers to the state in the transactions contemplated by this article. Section 14838 of the Government Code and Article 4 (commencing with Section 10335) of Chapter 2 of Part 2 of Division 2 of the Public Contract Code do not apply to any agreement entered into by the director with advisers pursuant to this section.
Notwithstanding any other law, the Director of Finance is also authorized to enter into legal services agreements to obtain specialized legal advice related to the transactions contemplated by this article. Section 11040 of the Government Code and Section 6072 of the Business and Professions Code shall not apply to the legal services agreements entered into by the director pursuant to this section.
The Director of Finance, in consultation with the State Treasurer, shall select firms or individuals to provide advisory services based on demonstrated competence and professional qualifications necessary for the satisfactory performance of the services required and in the manner described in this section.
The Director of Finance, in consultation with the State Treasurer, shall establish selection criteria for selecting advisers. The criteria may include, but are not necessarily limited to, factors such as professional excellence, demonstrated competence, specialized experience in performing similar services, education and experience of key personnel to be assigned, staff capability, ability to meet schedules, nature and quality of similar completed work of the firm or individual, reliability and continuity of the firm or individual, and other considerations deemed by the director, in consultation with the State Treasurer, to be relevant and necessary to the performance of advisory services.
In order to select advisers, the director shall publish a Notice of Request for Qualifications in the State Contracts Register pursuant to Sections 14827.1 and 14827.2 of the Government Code. The notice shall include a description of the advisory services required, the selection criteria on which the contract award will be based, submission requirements and deadlines, and a Department of Finance contact name and telephone number for more information. A copy of the Notice of Request for Qualifications shall be provided to the Joint Legislative Budget Committee within seven days of publication in the State Contracts Register.
After the final response date stated in the Notice of Request for Qualifications, the Director of Finance, in consultation with the State Treasurer, shall review the responses submitted, and shall evaluate them using the criteria contained in the notice. The director shall rank, in order of preference based on the criteria contained in the notice, the firm or individuals determined to be qualified to perform the required services.
The Director of Finance, in consultation with the State Treasurer, may interview any of the qualified firms or individuals regarding the experience and qualifications of those firms or individuals, as well as anticipated concepts and the benefits of alternative methods of furnishing the required services.
Following the interviews, if any, held pursuant to subdivision (d), the Director of Finance shall adjust the ranking of the qualified individuals or firms to reflect those firms or individuals deemed to be the most highly qualified to perform the required services.
The Director of Finance, in consultation with the State Treasurer, shall enter into negotiations with the firm or individual most highly ranked pursuant to paragraph (1). If negotiations are concluded successfully, the director shall enter into a contract. If the director, in his or her sole discretion, concludes that the negotiations are unsuccessful, the director shall terminate the negotiations, and begin new negotiations, in consultation with the State Treasurer, with the other firms or individuals ranked pursuant to paragraph (1) in order of their ranking, and either contract with or terminate negotiations with each next most highly ranked firm or individual.
If, after pursuing the negotiation process set forth in paragraph (2), the Director of Finance has been unable to negotiate a satisfactory contract at fair and reasonable compensation, the director may reinstate the selection process prescribed in this section, commencing with the issuance of a new Notice of Request for Qualifications.
The Director of Finance shall notify the Joint Legislative Budget Committee in writing within seven days of entering into a contract with an individual or firm for advisory services.
This section shall not apply to the selection of a legal services adviser.
The Director of Finance shall notify the Joint Legislative Budget Committee in writing upon his or her determination that neither the sale nor any other transaction authorized by this article is anticipated to achieve the purposes of this article or upon the completion of a disposition of State Compensation Insurance Fund assets and liabilities pursuant to this article.
The Director of Finance shall cease those activities he or she is authorized or directed to undertake pursuant to this article upon the earlier of either:
The 30th day following written notice by the director to the Chairperson of the Joint Legislative Budget Committee pursuant to subdivision (a).
January 10, 2012.
CHAPTER 5. Market Assistance Program for Long-Term Health Care Facility Liability Insurance [11890. - 11892.]
As used in this chapter:
“Long-term health care facility” has the same meaning as that term is defined in Section 1418 of the Health and Safety Code.
“Residential care facilities for the elderly” has the same meaning as that term is defined in Section 1569.2 of the Health and Safety Code.
If the commissioner finds after a public hearing that liability insurance for long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly is not readily available in the voluntary insurance market, and that the public interest requires this availability, the commissioner may authorize the formation of a market assistance program to assist in securing that insurance for long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly. The commissioner may require insurers, agents, and brokers to attend public hearings and meetings concerning either the need for a market assistance program or the organization and formation of a program. The commissioner may also assist in securing insurance for long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly for which commercial liability insurance is not readily available by forming a risk pooling arrangement as permitted by the Federal Liability Risk Retention Act of 1986.
The commissioner may develop appropriate standards and regulations to implement the market assistance program and risk pooling arrangement authorized by this section.
The commissioner may order the creation of an unincorporated, not-for-profit, temporary joint underwriting association for liability insurance, constituting a legal entity separate and distinct from all its members. The purpose of the association shall be to provide a market for liability insurance on a self-supporting basis, without subsidy from association members.
If the commissioner determines after a public hearing that liability insurance for long-term health care facilities, residential care facilities for the elderly, or physicians who provide or oversee the provision of services to residents in long-term health care facilities or residential care facilities for the elderly is readily available through the voluntary market, the association created pursuant to subdivision (a) shall cease its underwriting operations.
The commissioner may develop appropriate standards and regulations to implement the joint underwriting association authorized by this section.
CHAPTER 6. Commercial Property: Vehicle Barrier Discount [11895. - 11895.]
An insurer may consider the installation of vehicle barriers as a safety measure and may provide or offer a discount on the property owner’s insurance covering damage or loss to the covered commercial property or liability arising out of the ownership, maintenance, or use of the commercial property relative to the reduced risk to the property as a result of installation of the barriers if the discount provided or offered is provided or offered consistent with Article 10 (commencing with Section 1861.01) of Chapter 9 of Part 2 of Division 1.
For the purposes of this section, a vehicle barrier is a safety device that meets, at a minimum, the vehicle impact protection standards as provided by the State Fire Marshal and adopted by the California Building Standards Commission and that is installed to protect persons located within, in, or on the property of, buildings, persons located in an adjacent outdoor area that is covered by the commercial property insurance policy and that is used for the purpose of outdoor dining, or to protect pedestrians, from collisions into those buildings or outdoor areas by motor vehicles.
Any discounts on insurance provided in accordance with this section shall be determined to be actuarially sound and approved by the commissioner prior to their use.
PART 4. MISCELLANEOUS CASUALTY INSURANCES [12050. - 12129.]
CHAPTER 1. Surety Insurers on Reserve Basis; Capital Requirements and Permitted Insurances [12050. - 12122.]
ARTICLE 1. Capital and Scope of Business [12050. - 12055.]
An incorporated insurer issuing surety policies on the reserve basis shall be governed by the paid-in capital and surplus requirements of Sections 700. 01 to 700.05, inclusive.
During the first three years following its admission, the insurer’s assets in an amount equal to its required paid-in capital shall be in cash or in the value of obligations, purchase of which is approved by the commissioner, of the United States government, any State, or any county in this State.
After such three-year period, investments of such insurers are subject only to the provisions of this code regulating generally the investments of other incorporated insurers issuing policies on a reserve basis.
An insurer admitted in the State to transact credit insurance may also acquire and dispose of debts so insured and collect any debts owed to such insurer or to any person so insured by it. In performing any such act the credit insurer shall be under the jurisdiction of the Insurance Commissioner.
ARTICLE 2. Administrative Control [12070. - 12072.]
The commissioner shall publish and maintain a complete list of all admitted surety insurers on the department’s public Web site. The list shall set forth all of the following:
The full corporate name of the insurer.
The name of the state or country under whose laws the insurer is organized.
The date of the certificate of authority issued to the insurer to transact surety insurance in this state.
Whenever the insurer’s certificate of authority is surrendered, revoked, canceled, annulled, or suspended or whenever any such insurer, after such abrogation of its certificate again is admitted, the commissioner shall promptly update the list of admitted surety insurers on the department’s public Web site to include the name of the insurer and the date of that abrogation of, or of renewal of, the certificate.
The list of admitted surety insurers maintained on the department’s public Web site may be used by county clerks and others to confirm the license status of surety insurers.
ARTICLE 3. Special Restrictions on Business [12090. - 12093.]
An admitted surety insurer shall not become surety on any one undertaking, or accept reinsurance on such undertaking, when its liability thereon, in excess of the amount reinsured by it in an admitted insurer, amounts to more than ten percent of its capital and surplus as shown by its last statement on file in the office of the commissioner.
In determining its liability on an undertaking for purposes of subdivision (a), an admitted insurer may reduce its liability by either or both of the following:
Deposits with the surety insurer, in a manner acceptable to the commissioner, or by conveyance to it in trust for its protection, of assets that would qualify as admitted assets.
A clean and irrevocable letter of credit acceptable to the commissioner.
Whenever a surety insurer fails to maintain such a financial condition that assets allowed under subdivision (a) are equal in value to the aggregate of the charges prescribed under subdivision (b), the commissioner shall act as prescribed in Section 12092.
In estimating its condition the commissioner shall allow as assets only such as are allowed under law in force at the time of the estimate.
The charges to be aggregated shall be:
Eighty percent of the paid-in capital, but in no case less than two hundred fifty thousand dollars ($250,000).
All outstanding indebtedness.
Provision for reinsuring all outstanding risks, estimated as prescribed in Section 985.
Whenever such an insurer fails to maintain the financial condition required by section 12091, the commissioner shall require the deficiency to be made up in sixty days. If it is not made up as required, he shall issue a certificate showing the extent of such deficiency. He shall publish the certificate once a week for three weeks, in a daily San Francisco paper. From the time of first publication until such deficiency is made up, the insurer shall not do business in this State.
Whenever a surety insurer gives notice of cancellation of the coverage of an employee under a blanket fidelity bond, upon the request of the employee, the surety insurer, within 10 days of the request, shall furnish to the employee a statement setting forth the ground or grounds upon which the notice of cancellation is based. There shall be no liability on the part of, and no cause of action shall arise against, any surety insurer, or its licensed investigative sources, for any statements made by it concerning any employee in a written notice required to be given pursuant to this section.
If the surety insurer fails to comply with the provisions of the first paragraph of this section, the employee may apply to the commissioner for a certificate of the facts or information desired and the commissioner shall act thereon in accordance with the provisions of Article 3 (commencing with Section 12950) of Chapter 2 of Division 3.
ARTICLE 4. Special Regulations [12095. - 12097.]
No insurer admitted in this state to issue surety insurance shall fail or refuse to accept an application for a contractor’s license or performance bond, or to issue such a bond to an applicant therefor, or refuse or cancel such a bond, under conditions less favorable to the obligor than in other comparable cases, except for reasons applicable alike to persons of every characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code, or persons of every geographical area; nor shall any characteristic listed or defined in subdivision (b) or (e) of Section 51 of the Civil Code, or location within a county, of itself, constitute a condition or risk for which a greater rate, premium, charge, guaranty, or collateral may be required of the applicant for such a bond.
Any applicant for a contractor’s license or performance bond who believes that the admitted surety insurer, regularly issuing such bonds, to whom he has applied did not comply with Section 12095, may file a complaint in writing with the commissioner. If the commissioner finds that there is reasonable ground to believe that the alleged discrimination has occurred, he may set the complaint for hearing, after notice, at which hearing each of the parties to the complaint shall have an opportunity to be heard in person or through their witnesses.
Any determination of the commissioner upon such complaint and hearing shall be judicially reviewable.
Whoever denies a contractor’s license or performance bond solely on the grounds specified in this article is liable for each and every such offense for the actual damages, and two hundred fifty dollars ($250) in addition thereto, suffered by the licensee or applicant for a license.
ARTICLE 5. Financial Guaranty Insurance [12100. - 12122.]
As used in this article:
“Financial guaranty insurance” means a surety bond, an insurance policy or, when issued by an insurer, an indemnity contract and any guarantee similar to the foregoing types, under which loss is payable upon proof of occurrence of financial loss to an insured claimant, obligee, or indemnitee as a result of any of the following events:
Failure of any obligor on or issuer of any debt instrument or other monetary obligation (including equity securities guaranteed under a surety bond, insurance policy, or indemnity contract) to pay, when due to be paid by the obligor or scheduled at the time insured to be received by the holder of the obligation, principal, interest, premium, dividend, purchase price of or on the instrument or obligation, or other monetary payment when the failure is the result of financial default or insolvency, or, provided that the payment source is investment grade, any other failure of that payment source to make payment, regardless of whether the obligation is incurred directly or as guarantor by or on behalf of another obligor that has also defaulted.
Changes in the levels of interest rates, whether short or long term, or the differential in interest rates between various markets or products.
Changes in the rate of exchange of currency.
Changes in the value of financial or commodity indices, or price levels in general.
Other events that the commissioner determines by order, regulation, or written consent are substantially similar to any of the foregoing.
Notwithstanding paragraph (1), “financial guaranty insurance” shall not include any of the following:
Insurance of any loss resulting from any event described in paragraph (1), if the loss is payable only upon the occurrence of any of the following, as specified in a surety bond, insurance policy, or indemnity contract:
A fortuitous physical event.
A failure of or deficiency in the operation of equipment.
An inability to extract or recover a natural resource.
Surety insurance as authorized by Section 105.
Credit unemployment insurance, meaning insurance on a debtor in connection with a specific loan or other credit transaction, to provide payments to a creditor in the event of unemployment of the debtor for the installments or other periodic payments becoming due while a debtor is unemployed.
Credit insurance authorized by Section 113.
Guaranteed investment contracts and funding agreements issued by life insurance companies that provide that the life insurer itself will make specified payments in exchange for specific premiums or contributions.
Indemnity contracts or similar guarantees, to the extent that they are not otherwise limited or proscribed by this article, in which a life insurer does any of the following:
Guarantees its obligations or indebtedness or the obligations or indebtedness of a subsidiary (as defined in Section 1215) other than a financial guaranty insurance corporation; provided that:
To the extent that any obligations or indebtedness are backed by specific assets, those assets shall at all times be owned by the life insurer or the subsidiary.
(II) In the case of the guarantee of the obligations or indebtedness of the subsidiary that are not backed by specific assets of the life insurer, the guarantee terminates once the subsidiary ceases to be a subsidiary.
Guarantees obligations or indebtedness (including the obligation to substitute assets where appropriate) with respect to specific assets acquired by a life insurer in the course of normal investment activities and not for the purpose of resale with credit enhancement, or guarantees obligations or indebtedness acquired by its subsidiary, provided that the assets acquired pursuant to this clause have been either of the following:
Guarantees obligations or indebtedness of an employee or agent of the life insurer.
Residual value insurance.
Any other form of insurance covering risks that the commissioner determines by order, regulation, or written consent to be substantially similar to any of the foregoing.
“Affiliate” means a person that, directly or indirectly, owns at least 10 but less than 50 percent of the financial guaranty insurance corporation or that is at least 10 percent but less than 50 percent, directly or indirectly, owned by a financial guaranty insurance corporation.
“Asset-backed securities” means either of the following:
Securities or other financial obligations of an issuer provided that both of the following apply:
The issuer is a special purpose corporation, trust, or other entity, or, provided that the securities or other financial obligations constitute an insurable risk, is a bank, trust company, or other financial institution, deposits in which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation or any successors thereto.
The securities or other financial obligations are related to a pool of assets so that all of the following apply:
The pool of assets has been conveyed, pledged, or otherwise transferred to or is otherwise owned or acquired by the issuer.
The pool of assets backs the securities or other financial obligations issued.
No asset in the pool, other than an asset directly payable by, guaranteed by, or backed by the full faith and credit of the United States government or that otherwise qualifies as collateral under paragraph (1) or (2) of subdivision (e), has a value exceeding 20 percent of the aggregate value of the pool.
A pool of credit default swaps or credit default swaps referencing a pool of obligations, provided that each of the following is true:
The swap counterparty whose obligations are insured under the credit default swap is a special purpose corporation, special purpose trust, or other special purpose legal entity.
No reference obligation in the pool, other than an obligation directly payable by, guaranteed by, or backed by the full faith and credit of the United States government, or that otherwise qualifies as collateral under paragraph (2) of subdivision (e), has a notional amount exceeding 10 percent of the pool’s aggregate notional amount.
The insurer has the benefit of a deductible or other first loss credit protection against claims under its insurance policy.
“Average annual debt service” means the amount of insured unpaid principal and interest on an obligation multiplied by the number of the insured obligations (assuming that each obligation represents a $1,000 par value), divided by the amount equal to the aggregate life of all of those obligations. This definition, expressed as a formula in regard to bonds, is as follows:
“Collateral” means any of the following:
Cash.
The cashflow from specific obligations that are not callable and scheduled to be received based on expected prepayment speed on or prior to the date of scheduled debt service (including scheduled redemptions and prepayments) on the insured obligation, provided that any of the following is true, as applicable:
The specific obligations are directly payable by, guaranteed by, or backed by the full faith and credit of the United States government.
In the case of insured obligations denominated or payable in a foreign currency as permitted under paragraph (3) of subdivision (b) of Section 12112, the specific obligations are directly payable by, guaranteed by, or backed by the full faith and credit of the foreign government or the central bank thereof.
The specific obligations are insured by the same insurer that insures the obligations being collateralized, and the cashflows from the specific obligations are sufficient to cover the insured scheduled payments on the obligations being collateralized.
The market value of investment grade obligations, other than obligations evidencing an interest in the project or projects financed with the proceeds of the insured obligations.
The face amount of each letter of credit that meets all of the following criteria:
Is irrevocable.
Provides for payment under the letter of credit in lieu of or as reimbursement to the insurer for payment required under a financial guaranty insurance policy.
Is issued, presentable, and payable either:
At an office of the letter of credit issuer in the United States.
At an office of the letter of credit issuer located in the jurisdiction in which the trustee or paying agent for the insured obligation is located.
Contains a statement that either:
Identifies the financial guaranty insurance corporation, its collateral agent, or any successor by operation of law, including any liquidator, rehabilitator, receiver, or conservator, as the beneficiary.
Identifies the trustee or the paying agent for the insured obligation as the beneficiary.
Contains a statement to the effect that the obligation of the letter of credit issuer under the letter of credit is an individual obligation of that issuer and is in no way contingent upon reimbursement with respect thereto.
Contains an issue date and an expiration date.
Does either of the following:
Has a term at least as long as the shorter of the term of the insured obligation or the term of the financial guaranty insurance policy.
Provides that the letter of credit shall not expire without 30 days prior written notice to the beneficiary and allows for drawing under the letter of credit in the event that, prior to expiration, the letter of credit is not renewed or extended or a substitute letter of credit or alternate collateral meeting the requirements of subdivision (e) is not provided.
If the letter of credit is governed by the 1983 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 400 or 500), or any successor revision approved by the commissioner, it shall contain a provision for an extension of time, of not less than 30 days after resumption of business, to draw against the letter of credit in the event that one or more of the occurrences described in Article 19 of Publication 400 or 500 occurs.
Is issued by a bank, trust company, or savings association that meets all of the following criteria:
Is organized and existing under the laws of the United States or any state thereof or, in the case of a financial institution organized under the laws of a foreign country, has a branch or agency office licensed under the laws of the United States or any state thereof and is domiciled in a member country of the Organization of Economic Co-operation and Development having a sovereign rating in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the commissioner.
Has (or is the principal operating subsidiary of a financial institution holding company that has) a long-term debt rating of at least investment grade.
Is not a parent, subsidiary, or affiliate of the trustee or paying agent, if any, with respect to the insured obligation if that trustee or paying agent is the named beneficiary of the letter of credit.
The amount of credit protection available to the insurer (or its nominee) under each credit default swap that satisfies each of the following:
May not be amended without the consent of the insurer and may only be terminated in accordance with one of the following:
At the option of the insurer.
At the option of the counterparty to the insurer (or its nominee), if the credit default swap provides for the payment of a termination amount equal to the replacement cost of the terminated credit default swap determined with reference to standard documentation of the International Swap and Derivatives Association, Inc. or otherwise acceptable to the commissioner.
At the discretion of the commissioner acting as rehabilitator, liquidator, or receiver of the insurer upon payment by or on behalf of the insurer of any termination amount due from the insurer.
Provides for payment under all instances in which payment under a financial guaranty insurance policy is required, except that payment under the credit default swap may be on a first loss, excess of loss, or other nonpro rata basis and may apply on an aggregate basis to more than one policy.
Is provided by one of the following:
A counterparty whose obligations under the credit default swap are insured by a financial guaranty insurance corporation licensed under this article or guaranteed by a financial institution referred to in clauses (ii) and (iii) of this subparagraph.
A financial institution satisfying the requirements of clauses (i) to (iii), inclusive, of subparagraph (I) of paragraph (4), provided that obligations of the financial institution on parity with its obligations under the credit default swap are rated as investment grade, and further provided that, if the financial institution is not organized under, or acting through a branch or agency office licensed under, the laws of the United States or any state thereof, then the financial institution is required to collateralize the replacement cost of the credit default swap in the event that it fails to maintain the investment grade rating.
Any other financial institution that the commissioner determines to be substantially similar to any specified in clause (i) or (ii).
The requirements of this subparagraph shall not be construed as authority for an insurer domiciled in the United States to issue credit default swaps unless the insurer has explicit authority to issue credit default swaps.
Collateral shall be deposited with or held by the financial guaranty insurance corporation, held by a trustee or agent for the benefit of the financial guaranty insurance corporation in trust or to perfect a security interest, or held in trust pursuant to the bond indenture or other trust arrangement by a trustee or custodian for the benefit of holders of the insured obligations in the form of funds for payment of insured obligations, sinking funds, or other reserves that may be used for the payment of insured obligations, collateral agent fees and trustee fees, or reimbursement of the financial guaranty insurance corporation on any obligation insured by the corporation. The trustee, custodian, or agent shall be a bank, savings association, depository institution, or other entity acceptable to the commissioner, the deposits of which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation (or any successors thereto), or in the case of banking organizations organized under the laws of a foreign country in addition satisfies the requirements of clauses (i) and (ii) of subparagraph (I) of paragraph (4), and in each case that has a net worth of at least twenty-five million dollars ($25,000,000). The trustee or agent may also be an approved or qualified servicer or originator of the kind of assets that comprise the collateral that maintains in force at all times errors and omissions insurance applicable to the trust or agency activities, including without limitation, a servicer qualified under a federal or state insurance or guaranty program to service loans or mortgage loans. The commissioner may adopt regulations, bulletins, notices or orders to limit the amount of collateral provided by obligations, letters of credit, or credit default swaps, or to limit the amount of collateral provided by any single issuer, bank, or counterparty as provided for in this subdivision. The commissioner may also require additional reporting as deemed necessary.
“Commercial real estate” means income-producing real property other than residential property consisting of less than five units.
“Contingency reserve” means an additional liability reserve established to protect policyholders against the effects of adverse economic cycles or other unforeseen circumstances.
“Credit default swap” means an agreement referencing credit derivative definitions published from time to time by the International Swap and Derivatives Association, Inc., or otherwise acceptable to the commissioner, pursuant to which a party agrees to compensate another party in the event of a payment default by, insolvency of, or other adverse credit event in respect of, an issuer of a specified security or other obligation; provided that the agreement does not constitute an insurance contract and the making of the credit default swap does not constitute the transaction of insurance.
“Excess spread” means, with respect to any insured issue of asset-backed securities, the excess of (A) the scheduled cashflow on the underlying assets that is reasonably projected to be available, over the term of the insured securities after payment of the expenses associated with the insured issue, to make debt service payments on the insured securities over (B) the scheduled debt service requirements on the insured securities, provided that this excess is held in the same manner as collateral is required to be held under subdivision (e).
“Financial guaranty insurance corporation” means an insurer transacting financial guaranty insurance.
“Governmental unit” means a state, territory, or possession of the United States of America, the District of Columbia, the country of Canada, a province of Canada, the United Kingdom, a public authority of the United Kingdom, a member country of the Organization for Economic Co-operation and Development having a sovereign rating in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the commissioner, a municipality, or a political subdivision of any of the foregoing, or any public agency or instrumentality thereof.
“Guarantees of consumer debt obligations” means insurance policies indemnifying a purchaser or lender against loss or damage resulting from defaults on a pool of debts owed for extensions of credit (including in respect of installment purchase agreements and leases) to individuals provided in the normal course of the purchaser’s or lender’s business, provided that the pool meets the requirements of paragraph (2) of subdivision (c) and that the pool has been determined to be investment grade. Policies providing that coverage shall contain a provision that all liability terminates upon sale or transfer of the underlying obligation to any transferee that is not an insured of the financial guaranty insurance corporation under a similar policy.
“Industrial development bond” means any security, or other instrument under which a payment obligation is created, issued by or on behalf of a governmental unit to finance a project serving a private industrial, commercial, or manufacturing purpose and not guaranteed by a governmental unit.
“Insurable risk” means that the obligation on an uninsured basis has been determined to be not less than investment grade. With respect to asset-backed securities as defined in subdivision (c), the determination shall be, based solely on the pool of assets backing the insured obligation or securing the financial guaranty insurance corporation, without consideration of the creditworthiness of the issuer.
“Investment grade” means that the obligation or parity obligation of the same issuer is rated in one of the top four generic lettered rating classifications by a securities rating agency acceptable to the commissioner, that the obligation or parity obligation of the same issuer, without regard to financial guaranty insurance, has been identified in writing by that rating agency as an insurable risk deemed to be of investment grade quality, or that the obligation or parity obligation of the same issuer has been determined to be investment grade (as indicated by a category 1 or 2 rating) by the Securities Valuation Office of the National Association of Insurance Commissioners.
“Municipal bonds” means municipal obligation bonds and special revenue bonds.
“Municipal obligation bond” means any security, or other instrument, including a lease payable or guaranteed by the United States or another national government that qualifies as a governmental unit, or any agency, department, or instrumentality thereof, or by a state or an equivalent subdivision of another national government that qualifies as a governmental unit, but not a lease of any other governmental unit, under which a payment obligation is created, issued by or on behalf of a governmental unit or issued by a special purpose corporation, special purpose trust, or other special purpose legal entity to finance a project or undertaking serving a substantial public purpose, and that is one or more of the following:
Payable from tax revenues, but not tax allocations, within the jurisdiction of the governmental unit.
Payable or guaranteed by the United States of America or another national government that qualifies as a governmental unit, or any agency, department, or instrumentality thereof, or by a housing agency of a state or an equivalent political subdivision of another national government that qualifies as a governmental unit.
Payable from rates or charges (but not tolls) levied or collected in respect of a nonnuclear utility project, public transportation facility (other than an airport facility) or public higher education facility.
With respect to lease obligations, payable from past, present, or future appropriations.
Notwithstanding paragraph (1), obligations of a special purpose corporation, special purpose trust, or other special purpose legal entity shall not be considered municipal obligation bonds unless the obligations are investment grade at the time of issuance, the obligations are payable from sources enumerated in subparagraphs (A) to (D), inclusive, and the project being financed or the tolls, tariffs, usage fees, or other similar rates or charges for its use are subject to regulation or oversight by a governmental entity.
“Parent” means a person that, directly or indirectly, owns at least 50 percent of a financial guaranty insurance corporation.
“Reinsurance” means cessions qualifying for credit under Section 12121.
“Security” or “secured” means any of the following:
A deposit at least equal to the full amount of the outstanding principal of the insured obligation.
Collateral, as defined by subdivision (e), at least equal to the full amount of the outstanding principal of the insured obligation or that has a market value or scheduled cashflow that is equal to or greater than the scheduled debt service on the insured obligation.
Property, provided the financial guaranty insurance corporation or the trustee has possession of evidence of the right, title, or authority to claim or foreclose thereon or otherwise dispose of the property for value, the scheduled cashflow from which, or market value thereof, is at least equal to the scheduled debt service on the insured obligation.
“Special revenue bond” means any security or other instrument under which a payment obligation is created, issued by or on behalf of, or payable or guaranteed by, a governmental unit to finance a project or undertaking serving a substantial public purpose and not payable from the sources enumerated in subdivision (q) or securities that are substantially similar to the foregoing issued by any of the following:
A not-for-profit corporation.
A special purpose corporation, special purpose trust or other special purpose legal entity, provided that the obligations are investment grade at the time of issuance, the obligations are not payable from the sources enumerated in subparagraphs (A) to (D), inclusive, of paragraph (1) of subdivision (q), and the project being financed or the tolls, tariffs, usage fees, or other similar rates or charges for its use are subject to regulation or oversight by a governmental entity.
“Subsidiary” means a person that, directly or indirectly, is at least 50 percent owned by a financial guaranty insurance corporation.
“Total net liability” of a financial guaranty insurance corporation means the aggregate amount of insured unpaid principal, interest, and other monetary payments, if any, of guaranteed obligations insured or assumed, less reinsurance and less collateral.
“Utility first mortgage obligation” means an obligation of an issuer secured by a first priority mortgage on property owned or leased by an investor-owned or cooperative-owned utility company and located in the United States, Canada, or a member country of the Organization for Economic Co-operation and Development having a sovereign rating in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the commissioner, provided that the utility or utility property or the usage fees or other similar utility rates or charges are subject to regulation or oversight by a governmental entity.
An insurer may be organized and admitted to transact financial guaranty insurance in the manner prescribed for stock property and casualty insurers by the laws of this state. Except as provided in Section 12118, an insurer shall be required to be licensed to transact financial guaranty insurance in California before it transacts that insurance in this state. An insurer shall become admitted to transact financial guaranty insurance upon making application and complying with all the requirements of the law.
An insurer licensed in this state to transact financial guaranty insurance may not transact any other classes of insurance in this state except surety insurance.
An insurer that anywhere transacts or is licensed for any classes other than financial guaranty insurance, surety insurance, and credit insurance shall not be eligible for a certificate of authority for the class of financial guaranty insurance in this state.
A financial guaranty insurance corporation may only assume in this state those lines of insurance it is admitted to transact in this state.
In other states, an insurer may assume financial guaranty, surety, and credit lines of insurance if it is authorized to transact those lines of insurance in other states.
After licensure the holder shall continue to comply with the requirements of this section.
Prior to the issuance of a certificate of authority to transact financial guaranty insurance, an insurer shall submit for the approval of the commissioner a plan of operation detailing the types and projected diversification of guaranties that will be issued, the underwriting procedures that will be followed, managerial oversight methods, investment policies, and other matters prescribed by the commissioner including, but not limited to, those necessary to allow the commissioner to make a finding for the purposes of Section 717.
An admitted financial guaranty insurance corporation shall be subject to all of the provisions of this code applicable to property and casualty insurers to the extent that the provisions are not inconsistent with the provisions of this article.
The filing fee for a certificate of authority or amended certificate of authority to transact financial guaranty insurance shall be seven thousand four hundred seventy-two dollars ($7,472).
An admitted financial guaranty insurance corporation’s investments in any one entity insured by that corporation shall not exceed 4 percent of its admitted assets as of the end of the prior calendar year, except that this limit shall not apply to investments payable or guarantied by a United States governmental unit or agency or the State of California if the investments payable or guarantied by the United States governmental unit or agency or the State of California shall be rated in one of the top two generic lettered rating classifications by a securities rating agency acceptable to the commissioner.
In addition to any transaction that an insurer meeting the requirements of Section 1211 may effect and maintain under any other provision of this code, a financial guaranty insurance corporation may effect and maintain a transaction in contracts for the future delivery or receipt of the currency of a foreign country, interest rate options, credit default swaps under which the insurer is acquiring credit protection, and any other products included in the plan referred to in paragraph (7), if the following conditions are satisfied:
The transaction is used for the purpose of limiting risk of loss under financial guaranty insurance policies or reinsurance contracts covering those policies due to fluctuations in interest rates or currency exchange rates or, in the case of credit default swaps, financial default, insolvency, or other credit events.
The transaction does not exceed a duration of 12 months beyond the term of those policies or reinsurance contracts.
The amount of foreign currencies to be purchased under the transaction does not exceed the amount guarantied under those policies or reinsurance contracts that is denominated in foreign currency.
The amount that is subject to interest rate hedging transactions does not exceed the amount guarantied under those policies or reinsurance contracts that is subject to the risk of interest rate fluctuations.
The counterparty to the transaction has, or is the principal operating subsidiary of a holding company that has, a long-term unsecured debt rating or claims-paying ability rating that is at least investment grade.
The transaction is not conducted for arbitrage purposes.
The transaction is entered into pursuant to a plan that has been approved by the board of directors of the financial guaranty insurance corporation and filed with and approved by the insurance department of the state of domicile of the financial guaranty insurance corporation.
A transaction entered into pursuant to subdivision (b) shall be governed by the terms of this section and shall not be subject to Section 1211.
No insurer shall be issued a license to transact financial guaranty insurance unless it has paid-in capital of at least fifteen million dollars ($15,000,000) and surplus of at least eighty-five million dollars ($85,000,000), and shall at all times thereafter maintain a minimum paid-in capital of fifteen million dollars ($15,000,000) and a minimum surplus of sixty million dollars ($60,000,000).
An insurer licensed in this state and issuing or reinsuring financial guaranty insurance policies in this state prior to January 1, 1991, shall, notwithstanding the provisions of subdivision (a), be deemed to meet the combined paid-in capital and surplus requirements for transacting the financial guaranty insurance business during the period between January 1, 1991, and January 1, 1993, if it has combined capital and surplus of forty-five million dollars ($45,000,000), which includes paid-in capital of at least two million five hundred thousand dollars ($2,500,000).
On and after January 1, 1993, every financial guaranty insurance corporation must fully comply with the condition in subdivision (a) that a minimum paid-in capital of fifteen million dollars ($15,000,000) be held and maintained.
An admitted financial guaranty insurance corporation shall establish and maintain a contingency reserve.
With respect to all financial guaranties written prior to and in force as of July 1, 1989:
The financial guaranty insurance corporation shall establish and maintain a contingency reserve consistent with the requirements applicable for municipal bond insurance policies which were in effect prior to July 1, 1989, in an amount equal to 50 percent of earned premiums on those policies.
To the extent that the financial guaranty insurance corporation’s contingency reserves maintained as of July 1, 1989, are less than those required for municipal bond insurance policies pursuant to paragraph (1), the corporation shall have until January 1, 1994, to bring its reserves into compliance.
With respect to financial guaranties of municipal obligation bonds, special revenue bonds and investment grade industrial development bonds written after July 1, 1989:
Municipal obligation bonds, 0.8 percent of principal outstanding.
Special revenue bonds, 1.2 percent of principal outstanding.
Investment grade industrial development bonds secured by collateral or with a remaining term at the date of insurance of seven years or less and utility first mortgage obligations, 1.4 percent of principal outstanding.
All other investment grade industrial development bonds, 1.6 percent of principal outstanding.
Contributions to the contingency reserve required by this paragraph, equal to one-eightieth of the total reserve required, shall be made each quarter for 20 years, provided, however, that contributions may be discontinued so long as the total reserve for all categories listed in items (A) through (D) of subparagraph (2) exceeds the percentages contained in items (A) through (D) when applied against unpaid principal.
With respect to all other financial guaranties written on or after July 1, 1989:
Contingency reserves required in subdivisions (b), (c), and (d) may be established and maintained net of collateral and reinsurance, provided that, in the case of reinsurance, the reinsurance agreement requires that the reinsurer shall, on or after the effective date of the reinsurance, establish and maintain a reserve in an amount equal to the amount by which the financial guaranty insurance corporation reduces its contingency reserve. In addition, contingency reserves required in subdivisions (c) and (d) may be maintained net of refundings and refinancings to the extent the refunded or refinanced issue is paid off or secured by obligations that are directly payable or guarantied by the United States government, and net of insured securities in a unit investment trust or mutual fund that have been sold from the trust or fund without insurance.
The contingency reserves may be released thereafter in the same manner in which they were established and withdrawals therefrom, to the extent of any excess, may be made from the earliest contributions to such reserves remaining therein:
With the prior written approval of the commissioner, if the actual incurred losses for the year, in the case of the categories of guaranties subject to subdivision (c) exceeds 35 percent of earned premiums, or in the case of the categories of guaranties subject to subdivision (d) exceed 65 percent of earned premiums.
Upon 30 days prior written notice to the commissioner, provided that the contingency reserve has been in existence for 40 quarters, for reserves subject to subdivision (c), and 30 quarters, for reserves subject to subdivision (d), upon demonstration that the amount carried is in excess of required amounts or excessive in relation to the financial guaranty insurance corporation’s outstanding obligations.
A financial guaranty insurance corporation may invest the contingency reserve in tax and loss bonds or similar securities purchased pursuant to Section 832(e) of the Internal Revenue Code (or any successor provision), only to the extent of the tax savings resulting from the deduction for federal income tax purposes of a sum equal to the annual contributions to the contingency reserve. The contingency reserve shall otherwise be invested only in classes of securities or types of investments specified in Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1 and Article 4 (commencing with Section 1190) of Chapter 2 of Part 2 of Division 1.
In addition to the contingency reserve, the case basis method or other method as may be prescribed by the commissioner shall be used to determine loss reserves, which shall include a reserve for claims reported and unpaid net of collateral. A deduction from loss reserves shall be allowed for the time value of money by application of a discount rate equal to the average rate of return on the admitted assets of the financial guaranty insurance corporation as of the date of the computation of that reserve. The discount rate shall be adjusted at the end of each calendar year.
In addition a reserve component for incurred but not reported claims shall be reasonably estimated if deemed necessary by the financial guaranty insurance corporation, or following an examination or actuarial analysis, by the commissioner.
Except as otherwise permitted by the commissioner, no deduction shall be made for anticipated salvage in computing case basis loss reserves, unless that salvage is held by or under the control of the financial guaranty insurance corporation and would qualify as an admitted asset under Section 1100 and Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1 and Article 4 (commencing with Section 1190) of Chapter 2 of Part 2 of Division 1, or unless that salvage constitutes or is secured by a clean, irrevocable letter of credit which is approved by the commissioner or complies with the definition of a letter of credit provided in subdivision (e) of Section 12100.
If the insured principal and interest on a defaulted issue of obligations exceed 10 percent of the financial guaranty insurance corporation’s capital, surplus, and contingency reserves, its reserve so established shall be supported by a report from an independent source acceptable to the commissioner.
An unearned premium reserve shall be established and maintained net of reinsurance and collateral with respect to all financial guaranty premiums. Where financial guaranty insurance premiums are paid on an installment basis, an unearned premium reserve shall be established and maintained, net of reinsurance, computed on a daily or monthly pro rata basis. All other financial guaranty insurance premiums written shall be earned in proportion with the expiration of exposure, or by such other method as may be prescribed or approved by the commissioner.
An admitted financial guaranty insurance corporation shall adopt procedures reasonably calculated to ensure, to the extent it is commercially feasible for the financial guaranty insurance corporation, that any prospectus which discloses that a policy of financial guaranty insurance has been issued also discloses that in the event the financial guaranty insurance corporation were to become insolvent, any claims arising under the policies of financial guarantee insurance are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 15.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
Except as provided in Section 12118, financial guaranty insurance may be transacted in this state only by an insurer admitted to transact financial guaranty insurance.
The following guaranties are permissible:
Financial guaranty insurance shall be written only to insure timely payment of contractual obligations, including principal and interest, purchase obligations, dividends, or any other payment obligation, however characterized of the following:
Municipal obligation bonds.
Special revenue bonds.
Industrial development bonds.
Obligations of corporations, trusts, or similar entities established under applicable law.
Partnership obligations.
Asset-backed securities, trust certificates and trust obligations other than mortgage-backed securities secured by first mortgages on real property which are insurable by a mortgage guaranty insurer authorized under Chapter 2A (commencing with Section 12640.01) of Part 6 of Division 2, unless one of the following applies:
The mortgages with loan-to-value ratios in excess of 80 percent are insured by mortgage guaranty insurers authorized under Chapter 2A (commencing with Section 12640.01) of Part 6 of Division 2, are insured by mortgage guaranty insurers licensed under the laws of any other state if that insurer has a claims paying rating of investment grade from a securities rating agency acceptable to the commissioner, or are in an aggregate principal amount less than the single risk limits prescribed in subdivision (e) of Section 12115.
Additional mortgages with principal balances, other collateral with a market value, or, provided the insured risk is investment grade, excess spread, in each instance in an amount at least equal to the coverage that would otherwise be provided by those mortgage guaranty insurers in accordance with item (i) of this subparagraph are pledged as additional support for the asset-backed securities.
Installment purchase agreements executed as a condition of sale.
Consumer debt obligations.
Utility first mortgage obligations.
Any other debt instrument or monetary obligation that the commissioner determines by order, regulation, or written consent to be substantially similar to any of the foregoing.
A corporation may insure the timely payment of monetary obligations in any category designated in paragraph (1), notwithstanding that the obligation may be insured by a financial guaranty insurance policy issued by another insurer. In the event that any obligation is insured by more than one financial guaranty insurance policy, then each of the insurance policies may by its terms specify its priority of payment in the event of a default under the obligation insured or under any other insurance policy, provided that an insurer shall be entitled to take into account payment under another policy insuring the obligation for purposes of establishing and maintaining loss reserves only to the extent that the policy issued by the insurer provides for payment only in the event of payment default under both the obligation and the other policy.
A corporation may also write financial guaranty insurance, as defined in subparagraph (A) of paragraph (1) of subdivision (a) of Section 12100 to insure the timely payment of non-United States dollar debt instruments or other monetary obligations denominated or payable in foreign currency, only for the categories listed in subparagraphs (A) to (J), inclusive, of paragraph (1), provided that each of the following conditions is satisfied:
The currency is that of an Organisation for Economic Co-operation and Development country or another country whose sovereign rating is investment grade, or the country is not disapproved by the commissioner within 30 days following receipt of written notification. The commissioner shall not disapprove the country if it is demonstrated that there is no undue risk associated with insuring the timely payment of the instruments or obligations. In making such a determination, the commissioner shall take into consideration the corporation’s outstanding liabilities on noninvestment grade instruments and obligations in relation to its outstanding liabilities on all instruments and obligations and in relation to the amount of surplus to policyholders.
The obligations do not exceed 25 percent of an insurer’s aggregate net liability.
An admitted financial guaranty insurance corporation shall keep copies of all relevant materials prepared by the insurer or used in the initial underwriting or ongoing monitoring of insured risk; all relevant documents pertaining to changes in the credit risk or performance of the insured on the obligation, and all materials pertaining to the examination of the condition of collateral, assets, or other security; and any other materials requested by the commissioner. All those materials shall be maintained for the entire period during which the insurance is in force and shall be available for examination upon request of the commissioner by the commissioner or by any rating agency approved by the commissioner.
An insurer may insure obligations enumerated in subparagraphs (A), (B), and (C) of paragraph (1) of subdivision (b) of Section 12112 that are not investment grade so long as at least 95 percent of the insurer’s total net liability on the kinds of obligations enumerated in those subparagraphs is investment grade.
The financial guaranty insurance corporation shall at all times maintain capital, surplus, and contingency reserve in the aggregate no less than the sum of the following:
0.3333 percent of the total net liability under guaranties of municipal bonds and utility first mortgage obligations.
0.6666 percent of the total net liability under guaranties of investment grade asset-backed securities.
1.0 percent of the total net liability under guaranties, secured by collateral or having a term of seven years or less of:
Investment grade industrial development bonds, and
Other investment grade obligations.
1.5 percent of the total net liability under guaranties of other investment grade obligations.
2.0 percent of the total net liability under guaranties of:
Noninvestment grade consumer debt obligations, and
Noninvestment grade asset-backed securities.
3.0 percent of the total net liability under guaranties of noninvestment grade obligations secured by first mortgages on commercial real estate and having loan-to-value ratios of 80 percent or less.
5.0 percent of the total net liability under guaranties of other noninvestment grade obligations.
If the amount of collateral required by paragraph (3) of subdivision (b) is no longer maintained, that proportion of the obligation insured which is not so collateralized shall be subject to the aggregate limits specified in paragraph (4) of subdivision (b).
Additional surplus determined by the commissioner to be adequate to support the writing of surety insurance and credit insurance if the financial guaranty insurance corporation has been authorized to transact surety insurance and credit insurance as authorized by Section 12102.
Whenever the reserves for outstanding credit insurance losses or loss expenses or any insurer licensed in this state to transact financial guaranty insurance are determined by the commissioner to be inadequate, he or she shall require the insurer to maintain additional reserves.
A financial guaranty insurance corporation admitted to transact financial guaranty insurance in this state shall limit its exposure to loss, net of collateral and reinsurance, as follows:
For municipal obligation bonds and special revenue bonds:
The insured average annual debt service with respect to any one entity and backed by a single revenue source may not exceed 10 percent of the aggregate of the financial guaranty insurance corporation’s capital, surplus, and contingency reserve.
The insured unpaid principal issued by a single entity and backed by a single revenue source may not exceed 75 percent of the aggregate of the financial guaranty insurance corporation’s capital, surplus, and contingency reserve.
For each issue of asset-backed securities issued by a single entity, and for each pool of consumer debt obligations, the lesser of:
Insured average annual debt service; or
Insured unpaid principal (reduced by the extent to which the unpaid principal of the supporting assets and, provided the insured risk is investment grade, excess spread, exceed the insured unpaid principal) divided by nine; shall not exceed 10 percent of the aggregate of the financial guaranty insurance corporation’s capital, surplus, and contingency reserve, provided that no asset in the pool supporting the asset-backed securities exceeds the single risk limits prescribed in subdivision (e) of Section 12115 if directly guarantied; and provided further that, if the issuer of such insured asset-backed securities is a special purpose corporation, trust or other entity and that issuer shall have indebtedness outstanding with respect to any other pool of assets, either such other indebtedness shall be entitled to the benefits of a financial guaranty policy of the same financial guaranty insurance corporation, or such other indebtedness shall (A) be fully subordinated to the insured obligation, with respect to, or be nonrecourse with respect to, the pool of assets that supports the insured obligation, (B) be nonrecourse to the issuer other than with respect to the asset pool securing such other indebtedness and proceeds in excess of the proceeds necessary to pay the insured obligation (“excess proceeds”) and (C) not constitute a claim against the issuer to the extent that the asset pool securing such other indebtedness or excess proceeds are insufficient to pay such other indebtedness.
For obligations issued by a single entity and secured by commercial real estate, and not meeting the definition of asset-backed securities, the insured unpaid principal less 50 percent of the appraised value of the underlying real estate shall not exceed 10 percent of the aggregate of the financial guaranty insurance corporation’s capital, surplus, and contingency reserve.
For utility first mortgage obligations, the insured average annual debt service shall not exceed 10 percent of the aggregate of the financial guaranty insurance corporation’s capital, surplus, and contingency reserve.
For all other financial guaranties, the insured unpaid principal for any one entity and backed by a single revenue source may not exceed 10 percent of the aggregate of the financial guaranty insurance corporation’s capital, surplus, and contingency reserve.
If an admitted financial guaranty insurance corporation fails to maintain a rating in any of the top three generic rating classifications by any securities rating agency acceptable to the commissioner, it shall immediately send written notification of this failure to both the commissioner and the insurance regulatory authority in its state of domicile.
If an admitted financial guaranty insurance corporation fails to maintain a rating at least equal to the highest notch in the fourth generic rating classification by any securities rating agency acceptable to the commissioner, the insurer shall prepare and file with the commissioner a two-year business plan, in reasonable detail, together with other information that the commissioner requires. The plan shall be filed within 45 days of the date when the insurer fails to maintain that rating.
In response to that failure, the commissioner may conduct any examination or analysis of the insurer’s assets, liabilities, and operations, including its pricing, that he or she deems necessary.
After reviewing the business plan and conducting any examination or analysis, the commissioner may issue a corrective order specifying the corrective measures that he or she determines to be required, and the insurer shall implement those measures. In determining corrective measures, the commissioner may take into account the factors that he or she deems relevant with respect to the insurer, including the results of the examination or analysis.
If an admitted financial guaranty insurance corporation fails to maintain an investment grade rating by any securities rating agency acceptable to the commissioner, it shall not do either of the following without the commissioner’s specific prior written approval:
If an admitted financial guaranty insurance corporation at any time exceeds any limitation prescribed by subdivision (a) or (b) of Section 12114 or Section 12115, the corporation shall immediately notify the commissioner in writing. Upon receipt of the written notification, or independent of its receipt, the commissioner may issue an order to show cause why the financial guaranty insurance corporation should not cease transacting financial guaranty insurance business. If the commissioner issues such an order, the commissioner shall serve notice of hearing with the order to the financial guaranty insurance corporation stating the time and place therefor, and the conduct, condition or grounds upon which the commissioner has made the order. The hearing shall occur not less than 20 nor more than 30 days after notice is served. At the hearing, the burden to show cause why the financial guaranty insurance corporation should not cease transacting new financial guaranty insurance shall be borne solely by the financial guaranty insurance corporation.
If the commissioner does not issue an order pursuant to subdivision (a) upon receiving written notice, the financial guaranty insurance corporation shall, within 30 days after the limitations are breached, submit a written plan to the commissioner detailing the steps that it will take or has taken to reduce its exposure to loss to no more than the amounts permitted by subdivisions (a) and (b) of Section 12114 and Section 12115. If, after review of the written plan, the commissioner determines that the corporation has not presented reasonable steps to reduce its exposure to loss to not more than the permitted amounts, the commissioner may issue an order to show cause following the same procedures as prescribed in subdivision (a).
If, after notice and hearing pursuant to subdivision (a) or (b), the commissioner determines that the financial guaranty insurance corporation has exceeded any limitation prescribed by subdivision (a) or (b) of Section 12114 or Section 12115, the commissioner may order the corporation to cease transacting any new financial guaranty insurance business until its exposure to loss no longer exceeds these limitations.
The provisions of this section and Section 12115.5 shall in no way limit the stop order power of the commissioner under any other section.
The commissioner may, for good cause, implement by regulation, order, or written consent, reasonable conditions or limitations under which any or all admitted financial guaranty insurance corporations may insure the type of business described in paragraph (2) of subdivision (c) of Section 12100 or subdivision (a) of Section 12119, reduce reserves in respect of collateral described in paragraph (2) or (5) of subdivision (e) of Section 12100, or engage in the transactions described in subdivision (b) of Section 12106, when, in the judgment of the commissioner, those conditions or limitations are necessary and appropriate to safeguard insurer solvency.
Whenever the reserves for outstanding liabilities for obligations insured under subdivision (c) of Section 12100 are determined by the commissioner to be inadequate, he or she shall require the insurer to maintain additional reserves.
The commissioner may disallow, for purposes of any financial statements or reports required or permitted to be filed under this code, the recognition of collateral authorized by paragraph (2) or (5) of subdivision (e) of Section 12100 if the commissioner finds after inquiry and review that the collateral fails to legally secure the obligations to which it relates, the collateral is inaccurately valued, the value of the collateral is insufficient in relation to the obligations secured, or the legality or value of the collateral cannot readily be ascertained based on information provided.
The commissioner may require restatement or other relevant revision of any admitted financial guaranty insurer’s annual or other financial statement or report required or permitted to be filed under this code if the commissioner finds after inquiry and review that any transaction entered into under subdivision (b) of Section 12106 has the effect of distorting, misrepresenting, or otherwise rendering inaccurate, misleading, or incomplete the financial condition of the insurer in any material respect.
No credit default swap authorized or permitted to be insured, acquired, or otherwise used for any purpose by any admitted financial guaranty insurance corporation under any provision of this code shall be used in any manner for more than one purpose, or under more than one statutory authorization, unless authorized by this code.
A financial guaranty insurance corporation shall not be deemed in violation of any limitation prescribed by Section 12115 with respect to any financial guaranty insurance outstanding prior to January 1, 1991, if the financial guaranty insurance corporation was in compliance with the applicable single risk limit in effect in this state at the time that the financial guaranty insurance policy was issued. If the financial guaranty insurance corporation was not so in compliance, it shall comply with the limitations prescribed by Section 12115 no later than January 1, 1994.
An admitted insurer transacting financial guaranty insurance in this state but which is not admitted to transact, financial guaranty insurance in this state shall be subject to all the provisions of this article and:
May continue to write financial guaranties of the type authorized by subdivision (b) of Section 12112 as follows:
For a period not to exceed five years from January 1, 1991, provided that by July 1, 1991, application shall be made to the commissioner to organize or admit a financial guaranty insurance corporation, controlled by or under common control with that insurer, which financial guaranty insurance corporation, once admitted, shall immediately assume all of the financial guaranty insurance in force on the books of the insurer which was written on or after January 1, 1991.
In the case of an insurer transacting only financial guaranty insurance prior to January 1, 1991, which would comply with all of the requirements for admission as a financial guaranty insurance corporation under this article and which has made application, and has paid the filing fee of five thousand dollars ($5,000) required by Section 12105 to amend its current certificate of authority to financial guaranty insurance by no later than March 1, 1991, the insurer may continue to write financial guaranty insurance until the time that the commissioner issues or denies the amended certificate of authority or the application is otherwise terminated.
Shall, if it does not make application for an amended certificate of authority to transact the business of financial guaranty insurance pursuant to paragraph (1) of subdivision (a), cease writing any new financial guaranty insurance by no later than July 1, 1991. An insurer subject to this paragraph may do one or more of the following:
Reinsure its net in-force business with an admitted financial guaranty insurance corporation.
Subject to the prior approval of its domiciliary commissioner and the commissioner of this state, reinsure all or part of its net in-force business with an insurer meeting the requirements of subdivision (b) of Section 12121, except that, in the case of an admitted surety insurer or a nonadmitted insurer that transacts financial guaranty insurance and insurance other than financial guaranty insurance, the insurer’s combined capital and surplus shall be at least one hundred million dollars ($100,000,000) and subparagraphs (A) to (F), inclusive, of paragraph (3) of subdivision (b) of Section 12121 shall not be applicable. The assuming insurer shall maintain reserves for the reinsured business in the manner applicable to the ceding insurer under paragraph (2) of subdivision (a) of Section 12121.
Thereafter continue the risks then in force and, with 30 days prior written notice to its domiciliary commissioner, write new financial guaranty policies provided the writing of the policies is reasonably prudent to mitigate either the amount of or possibility of loss in connection with business written prior to January 1, 1991. However, an insurer shall receive the prior approval of its domiciliary commissioner and the commissioner of this state before writing any new financial guaranty insurance policies that would have the effect of increasing its risk of loss.
Shall, for all guaranties in force prior to January 1, 1991, including those that fall under the definition of financial guaranty insurance contained in subdivision (a) of Section 12100, be subject to the contingency reserve, reserves for loss and loss adjustment expenses, and unearned premium reserve requirements applicable for municipal bond insurance policies which were in effect prior to July 1, 1989, or January 1, 1991, as appropriate. To the extent that the insurer’s contingency reserves maintained as of the effective date of this article are less than those required under paragraph (1) of subdivision (b) of Section 12108, the insurer shall have until January 1, 1994, to bring its reserves into compliance, except that a part of the reserve may be released proportional to the reduction in net total liabilities resulting from reinsurance, provided that the reinsurer shall, on the effective date of the reinsurance, establish a reserve in an amount equal to the amount released and, in addition, a part of the reserve may be released with the approval of the commissioner upon demonstration that the amount carried is excessive in relation to the corporation’s outstanding obligations.
Shall be subject to the reserve requirements applicable to financial guaranty insurance corporations, for business transacted on or after January 1, 1991.
Policy forms and any amendments thereto shall be filed with the commissioner within 30 days after their use in this state by the financial guaranty insurance corporation.
Every policy shall provide that, in the event of a payment default or insolvency of the obligor, there shall be no acceleration of the payments required to be made under the policy with respect to guarantied obligations except at the option of the financial guaranty insurance corporation.
Notwithstanding paragraph (1), the following provisions apply:
A policy may insure amounts payable under a credit default swap or interest rate, currency, or other swap upon a credit event or termination event if the expected amount payable on an accelerated basis in respect of any individual obligation referenced by a credit default swap or in the aggregate under an interest rate, currency, or other swap does not exceed the single risk limits prescribed in subdivision (e) of Section 12115.
A policy insuring a credit default swap referencing an obligation shall be treated as if the insurer had directly insured the referenced obligation for all other purposes of this article, including, without limitation, contingency reserve requirements, except that the currency of amounts owed under the credit default swap, rather than the currency of the obligations referenced by the credit default swap, shall apply for purposes of determining whether the obligation is a permissible guaranty under subdivision (b) of Section 12112.
Every policy shall contain a statement that in the event the insurer were to become insolvent, any claims arising under a policy of financial guaranty insurance are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 15.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
The commissioner may prescribe additional minimum policy provisions determined by the commissioner to be necessary or appropriate to protect policyholders, claimants, obligees, or indemnitees.
An admitted financial guaranty insurance corporation with respect to financial guaranty insurance rates, shall not be subject to Sections 1861.01 and 1861.05, except that financial guaranty insurance rates shall not be excessive, inadequate, or unfairly discriminatory or otherwise in violation of Chapter 9 (commencing with Section 1850) of Part 2 of Division 1.
For financial guaranty insurance that takes effect on or after January 1, 1991, an insurer authorized to transact financial guaranty insurance shall receive credit for reinsurance as an asset or as a reduction from liabilities only if the reinsurance is placed with a reinsurer as provided in subdivision (b), and if the reinsurance agreement may be terminated or amended only if one or more of the following applies:
At the option of the reinsurer or the ceding insurer if the reinsurance agreement provides that the liability of the reinsurer with respect to policies in effect at the date of termination shall continue until the expiration or cancellation of each such policy.
With the consent of the ceding company, if the reinsurance agreement provides for a cutoff of the reinsurance in force as of the date of termination.
At the discretion of the commissioner acting as rehabilitator, liquidator, or receiver of the ceding or assuming insurer.
Reinsurance may be placed with one of the following:
Another financial guaranty insurance corporation admitted pursuant to this article to transact financial guaranty insurance which may be under common control with the ceding financial guaranty insurer or financial guaranty corporation, but which does not own, and is not owned by, in whole or in part, directly or indirectly, the ceding financial guaranty insurer or financial guaranty insurance corporation.
Another financial guaranty insurance corporation admitted pursuant to this article which does own, or is owned by, in whole or in part, directly or indirectly, the ceding financial guaranty insurer or financial guaranty insurance corporation provided that (A) the value of the ownership interest in either case does not exceed the greater of (i) 35 percent of its combined capital and surplus or (ii) 50 percent of the excess of its surplus over its liabilities and capital, and (B) the financial guaranty insurance corporation providing the reinsurance is rated at the time of cession and thereafter in one of the two top generic rating classifications by a securities rating agency acceptable to the commissioner.
An insurer admitted to transact surety insurance but not financial guaranty insurance pursuant to this article, if the insurer meets all of the following criteria:
Has and maintains combined capital and surplus of at least fifty million dollars ($50,000,000).
Complies with the provisions of subdivision (b) of Section 12114, except that its maximum aggregate assumed total net liability shall be one-half that permitted for a financial guaranty insurance corporation. For the purpose of determining compliance with this clause, the assuming reinsurer, unless at the time of cession and thereafter it is rated in one of the two top generic rating classifications by a securities rating agency acceptable to the commissioner, shall be limited to using 10 percent of its capital and surplus in making this calculation.
Complies with the provisions of Section 12115.
If the insurer is an affiliate, parent, or subsidiary of the financial guaranty insurance corporation, the affiliate, parent, or subsidiary shall not assume a percentage of the corporation’s total liability in excess of its percentage of equity interest in the corporation.
Assumes from the financial guaranty insurance corporation and any affiliate, parent, or subsidiary that is a financial guaranty insurance corporation or an insurer writing only financial guaranty insurance as is or would be permitted by this article, and any other kinds of insurance that a financial guaranty insurance corporation may write in this state, together with all other reinsurers subject to this paragraph, less than 50 percent of the total exposures insured by the financial guaranty insurance corporation and such affiliates, parent, or subsidiaries after deducting any reinsurance placed with another financial guaranty insurance corporation that is not an affiliate, parent, or subsidiary or an insurer writing only financial guaranty insurance as is or would be permitted by this article that is not an affiliate, parent, or subsidiary.
A nonadmitted insurer transacting only financial guaranty insurance as is or would be permitted by this article and that otherwise complies with the provisions of subparagraphs (A), (E), and (F) of paragraph (3), and otherwise complies with paragraph (1) or (2), and in compliance with the requirements of subdivision (b) or (c) of Section 922.4 or subdivision (a) of Section 922.5, as applicable.
A nonadmitted insurer not transacting only financial guaranty insurance as is or would be permitted by this article and that complies with the provisions of subparagraphs (A), (C), (E), and (F) of paragraph (3) in an amount not exceeding the liabilities carried by the ceding financial guaranty insurance corporation and in compliance with the requirements of subdivision (b), (c), or (d) of Section 922.4 or subdivision (a) or (b) of Section 922.5, as applicable.
In determining whether the financial guaranty insurance corporation meets the limitations imposed by Section 12115, in addition to credit for other types of qualifying reinsurance, the financial guaranty insurance corporation’s aggregate risk may be reduced to the extent of the limit for aggregate reinsurance but, in no event, in an amount greater than the amount of the aggregate risk that will become due during the unexpired term of the reinsurance agreement in excess of the financial guaranty insurance corporation’s retention pursuant to the reinsurance agreement.
No insurer authorized to transact financial guaranty insurance shall pay any commission to or make any gift of money, property, or other valuable thing to any employee, agent, or representative of any issuer of any debt instrument or other monetary obligation of any kind which may be insured pursuant to this article or to any trustee or agent of any such issuer, or to any employee, agent, or representative of any underwriter of any issuer of those debt instruments or monetary obligations as an inducement to the purchase of that insurance, nor may, at any time there is in force a policy issued by that insurer insuring those debt instruments or monetary obligations, any employee, agent, or representative of the issuer or underwriter receive from or on behalf of that insurer any such payment or gift.
CHAPTER 2. Other Casualty Insurers on Reserve Basis; Capital Requirements and Permitted Insurances [12124. - 12124.]
An incorporated insurer that does not issue fire, marine, life, liability, workers’ compensation, common carrier liability, surety, title or mortgage policies but does issue other insurance policies on a reserve basis shall be governed by the paid-in capital and surplus requirements of Sections 700.01 to 700.05, inclusive.
CHAPTER 3. Group and Individual Plans for Legal Insurance [12125. - 12129.]
Subject to the provisions of this chapter, any insurer admitted to transact any class of insurance in this state, other than title insurance, mortgage insurance, or mortgage guaranty insurance, may transact legal insurance if it has a minimum paid-in capital and surplus of not less than one million dollars ($1,000,000), provided that the paid-in capital shall not be less than five hundred thousand dollars ($500,000), notwithstanding the paid-in capital and surplus requirements of Sections 700.01, 700.02, 10510, and 10511, respectively.
Any insurer not admitted to transact any other class of insurance in this state may be admitted to transact legal insurance if it has the paid-in capital and surplus required by subdivision (a).
As used in this section, “surplus” means the excess of admitted assets over the sum of (1) liabilities for losses reported, expenses, taxes, and all other indebtedness and reinsurance of outstanding risks as provided by law, and either (2) paid-in capital, in the case of an insurer issuing or having outstanding shares of capital stock, or (3) minimum paid-in capital required by this section, in the case of any other insurer.
Group legal insurance shall mean that form of legal insurance covering groups of persons as defined in this chapter with or without one or more of their dependents and issued upon one of the following bases:
Under a policy issued to an employer insuring employees of the employer;
Under a policy issued to a labor union insuring members of the union;
Under a policy issued to the trustees of a fund established by two or more employers in the same industry or by one or more labor unions or by one or more employers and one or more labor unions, which trustees shall be deemed the policyholder insuring employees of the employers or members of the union;
Under a policy issued to any other organization or combination of organizations, incorporated or otherwise, (including professional associations, trade associations, or other organizations) whose members have common concerns or problems, or have joined together as a means for bargaining for a particular position, or have voluntarily formed or become members of an organization designed to perform a service for its members, or any other substantially similar organization, excluding an organization or combination of organizations that is formed or maintained solely for the purposes of obtaining insurance.
Group and individual legal insurance may be offered in this state subject to all the following conditions:
Premium rates shall comply with any pertinent standards in this code, including the standards that rates not be excessive, inadequate, or unfairly discriminatory. Rates for group legal insurance shall not be deemed to be unfairly discriminatory because different premiums result for policyholders with like loss exposures but different expense factors, or like expense factors but different loss exposures, so long as the rates reflect the difference with reasonable accuracy. Rates shall not be considered to be unfairly discriminatory if they are averaged broadly among persons insured under a group legal insurance plan.
No policy or certificate of legal insurance may be delivered or issued for delivery in this state unless and until a copy of the form thereof has been filed with the commissioner. However, this subdivision shall apply only to an insurer for a two-year period immediately following the date upon which it files its first policy or certificate of legal insurance with the commissioner.
No policy of group legal insurance may be delivered or issued for delivery in this state unless it contains a provision that the insurer shall issue to the person in whose name the policy is issued, for delivery to each member of the insured group, a certificate setting forth in a summary form a statement of the essential features of the insurance coverage and to whom benefits thereunder are payable. If dependents are included in the coverage, only one certificate need be issued for each family unit. Any certificates delivered to members of an insured group pursuant to this subdivision shall be required to be “individualized” within the meaning of that term as it is defined by Section 10270.63 only if members of the group contribute to the payment of the legal insurance premiums.
In every group legal insurance plan, the employer, labor union, trustees, or other person to whom a group legal insurance plan policy is issued shall be the policyholder for all purposes of entering into, amending, or terminating any contract of legal insurance, administering any legal insurance plan, and exercising any voting rights to which the policyholder is entitled. If entitled to vote at meetings of the insurer, such policyholder shall be entitled to one vote.
The provisions of this chapter shall be enforced by the commissioner, and he may, after notice and public hearing, promulgate such reasonable rules and regulations as are necessary to administer this chapter.
PART 5. MOTOR CLUBS [12140. - 12311.]
CHAPTER 1. Definitions and Exemptions [12140. - 12159.]
This part shall not apply to any of the following:
A duly authorized attorney at law acting in the usual course of his profession.
An admitted insurer.
An association of motor carriers.
A person who is directly or indirectly engaged, either as principal or agent, in selling or offering for sale, furnishing, or procuring any of the services described in Section 12148, 12152, or 12153, or miscellaneous service that augments or is incidental to any of those services, but who is not directly or indirectly engaged, either as principal or agent, in selling or offering for sale, furnishing, or procuring any other service described in this chapter.
A person who is licensed as a vehicle service contract provider and offering any of the services described in paragraphs (1) to (4), inclusive, of subdivision (c) of Section 12800, to the extent that person is providing the services described therein.
A person offering the services described in paragraph (7) of subdivision (a) of Section 12805 to the extent that person is providing the services described therein.
An agreement that promises routine maintenance.
Except where the context otherwise requires, the terms used in this part shall be given the meanings set forth in this chapter, but such meaning shall not, merely by reason of enactment in this chapter, govern the interpretation of any other provision of this code.
Except as provided in subdivision (b), a motor club is a person, directly or indirectly engaged, either as principal or agent, in selling or offering for sale, furnishing or procuring motor club service.
A person who is directly or indirectly engaged, either as principal or agent, in selling or offering for sale, furnishing, or procuring any of the services described in Section 12148, 12152, or 12153, or miscellaneous service that augments or is incidental to any of those services, but who is not directly or indirectly engaged, either as principal or agent, in selling or offering for sale, furnishing, or procuring any other service described in this chapter, is not a motor club.
The commissioner shall adopt reasonable rules and regulations specifying the types of miscellaneous service permitted under subdivision (d) of Section 12140 and subdivision (b) of Section 12142. The rules and regulations shall be adopted, amended, and repealed in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
A club agent is a person other than the motor club itself, who acts or aids in any manner in the solicitation, delivery, or negotiation of any membership or service contract, or of the renewal or continuance thereof.
Motor club service is the rendering or procuring of, or reimbursement for, any of the services defined in this chapter to any person in connection with the ownership, operation, use, or maintenance of a motor vehicle, including a vacation trailer, house or otherwise, or a boat capable of ordinary transportation on a trailer and its trailer, by the person upon any of the following considerations:
The person is or will become a member of the club rendering or furnishing the service.
The person is or will become in any manner affiliated with the club.
The person is or will become entitled to receive membership or other motor club service from the club by virtue of any agreement or understanding with any club.
This section shall not authorize a motor club to furnish any service on a reimbursement basis that constitutes the transaction of insurance. The commissioner may make reasonable rules and regulations specifying services that constitute the transaction of insurance for the purposes of this part and which may not be offered on a reimbursement basis. Rules and regulations shall be adopted, amended, and repealed in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
Towing service is the drafting or moving by a motor club of a motor vehicle from one place to another under other power than its own.
Emergency road service is the adjustment, repair or replacement by a motor club of the equipment, tires or mechanical parts of a motor vehicle so as to permit it to be operated under its own power.
Discount service is an arrangement by a motor club resulting in giving special discounts, rebates or reductions of price on gasoline, oil, repairs, insurance, parts, accessories or service for motor vehicles to holders of service contracts with any such club.
Financial service is an arrangement by a motor club whereby loans or other advances of money are made to holders of service contracts with any such club.
Buying and selling service is an arrangement by a motor club whereby the holder of a service contract with a motor club is aided in any way in the purchase or sale of an automobile.
If a motor club offers a service that refers members to a new motor vehicle dealer for the purchase of a new motor vehicle, and the dealer pays the motor club any compensation, including, but not limited to, an advertising, promotional, or marketing fee, any advertisement of that service shall clearly and conspicuously disclose that the dealer has paid the fee and shall have the following statement: “All new cars arranged for sale are subject to availability and a price prearranged with the selling franchised new car dealer.”
In a printed advertisement, the disclosures required by paragraph (1) shall be in not less than 10-point bold type and shall be textually segregated from the other portions of the advertisement.
The disclosures required by paragraph (1) do not apply to general advertisements of a motor club that merely list an auto buying service as one of several services offered by the motor club and that do not provide any details of the auto buying service.
Theft service is an act by a motor club for the purpose of locating, identifying or recovering a stolen or missing motor vehicle owned or controlled by the holder of a service contract with any such club or for the purpose of detecting or apprehending the person guilty of the theft.
Map service is the furnishing by a motor club of road maps without cost to holders of service contracts with any such club.
Travel service is the furnishing by a motor club of touring and travel aids and assistance, and may include any or all of the following:
Road maps, touring guides, directories of accommodations for travelers, club periodicals, travel information, magazines, and brochures.
Procuring travel tickets of all kinds and reservations for accommodations in connections therewith.
Claim adjustment service is an act by a motor club for the purpose of adjusting claims on behalf of the holder of a service contract with any such club, when such claim results from injury or damage to person or property arising out of an accident, in connection with the ownership, maintenance, operation and use of a motor vehicle.
License service is the rendering of assistance by a motor club to any person in obtaining:
Registration of a motor vehicle with the State.
A driver’s license.
A transfer of legal or registered ownership upon the records of the Department of Motor Vehicles.
Insurance service is the selling or giving, with a service contract or as a result of membership in or affiliation with a motor club, of a policy of insurance covering liability or loss by the holder resulting from injury or damage to person or property arising out of an accident, such liability or loss being the consequence of the ownership, maintenance, operation, or use of a motor vehicle.
Insurance service also includes the selling or giving with a service contract or as a result of membership in or affiliation with a motor club, of a policy of insurance, or a certificate under a master policy in which the club is the master policyholder, covering the club member, or any member of his family, for loss, other than loss of time, from accidental injury from any cause or accidental death from any cause. For such purpose any certificated motor club is deemed to be an “association” within the meaning of Section 10270.5 and the club members and members of their families are deemed to be members of such association.
Any act by a motor club for the purpose of rendering a service defined in this chapter constitutes such service, whether or not the service as defined is completed.
A service contract is a written agreement whereby any person promises for a consideration to render, furnish or procure motor club service for any other person.
Miscellaneous service means any other service which may be furnished and which augments or is incidental to any service performed by the club as authorized under the provisions of this chapter or any other service which is of assistance and is beneficial to its members and is feasible for the club to render.
CHAPTER 2. Certificate of Authority [12160. - 12170.]
A person shall not render or agree to render motor club service in this state without first obtaining from the commissioner a certificate of authority to act as a motor club.
The issuance, sale, or offer for sale in this state of securities of its own issue by any motor club shall be subject to the provisions of Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1 of this code the same as if motor clubs were included in Section 826 thereof, and any such club shall not be subject to the Corporate Securities Law in the Corporations Code.
Application for a certificate of authority shall be made on a form prescribed by the commissioner, accompanied by a filing fee of four thousand nine hundred thirty-nine dollars ($4,939). That certificate shall not be granted until the applicant conforms to the requirements of this part and the laws of this state prerequisite to its issue. After the issuance, the holder shall continue to comply with the requirements of this part and the laws of this state.
The commissioner shall not issue a certificate of authority to any motor club until:
It files with him or her the following:
A formal application for the certificate in that form and detail as the commissioner requires, executed under oath by its president or other principal officer.
A certified copy of its charter or articles of incorporation and its bylaws, if any.
A copy of its latest financial statement, or report of independent audit as the commissioner may require; or, in the event neither is available, its most recent operating statement and balance sheet. Any financial statement, audit, operating and balance sheet shall be verified by the person compiling or making the same and by an executive officer of the applicant.
If it is a foreign corporation, a certificate from its domiciliary state regulatory authority executed not more than 30 days before the filing of its application that it is duly authorized to do a motor club business in that state.
An explanation of its plan of doing business, and copies of the following: its application for membership; the proposed membership certificate or identification card; any proposed addendum thereto; any individual insurance policy and any group master policy and individual certificates thereunder to be offered; any service contract to be issued.
Other information as the commissioner may find necessary in order to determine the applicant’s qualifications.
It first deposits security with the commissioner in one of the following forms:
Securities of the kinds prescribed by this code for capital fund investments by stock insurers and approved by the commissioner, in the amount of one hundred thousand dollars ($100,000) based on par value or market value, whichever is less. The making, maintenance and withdrawal of those deposits and the substitution of securities therein shall be governed by Article 11 (commencing with Section 939) of Chapter 1 of Part 2 of Division 1.
A surety bond on a form prescribed by the Attorney General of this state, executed by an admitted surety insurer in the penal sum of one hundred thousand dollars ($100,000).
It pays to the commissioner an annual license fee of four hundred twenty-four dollars ($424).
Its name is approved by the commissioner under Section 881, which applies to motor clubs.
It proves by affidavits of its officers, directors, managers, and individual owners of more than 10 percent on a form prescribed by the commissioner that it is not disqualified under Section 704.5.
It satisfies the commissioner it is qualified as respects each of the subjects enumerated in subdivisions (b), (c), (e), (f), (h), (i), and (j) of Section 717, when those subjects are read in the sense of protection to its members instead of policyholders.
It is a separate legal entity capable of being examined by the commissioner as provided in this part.
All motor clubs applying for a certificate of authority to act as a motor club in this state shall demonstrate to the satisfaction of the commissioner that such club has a net worth of not less than two hundred fifty thousand dollars ($250,000). For the purposes of Sections 12162.5 and 12162.6, net worth is defined as the excess of total assets over total liabilities. Such net worth shall be maintained at all times as a condition for the continuance of its certificate of authority to act as a motor club in this state.
A motor club holding a certificate of authority to act as a motor club granted prior to January 1, 1992, may continue to retain the certificate until July 1, 1996, without complying with the increased minimum net worth requirement of Section 12162.5.
A motor club shall be deemed to be insolvent and subject to Section 12164 proceedings whenever its net worth is less than two hundred fifty thousand dollars ($250,000) and it fails to comply with one of these two conditions:
An audit by an independent certified public accountant with an audit report prepared by the certified public accountant and filed with the commissioner no later than June 30 of the year following the year covered by the audit.
A demonstration to the satisfaction of the commissioner, on a quarterly basis, of an amount of liquid assets sufficient to satisfy its current liabilities to members.
For purposes of this article, “liquid assets” means cash, cash equivalents, and marketable securities readily convertible into cash. Liquid assets also include bonds, stocks, certificates of deposit, negotiable short-term instruments, service members’ dues receivable not over 90 days, receivables due from affiliates not over 90 days, acquisition costs deferred not over 90 days, federal income tax recoverables, and interest and dividends due and accrued.
If any portion of the audit report required by paragraph (1) of subdivision (b) of Section 12162.6 includes a qualified opinion as to the financial condition of the motor club or its ability to exist as a going concern, the motor club shall be considered materially deficient under Section 717, and subject to Section 12164. Similarly, if a motor club qualifying under paragraph (2) of subdivision (b) of Section 12162.6 fails to demonstrate to the commissioner an amount of liquid assets sufficient to satisfy its current liabilities to members, it shall be considered materially deficient under Section 717 and subject to Section 12164.
The security required by subdivision (b) of Section 12162 shall thereafter be continuously maintained by a motor club in one of the forms prescribed. Failure of a motor club so to maintain the same shall be cause for revoking its certificate of authority.
Such security shall be for the protection, use, and benefit of all persons whose applications for membership in a motor club have been accepted by such club or its representative and of this state as respects fees, fines, penalties, and taxes. Such security shall be subject to the following conditions, and, if a bond, shall be expressly so conditioned:
1. The club shall faithfully furnish and render to all persons whose applications for membership have been accepted any and all of the motor club benefits and services sold or offered for sale by it.
2. The club will faithfully conform to all provisions of law of the state pertaining to the sale and rendering of “motor club service” as defined and provided in Part 5 (commencing with Section 12140) of Division 2 of this code.
3. The club will promptly pay all fees, fines, penalties, and taxes which may be levied against it under authority of law.
4. If the club ceases to do business in this state as a motor club, it shall comply with the appropriate withdrawal procedure.
Any person defrauded or injured by any wrongful act, misrepresentation, or failure on the part of the club with respect to the selling or rendering of any of its benefits or services may bring suit on the bond, if the security be a bond, in his own name. The commissioner may bring suit on such bond. If the security be a deposit of securities, any such a person or the commissioner may levy upon the same in execution of a judgment.
The commissioner may revoke or suspend the certificate of authority of a motor club whenever, after a hearing in accordance with the procedure provided in Section 701, he finds that any of the following circumstances exist:
1. The club has violated any provision of this part.
2. It or its officers refuse to submit to an examination, as provided for in Section 12169.
3. It is transacting business fraudulently.
4. It is no longer able to qualify for issuance to it of a certificate of authority as a motor club.
The commissioner may give notice of such revocation or suspension to the public in such manner as he deems proper.
All of the provisions of Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1 of this code not inconsistent with this part shall apply to motor clubs.
For the purpose of this part, “insolvency” means that a club’s assets are less than its liabilities.
Subject to the annual fee provisions herein, every certificate of authority issued or held under this part shall be for an indefinite term and, unless sooner revoked by the commissioner, shall terminate upon occurrence of any of the following:
Upon the holder’s ceasing to exist as a separate entity.
Upon the winding up, or dissolution, or expiration, or forfeiture of the holder’s corporate existence.
Upon completion of the withdrawal procedure prescribed by Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of Division 1 of this code and surrender by the holder of its certificate of authority and cancellation of the same by the commissioner. All provisions of such article not inconsistent with this part shall apply.
Upon the entry of a final court order in a proceeding under said Article 14 (commencing with Section 1010), Chapter 1 of Part 2 of Division 1 of this code.
Notwithstanding the preceding provisions for a certificate of authority of indefinite term, each holder of a certificate of authority under this chapter shall owe and pay in advance to the commissioner an annual fee of two hundred five dollars ($205) on account of that certificate of authority until its final termination or revocation. That fee shall be for annual periods commencing on July 1 of each year and ending on June 30 of each year and shall be due on each March 1 and shall be delinquent on and after each April 1.
Qualification of a motor club for a certificate of authority under this part does not require prior qualification with the Secretary of State under the Corporations Code for an intrastate business, but the issuance to it of a certificate of authority under this part does not relieve such foreign applicant of any duty to qualify with the Secretary of State pursuant to the Corporations Code before transacting intrastate business in this state.
Annually on or before March 1 of each year, copies of any instruments making any changes in articles of incorporation, bylaws, and membership certificate or identification card or service contract required by this part to be filed with the application for admission shall be filed with the commissioner. In the case of articles of incorporation, an amendment or certificate of amendment shall be certified by the official custodian of the original as a true copy of the same on file in his or her office. Amended bylaws or other papers shall be certified by the corporation secretary over the corporate seal to be true copies of the same currently adopted. The commissioner shall require the payment of fifty dollars ($50) for each annual filing of amended documents or papers pursuant to this article.
Whenever the commissioner has reasonable cause to believe that a motor club is insolvent or is transacting its business in a fraudulent manner, he may demand from the club a statement under oath setting forth its assets and liabilities. He may, for the purpose of verifying the correctness of such statement, examine the books and affairs of the club.
If such statement is not furnished within 20 days from the time of such demand by the commissioner, or if, upon the examination of such records, the statement furnished or any record examined is found to contain any willful misstatement of fact, the expense of the examination shall be paid by the motor club.
Whenever any foreign motor club applies for admission, the commissioner may make, or cause to be made by the motor club regulatory authority of its domiciliary state, an examination of the applicant’s motor club business and affairs. Whenever such an examination is made, all of the provisions of Article 4 (commencing with Section 730) Chapter 1 of Part 2 of Division 1 of this code not inconsistent with this part shall be applicable.
Motor clubs certificated on the effective date of this chapter shall not be required to be recertificated, but thereafter shall be subject to the provisions of this chapter and shall be issued continuous certificates of authority subject to the conditions provided in this chapter.
CHAPTER 3. The Service Contract [12250. - 12256.]
A service contract shall not be executed, issued or delivered in this State until the form thereof is approved in writing by the commissioner.
Every service contract executed, issued or delivered in this State shall be made in duplicate and shall be dated and signed by the motor club issuing it. Such contract shall be countersigned by a duly authorized agent of the club, and by the party purchasing the contract. One copy of the contract shall be kept by the club and the other copy shall be delivered to the purchasing party.
A service contract shall not be executed, issued or delivered in this State unless it contains the following:
The exact corporate or other name of the club.
The exact location of its home office and of its usual place of business in this State, giving street number and city.
A provision that the contract may be canceled at any time by either the club or the holder, and that the holder will, if he has actually paid the consideration, thereupon be entitled to the unused portion of the consideration paid for such contract, calculated on a pro rata basis over the period of the contract, without any deductions.
A provision plainly specifying:
The services promised.
That the holder will not be required to pay any sum, in addition to the amount specified in the contract, for any services thus specified.
The territory wherein such services are to be rendered.
The date when such service will commence.
A statement in not less than fourteen point modern type at the head of said contract stating, “This is not an insurance contract.”
A person shall not solicit or aid in the solicitation of another person to purchase a service contract issued by a club not having a certificate of authority procured pursuant to this part.
A club or an officer or agent thereof shall not in any manner misrepresent the terms, benefits or privileges of any service contract issued or to be issued by it.
Any service contract made, issued or delivered contrary to any provision of this part shall nevertheless be valid and binding on the club.
Any motor club may elect not to execute, issue, or deliver service contracts in this state. A club may distribute brochures, prospectuses, or advertisements which are not contracts. Such materials may be issued or delivered without prior approval of the commissioner.
If a club does not use service contracts it shall execute, issue, and deliver membership cards, tokens, or other indicia of membership to its members.
CHAPTER 4. Agents [12280. - 12281.]
A club agent doing business in this State shall not execute, issue or deliver any service contract to any person owning or operating motor vehicles without first obtaining a license from the commissioner.
The fee for filing application for license as motor club agent is eighty-five dollars ($85).
Property broker-agents, casualty broker-agents, personal lines broker-agents, and limited lines automobile insurance agents licensed under Chapter 5 (commencing with Section 1621) of Part 2 of Division 1 need not be licensed to act as motor club agents under this chapter.
This section shall not permit a motor club agent to have a certificate of convenience nor a nonresident license, but shall require only club appointments, and shall not require the keeping of records or fiduciary accounts. Appropriate licenses and license applications may be prescribed by the commissioner.
Without first obtaining such license, a club agent shall not collect or receive from any person, in advance of the execution, issuance or delivery of any such service contract, any money or other thing of value upon any promise or agreement to execute, issue or deliver any such service contract.
CHAPTER 5. Penalties [12311. - 12311.]
Any person violating any provisions of this part is guilty of a misdemeanor.
PART 6. INSURANCE COVERING LAND [12340. - 12661.]
CHAPTER 1. Title Insurance [12340. - 12418.4.]
ARTICLE 1. Definitions [12340. - 12342.]
The definitions set forth in this article shall govern the construction of the terms used in this chapter, but shall not affect any other provisions of this code.
“Title insurance” means insuring, guaranteeing or indemnifying owners of real or personal property or the holders of liens or encumbrances thereon or others interested therein against loss or damage suffered by reason of:
Liens or encumbrances on, or defects in the title to said property;
Invalidity or unenforceability of any liens or encumbrances thereon; or
Incorrectness of searches relating to the title to real or personal property.
“Title policy” means any written instrument or contract by means of which title insurance liability is assumed.
“Business of title insurance” includes:
Issuing or proposing to issue any title policy as insurer, guarantor, or indemnitor;
Transacting or proposing to transact any phase of title insurance, including solicitation, negotiation preliminary to execution, or execution of a title policy, insuring and transacting matters subsequent to the execution of a title policy and arising out of such policy, excluding reinsurance;
The performance by a title insurer, an underwritten title company or a controlled escrow company of any service in conjunction with the issuance or contemplated issuance of a title policy including but not limited to the handling of any escrow, settlement or closing in connection therewith; or the doing of or proposing to do any business, which is in substance the equivalent of any of the above.
The issuance, by a title insurer, of a letter of indemnity. Any such letter of indemnity shall be limited to and issued solely for the purpose of indemnifying the commissioner on behalf of any member of the public who transacts an escrow with an underwritten title company, with whom the title insurer has an underwriting agreement. A title insurer may charge a reasonable fee in connection with the issuance of any such letter. No rate or form filing shall be required with respect to any such letter of indemnity.
The act of an insurer in furnishing in writing to a prospective purchaser of the insurer’s title policy a statement which assures, and assumes the liability for, the proper performance of services necessary to the conduct of a real estate closing performed by an underwritten title company with whom the insurer maintains an underwriting agreement. A title insurer may charge a reasonable fee in connection with the furnishing of any such statement. No rate or form filing shall be required with respect to any such statement.
“Title insurer” means any company issuing title policies as insurer, guarantor or indemnitor.
“Domestic title insurer” means any title insurer organized under the laws of this state.
“Foreign title insurer” means any title insurer organized under the laws of any other jurisdiction.
“Underwritten title company” means any corporation engaged in the business of preparing title searches, title examinations, title reports, certificates or abstracts of title upon the basis of which a title insurer writes title policies.
“Controlled escrow company” means any person, other than a title insurer or underwritten title company, whose principal business is the handling of escrows of real property transactions in connection with which title policies are issued, which person, if an artificial person, directly or indirectly, is controlled by, controls, or is under common control with a title insurer, or controls, is controlled by, or is under common control with an underwritten title company, or, if a natural person, is employed by, or controlled by, a title insurer or by an underwritten title company. As used in this section, the term “control” has the meaning set forth in subdivision (c) of Section 1215.
Except for Article 6 (commencing with Section 12404), this section does not apply to any person or entity doing business under any law of this state or the United States relating to banks or savings and loan associations.
Except as provided in Section 12401.8, and excluding miscellaneous charges, “rate” or “rates” means the charge or charges, whether denominated premium or otherwise, made to the public by a title insurer, an underwritten title company or a controlled escrow company, for all services it performs in transacting the business of title insurance. As used in this section miscellaneous charges means conveyancing fees, notary fees, inspection fees, tax service contract fees and such other fees as the commissioner by regulation may prescribe.
“Advisory organization” means every person or entity (other than a title insurer, underwritten title company, or controlled escrow company) which recommends or prepares policy forms or endorsements, or procedural manuals (but not including the making of rates, rating plans, or rating systems), or which collects and furnishes to its members or insurance supervisory officials loss and expense statistics or other statistical information and data relating to the business of title insurance and who otherwise acts in an advisory, as distinguished from a ratemaking, capacity. No duly authorized attorney at law acting in the usual course of his profession nor any entity engaging in the above activity on a nationwide basis shall be deemed to be an advisory organization.
“Willful” or “willfully” in relation to an act or omission which constitutes a violation of this chapter means with actual knowledge or belief that such act or omission constitutes such violation and with specific intent to commit such violation.
“Abstract of title” is a written representation, provided pursuant to a contract, whether written or oral, intended to be relied upon by the person who has contracted for the receipt of such representation, listing all recorded conveyances, instruments or documents which, under the laws of this state, impart constructive notice with respect to the chain of title to the real property described therein. An abstract of title is not a title policy as defined in Section 12340.2.
“Preliminary report”, “commitment”, or “binder” are reports furnished in connection with an application for title insurance and are offers to issue a title policy subject to the stated exceptions set forth in the reports and such other matters as may be incorporated by reference therein. The reports are not abstracts of title, nor are any of the rights, duties or responsibilities applicable to the preparation and issuance of an abstract of title applicable to the issuance of any report. Any such report shall not be construed as, nor constitute, a representation as to the condition of title to real property, but shall constitute a statement of the terms and conditions upon which the issuer is willing to issue its title policy, if such offer is accepted.
“Business location” means a facility or other place of business in this state where an underwritten title company or controlled escrow company engages in the business of conducting escrow services.
For purposes of this chapter, “holders of liens or encumbrances” includes, but is not limited to, the institutional third parties described in Sections 1452 and 1717 of Title 12 of the United States Code.
ARTICLE 2. Title Insurers; Capital and Guarantee Fund Requirements [12350. - 12360.]
Every title insurer, before issuing any policy, shall deposit $100,000 with the Insurance Commissioner or other designated official of its home State as a “guarantee fund” for the security and protection of the holders of, or beneficiaries under, its title policies.
Any such deposit may be made either in lawful money of the United States or in any of the securities, other than collateral trust bonds or notes, authorized for investment, other than excess funds investments, of all the assets of domestic incorporated insurers.
If the deposit is made in this state, it shall first be approved by the commissioner who shall make a special deposit thereof in the State Treasury, for the purpose specified in Section 12350. The Treasurer shall give his or her receipt therefor, to the commissioner.
Except as provided in section 12355, assets in such deposits in this State may, with the approval of the commissioner, be withdrawn or exchanged from time to time for other assets of like character and value.
As long as the depositing insurer continues solvent, it shall receive the interest and dividends on any assets in the deposit.
Except on withdrawal of the insurer from this State, or substitution pursuant to section 12353, assets in the deposit in this State shall be subject to final sale, transfer, and disposal of the proceeds thereof by the commissioner only on the order of a court of competent jurisdiction and for the security and protection of the holders of, or beneficiaries under, the depositing insurers title insurance policies.
When any part of the assets to be deposited in this State consists of mortgage-secured notes or bonds, or loans upon real property secured by mortgage, such mortgages shall be accompanied by a policy of mortgage insurance issued under the provisions of this code, or by evidence of title issued by a person designated or approved by the commissioner and either authorized by law or found by the commissioner to be competent to issue such evidence. Such evidence of title shall consist either of a full abstract of title, a full certificate of title, or a policy of title insurance, and shall be assigned and approved by, or under the direction of, the commissioner.
In any case where he ascertains that the expense thereof would not be unreasonable or such as to make the deposit impracticable, the commissioner may require a policy of title insurance or a guaranty that the abstract is correct and that it shows title to be in the proper party, issued by a corporation authorized to issue such policies or guaranties.
Unless the mortgage is covered by mortgage insurance, the value of the property covered by each such mortgage constituting all or part of such deposit in this State shall be appraised by one or more appraisers selected or approved by the commissioner. The appraisers shall be familiar with property values of the particular type of property and generally in the region in which the property or some part thereof is situated.
The reasonable cost of examining such evidence of title and of making such appraisement, shall be paid by the title insurer making the deposit.
A title insurer shall not transact any insurance in this state unless it has paid-in capital represented by shares of stock of at least five hundred thousand dollars ($500,000).
An insurer which anywhere in the United States transacts any class of insurance other than title insurance is not eligible for the issuance of a certificate of authority to transact title insurance in this State nor for the renewal thereof.
ARTICLE 3. Title Insurers: Finances and Investments [12370. - 12377.]
Every title insurer shall annually set apart a sum equal to 10 percent of its premiums collected during the year. Such sums shall be allowed to accumulate until a fund is created equal in amount to 25 percent of the aggregate of the subscribed capital stock of the insurer, or one million dollars ($1,000,000), whichever is the lower amount. After the establishment by a title insurer of an unearned premium reserve, pursuant to Article 3.5 (commencing with Section 12380) of this chapter, such amount shall be reduced by the aggregate amount which shall be set aside and maintained by such insurer in such unearned premium reserve. Such fund shall be known as the “title insurance surplus fund.”
The title insurance surplus fund shall be maintained as a further security to holders and beneficiaries of the title policies issued by the insurer. If all or any part of the fund shall at any time be in excess of the amount required by Section 12370, such excess may be transferred by the insurer to its general assets. If at any time the fund is impaired by reason of a loss, the amount by which it is impaired shall be restored in the manner provided for its accumulation. The reporting of a loss is an impairment of such fund for the purposes of this section.
Any such domestic insurer, after having its required capital paid in and depositing its required guarantee fund with the State Treasurer, may invest its funds in the preparation and purchase of materials and plant necessary to enable it to engage in the title insurance business. In all statements and proceedings required by law for the ascertainment and determination of the condition of such insurer, such materials and plant shall be treated in one of the following ways:
They may be treated as an asset, valued at actual cost to the insurer not in excess of 50 per cent of the aggregate par value of the shares of the insurer’s capital stock then issued outstanding, and apportioned to its title insurance department, including treasury shares;
They may be treated as an asset, at such lesser value than that permitted by paragraph (a) of this section as the insurer estimates;
They may be omitted entirely from the statement or proceeding.
Notwithstanding the provisions of Section 12372, where a title plant is not being currently maintained, the asset value of such plant shall not exceed its asset value as of the last annual statement date preceding the first month such plant is not currently maintained, less 110th thereof for each succeeding year or part thereof that such plant is not being currently maintained. For the purposes of this section, a title plant shall be deemed currently maintained so long as it is used in the normal conduct of the business of title insurance, and (1) the owner thereof continues regularly to obtain and index title record data to such plant or to a continuation thereof in a format other than that previously used, including, but not limited to, computerization of such data, or (2) the owner thereof is a participant, in an arrangement for joint use of a title plant system regularly maintained in any format, provided such owner is contractually entitled to receive a copy of the title record data contained in such jointly used title plant system during the period of such owner’s participation therein, either periodically or upon termination of such participation, at a cost not to exceed the actual cost of duplication of such title record data.
A title insurer shall not make any dividends except from profits remaining on hand after retaining unimpaired assets aggregating in value an amount equal to the sum of the following:
The aggregate par value of the shares of its capital stock issued and outstanding, including treasury shares;
The amount required to be set apart as the title insurance surplus fund;
The amount required to be maintained in the unearned premium reserve;
The amount required to be maintained in the reserve for unpaid losses and loss adjustment expense;
A sum sufficient to pay all liabilities for expenses and taxes and all other indebtedness.
Except as otherwise authorized by subdivision (g) of Section 1105, a title insurer shall not directly or indirectly make a loan from its assets to any of its officers, directors or employees, or to any member of the family of any officer or director. Any officer, director, agent, or employee of any such insurer who knowingly consents to any violation of this section is guilty of a misdemeanor.
Whenever a title insurer, upon withdrawing from insurance business in this State, desires to reinsure its policies with a title insurer whose “title insurance surplus fund” is not fully made up, the commissioner may require the reinsurer to increase its “title insurance surplus fund.” The amount of increase shall not be greater than the amount in the withdrawing insurer’s “title insurance surplus fund” nor greater than will fully make up the reinsurer’s title insurance surplus fund. Such increase may be made a condition of the commissioner’s approval of the reinsurance plan.
If an underwritten title company is placed into bankruptcy, receivership, or conservation by the commissioner, each title insurer operating under an underwriting agreement with the underwritten title company during the six months prior to the earliest of the conservation, bankruptcy, or receivership shall be liable for its proportionate share of the commissioner’s costs and any escrow and subescrow account shortages as determined by the calculations set forth in subdivisions (b) and (c).
If, during the six months prior to the earliest of the establishment of a conservation, bankruptcy, or receivership under subdivision (a), the underwritten title company was authorized by underwriting agreements to issue title policies for more than one title insurer, the liability of each title insurer is determined by multiplying the amount of the total escrow and subescrow shortages, as well as the costs, and expenses, as set forth in subdivision (c), by that title insurer’s percentage of the underwritten title company’s net premiums for policies issued by each title insurer during the 12-month period preceding the earliest of the establishment of the conservation, bankruptcy, or receivership, with each title insurer’s liability pursuant to this subdivision to be referred to as its proportionate share.
When determining the total proportionate liability of each title insurer, the commissioner shall include the following:
The commissioner’s costs and expenses of seizing and taking control of the underwritten title company’s offices, operations, and assets.
The commissioner’s costs and expenses of handling, adjusting, and closing all subescrow and escrow accounts, including the costs and expenses of determining whether shortages exist in any subescrow and escrow accounts.
Other costs and expenses incurred by the commissioner in connection with borrowing from the Insurance Fund pursuant to subdivision (g) and foregone earnings or interest of the Insurance Fund resulting from the borrowing.
As used in this subdivision, “commissioner’s costs and expenses” includes the costs and expenses of all agents and contractors retained by the commissioner in performing functions set forth in this subdivision, and “subescrow” and “escrow” means title subescrows and escrows. These calculations shall result in 100 percent of the shortage, costs, and expenses being proportionately allocated to each title insurer authorized to issue title policies in the last six months preceding the underwritten title company being placed into bankruptcy, receivership, or conservation.
Nothing in this section relieves a person of liability under any other provision of law that he or she may have for a shortage as set forth in subdivision (a). A title insurer, on becoming liable for a shortage as set forth in this section, is entitled to enforce every available remedy, or bring any cause of action that would have been available to a person compensated by the title insurer.
A title insurer shall be entitled to make a claim for reimbursement for subescrow or escrow shortages paid to subescrow or escrow accountholders and for payments of its proportionate share pursuant to subdivision (c). Those claims shall be given the same preference as those claims referenced in paragraph (2) of subdivision (a) of Section 1033.
A title insurer shall be entitled to make a claim for reimbursement for payment of its proportionate share of the commissioner’s costs and expenses paid pursuant to subdivision (c). Those claims shall be given the same preference as those claims referenced in paragraph (2) of subdivision (a) of Section 1033. The commissioner shall return to each title insurer its proportional share of any funds remaining in the escrow account after all liabilities in subdivision (a) have been satisfied.
In order to minimize potential losses and negative impacts on consumers having money in escrow accounts held by an underwritten title company taken into conservation, bankruptcy, or receivership by the commissioner, the commissioner shall hire all necessary escrow consultants or other experts necessary to achieve this goal.
The commissioner may borrow from the Insurance Fund to cover shortages in subescrow or escrow accounts and to pay costs and expenses set forth in subdivision (c).
All escrow funds received by an underwritten title company that are subject to Section 12413.5 shall not be considered part of the estate of the underwritten title company for purposes of liquidation, receivership, bankruptcy, or conservation pursuant to Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1.
Where an underwritten title company is placed into conservation, receivership, or bankruptcy and the escrow accounts held by the company are found to have shortages, the department, conservator, liquidator, receiver, or bankruptcy trustee shall do everything reasonably possible to trace these moneys to other depository accounts or assets.
Any real or personal property traceable to shortages in the escrow accounts shall not be considered part of the estate available to other claimants under Section 1033. Those assets shall be liquidated and paid in the following order: (1) if the commissioner has paid or advanced funds to subescrow or escrow accountholders from sources other than the escrow established pursuant to subdivision (c) of Section 12376, they shall be paid to the commissioner to the extent that the commissioner has not been repaid by title insurers having liability under Section 12376, (2) they shall be deposited into an escrow established pursuant to subdivision (c) of Section 12376, and (3) they shall be directly reimbursed to the title insurer or insurers that have reimbursed escrow depositors under Section 12376. In no event shall a title insurer be reimbursed an amount in excess of its liability as determined in Section 12376.
ARTICLE 3.5. Unearned Premium Reserve and Reserve for Unpaid Losses and Loss Expense [12380. - 12388.]
Unless the provision or context otherwise requires, the following definitions govern the construction of this article:
“Total charges for policies of title insurance” means (i) the total of fees and charges as shown on policies, as required by Section 12412, less any amount paid for coinsurance of such policy to any coinsuring title insurer and (ii) the total sum charged by any coinsuring title insurer for acting as a coinsurer in respect to any policy of title insurance.
“Ceding company” means a title insurer which shall have purchased a policy or contract of reinsurance from a reinsuring company.
“Reinsuring company” means a title insurer which shall have sold a policy or contract of reinsurance to a ceding company.
“Unearned premium reserve” means that reserve that is generally known as the statutory premium reserve.
Every domestic title insurer shall, in addition to other reserves, establish and maintain a reserve to be known as the “unearned premium reserve” for title insurance, which shall, at all times for all purposes, be deemed and shall constitute the unearned portion of premiums due or received on all of its business wherever transacted and shall be charged as a reserve liability of such title insurer in determining its financial condition. The unearned premium reserve shall be retained and held by such title insurer for the protection of the policyholders’ interest in policies which have not expired. Except as provided in Section 12385, assets equal to the amount of such reserve shall not be subject to distribution among depositors or other creditors or stockholders of such title insurer until all claims of holders of policies and contracts of title insurance of such title insurer have been paid in full and all liability on the policies or other contracts of title insurance, whether contingent or actual, has been discharged or lawfully reinsured. Income from the investment of all or any part of such reserve shall be the unrestricted property of the title insurer.
Every admitted foreign insurer shall maintain a like reserve under like conditions in respect to its California business.
The unearned premium reserve of every title insurer shall consist of:
Such amount as would have been required to be set aside in said reserve on all policies or contracts of title insurance issued during the calendar years 1962, 1963 and 1964, if this article had been effective at and after the date that such policies or contracts were written, less the amount of withdrawals that would have been permitted if this article had been so effective; and
The amount of all additions required to be made to such reserve by this article less the withdrawals therefrom permitted by this article.
Out of total charges for policies of title insurance, a title insurer shall add to and set aside in its unearned premium reserve commencing as of January 1, 1965, an amount equal to 2 percent of those total charges for policies of title insurance, which amount shall be deemed and shall constitute the unearned premiums due or received from all such policies or contracts. Except as otherwise provided in Section 12382.6, if any policy of title insurance shall be reinsured, the reinsuring company shall be required to set aside in its unearned premium reserve only that portion, if any, of that 2 percent as shall have not theretofore been set aside by the ceding company. This subdivision shall apply to policies issued and reinsured prior to January 1, 1988.
Out of total charges for policies of title insurance, a title insurer shall add to and set aside in its unearned premium reserve, an amount equal to 212 percent of those total charges for policies of title insurance, which amount shall be deemed and shall constitute the unearned premiums due or received from all such policies or contracts. Except as otherwise provided in Section 12382.6, if any policy of title insurance shall be reinsured, the reinsurer shall be required to set aside in its unearned premium reserve only that portion, if any, of the 212 percent as shall have not theretofore been set aside by the ceding company. This subdivision shall apply to policies issued and reinsured on and after January 1, 1988, and prior to January 1, 1994.
Out of total charges for policies of title insurance and, commencing no later than the year beginning January 1, 1994, a title insurer shall add to and set aside in its unearned premium reserve an amount equal to 412 percent of the sum of the following items, for all jurisdictions where the title insurer operates, set forth in the title insurer’s annual statement filed in this state:
“Direct premiums written” as set forth in Schedule T.
“Other income” as set forth in Schedule T.
“Premiums written during year—reinsurance assumed” less “Premiums for reinsurance ceded during year.”
The insurer shall calculate an adjusted unearned premium reserve as of December 31, 1993. The adjusted unearned premium reserve shall be calculated as if subdivision (c) of this section and subdivision (c) of Section 12382.5 had been in effect for all years beginning on or after January 1, 1974. For purposes of this calculation, the balance of the unearned premium reserve as of December 31, 1973, shall be deemed to be zero. If the adjusted unearned premium reserve so calculated exceeds the aggregate amount set aside for unearned premiums in the insurer’s December 31, 1993, Annual Statement (Form 9), the insurer shall, out of total charges for policies of title insurance, increase its unearned premium reserve by an amount that is not less than one-sixth of that excess in each of the succeeding six years, commencing no later than the year beginning January 1, 1994, until the entire excess has been added.
The aggregate amount set aside in the unearned premium reserve shall be separately recorded and reserved in respect to such policies and contracts issued in each calendar year. All amounts set aside as additions to the unearned premium reserve, to the extent that the same have not previously been deducted from net profits or earned surplus, shall be deducted in determining net profits of any title insurer.
For the purpose of determining the amounts of the unearned premium reserve that may be withdrawn pursuant to Section 12382.5 and the interest of the policyholders therein under Section 12385, all policies and contracts of title insurance or reinsurance shall be considered as dated on July 1 of the year of issue.
The aggregate of the amounts set aside in unearned premium reserve in any calendar year pursuant to subdivision (a) of Section 12382.2 shall be released from that reserve and restored to net profits pursuant to the following formula: one-tenth of that aggregate sum on July 1 of each of the five years next succeeding the year of addition to the reserve and one-thirtieth of that aggregate sum on July 1 of each succeeding year thereafter until the entire sum shall have been so released and restored to net profits. The aggregate of the amounts set aside in unearned premium reserve pursuant to subdivision (a) of Section 12382 shall be released from the reserve and restored to net profits and surplus pursuant to the foregoing formula, provided that the amounts so set aside shall be treated as if subdivision (a) of Section 12382 and this section had been effective during the calendar years 1962, 1963, and 1964.
The aggregate of the amounts set aside in unearned premium reserve in any calendar year pursuant to subdivision (b) of Section 12382.2 shall be released from the reserve and restored to net profits pursuant to the following formula: one-tenth of the aggregate sum on July 1 of each of the 10 years next succeeding the year of addition to the reserve until the entire sum shall have been so released and restored to net profits.
The aggregate of the amounts set aside in unearned premium reserve in any calendar year pursuant to subdivision (c) of Section 12382.2 shall be released from the reserve and restored to net profits over a period of 20 years pursuant to the following formula: 10 percent of the aggregate sum on July 1 of each of the five years next succeeding the year of addition; 9 percent of the aggregate sum on July 1 of each of the next succeeding five years; and one-half of 1 percent of the aggregate sum on July 1 of each of the last 10 years.
The aggregate of the amounts set aside in unearned premium reserve in any calendar year as adjustments to the insurer’s unearned premium reserve pursuant to subdivision (d) of Section 12382.2 shall be released from the reserve and restored to net profits, or equity if the additions required by subdivision (d) of Section 12382.2 reduced equity directly, over a period not exceeding 10 years pursuant to the following table:
If substantially the entire outstanding liability under all policies and contracts of title insurance or reinsurance of any ceding company shall be reinsured, pursuant to and as authorized by Section 12385, the total charge received by any reinsuring company authorized to transact the business of title insurance in this state shall constitute, in its entirety, unearned portions of original premiums, and shall be added to its unearned premium reserve and shall be deemed, for recovery purposes, to have been provided for liabilities assumed during the year of such reinsurance. The amount of such addition to the unearned premium reserve of such reinsuring company shall be not less than two-thirds (23rds) of the amount of the unearned premium reserve required to be maintained by the ceding company at the time of such reinsurance.
All amounts set aside in the unearned premium reserve of a title insurer shall be held either as cash on hand or shall be deposited or invested in those investments suitable for the investment of trust funds, as provided in Section 16040 of the Probate Code.
If the aggregate amount set aside by a title insurer in its unearned premium reserve should at any time be less than the amount required to be maintained in such reserve, and the deficiency shall not be promptly cured, such title insurer shall forthwith give written notice thereof to the commissioner. Any such title insurer shall not thereafter issue any further policies or contracts of title insurance or reinsurance until the deficiency shall have been eliminated and until it shall have received written approval from the commissioner authorizing it to again issue such policies and contracts of title insurance and reinsurance. For the purpose of determining the aggregate amount set aside by a title insurer in its unearned premium reserve, any portion of such reserve which shall have been invested shall be valued at the purchase price or the fair market value of such investment on the date that such investment was made.
If a title insurer shall at any time become insolvent, be in the process of liquidation or dissolution or be in the possession of the commissioner, all amounts set aside in the unearned premium reserve shall be used and applied as follows:
Such amount up to the whole of the reserve as is necessary may be used with the written approval of the commissioner to pay for reinsurance of the liability of such title insurer under all outstanding policies and contracts of title insurance or reinsurance as to which claims for losses by holders thereof are not then pending. The amount of the unearned premium reserve not so used shall be transferred to the general assets of the title insurer to be held and distributed subject to the limitations imposed by this section.
The assets of a title insurer other than the unearned premium reserve shall be available to pay claims for losses sustained by holders of policies then pending or arising up to the time reinsurance is effected. In the event that claims for losses are in excess of such other assets of a title insurer, the excess of such claims, when established, shall be paid pro rata out of surplus assets attributable to the unearned premium reserve to the extent of such surplus, if any.
In the event that reinsurance is not obtained, as authorized by Section 12385, the unearned premium reserve and assets constituting the guarantee fund of the title insurer, or so much as remains thereof after outstanding claims have been paid, shall constitute a trust fund to be held by the commissioner for twenty (20) years, out of which claims of policyholders shall be paid as they arise. The balance, if any, of such fund shall, at the expiration of twenty (20) years, constitute general assets of the title insurer.
Where a title insurer organized or incorporated under the laws of any state other than California does business in California, if the laws of the state of its domicile obligate such company to create and maintain an unearned premium reserve for purposes substantially similar to those of this article, any amounts required by the law of such state to be added to such reserve by reason of business done in California shall be deducted from any amounts required by this article to be set aside by such title insurer in an unearned premium reserve for its California business.
The provisions of this section shall be applicable only to title insurers organized or incorporated in those states whose laws provide that a title insurer organized and incorporated under the laws of California and which does business in such other state will be permitted a deduction substantially similar to that provided by this section with respect to any unearned premium reserve requirements for business done in that state.
Every title insurer shall, in addition to other reserves establish and maintain a reserve to be known as the “reserve for unpaid losses and loss adjustment expense”, which shall be used for the payment of losses incurred as a result of liability arising under policies of title insurance and the payment of adjustment expenses necessary for the settlement of or defense against claims of any such liability. Said reserve shall be in an amount equal to the sum of (1) the estimated amounts necessary to pay unpaid losses, plus (2) the estimated amounts of loss adjustment expense necessary to settle or defend against every claim presented pursuant to notice from or on behalf of every insured that may result in a loss to or cause expense to be incurred by a title insurer for the proper disposition of the claim. Every title insurer shall calculate such reserve by making a careful estimate in each year of the amounts anticipated to be reasonably necessary for both such purposes. The sum of the items so estimated shall be the total amount of the reserve for unpaid losses and loss adjustment expenses of such title insurer. The amounts so estimated may be revised from time to time as circumstances warrant and reduced by the amount of payments made, but shall be redetermined at least once each year. The amounts set aside in such reserve in any year shall be deducted in determining the net profits for such period of any title insurer.
ARTICLE 3.7. Underwritten Title Companies [12389. - 12389.7.]
On and after July 1, 2016, an underwritten title company as defined in Section 12340.5 that is a stock corporation may, subject to subdivision (b), (1) engage in the business of preparing title searches, title reports, title examinations, or certificates or abstracts of title, upon the basis of which a title insurer writes title policies, and (2) conduct escrow services through business locations, as defined in Section 12340.13, in counties in which the underwritten title company is licensed to conduct escrow services regardless of the location of the real or personal property involved in the transaction.
Depending upon the county or counties in which the company is licensed to transact business, it shall maintain required minimum net worth and a bond or cash deposit as follows:
“Net worth” for the purposes of this section is defined as the excess of assets over all liabilities and required reserves. The company may carry as an asset the actual cost of its title plant, provided the value ascribed to that asset shall not exceed the aggregate value of all other assets.
If a title plant of an underwritten title company is not currently maintained, the asset value of the plant shall not exceed its asset value as determined in the preceding paragraph as of the date to which that plant is currently maintained, less one-tenth thereof for each succeeding year or part of the succeeding year that the plant is not being currently maintained. For the purposes of this section, a title plant shall be deemed currently maintained so long as it is used in the normal conduct of the business of title insurance, and (i) the owner of the plant continues regularly to obtain and index title record data to the plant or to a continuation thereof in a format other than that previously used, including, but not limited to, computerization of the data, or (ii) the owner of the plant is a participant, in an arrangement for joint use of a title plant system regularly maintained in any format, provided the owner is contractually entitled to receive a copy of the title record data contained in the jointly used title plant system during the period of the owner’s participation therein, either periodically or upon termination of that participation, at a cost not to exceed the actual cost of duplication of the title record data.
An underwritten title company shall at all times maintain current assets of at least ten thousand dollars ($10,000) in excess of its current liabilities, as current assets and liabilities may be defined pursuant to regulations made by the commissioner. In making the regulations, the commissioner shall be guided by generally accepted accounting principles followed by certified public accountants in this state.
An underwritten title company shall obtain from the commissioner a license to transact its business. The license shall not be granted until the applicant conforms to the requirements of this section and all other provisions of this code specifically applicable to the applicant. After issuance the holder of the license shall continue to comply with the requirements as to its business set forth in this code, in the applicable rules and regulations of the commissioner, and in the laws of this state.
An underwritten title company that possesses, or is required to possess, a license pursuant to this section shall be subject as if an insurer to the provisions of Article 8 (commencing with Section 820) of Chapter 1 of Part 2 of Division 1, and is deemed to be subject to authorization by the Insurance Commissioner within the meaning of subdivision (e) of Section 25100 of the Corporations Code.
The license may be obtained by filing an application on a form prescribed by the commissioner accompanied by a filing fee of eight hundred forty-nine dollars ($849). The license when issued shall be for an indefinite term and shall expire with the termination of the existence of the holder, subject to the annual renewal fee imposed under Sections 12415 and 12416.
An underwritten title company seeking to extend its license to an additional county shall pay a four-hundred-ninety-four-dollar ($494) fee for each additional county, and shall furnish to the commissioner evidence, at least sufficient to meet the minimum net worth requirements of paragraph (2), of its financial ability to expand its business operation to include the additional county or counties.
An underwritten title company shall furnish an audit to the commissioner on the forms provided by the commissioner annually, either on a calendar year basis on or before March 31 or, if approved in writing by the commissioner in respect to any individual company, on a fiscal year basis on or before 90 days after the end of the fiscal year. The time for furnishing any audit required by this paragraph may be extended, for good cause shown, on written approval of the commissioner for a period, not to exceed 60 days. Failure to submit an audit on time, or within the extended time that the commissioner may grant, is grounds for an order by the commissioner to accept no new business pursuant to subdivision (g). The audits shall be private, except that a synopsis of the balance sheet on a form prescribed by the commissioner may be made available to the public.
The audits shall be made in accordance with generally accepted auditing standards by an independent certified public accountant or independent licensed public accountant whose certification or license is in good standing at the time of the preparation. The fee for filing the audit shall be seven hundred fifty dollars ($750).
The commissioner may refuse to accept an audit or order a new audit for any of the following reasons:
An adverse result in any proceeding before the California Board of Accountancy affecting the auditor’s license.
The auditor has an affiliation with the underwritten title company or any of its officers or directors that would prevent his or her reports on the company from being reasonably objective.
The auditor has been convicted of a misdemeanor or felony based on his or her activities as an accountant.
A judgment adverse to the auditor in any civil action finding him or her guilty of fraud, deceit, or misrepresentation in the practice of his or her profession.
A company that fails to file an audit or other report on or before the date it is due shall pay to the commissioner a penalty fee of two hundred eighty-three dollars ($283) and on failure to pay that or another fee or file the audit required by this section shall forfeit the privilege of accepting new business until the delinquency is corrected.
An underwritten title company may engage in the escrow business and act as escrow agent, provided that:
In lieu of the bond described in subparagraph (A), the company may maintain a deposit in the amount set forth in subparagraph (A) of paragraph (2) of subdivision (b), and in a form permitted by Section 12351, with the commissioner, who shall immediately make a special deposit in that amount in the State Treasury. The deposit shall be subject to Sections 12353, 12356, 12357, and 12358. As long as there are no claims against the deposit, all interest and dividends thereon shall be paid to the depositor. The deposit shall be security for the same beneficiaries and purposes as the bond, as set forth in subdivision (d). The deposit shall be maintained until four years after all escrows handled by the depositor have been closed.
The commissioner may release the deposit prior to the passage of the four-year period described in clause (i) upon presentation of evidence satisfactory to the commissioner of either a statutory merger of the depositor into a licensee subject to the jurisdiction of the commissioner, or a valid assumption agreement under which the liability of the depositor stemming from escrow transactions handled by it is assumed by a licensee subject to the jurisdiction of the commissioner.
With the foregoing exceptions, the deposit shall be returned to the depositor or lawful successor in interest following the four-year period described in clause (i) upon presentation of evidence satisfactory to the commissioner that there are no claims against the deposit arising out of escrow transactions handled by the depositor. If claims against the deposit are presented to the commissioner, the commissioner may pay a valid claim or claims until the deposit amount is exhausted. If the commissioner has evidence of one or more claims against the depositor, and the depositor is in conservatorship, bankruptcy, or liquidation proceedings, the commissioner may release the deposit to the conservator, trustee, or liquidator. If the depositor is not in conservatorship, bankruptcy, or liquidation, the commissioner may interplead the deposit by special endorsement to a court of competent jurisdiction for distribution to claimants on the deposit.
The licensee shall faithfully conform to and abide by the provisions of this chapter and all of the rules made by the commissioner under this chapter concerning the conduct of escrow services.
The licensee will honestly and faithfully apply all funds received, and will faithfully and honestly perform all obligations and undertakings under this chapter, concerning the conduct of escrow services.
In determining the liability of the principal and the sureties under the bond, any money recovered to restore any deficiency in the trust shall not be considered as an asset of the liquidation subject to the assessment for the cost of the liquidation.
The surety under the bond, or the issuing bank of a letter of credit, may pay the full amount of its liability thereunder to the commissioner as conservator, liquidator, receiver, or anyone appointed by the commissioner as a conservator, liquidator, or receiver in lieu of payment to the state or persons having a cause of action against the principal of a bond or applicant under a letter of credit, and upon that payment the surety on the bond, or the issuing bank under a letter of credit shall be completely released, discharged, and exonerated from further liability under the bond or letter of credit, as applicable. The conservator, liquidator, or receiver may use the proceeds of the bond, or letter of credit, for any purposes, including the funding of the costs of conservatorship, receivership, or liquidation.
If there is no reasonable or adequate admitted market for surety bonds as required by this section, the commissioner may act pursuant to Section 1763.1 or, for good cause shown, may permit a letter of credit in lieu thereof, and in the amount of the bond or deposit required by this section. In that case, the commissioner may fashion the letter of credit requirements as appropriate to the circumstances and cause.
On and after July 1, 2016, the commissioner shall promptly release to the depositor, upon application, all escrow-related deposits previously made pursuant to paragraph (2) as that paragraph read on June 30, 2016, if any of the following occurs:
The underwritten title company has provided to the commissioner bond coverage, a deposit, or an approved irrevocable letter of credit as set forth in this subdivision.
Upon presentation of evidence satisfactory to the commissioner of either a statutory merger of the underwritten title company depositor into a licensee or certificate holder subject to the jurisdiction of the commissioner, or a valid assumption agreement under which all liability of the depositor stemming from escrow transactions handled by it is assumed by a licensee or certificate holder subject to the jurisdiction of the commissioner.
Otherwise, the deposit shall be promptly returned to the depositor, its duly appointed trustee in bankruptcy, or its lawful successor in interest upon application for release following the four-year period specified in paragraph (2) of subdivision (c) as that paragraph read on June 30, 2016, unless the commissioner has received claims against the deposit stemming from escrow transactions handled by the depositor. If the commissioner has received one or more claims against the depositor, and the depositor is not in conservatorship, bankruptcy, or liquidation, the commissioner may interplead the deposit by special endorsement to a court of competent jurisdiction for distribution on the basis that claims against the depositor stemming from escrow transactions handled by the depositor have priority in the distribution over other claims against the depositor.
The commissioner shall, whenever it appears necessary, examine the business and affairs of a company licensed under this section. The examination shall be at the expense of the company.
At any time that the commissioner determines, after notice and hearing, that a company licensed under this section has willfully failed to comply with a provision of this section, the commissioner shall make his or her order prohibiting the company from conducting its business for a period of not more than one year.
A company that violates the commissioner’s order is subject to seizure under Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1, is guilty of a misdemeanor, and may have its license revoked by the commissioner. Any person aiding and abetting any company in a violation of the commissioner’s order is guilty of a misdemeanor.
The purpose of this section is to maintain the solvency of the companies subject to this section and to protect the public by preventing fraud and requiring fair dealing. In order to carry out these purposes, the commissioner may make reasonable rules and regulations to govern the conduct of its business of companies subject to this section. The rules and regulations shall be adopted, amended, or repealed in accordance with the procedures provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
The name under which each underwritten title company is licensed shall at all times be an approved name. The fee for filing an application for a change of name shall be two hundred eighty-three dollars ($283). Each company shall be subject to Article 14 (commencing with Section 1010) and Article 14.5 (commencing with Section 1065.1) of Chapter 1 of Part 2 of Division 1.
This section does not prohibit an underwritten title company from engaging in escrow, settlement, or closing activities on properties located outside this state if those activities do not violate the laws of that other state or country.
Before granting a license or a reissued license to act as an underwritten title company to any applicant, the commissioner shall consider the qualifications of the applicant in respect to the following subjects: (a) minimum net worth and working capital; (b) reasonableness of its plan of operation; (c) lawfulness and quality of investments; (d) financial stability; (e) competency, character, and integrity of management; (f) ownership and control of issued and outstanding shares; (g) fairness and honesty of methods of doing business; (h) method by which the applicant was promoted if any of its promoters remain as stockholders or in management; and (i) hazard to the public.
Upon consideration of all relevant qualifications, the commissioner shall issue or reissue a license to act as an underwritten title company to the applicant, unless the commissioner shall have made a finding, or findings, that the applicant is materially deficient in respect to one or more of the items outlined herein.
After the issuance or reissuance of a license to act as an underwritten title company, the holder shall continue to comply with the requirements as to its business set forth in Section 12389.1 and in the other applicable sections of this code, and in the other laws of this state.
When there exists a restriction in a stock certificate requiring the consent of the department prior to the transfer of the stock, the request for consent to transfer shall be submitted to the department for approval. Requests for consent to transfer stock certificates representing less than 10 percent of the outstanding stock of the company to existing stockholders, the company which issued the stock, or persons who have been employed by the underwritten title company for the preceding 12 months, shall be approved or denied by the department within 60 days of the request for consent to transfer. If no action is taken by the department within 60 days, the request for consent to transfer stock certificates shall be deemed approved. In no event may the 60-day period be extended or waived by the applicant or the department. The time limits set forth in this section shall not apply where the transfer of the stock would result in the transferee, other than the company which issued the stock, owning 10 percent or more of the outstanding stock of the company.
An underwritten title company shall furnish a quarterly financial statement to the commissioner on forms prescribed by the commissioner on or before 30 days after each calendar quarter ending March 31, June 30, and September 30. Underwritten title companies that are specifically approved to report on a fiscal year basis shall file a quarterly financial statement 30 days after the end of each fiscal quarter. The commissioner is authorized to require an underwritten title company to provide supplemental accounting and financial information when the commissioner deems it to be necessary.
Every person engaged in the business of preparing title searches, title examinations, title reports, and certificates of abstracts of title, upon which a title insurer writes title policies, is required to be licensed as an underwritten title company in compliance with the licensing requirements of this article.
Prior to the disbursement by an underwritten title company from any escrow account under Section 12413.1, each underwriting agreement between the underwritten title company and a title insurer shall contain one of the following written procedures reasonably calculated to prevent the misappropriation, disappearance, or wrongful use of funds deposited in the underwritten title company’s escrow or subescrow account:
The underwritten title company shall obtain and maintain a fidelity bond or insurance policy, satisfactory to the title insurer agreeing to this option that covers losses caused by misappropriation, disappearance, or other wrongful use of escrow funds deposited with the underwritten title company. The face amount of the fidelity bond or insurance policy shall be at least 10 times the underwritten title company’s required minimum net worth under subdivision (a) of Section 12389. The bond or insurance policy shall name as an additional insured, co-insured, or joint-loss payee each of the title insurers agreeing to this option in the underwriting agreement. The bond or policy may not exclude coverage due to acts or omissions of any officer, director, employee, or principal of the underwritten title company. In the event of cancellation or nonrenewal of the bond or policy, a title insurance company named as an additional insured, co-insured, or joint-loss payee shall be given advance written notice by the underwriter of the bond or policy. The underwritten title company shall submit a copy of the bond or policy to the title insurer named as an additional insured, co-insured, or joint-loss payee within 14 days of the effective date of the underwriting agreement.
Disbursements of escrow funds shall be reviewed and approved by an employee of the title insurer. Title insurer employees who review and approve disbursements of escrow funds shall be physically located at the place of business of the underwritten title company and shall be on the title insurer’s payroll. Before review and approval of any disbursement, the employee shall sign an affidavit to be filed with and on a form approved by the commissioner. The affiant shall attest that the affiant has read, is familiar with, and agrees to comply with the title insurer’s approval procedures for disbursements.
Account review processes and oversight and internal control guidelines, in electronic or other medium, drafted by a title insurance industry advisory organization, as defined in Section 12340.8, and approved by the commissioner.
Written procedures approved by the commissioner that provide for the protection and control of escrow funds in a manner consistent with the purposes of this subdivision.
The commissioner shall approve or deny any written procedures submitted to him or her under this section for approval within 60 days of receiving the request. If no action is taken by the commissioner within the 60-day period, the request is deemed approved.
“Certificate of Authority” shall mean an underwritten title company license.
“Insurer” shall mean an underwritten title company.
“Reinsurer” shall mean a title underwriter or another underwritten title company.
ARTICLE 4. General Powers [12390. - 12394.]
Every domestic title insurer may issue title policies and may also insure:
The identity, due execution, and validity of any note or bond secured by mortgage.
The identity, due execution, validity and recording of any such mortgage.
The identity, due execution and validity of evidences of indebtedness issued by this State, or by any political subdivision or district therein, or by any private or public corporation.
Such insurer also may:
Act as registrar or transfer agent of this State, or of any political subdivision or district therein, or of any private or public corporation.
Transfer or countersign any evidences of indebtedness which it may insure.
Transfer or countersign certificates of stock of any private or public corporation.
A title insurer, as to its title insurance department, shall be subject to and shall comply with all the requirements of the insurance laws and the rules and regulations of the commissioner. It may invest its assets apportioned to its title insurance department, and the accumulations therefrom, in the manner in which the assets of title insurers are allowed by the laws of this state to be invested.
ARTICLE 4.5. Business Plans [12396. - 12399.]
For purposes of this article, “controlled business source” means an affiliate, as defined in subdivision (a) of Section 1215, of any title insurer, controlled escrow company, or underwritten title company.
For purposes of this article:
“License” means a securities permit issued to a title insurance entity, a license to operate as an underwritten title company, or a certificate of authority to act as a title insurer.
“Licensee” means the holder of a license.
For purposes of this article, a title order shall be deemed to emanate from a controlled business source if the controlled business source is acting in the capacity of a principal, lender, representative, or agent of any of the parties to the transaction, or any other person or entity with which the reporting entity has an agreement, written or otherwise, whereby title orders are traded or otherwise exchanged in order to achieve compliance with this article.
Any applicant for a license shall indicate the applicant’s intent to actively compete in the marketplace for title insurance in each county in which the applicant seeks to or does conduct the business of title insurance. The failure to so indicate shall constitute grounds for denial of the license. Each applicant for a license shall also demonstrate that its plan of operation and intended course of business conduct will not involve reliance for more than 50 percent of its closed title orders from controlled business sources.
Each licensee shall make submissions as are required by the Department of Insurance to enable the department to determine the nature and extent of the licensee’s efforts to actively compete in each county in which it transacts its business. The licensee shall maintain records of its title orders sufficient to indicate the source of the title orders.
Competitive behavior shall be measured by the source of closed title orders in each county in which the licensee engages in the title business and by the entity’s progress toward meeting the 50 percent objective specified in Section 12397, as indicated in the annual, verified report filed pursuant to subdivision (c).
Within 90 days following the end of each business year, as established by the licensee, each licensee shall file with the commissioner, and any title insurer with which the licensee maintains an underwriting agreement, a verified report executed by the licensee’s chief executive officer or his or her designee under penalty of perjury, stating the percent of closed title orders for each county originating from controlled and noncontrolled business sources. Each title insurer that maintains an underwriting agreement with another licensee shall, within 30 days after receipt of this report, file with the commissioner a verified statement, signed by the licensee’s chief executive officer or by his or her designee under penalty of perjury, that the report is substantially correct or that insufficient information is contained in the report to enable an opinion to be formed concerning the correctness of the report.
Upon receipt by the department of a verified statement, signed under penalty of perjury, that less than 5 percent of the business a licensee transacts emanates from controlled business sources, the licensee shall be relieved of further reporting under this article, but shall be subject to reporting under subdivision (c) at any time that 5 percent or more of the business which the licensee transacts emanates from controlled business sources.
The failure of an applicant or licensee to comply with any of the requirements of this article shall be grounds for the denial of an application for a license, the suspension or revocation of an issued license, or other disciplinary action determined by the commissioner, in accordance with procedures prescribed by law therefor.
Nothing in this article shall limit or preclude the consideration or approval of an application for a license, except as expressly provided in this article.
ARTICLE 5. Exemptions [12400. - 12400.5.]
Article 5.6 (commencing with Section 1875.20) of Chapter 12 of Part 2 of Division 1 does not apply to title insurers.
A title insurance company or underwritten title company engaged in the business of title insurance, as defined in Section 12340.3, shall not be deemed to have participated in any acts prohibited by Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code solely by reason of engaging in the business of title insurance as authorized pursuant to this chapter.
ARTICLE 5.5. Rate Filing and Regulation [12401. - 12401.10.]
The purpose of this article is to promote the public welfare by regulating rates for the business of title insurance as herein provided to the end that they shall not be excessive, inadequate or unfairly discriminatory. It is the express intent of this article to permit and encourage competition between persons or entities engaged in the business of title insurance on a sound financial basis, and nothing in this article is intended to give the commissioner power to fix and determine a rate level by classification or otherwise.
Every title insurer, underwritten title company, and controlled escrow company shall file with the commissioner its schedules of rates, all regularly issued forms of title policies to which such rates apply, and every modification thereof which it proposes to use in this state. Every schedule of rates filed by a title insurer shall set forth the entire charge to the public for each type of title policy included within such schedule and shall include without separate statement thereof that portion of the charge, if any, which is based upon work performed by an underwritten title company; there shall be no separate filing by an underwritten title company for such work. Every filing shall set forth its effective date, which shall be not earlier than the 30th day following its receipt by the commissioner, and shall indicate the character and extent of the coverages and services contemplated.
Every title insurer, underwritten title company and controlled escrow company shall establish basic classifications of coverages and services to be used as the basis for determining rates.
The following standards shall apply to the making and use of rates pertaining to all the business of title insurance to which the provisions of this article are applicable:
Rates shall not be excessive or inadequate, as herein defined, nor shall they be unfairly discriminatory.
No rate shall be held excessive unless (1) the rate is unreasonably high for the insurance or other services provided, and (2) a reasonable degree of competition does not exist in the particular phase of the business of title insurance to which the rate is applicable.
No rate shall be held to be inadequate unless (1) the rate is unreasonably low for the insurance or other services provided and (2) the continued use of the rate endangers the solvency of the person or entity using it, or unless (3) the rate is unreasonably low for the insurance or other services provided and the use of the rate by the person or entity using it has, or if continued will have, the effect of destroying competition or creating a monopoly. However, no rate or rate classification shall be held to be inadequate for the reason that a rate within a rating classification is less than the cost of the risk and expense elements assigned to smaller insurances within that classification, and the excess of the costs may be charged against larger insurances within the classification without rendering the rate or rate classification unfairly discriminatory.
Consideration shall be given, to the extent applicable, to past and prospective loss experience within and outside this state, to a reasonable margin for profit and contingencies, to past and prospective expenses both countrywide and those specially applicable to this state, and to all other factors, including judgment factors, deemed relevant within and outside this state.
The systems of expense provisions included in the rates for use by any title insurer, underwritten title company, or controlled escrow company may differ from those of other title insurers, underwritten title companies, or controlled escrow companies to reflect the operating methods of the person or entity with respect to any kind of insurance, or other service, or with respect to any combination thereof.
For the establishment of rates, risks, and services in the business of title insurance may be grouped by classifications into the various types of title policies or services offered. The classifications may be further divided to produce rates for individual risks or services within a classification. Those classifications or further divisions thereof may be established based upon any one or more of the following: (1) the size of a transaction and its effect upon the continuing solvency of the person or entity using the rate in question if a loss should occur; (2) expense elements, including the management time that would ordinarily be expended in a typical transaction of a particular size; (3) the geographic location of a transaction, including variations in risk and expense elements attributable thereto; (4) the individual experience of the person or entity using the rate in question; and (5) any other reasonable considerations. Those classifications or further divisions thereof shall apply to all risks and services in the business of title insurance under the same or under substantially the same circumstances or conditions.
In order to further uniform administration of rate regulatory laws, the commissioner and every person or entity in the business of title insurance and every advisory organization in this state may exchange information and experience data with insurance supervisory officials of this and other states and rating organizations in other states and may consult with them with respect to such information and data.
As a further aid to uniform administration of rate regulatory laws of this state, the commissioner may prescribe by reasonable rules and regulations:
For the annual reporting of financial data relating to the aggregate economic performance of all title insurance entities conducting the business of title insurance in this state. That data, if required, shall be for the purpose of determining the industry financial experience for the reporting year and shall reflect the after-tax rate of return on total capital, including investment income and realized and unrealized capital gains, from whatever source attributable to operations in this state.
A statistical plan, reasonably adapted to each of the rating systems in use within the state. Any plan may be modified from time to time by the commissioner and shall be used thereafter by each title insurer in the reporting of data required by the plan, so that the experience of all title insurers is available to the commissioner on an annual basis. The commissioner, through regulations, shall prescribe the form and detail of the financial data to be submitted and the time period the data shall cover. In promulgating the plan, the commissioner may give due consideration to the rating systems in use and, in order that the plan may be as uniform as is practicable among the several states, to the rules and to the form of the plan used for these rating systems in other states. Every licensed title insurer in the state shall be required to record and report data directly to the commissioner. The commissioner shall designate one or more advisory organizations to assist in the development of the statistical plan and to further assist in gathering data and making compilations thereof, and these compilations shall be made available, subject to reasonable rules adopted by the commissioner, to title insurers and advisory organizations.
No statistical plan or modifications thereto, or rules or regulations pertaining thereto, shall be adopted or implemented absent compliance with the provisions of Article 5 (commencing with Section 11346) of Chapter 3.5 of Part 1 of Division 3 of Title 2 of the Government Code, except that any plan, rule, or regulation shall not become effective for a period of 120 days following its adoption, and any plan, rule, or regulation shall be deemed to be a regulation required to be filed with the Secretary of State for purposes of Article 5 (commencing with Section 11346) of Chapter 3.5 of Part 1 of Division 3 of Title 2 of the Government Code.
Data gathered under the statistical plan may be used in conjunction with analytical input from an industry advisory organization to generate statistical information for use in reviewing and evaluating individual rate filings by title insurers pursuant to the standards set forth in Section 12401.3. However, no statistical plan or modifications thereto, or rules or regulations pertaining thereto, shall do any of the following:
Serve as the basis for an assessment not otherwise authorized by law.
Conflict with the purpose and express intent of Section 12401.
Fix, determine, or in any way impair competitive rating or the free market.
This section shall not require a title insurer to refile an existing rate. However, this section shall apply to the filing of a changed or otherwise modified rate, pursuant to the regulations adopted to implement this chapter.
Nothing in this article shall be construed to prohibit concert of action between entities under the same general management and control.
No title insurer, underwritten title company or controlled escrow company shall use any rate in the business of title insurance prior to its effective date nor prior to the filing with respect to such rate having been publicly displayed and made readily available to the public for a period of no less than 30 days in each office of the title insurer, underwritten title company, or controlled escrow company in the county to which such rate applies, and no rate increase shall apply to title policies or services which have been contracted for prior to such effective date.
Notwithstanding Sections 12401.1 and 12401.7, a title insurer, underwritten title company, or controlled escrow company may use a new rate prior to 30 days after the filing if the new rate results in a reduction from an existing rate, the earlier effective date is set forth in the filing, and the new rate has been publicly displayed and made readily available to the public prior to its effective date.
Any rate reduction filed by a title insurer, underwritten title company, or controlled escrow company pursuant to subdivision (a) shall be subject to the authority of the commissioner as set forth in this article and Article 6.7 (commencing with Section 12414.13).
Five years from the effective date of this section, and within existing resources, the department shall review the reduced rates authorized by this section to determine if they are inadequate or if they increase the possibility of title insurers becoming insolvent. This review shall be in addition to any other authorized by statute.
Charges in excess of those set forth in a rate filing which has become effective may be made when such filing includes a statement that such charges may be made in the event unusual insurance risks are assumed or unusual services performed in the transaction of the business of title insurance; provided, that such charges are reasonably commensurate with the risks assumed or the costs of the services performed and provided further that each person or entity obligated to pay all or any part of such charges consents thereto in writing in advance.
The schedules of rates which are required to be filed with the commissioner under the provisions of Section 12401.1 shall be printed or typed in type not smaller than 10-point and, so long as they are effective, full copies thereof, showing their effective date or dates, shall be kept at all times available to the public and prominently displayed in a public place in each office of a title insurer, an underwritten title company and a controlled escrow company in the county to which such rates apply. On request, copies of such schedules or adequate summaries of the pertinent part or parts thereof shall be furnished to the public.
Nothing in this article shall require the filing of rates by title insurers for reinsurance contracts or agreements or policies of excess coinsurance.
ARTICLE 5.7. Advisory Organizations [12402. - 12402.2.]
No advisory organization shall conduct its operations in this state without first filing with the commissioner: (a) a copy of its constitution, articles of agreement or association or certificate of incorporation, and of its bylaws, rules, and regulations governing the conduct of its business; (b) a list of its members; (c) the name and address of a resident of this state upon whom notices or orders of the commissioner or process affecting such advisory organization may be served.
Every advisory organization shall adopt bylaws or rules and regulations which will:
Permit any person or entity in the business of title insurance in this state to become a member at a reasonable cost and without discrimination;
Permit any member to withdraw at any time upon written notice;
Prohibit any act or agreement by which any person or entity is restrained from lawfully engaging in the business of title insurance in this state;
Require that the commissioner be given prompt notification of every change in any of the items described in subdivisions (a), (b), and (c) of Section 12402.
No bylaw or rule or regulation required by Section 12402.1 shall be effective until filed with the commissioner.
ARTICLE 6. Rebates and Commissions [12404. - 12413.5.]
It is unlawful for any title insurer, underwritten title company or controlled escrow company to pay, directly or indirectly, any commission, compensation, or other consideration to any person as an inducement for the placement or referral of title business. Actual placement or referral of title business is not a precondition to a violation of this section, whether the violation is or is not a per se violation pursuant to subdivision (c).
For purposes of this section, the following definitions are applicable:
“Compensating balance” is a balance maintained in a lending institution by any title insurer, underwritten title company, or controlled escrow company for the express or implied purpose of influencing the extension of credit to a third party or the provision of goods, services, or benefits to a third party as an inducement for the placement or referral of title business by a third party.
“Person” means any individual or entity who is any owner or prospective owner, lessee or prospective lessee of real property or any interest therein, any obligee or prospective obligee of an obligation secured or to be secured either in whole or in part by real property or any interest therein, or any person who is acting or who is in the business of acting as agent, representative, attorney, or employee of those persons.
“Title business” means the “business of title insurance” as defined in Section 12340.3, and includes, but is not limited to, the offering of title insurance, escrow, or other services by a title insurer, underwritten title company, or controlled escrow company.
The following activities, whether performed directly or indirectly, are deemed per se inducements for the placement or referral of title insurance business by any person and are unlawful:
Advancing or paying or offering to advance or pay money on behalf of any person into an escrow to facilitate the closing thereof, other than any sum which represents the proceeds of a loan made in the ordinary course of business; or an advance not to exceed 2 percent of the sales price of the real property being sold or exchanged through the escrow or the amount of any loan secured by real property involved in the escrow, whichever is greater; or the extension of credit or an advance for the costs, fees and expenses of the escrow or of the title insurance issued or to be issued in connection therewith.
Disbursing or offering to disburse on behalf of any person escrow funds held by a title insurer, underwritten title company or controlled escrow company before the conditions of the escrow applicable to that disbursement have been met, or in a manner which does not conform to Section 12413.1, including disbursing or offering to disburse before the expiration of the appropriate period established in Section 12413.1.
Furnishing or offering to furnish all or any part of the time or productive effort of any employee of the title insurer, underwritten title company, or controlled escrow company to any person for any service unrelated to the title business.
Advertising or paying for the advertising in any newspaper, newsletter, magazine, or publication that is produced by, or on behalf of, a person, or that results in a direct, or indirect, subsidy to a person.
Expenditures for food, beverages, and entertainment for a person.
Expenditures for the following are not deemed to be unlawful or in violation of this section:
The provision or payment of any form of consideration as an inducement for the placement or referral of title business not specifically set forth in this section shall not be presumed lawful merely because they are not specifically prohibited.
The Insurance Commissioner may determine compliance and enforce the provisions of this section by written order, regulation or written consent which may take into consideration standards, conditions, guidelines, principles, or definitions utilized by other states or federal agencies but those standards, conditions, guidelines, principles, or definitions shall not be determinative.
It is the intent of the Legislature that the enactment of this section shall have no effect on the applicability of other sections of the Insurance Code that are in existence prior to the enactment of this section and which specifically, or by implication, refer to this section. The Legislature hereby intends that this section, including the specific terms employed within it, shall be liberally construed for the purpose of protecting consumers of title business.
The furnishing of a preliminary report by any title insurer, controlled escrow company or underwritten title company, without charge to any person, shall constitute a violation of Section 12404. The charge for a preliminary report shall have a reasonable relation to the cost of production of the report but in no event shall it be less than the rate for a standard owners policy, minimum liability, as set forth in the company’s rate schedule. After billing any person for a preliminary report the title insurer, controlled escrow company or underwritten title company shall promptly make a good faith attempt to collect; provided, however, that notwithstanding Section 12404, but without limiting the applicability of that section to other transactions, this charge may be waived or canceled, if the company follows uniform practices as to all customers under like circumstances.
After the issuance of the preliminary report, but before the charge is waived or canceled, the files of the issuing company contain a copy of a bona fide sales or exchange agreement, or loan commitment executed by the party or parties in interest relating to the property described in the report, and the sale, exchange, or loan is not consummated.
When the preliminary report so furnished contains a lien or encumbrance or other title defect which the issuing company has refused to eliminate from its policy of title insurance or to provide insurance against loss by reason thereof, and another title insurance company has eliminated the lien or encumbrance or other title defect from its policy of title insurance or provided insurance against loss resulting therefrom within a reasonable period of time from the date of the issuance of the preliminary report.
The furnishing of the names of owners of record, descriptions of real property, and property characteristics, as defined in Section 408.3 of the Revenue and Taxation Code, shall not be deemed to be a violation of Section 12404, whether provided on individual or multiple properties and whether provided in printed form or by electronic media.
As used in this section “personal or controlled insurance” means a policy of title insurance, or insurance as to the identity, due execution and validity of any note or bond secured by mortage, or the identity, due execution, validity and recording of any such mortgage, or any other service afforded by title insurers the rate for which is required to be filed by Article 5.5 (commencing with Section 12401) of this chapter, where the insured or one of the insured under such policy is, or the loss thereunder is payable to, an underwritten title company, a controlled escrow company, or an issuing agent, or
If such underwritten or controlled company or issuing agent is a natural person: (1) his spouse, his employer or his employer’s spouse, or (2) any person related to him or the persons mentioned in (1) of this paragraph within the second degree by blood or marriage, or (3) if his employer is a corporation, any person directly or indirectly owning or controlling a majority of the voting stock or controlling interest in such corporation, or (4) if his employer is a partnership or association, any person owning any interest in such partnership or association.
If such underwritten or controlled company or issuing agent is a corporation: (1) any person directly or indirectly owning or controlling a majority of the voting stock or controlling interest in such corporation, or (2) any corporation which is directly or indirectly controlled by a person who also controls the underwritten title company, controlled escrow company, or issuing agent, as described in (1), or (3) any corporation making consolidated returns for United States income tax purposes with any corporation described in (1) or (2) of this paragraph.
If the fees and charges for personal or controlled insurance so issued in any one calendar year received by an underwritten title company, a controlled escrow company or an issuing agent exceed the fees and charges received for other title insurance issued at the instance or request of such underwritten title company, controlled escrow company or issuing agent in the same year, the excess is an unlawful rebate. Violation of this section by a title insurer shall not be subject to the penalty provided for in Section 12409.
No title insurer, no controlled escrow company, and no underwritten title company shall make any rebate of any portion of the fee or charge shown by the schedule required by Section 12401.1. No title insurer, no controlled escrow company and no underwritten title company shall quote any fee or make any charge for a title policy to any person which is less than that currently available to others for the same type of title policy in a like amount covering property in the same county and involving the same factors as set forth in its then currently effective schedule of fees and charges. The amount by which any fee or charge is less than that called for by the then currently effective schedule of fees and charges of the title insurer is an unlawful rebate; provided, that nothing contained in this article shall prohibit bulk rates or special rates for customers of prescribed classes if such bulk or special rates are provided for in such schedule.
In addition to other acts prohibited by this article, no controlled escrow company or title insurer or other person engaged in the business of selling or furnishing to the public, directly or indirectly, evidence to title to real property shall:
Pay for or furnish or offer to pay for or furnish any part of the advertising or promotional material of the customer in connection with the sale or encumbrance of real property.
Pay or offer to pay for any evidence of title or copy or contents thereof not produced or issued by such person or company if such evidence of title relates to a current real property transaction, except as provided in Section 12412.
No title insurer shall issue any title policy in any transaction in connection with which it or any person which is a controlled escrow company or underwritten title company by reason of its relationship with such title insurer has paid or contemplates paying any commission in violation of Section 12404 or in connection with which it or any such controlled escrow company or underwritten title company has made or contemplates making any unlawful rebate in violation of Section 12405.
The commissioner shall develop, publish, and disseminate a brochure for consumers who are required to buy title insurance as part of a residential real estate transaction. The brochure shall inform consumers that competing title insurers and underwritten title companies may offer different costs or services for the title insurance required in the transaction. The brochure shall also inform consumers about the potential availability of discounts in cases involving first-time buyers, short-term rates if a home is resold in less than a five-year period, concurrent rates if the company is providing both the homeowners’ and the lenders’ title insurance policies in the transaction, subdivision bulk rates if the property being purchased is in a new subdivision, refinancing discounts, short-term financing rates, and discounts that may be available in other special cases. The brochure shall encourage consumers to contact more than one title insurer or underwritten title company in order to compare costs and services.
The brochure developed pursuant to subdivision (a) shall include the department’s toll-free consumer assistance telephone number and shall invite consumers to call the department if they need assistance.
The department shall display the brochure developed pursuant to subdivision (a) on its Internet Web site, and the brochure shall include the department’s Internet address.
The brochure developed pursuant to subdivision (a) shall also educate consumers about laws involving unlawful commissions and rebates associated with the placement or referral of title insurance and shall encourage consumers to report to the department, to the Bureau of Real Estate, and to any other appropriate government agencies any suspected incidents of probable unlawful commissions or rebates subject to Article 6.5 (commencing with Section 12414).
One copy of the brochure developed pursuant to this section shall be made available to a member of the public at no cost, and the department may charge its actual cost for providing additional copies. The brochure shall be made available for reproduction at no cost to any vendor who wishes to publish the brochure as written, provided any vendor who wishes to publish the brochure agrees to submit any documents containing the brochure to the department prior to publication.
The commissioner, if he has reason to believe that any controlled escrow company or any underwritten title company has violated or is violating any of the provisions of this article, has the power and it is his duty to forthwith examine its books, records and accounts and in making any such examination he has all the power set forth in Article 4, Chapter 1 of Part 2 of Division 1 of this code and any company so examined shall pay to the commissioner the cost of such examination on demand. Whenever the commissioner examines a title insurer, he shall make such examination of its books, records, and files as may be necessary in his judgment to determine whether or not it has violated or is violating any of the provisions of this article.
Every title insurer shall include in its annual statement furnished the commissioner pursuant to Article 10 (commencing with Section 900), Chapter 1, Part 2, Division 1 of this code, the name of each person which is a controlled escrow company or underwritten title company by reason of its relationship with such title insurer.
Whenever a title insurer terminates its underwriting agreement with any underwritten title company, it shall at the same time give notice of the termination to the commissioner.
Notwithstanding any other provision of this article no title insurer, no controlled escrow company, and no underwritten title company shall pay any commission for the solicitation or negotiation of any services constituting the business of title insurance.
The provisions of subdivision (a) notwithstanding, a title insurer, controlled escrow company, or underwritten title company may pay to full-time salaried employees a commission, incentive compensation or bonuses based on any such employees’ level of production of any services constituting the business of title insurance. Any title insurer, controlled escrow company, or underwritten title company and, where applicable their affiliates, which makes such payments shall maintain adequate records detailing the conditions to receipt of any commission, incentive compensation or bonus, the recipient thereof and the amount paid.
Any employee of a title insurer, underwritten title company, or controlled escrow company shall not, directly or indirectly, pay or offer to pay, either directly or indirectly, any part of his or her compensation, whether denominated salary, incentive compensation, or bonuses to any person or entity defined in Section 12404, as an inducement for, or as compensation for, any title insurance business or any escrow or other title business, and any payment or offer to pay this consideration is an unlawful rebate.
Every title insurer, controlled escrow company, and underwritten title company which pays any commission or which makes any unlawful rebate in violation of this article shall be liable to the people of California for five times the amount of that commission or unlawful rebate, the amount thereof to be recovered by the commissioner pursuant to Section 12976. In addition to, or in lieu of, any other penalty that may be imposed under this code, the commissioner may, after a hearing, issue an order to restrict or suspend the certificate of authority of any title insurer or controlled escrow company or the license of any underwritten title company. The commissioner may restrict or suspend the certificate of authority or license on a statewide basis or in specified counties.
In no event shall the total or aggregate amount recovered by the commissioner from a title insurer, controlled escrow company, or underwritten title company pursuant to this section be less than five thousand dollars ($5,000).
In enforcing any of the provisions of this article, the commissioner shall be entitled to the remedies provided for in Section 12928.6 of this code.
The commissioner may after a hearing suspend or revoke the certificate of authority of any title insurer or the license of any underwritten title company licensed pursuant to the provisions of Section 12389, which, after 10 days’ written notice from the commissioner requiring it to comply with the provisions of this article willfully fails to do so.
Nothing in this article prohibits the division of fees or charges, for work and services actually performed, between title insurers or between title insurers and underwritten title companies or between underwritten title companies, if such division does not constitute an unlawful rebate as defined by Section 12404.5, or is prohibited by Section 12405.7 or 12408.5. The entire charge made to obtain a title policy shall be set forth on the title policy.
No title insurance company, controlled escrow company, or underwritten title company shall disburse funds from an escrow account until the day established by the following:
Except for funds deposited by cash or by electronic payment, deposits accorded next day availability pursuant to Part 229 of Title 12 of the Code of Federal Regulations may not be disbursed until the business day following the business day of deposit.
Except for drafts, deposits not accorded next day availability pursuant to Part 229 of Title 12 of the Code of Federal Regulations shall not be disbursed until the day on which these funds must be made available to depositors under the federal regulation specified in this subdivision.
Funds deposited by cash or by electronic payment may be disbursed following deposit on the same business day as the business day of deposit.
Notwithstanding the provisions of subdivision (b), deposits other than drafts may be disbursed on the business day following the business day of deposit if the financial institution to which the funds have been deposited informs the title insurance company, controlled escrow company, or underwritten title company in writing that final settlement has occurred on the deposited item. For the purposes of this subdivision, an electronically transmitted document that specifies that final settlement has occurred constitutes written notice as to an individual item.
Where a draft, other than a share draft, has been received and submitted for collection, no title insurance company, controlled escrow company, or underwritten title company shall disburse funds from an escrow account with respect to the draft until the proceeds of the draft have become available for withdrawal from the financial institution to which the draft has been submitted for collection. For purposes of this subdivision, “available for withdrawal” means when the draft has been submitted for collection and payment received. Notwithstanding this subdivision, disbursement of funds represented by share drafts shall be governed by subdivisions (b) and (d), if applicable.
For purposes of this section, “escrow account” means any depository account with a financial institution to which funds are deposited with respect to any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by that third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by that third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agency or employee of the latter.
Except as provided in subdivision (h), for purposes of this section, any word or term used herein or relevant to interpretation of this section, including, but not limited to, “available for withdrawal,” “check,” “electronic payment,” and “business day,” which is defined in Part 229 of Title 12 of the Code of Federal Regulations on January 1, 1990, shall have the meaning there given as the regulations existed on January 1, 1990.
For purposes of this section, “financial institution” means any financial institution specified in Section 12413.5.
No title insurance company, controlled escrow company, or underwritten title company shall be liable for a violation of this section if the violation was not intentional or resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid that error. Examples of bona fide errors include, but are not limited to, clerical, calculation, computer malfunction and programming, and printing errors.
Nothing in this section shall be deemed to prohibit the recordation of documents prior to the time funds are available for disbursement with respect to a transaction provided the parties to the transaction consent in writing prior thereto.
Nothing in this section is intended to amend, alter, or supersede other sections of this code, or other laws of this state or the United States, regarding an escrow holder’s duties and obligations.
Any item or draft received by a title insurance company, controlled escrow company, or underwritten title company in connection with any escrow shall be deposited in, or submitted for collection to, a financial institution as defined in Section 12413 no later than the close of the next business day following receipt.
For purposes of this section, “item” means any check, including a cashier’s check, negotiable order of withdrawal, share draft, traveler’s check, or money order.
All funds received in connection with any escrow conducted by a title insurance company, controlled escrow company, or underwritten title company shall be deposited in a separate depository account in a bank or savings and loan association or in an account in an industrial loan company insured by the Federal Deposit Insurance Corporation, and the funds so deposited shall be the property of the person or persons entitled thereto under the provisions of the escrow and segregated escrow by escrow in the records of the title insurance company, controlled escrow company, or underwritten title company. The funds shall not be subject to any debts of the title insurance company, controlled escrow company, or underwritten title company and shall be used only to fulfill the terms of the individual escrow for which the funds were accepted and none of the funds shall be utilized until the conditions of the escrow have been met.
Any interest received on funds deposited in connection with any escrow which are deposited in a bank, savings and loan association, or industrial loan company shall be paid over by the escrow to the depositing party to the escrow unless the escrow is otherwise instructed by the depositing party, and shall not be transferred to the account of the title insurance company, controlled escrow company, or underwritten title company.
ARTICLE 6.7. Hearings, Procedure, and Judicial Review [12414.13. - 12414.19.]
Any person aggrieved by any rate charged, rating plan or rating system followed or adopted by a title insurer, underwritten title company, or controlled escrow company may request such person or entity to review the manner in which the rate, plan, system, or rule has been applied with respect to insurance or services afforded him. Such request may be made by his authorized representative, and shall be written. If the request is not granted within 30 days after it is made, the requestor may treat it as rejected. Any person aggrieved by the action of any such person or entity in refusing the review requested, or in failing or refusing to grant all or part of the relief requested, may file a written complaint and request for hearing with the commissioner, specifying the grounds relied upon. If the commissioner has information concerning a similar complaint he may deny the hearing. If he believes that probable cause for the complaint does not exist or that the complaint is not made in good faith he shall deny the hearing. Otherwise, and if he finds that the complaint charges a violation of Article 5.5 (commencing with Section 12401) and that the complainant would be aggrieved if the violation is proved, he shall proceed as provided in Section 12414.14.
If after examination of a title insurer, an underwritten title company, or a controlled escrow company, or upon the basis of other information, or upon sufficient complaint as provided in Section 12414.13, the commissioner has good cause to believe that such person or entity, or any rate, rating plan or rating system made or used by any such person or entity does not comply with the requirements and standards of Article 5.5 (commencing with Section 12401) he shall, unless he has good cause to believe such noncompliance is willful, give notice in writing stating therein in what manner and to what extent such noncompliance is alleged to exist and specifying therein a reasonable time, not less than 10 days nor more than 30 days thereafter, in which such noncompliance may be corrected. Notices under this section shall be confidential as between the commissioner and the parties unless a hearing is held under Section 12414.15.
If the commissioner has good cause to believe such noncompliance to be willful, or if within the period prescribed by the commissioner in the notice required by Section 12414.14 the title insurer, underwritten title company, or controlled escrow company does not make such changes as may be necessary to correct the noncompliance specified by the commissioner or establish to the satisfaction of the commissioner that such specified noncompliance does not exist, then the commissioner may hold a public hearing in connection therewith, provided that within a reasonable period of time, which shall be not less than 10 days before the date of such hearing, he shall mail written notice specifying the matters to be considered at such hearing to such title insurer, underwritten title company, or controlled escrow company. Such notice shall conform to the requirements for an accusation as prescribed by Section 11503 of the Government Code. If no notice has been given as provided in Section 12414.14, such notice shall state therein in what manner and to what extent noncompliance is alleged to exist. The hearing shall not include any additional subjects not specified in the notices required by Section 12414.14 or this section.
If after a hearing pursuant to Section 12414.15 the commissioner finds:
That any rate, rating plan or rating system violates the provisions of Article 5.5 (commencing with Section 12401), he may issue an order to the person or entity which has been the subject of the hearing specifying in what respects such violation exists and stating when, within a reasonable period of time, the further use of such rate or rating system by such person or entity in the business of title insurance made thereafter shall be prohibited.
That the violation which has been the subject of hearing was willful, he may suspend or revoke, in whole or in part, the certificate of authority of such title insurer or the license of such underwritten title company or controlled escrow company with respect to the transaction of the business of title insurance which has been the subject matter of the hearing.
In addition to other penalties provided in this code, the commissioner may suspend or revoke, in whole or in part, the authority of any person or entity to engage in the business of title insurance upon the failure of any such person or entity to comply within the time limited by such order or any extension thereof which the commissioner may grant, with an order of the commissioner lawfully made by him pursuant to Section 12414.16 and effective pursuant to Section 12414.19.
Except as otherwise provided in this chapter, all proceedings in connection with the denial, suspension, or revocation of a license or certificate of authority under this chapter shall be conducted in accordance with the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted to him therein.
Any finding, determination, rule, ruling, or order made by the commissioner under Article 5.5 (commencing with Section 12401), Article 5.7 (commencing with Section 12402), Article 6.7 (commencing with Section 12414.13), and Article 6.9 (commencing with Section 12414.20) of this chapter shall be subject to review by the courts of the state and proceedings on review shall be in accordance with the provisions of the Code of Civil Procedure. In such proceedings on review, the court is authorized and directed to exercise its independent judgment on the evidence and unless the weight of the evidence supports the findings, determination, rule, ruling, or order of the commissioner, the same shall be annulled.
Notwithstanding any other provision of law to the contrary, a petition for review of any such finding, determination, rule or order, may be filed at any time before the effective date thereof. No such finding, determination, rule, or order shall become effective before the expiration of 20 days after notice and a copy thereof are mailed or delivered to the person or entity affected, and any finding, determination, rule, or order of the commissioner so submitted for review shall not become effective for a further period of 15 days after the petition for review is filed with the court. The court may stay the effectiveness thereof for a longer period.
ARTICLE 6.9. Examinations, Penalties and Miscellaneous [12414.20. - 12414.31.]
The commissioner may, as often as may be reasonable and necessary, make or cause to be made an examination of any advisory organization for the business of title insurance in this state.
The commissioner may, pursuant to reasonable rules and regulations which he shall prescribe, make or cause to be made an examination of every title insurer, underwritten title company or controlled escrow company engaged in the business of title insurance to ascertain whether such person or entity and every rate and rating system used in the business of title insurance complies with the requirements and standards of Article 5.5 (commencing with Section 12401) of this chapter. Such examination shall not be a part of a periodic general examination participated in by a representative of more than one state.
The officers, managers, agents, and employees of any advisory organization, title insurer, underwritten title company, or controlled escrow company may be examined at any time under oath and shall exhibit all books, records, accounts, documents, or agreements governing their method of operation, together with all data, statistics, and information of every kind and character collected or considered by such persons or entities in the conduct of the operations to which such examination relates.
The reasonable cost of any examination authorized by this article shall be paid by the advisory organization, title insurer, underwritten title company, or controlled escrow company to be examined. A copy of any written report which is prepared as a result of a full balance sheet financial examination conducted pursuant to Section 12389, shall be provided to the entity examined within 30 days following the production of the report.
In the event any examination or review of financial statements has resulted in a requirement of, or directive to, the entity to make changes in its conduct or the business of title insurance, those requirements or directives shall be in writing, and provided to the entity.
No person, title insurer, underwritten title company, controlled escrow company, or advisory organization shall willfully withhold information from, or knowingly give false or misleading information to, the commissioner or to any advisory organization which will affect rates for the business of title insurance to which the provisions of this chapter are applicable.
Any person, title insurer, underwritten title company, or controlled escrow company who fails to comply with a final order of the commissioner under this chapter shall be liable to the state in an amount not exceeding one hundred dollars ($100), but if that failure is willful he, she, or it shall be liable to the state in an amount not exceeding five thousand dollars ($5,000) for that failure. The commissioner shall collect the amount so payable and may bring an action in the name of the people of the State of California to enforce collection. Those penalties may be in addition to any other penalties provided by law.
A willful violation of the provisions of this chapter is a misdemeanor.
This subdivision is not applicable to Section 12389.7.
No act done, action taken, or agreement made pursuant to the authority conferred by Article 5.5 (commencing with Section 12401) or Article 5.7 (commencing with Section 12402) of this chapter shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this state heretofore or hereafter enacted which does not specifically refer to insurance.
Commencing 120 days following January 1, 1974, no title insurer, underwritten title company or controlled escrow company shall charge for any title policy or service in connection with the business of title insurance, except in accordance with rate filings which have become effective pursuant to Article 5.5 (commencing with Section 12401) of this chapter or as otherwise authorized by such article; provided, however, where a rate is on file with the commissioner and in effect immediately prior to such date, such rate shall continue in effect until a new rate filing is thereafter made and becomes effective in the manner provided in Article 5.5 (commencing with Section 12401) of this chapter.
All title policies issued by title insurers shall be subscribed by the president or a vice president and by the secretary or an assistant secretary of the corporation. All such title policies are as binding and obligatory upon the corporation as if executed over the corporate seal. The signatures of such officers, or any one of them, may be in their own handwriting or engraved, lithographed, printed, stamped, or otherwise affixed to such title policies. Any title policy so signed shall be presumed to be duly subscribed, and if the title policy provides for an additional signature and such signature appears thereon a like presumption shall apply.
The administration and enforcement of Article 5.5 (commencing with Section 12401) and Article 5.7 (commencing with Section 12402) of this chapter shall be governed solely by the provisions of this chapter. Except as provided in this chapter, no other law relating to insurance and no other provisions in this code heretofore or hereafter enacted shall apply to or be construed as supplementing or modifying the provisions of such articles unless such other law or other provision expressly so provides and specifically refers to the sections of such articles which it intends to supplement or modify. The provisions of this chapter and regulations adopted pursuant thereto shall constitute the exclusive regulation of the conduct of escrow and title transactions by entities engaged in the business of title insurance as defined in Section 12340.3, notwithstanding any local regulation or ordinance.
When constituting an offer to issue an owner’s policy of title insurance, a preliminary report shall incorporate the following statement, in bold print on front of the preliminary report:
“Please read the exceptions shown or referred to below and the exceptions and exclusions set forth in Exhibit A of this report carefully. The exceptions and exclusions are meant to provide you with notice of matters which are not covered under the terms of the title insurance policy and should be carefully considered.
It is important to note that this preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land.”
Upon request, a title insurance company may provide coverage against loss or damage under the terms, conditions, and stipulations of the title insurance policy for any monetary lien set forth in the preliminary report.
This section does not modify any of the provisions of Section 12340.11.
Whenever the commissioner takes any formal enforcement or disciplinary action directly against an employee of a title insurer, underwritten title company, or controlled escrow company, for malfeasance or misconduct committed by the employee in their performance of escrow-related services, upon the action becoming final the commissioner shall notify the Real Estate Commissioner and the Commissioner of Financial Protection and Innovation of the action or actions taken. The purpose of this notification is to alert the departments that enforcement or disciplinary action has been taken, if the employee seeks or obtains employment with entities regulated by the departments.
The commissioner shall provide the Real Estate Commissioner and the Commissioner of Financial Protection and Innovation, in addition to the notification of the action taken, with a copy of the written accusation, statement of issues, or order issued or filed in the matter and, at the request of the Real Estate Commissioner or Commissioner of Financial Protection and Innovation, with any underlying factual material relevant to the enforcement or disciplinary action. Any confidential information provided by the commissioner to the Commissioner of Financial Protection and Innovation or the Real Estate Commissioner shall not be made public pursuant to this section. Notwithstanding any other law, the disclosure of any underlying factual material to the Commissioner of Financial Protection and Innovation or the Real Estate Commissioner shall not operate as a waiver of confidentiality or any privilege that the commissioner may assert.
The commissioner shall establish and maintain, on the internet website maintained by the Department of Insurance, a separate and readily identifiable database of all persons who have been subject to any enforcement or disciplinary action that triggers the notification requirements of this section. The database shall also contain a direct link to the databases, described in Section 10176.1 of the Business and Professions Code and Section 17423.1 of the Financial Code and required to be maintained on the internet websites of the Bureau of Real Estate and the Department of Financial Protection and Innovation, respectively, of persons who have been subject to enforcement or disciplinary action for malfeasance or misconduct related to the escrow industry by the Commissioner of Financial Protection and Innovation and the Real Estate Commissioner.
There shall be no liability on the part of, and no cause of action of any nature shall arise against, the State of California, the Department of Insurance, the Insurance Commissioner, any other state agency, or any officer, agent, employee, consultant, or contractor of the state, for the release of any false or unauthorized information pursuant to this section, unless the release of that information was done with knowledge and malice, or for the failure to release any information pursuant to this section.
ARTICLE 7. Annual Renewal Fees [12415. - 12417.]
It is the intent of the Legislature that certificated title insurers and licensed underwritten title companies, as defined in Section 12340.5 shall pay to the commissioner an annual renewal fee, as provided in Section 12416, in addition to that provided as to title insurers by Section 705 to cover the costs to the commissioner for administering and enforcing Article 3.7 (commencing with Section 12389), Article 5.5 (commencing with Section 12401), and Article 6 (commencing with Section 12404) of Chapter 1, Part 6, Division 2 of this code and other provisions of this code as may be subsequently incorporated by reference in this article by legislative enactment. Such fee shall be in lieu of all fees provided for in Article 6 (commencing with Section 12404) of Chapter 1, Part 6, Division 2.
Each certificated title insurer possessing a certificate of authority of indefinite term pursuant to Section 701 shall owe and pay an annual renewal fee of nine hundred eighty-eight dollars ($988). Each underwritten title company possessing a license of indefinite term pursuant to Section 12389 shall owe and pay an annual renewal fee of five hundred sixty-seven dollars ($567), except that: (a) when the aggregate number of documents recorded and documents filed in the offices of the county recorders in the preceding calendar year in all counties where the company is licensed to transact business is less than 50,000, that company shall owe and pay an annual renewal fee of two hundred eighty-three dollars ($283), or (b) when the aggregate number of documents recorded and documents filed in the offices of the county recorders in the preceding calendar year in all counties where the company is licensed to transact business is more than 50,000 but less than 100,000, that company shall owe and pay an annual renewal fee of three hundred sixty dollars ($360). Those fees shall be for annual periods commencing on July 1 of each year and ending on June 30 of each year, and shall be due on March 1 preceding the annual period for which those fees are charged, and shall be delinquent on and after April 1 next following the date when due.
The annual renewal fee provided by this article is not a tax but a charge for services to be rendered.
ARTICLE 8. Title Insurance Representatives [12418. - 12418.4.]
No person shall be employed as a title marketing representative in this state unless the person holds a valid “certificate of registration” as a title marketing representative issued by the commissioner pursuant to Section 12418.1.
For purposes of this article, “title marketing representative” means a natural person employed by a title insurer, underwritten title company, or controlled escrow company whose primary duty is to market, offer, solicit, negotiate, or sell title insurance, as defined in Section 12340.1. A title marketing representative does not include a person whose primary duties directly involve the creation, production, or issuance of the title policy or the performance of escrow services.
A certificate of registration as a title marketing representative shall be applied for and renewed by filing with the commissioner a written application. The application shall be on a form prescribed by the commissioner, and shall prescribe the disclosure of information that will aid the commissioner in determining whether the prerequisites for the certificate have been met. The applicant shall certify that the contents of the application are true and correct under penalty of perjury.
Each application for a certificate of registration shall contain the following information:
The residence address, the principal business address, and the mailing address of the applicant.
A statement, signed by an officer of the business by whom the applicant is or will be employed, certifying that the applicant will be provided training regarding Article 6 (commencing with Section 12404) within 60 days of the hiring date or date of application.
A statement, signed by the applicant, as to whether he or she has previously had a certificate of registration revoked, suspended, or otherwise limited under Section 12418.4.
Each application to obtain or renew a certificate of registration shall be accompanied by a filing fee in an amount determined by the department to be sufficient to defray the department’s actual costs of processing the application, not to exceed two hundred thirty-seven dollars ($237). An application shall not be deemed filed unless it has been delivered to the department accompanied by the proper filing fee.
The commissioner may decline to act on an incomplete or defective application until an amended application that completes the prescribed form has been filed with the department. In the event that the application is found to be defective or incomplete, the department shall notify the applicant and his or her employer in writing that the application needs to be modified and resubmitted within 15 days of receipt of this written notification.
An applicant submitting an application filed with the department for a certificate of registration as a title marketing representative may solicit, sell, or market title insurance, as defined in Section 12340.1, in the interim time period preceding the formal approval or rejection of the application, but shall be subject to the same compliance requirements as a holder of an approved certificate of registration. An applicant with a pending application shall be deemed to be operating on a provisional basis.
In the event that the title marketing representative’s employment with a title company is terminated, the title company formerly employing the title marketing representative shall notify the department within 30 days of the termination. If the title marketing representative becomes employed by another title company as a title marketing representative, the new employer shall notify the department of the title marketing representative’s new employment within 30 days of the commencement of that employment.
An applicant who has previously had a certificate of registration revoked, suspended, or otherwise limited under subdivision (d) of Section 12418.4 may not sell, solicit, or market title insurance during the interim period described in subdivision (e).
An applicant or holder of a certificate of registration as a title marketing representative is not required to pass a qualifying examination, and is exempt from prelicensing and continuing education requirements, except as specified in paragraph (2) of subdivision (b) of Section 12418.1.
Upon the filing of an application for the issuance or renewal of a certificate of registration, the commissioner may conduct an investigation, during the interim period set forth in subdivision (e) of Section 12418.1, to determine if the applicant shall be granted the certificate of registration by virtue of prior conduct in the marketing of policies of title insurance and to verify the accuracy of the information submitted by the applicant to the department and may require the filing of any supplementary documents, affidavits, and statements that may be necessary to determine whether training specified in paragraph (2) of subdivision (b) of Section 12418.1 has been, or will be, provided to the applicant within the time period set forth in Section 12418.1. Should the commissioner decline to approve the granting of a certificate of registration, the procedure set forth in subdivision (c) of Section 12418.4 shall apply.
Each certificate of registration issued under this article shall be for a three-year period beginning on the date the certificate is issued.
Not less than 60 days before a certificate of registration will expire, the commissioner may mail or use an electronic delivery method, including email or other similar electronic method, to deliver an application to renew the certificate to the latest email or mailing address appearing on the registrant’s records. It shall be the responsibility of the registrant to renew his or her certificate, whether or not a renewal notice is received.
The application for renewal of an expired certificate of registration may be filed after the expiration date and until the same month and day of the next succeeding year. In addition to the fee for a renewal application, a delinquent application fee in the amount of fifty-eight dollars ($58) shall be assessed for each application for renewal filed after the expiration date. Each registrant shall be subject to payment of delinquent application fees under this subdivision. The commissioner may waive the delinquent application fee, or accept a renewal filed after the date specified in this subdivision, if the registrant’s failure to comply is due to clerical or other inadvertent error on the part of the department.
The department may revoke, suspend, restrict, or decline to issue a certificate of registration if it determines that the title marketing representative or applicant has violated provisions of Article 6 (commencing with Section 12404) pursuant to the due process and hearing requirements set forth in subdivision (c).
Except as provided in Section 1669, a certificate of registration shall not be denied, restricted, suspended, or revoked without a hearing conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
In addition to, or in lieu of, any other penalty that may be imposed under this article against a title marketing representative, the commissioner may bring an administrative action against a title marketing representative for any violation of the provisions of Article 6 (commencing with Section 12404). If a title marketing representative charged with a violation of Article 6 (commencing with Section 12404) is determined by the commissioner to have committed the violation, the commissioner may require the surrender of, temporarily suspend or revoke either permanently or temporarily the title marketing representative’s certificate of registration, and, in addition, may impose a monetary penalty. Any payment of a monetary penalty pursuant to a settlement or final adjudication shall be made from the title marketing representative’s personal funds and not by their employer either directly or through the title marketing representative. This article shall not preclude an action against a company that had actual knowledge of the violation by the title marketing representative. A title marketing representative who is issued a certificate of registration under this article may not engage in any activity that is otherwise prohibited through a separate entity controlled by the title marketing representative or by the company or entity that employs the title marketing representative.
A title marketing representative who has their certificate of registration revoked by the department shall not be permitted to reapply for another certificate of registration with the department for five years from the date of revocation.
CHAPTER 2A. Mortgage Guaranty Insurance [12640.01. - 12640.20.]
ARTICLE 1. Definitions [12640.01. - 12640.02.]
This chapter may be cited as the Mortgage Guaranty Insurance Act.
The definitions set forth in this article shall govern the construction of the terms used in this chapter but shall not affect any other provisions of this code.
“Mortgage guaranty insurance” means:
Insurance against financial loss by reason of nonpayment of principal, interest, and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust, or other instrument constituting a first lien or charge on real estate, provided the improvement on the real estate is a residential building or a condominium unit or buildings designed for occupancy by not more than four families.
Insurance against financial loss by reason of nonpayment of principal, interest, and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust, or other instrument constituting a junior lien or charge on real estate, provided the improvement on the real estate is a residential building or a condominium unit or building designed for occupancy by not more than four families.
Insurance against financial loss by reason of nonpayment of principal, interest, and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by a mortgage, deed of trust, or other instrument constituting a lien or charge on real estate, provided the improvement on the real estate is a building or buildings designed for occupancy by five or more families or designed to be occupied for industrial or commercial purposes.
Insurance against financial loss by reason of nonpayment of rent and other sums agreed to be paid under the terms of a written lease for the possession, use, or occupancy of real estate, provided the improvement on the real estate is a building or buildings designed to be occupied for industrial or commercial purposes.
“Authorized real estate security” for the purposes of this chapter means either (A) real estate, plus the balance of any pledged cash account, pledged borrower retirement account, or collateralized guaranty agreement contracted for by parents, blood relatives, employers, or nonprofit corporations for the benefit of the borrower; or (B) real estate securing a note, bond, or other evidence of indebtedness by a junior mortgage, deed of trust, or other instrument constituting a junior lien or charge on the real estate, which, when combined with all existing mortgage loan amounts, does not exceed a total indebtedness equal to 103 percent of the fair market value of the real estate at the time the junior loan is made, provided that, in determining the foregoing 103-percent limitation, if the loan securing the junior lien is an equity line of credit loan, the full amount of the line of credit to be secured by the junior lien shall be considered the amount of the loan, and further provided, in all cases that both of the following are true:
The real estate loan secured in this manner is any type of loan that a bank, savings association, mortgage banker, credit union, mortgage loan broker, or insurance company, which is supervised and regulated by a department of this state or an agency of the federal government, is authorized to make or arrange, or would be authorized to make or arrange, disregarding any requirement applicable to an institution that the amount of the loan not exceed a certain percentage of the value of the real estate.
The improvement on the real estate is a building or buildings designed for occupancy as specified by paragraphs (1), (2), and (3) of subdivision (a).
The lien on the real estate may be subject and subordinate to the following:
The lien of any public bond, assessment, or tax, when no installment, call, or payment of or under the bond, assessment, or tax is delinquent.
Outstanding mineral, oil or timber rights, rights-of-way, easements or rights-of-way or support, sewer rights, building restrictions or other restrictions or covenants, conditions or regulations of use, or outstanding leases upon the real property under which rents or profits are reserved to the owner thereof.
“Authorized real estate security” also means a stock or membership certificate issued to a tenant-stockholder or resident-member by a completed fee simple cooperative housing corporation, as defined in Section 17265 of the Revenue and Taxation Code and Section 216 of the United States Internal Revenue Code.
“Contingency reserve” means an additional premium reserve established for the protection of policyholders against the effect of adverse economic cycles.
“Policyholders surplus” means the aggregate of capital, surplus, and contingency reserve.
ARTICLE 2. Capital, Surplus and Contingency Reserve Requirements [12640.03. - 12640.06.]
An insurer shall not transact the business of mortgage guaranty insurance unless it has paid-in capital of at least one million dollars ($1,000,000) and paid-in surplus of at least one million dollars ($1,000,000).
In addition to the paid-in capital and surplus provided in Section 12640.03, each mortgage guaranty insurer shall establish a contingency reserve after establishment of the unearned premium reserve. There shall be an annual calculation of and contribution to the contingency reserve. The aggregate annual contribution shall be the greater of either 50 percent of the net earned premium or the policyholders surplus required to be established under Section 12640.05 divided by 10. There shall be provisional contributions, made on a quarterly basis, equal to 50 percent of the net earned premium for the preceding quarter.
The contributions to the contingency reserve made during each calendar year shall be maintained for a period of 120 months. That portion of the contingency reserve established and maintained for more than 120 months shall be released and shall no longer constitute part of the contingency reserve.
With the approval of the commissioner, withdrawals may be made from the contingency reserve when incurred losses exceed 35 percent of the total year-to-date net earned premium. Provisional withdrawals may be made on a quarterly basis from the contingency reserve in an amount not to exceed 75 percent of the withdrawal calculated in accordance with this subdivision.
With the approval of the commissioner, a mortgage guaranty insurer may withdraw from the contingency reserve any amounts which are in excess of the policyholders surplus required to be established under Section 12640.05 as indicated on the most recent annual statement filed pursuant to Section 923. In reviewing a request for withdrawal, the commissioner may consider those records that may be necessary to evaluate the request, including, but not limited to, records relating to loss development and trends. If any portion of the contingency reserve for which withdrawal is requested is maintained by a reinsurer, the commissioner may also consider the financial condition of the reinsurer. If any portion of the contingency reserve for which withdrawal is requested is maintained in a segregated account or segregated trust and withdrawal would result in funds being removed from the segregated account or segregated trust, the commissioner may also consider the financial condition of the reinsurer.
Releases and withdrawals from the contingency reserve shall be accounted for on a first-in-first-out basis.
The calculations to develop the contingency reserve shall be made in the following sequence:
The additions required by subdivision (a).
The releases required by subdivision (b).
The withdrawals permitted by subdivision (c).
The withdrawals permitted by subdivision (d).
The commissioner’s review of a request for withdrawal under subdivision (d) shall be conducted pursuant to his or her examination authority under Section 730 and at the expense of the insurer pursuant to Section 736. The commissioner shall make a finding, set forth within the documents approving any withdrawal, that the withdrawal, and any reduction in total assets that may follow the withdrawal of which the commissioner is aware at the time of his or her approval, will not reduce the cash or securities of the insurer in a manner that will materially, adversely impair the ability of the insurer to maintain its credit rating or meet future obligations.
A mortgage guaranty insurer shall maintain a policyholders surplus in an amount not less than the amount required by this section. The policyholders surplus shall be the calculated net of reinsurance ceded, but shall include reinsurance assumed. “Face amount of an insured mortgage” means the outstanding principal balance computed without any reduction because of an insurer’s option limiting its coverage, but shall exclude the outstanding principal balance of any loan that is in default and for which the insurer has established a loss reserve, provided that the loss reserve established for that loan is equal to or greater than the policyholders surplus the insurer would otherwise be required to establish with respect to that loan, pursuant to this section. Nothing in this subdivision limits the commissioner’s authority under Section 12640.04.
If a policy of mortgage guaranty insurance insures individual loans with a percentage claim settlement option on such loans, the insurer shall maintain a policyholders surplus based on each one hundred dollars ($100) of the face amount of the mortgage, the percentage coverage or claim settlement option, and the loan-to-value category.
The required amount of policyholders surplus shall be calculated in the following manner:
If the total indebtedness is greater than 75 percent of the value of the collateral property at the date of the insurance:
If the percent coverage is between any five-point increment, then the factor for policyholders surplus per one hundred dollars ($100) of the face amount of the mortgage shall be prorated.
If the total indebtedness is at least 50 percent and not more than 75 percent of the value of the collateral property at the date of insurance, the required amount of policyholders surplus shall be 50 percent of the amount required by paragraph (1) of subdivision (b).
If the total indebtedness is less than 50 percent of the value of the collateral property at the date of insurance, the required amount of policyholders surplus shall be 25 percent of the amount required by paragraph (1) of subdivision (b).
If a policy of mortgage guaranty insurance provides coverage on a group of loans subject to an aggregate loss limit, the policyholders surplus shall be:
If a policy of mortgage guaranty insurance provides for layers of coverage, deductibles or excess reinsurance, the required amount of policyholders surplus may be computed by subtraction of the required policyholders surplus for the lower percentage coverage limits from the required policyholders surplus for the upper or greater coverage limit.
If a policy of mortgage guaranty insurance provides for coverage on loans secured by second liens, the policyholders surplus shall be:
If the policy provides coverage on individual loans, the required amount of policyholders surplus shall be calculated according to subdivision (b) after the percent of coverage and the loan-to-value ratios have been determined as follows:
Divide the insured portion of the second loan by the entire loan indebtedness on the collateral property to determine the percent coverage.
Divide the entire loan indebtedness on the property by the value of the collateral property at the date of insurance to determine loan-to-value percent.
The face amount of insured mortgage shall mean the entire loan indebtedness on the property.
Equity shall mean the complement of the loan-to-value percent.
If the policy provides coverage on a group of loans subject to an aggregate loss limit, the policyholders surplus shall be calculated according to subdivision (c) after the percent of coverage and the loan-to-value ratios have been determined in accordance with paragraph (1).
If a policy of mortgage guaranty insurance provides for coverage on leases, the policyholders surplus shall be four dollars ($4) for each one hundred dollars ($100) of the insured amount of the lease.
If a mortgage guaranty insurer will not have the amount of policyholders surplus required by this section, it shall cease transacting new business until such time that its policyholders surplus is in compliance with this section. At least 60 days prior to the time the policyholders surplus is estimated to fall below the amount required by this section, the insurer shall notify the commissioner and may request a waiver of the requirements of this subdivision. If the commissioner fails to issue an order in response to the waiver request within 60 days after the insurer requests a waiver, the insurer may continue transacting new business in California until the commissioner issues an order. The commissioner may retain consultants, including accountants, actuaries, or other experts, to assist the commissioner in the review of the information reasonably necessary to evaluate the waiver request made pursuant to this subdivision, and the insurer shall bear the commissioner’s cost of retaining those consultants. The insurer shall reimburse the commissioner for the cost of a hearing held pursuant to this subdivision unless the insurer has expressly waived the right to a hearing. Nothing in this subdivision is intended to limit the commissioner’s authority under any other provision of this code.
An insurer who notifies the commissioner within 10 business days following the effective date of this section that its policyholders surplus is estimated to fall below the amount required by this section shall be deemed to have complied with the 60-day notice required by subdivision (1).
A mortgage guaranty insurer shall not declare any dividends except from undivided profits remaining on hand over and above the aggregate of its paid-in capital, paid-in surplus and contingency reserve.
ARTICLE 4. Limitations and Restrictions for Transacting Business [12640.07. - 12640.11.]
Mortgage guaranty insurance may be transacted in this state only by a stock or mutual casualty insurer holding a certificate of authority for the transaction of the insurance pursuant to this chapter, and shall be written only to insure either of the following:
Loans secured by first liens on authorized real estate securities not exceeding, at the time the loan is made, 103 percent of the fair market value of the authorized real estate security, as defined in subparagraph (A) of paragraph (1) of subdivision (b) of Section 12640.02.
Loans secured by junior liens, as defined in subparagraph (B) of paragraph (1) of subdivision (b) of Section 12640.02.
Any reciprocal insurer engaging in this type of business shall be bound by all provisions of this chapter, including the requirements as to paid-in capital and paid-in surplus.
A mortgage guaranty insurer shall not insure loans secured by properties in a single housing tract or a contiguous tract in excess of ten (10) percent of the insurer’s policyholders surplus. In determining the amount of such risk, applicable reinsurance in any assuming insurer authorized to transact mortgage guaranty insurance in this State shall be deducted from the total direct risk insured. “Contiguous,” for the purposes of this section, means not separated by more than one-half mile.
A mortgage guaranty insurer shall limit its coverage for the class of insurance defined in paragraph (3) of subdivision (a) of Section 12640.02 to no more than a net of 30 percent at risk of the entire indebtedness to the insured or, a mortgage guaranty insurer may elect to pay the entire indebtedness to the insured and acquire title to the authorized real estate security.
A mortgage guaranty insurer shall limit its coverage for the class of insurance defined in paragraph (2) of subdivision (a) of Section 12640.02, to no more than a net of 30 percent of risk of the combined indebtedness of all existing mortgage loan amounts secured by all liens or charges on the real estate. Instead, a mortgage guaranty insurer may elect to pay the entire indebtedness to the insured and acquire title to the authorized real estate security.
Notwithstanding paragraph (1), a mortgage guaranty insurer may elect to insure a portfolio of loans secured by instruments constituting junior liens on real estate, if the total amount at risk in any one portfolio shall not at any time exceed 20 percent of the original principal amount of mortgage loans secured by junior liens.
If the borrower is required to pay the cost of insurance written under paragraph (1) or (2), the lender shall disclose in writing to the borrower that the borrower is not a party to or a beneficiary of the mortgage guaranty insurance policy.
Notwithstanding subdivision (a) and paragraph (1) of subdivision (b), if Freddie Mac or Fannie Mae increases the required amount of mortgage guaranty insurance, the commissioner may adopt regulations to increase the maximum coverage limitation of a mortgage guaranty insurer to an amount not to exceed a net of 35 percent of risk of the entire indebtedness.
Notwithstanding subdivision (a) or (b), a mortgage guaranty insurer may extend its coverage for the class of insurance defined in paragraphs (2) and (3) of subdivision (a) of Section 12640.02 beyond the limits established by subdivisions (a) and (b) of this section, if the excess is insured by a contract of reinsurance.
A mortgage guaranty insurer, which may be under common control with the ceding mortgage guaranty insurer, but which does not own, and is not owned by, in whole or in part, directly or indirectly, the ceding mortgage guaranty insurer.
An insurer or reinsurer, that may be under common control with the ceding mortgage guaranty insurer, but that is not owned by, in whole or in part, directly or indirectly, the ceding mortgage guaranty insurer or another mortgage guaranty insurer, that writes any type or types of insurance or reinsurance and that meets the following requirements:
Has paid-in capital and paid-in surplus totaling at least thirty-five million dollars ($35,000,000).
Derives, on an annual basis, at least 50 percent of its premium income from reinsurance; or, alternatively, derives at least twenty-five million dollars ($25,000,000) of premium income per year from reinsurance.
This section does not apply to the California Housing Loan Insurance Fund or to any program it may develop in conjunction with any federal or federally sponsored mortgage lender or insurer.
In order to qualify as a segregated trust under subdivision (d) of Section 12640.09, a trust shall meet all of the following requirements:
Be established by an insurer or reinsurer for the benefit of the ceding mortgage guaranty insurer.
Have the trust assets located in the mortgage guaranty insurer’s state of domicile, in the State of California, or in another jurisdiction which is approved by the commissioner.
Be funded by assets permitted by Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1, or by tax and loss bonds purchased pursuant to Section 832(e) of the Internal Revenue Code.
Be subject to withdrawals only by, and under the control of, the ceding mortgage guaranty insurer provided that written notification with adequate supporting documentation is filed with the commissioner within 15 calendar days after the withdrawal.
Consent to and be subject to examination by the commissioner.
Appoint an agent for service of process in the State of California and file the appointment with the commissioner within 30 calendar days after the effective date.
The trust agreement and any amendments to it shall be filed with the commissioner within 30 calendar days after its effective date. The commissioner may order a prospectively applicable modification, correction, disapproval, or termination of any trust arrangement, agreement, or amendment which fails to meet the requirements set forth in this chapter. Any order of the commissioner shall be in writing and shall specify the reasons for the modifications, corrections, disapproval, or termination.
The ceding mortgage guaranty insurer shall make quarterly, annual, and interim reports on the segregated trust account at the time as they are required or requested by the commissioner on forms prescribed by the commissioner.
The commissioner may adopt rules and regulations necessary to carry out the provisions of this section including appropriate rules or regulations to assure that the trust assets are legally segregated, reasonably liquid, secure, and accessible.
A mortgage guaranty insurer transacting the class of insurance defined in paragraph (2) of subdivision (a) of Section 12640.02 may reinsure with either the type of reinsurer defined in subdivision (d) of Section 12640.09, or, any other insurer which has received written permission from the commissioner to write the type of insurance defined in paragraph (2) of subdivision (a) of Section 12640.02.
An insurer that anywhere transacts any class of insurance other than mortgage guaranty insurance defined in paragraphs (1), (3), and (4) of subdivision (a) of Section 12640.02 is not eligible for the issuance of a certificate of authority to transact those classes of mortgage guaranty insurance in this state nor for the renewal thereof. An insurer with a certificate of authority to transact the business of credit insurance in this state may also transact the business of mortgage guaranty insurance as defined in paragraph (2) of subdivision (a) of Section 12640.02, provided the insurer has received the written permission of the commissioner.
An insurer that anywhere transacts the classes of insurance defined in paragraphs (2), (3), and (4) of subdivision (a) of Section 12640.02 is not eligible for the issuance of a certificate of authority to transact in this state the class of mortgage guaranty insurance defined in paragraph (1) of subdivision (a) of Section 12640.02.
An insurer authorized to transact the class of insurance defined in paragraph (2) of subdivision (a) of Section 12640.02 shall maintain segregated accounts with respect to that insurance in the following manner if it anywhere transacts any other class of insurance:
The income and assets attributable to the segregated account shall continuously remain identifiable with the particular account, but, unless the commissioner so orders, the assets need not be kept physically separate from other assets of the insurer. The income, gains, and losses, whether or not realized, from assets attributable to the segregated account shall be credited to or charged against the account without regard to other income, gains, or losses of the insurer.
Assets attributable to the segregated account shall not be chargeable with any liabilities arising out of any other business of the insurer, and any assets not attributable to the account shall not be chargeable with any liabilities arising out of it.
The segregated account shall be deemed an insurer for purposes of any proceedings in cases of insolvency and delinquency instituted, pursuant to applicable provisions of this code; provided, however, that account shall not be subject to the provisions of Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1.
Assets allocated to the segregated account are the property of the insurer, which shall not hold itself out to be a trustee of the assets.
An insurer may own a particular asset in determinate proportions for that segregated account or for its general account.
An insurer may, by an identifiable act, transfer assets for fair consideration between its segregated account and its general account.
The written permission described in subdivision (a) shall be obtained by filing an application with the commissioner on a form prescribed by the commissioner accompanied by any additional information concerning the insurer, its conditions, and affairs, as the commissioner may require. A fee of two thousand two hundred forty-one dollars ($2,241) shall be paid in advance to the department for the filing of the application.
Nothing in this chapter (commencing with Section 12640.01) shall be construed as limiting the right of any mortgage guaranty insurer to impose reasonable requirements upon the lender with regard to the terms of any note or bond or other evidence of indebtedness secured by a mortgage or deed of trust, such as requiring a stipulated down payment by the borrower.
All statements and descriptions in any application for mortgage guaranty insurance or in negotiations for that insurance, and all documents relating thereto, submitted to the mortgage guaranty insurer shall be deemed to be representations and not warranties. Furthermore, misrepresentations and incorrect or incomplete statements in any such application, negotiations, and all documents relating thereto shall not prevent a recovery under a policy of mortgage guaranty insurance unless:
Fraudulent; or
Material either to the acceptance of the risk or to the hazard assumed by the insurer; or
The insurer in good faith would either not have issued the mortgage guaranty insurance policy or extended coverage thereunder, or would not have issued the policy or extended coverage in as large an amount or at the premium rate as applied for or would not have provided coverage with respect to the hazard resulting in the loss if the true facts had been known to the insurer as required by the application for the policy or for the extension of coverage or otherwise.
ARTICLE 5. Rebates and Commissions [12640.12. - 12640.15.]
Every mortgage guaranty insurer shall adopt, print and make available a schedule of premium charges for mortgage guaranty insurance policies. The schedule shall show the entire amount of premium charge for each type of mortgage guaranty insurance policy issued by the insurer.
No mortgage guaranty insurer shall pay to any person who is acting as agent, representative, attorney or employee of the owner, mortgagee of the prospective owner, or mortgagee of the real property or any interest therein, either directly or indirectly, any commission, or any part of its premium charges or any other consideration as an inducement for or as compensation on any mortgage guaranty insurance business.
Notwithstanding subdivision (a), or the provisions of Section 751, activities of mortgage guaranty insurers in dealing with the secondary mortgage market, which are made available to the mortgage lending industry, whether insureds or not, shall not be deemed to be unlawful rebates or commissions. Included, but not limited to such activities, are the following:
Services provided for the purpose of assisting in the purchase or sale of mortgage loans in the secondary market.
Preparation of forms necessary for the sale of mortgage loans in the secondary mortgage market.
Educational seminars dealing with issues affecting the mortgage lending industry.
No mortgage guaranty insurer shall make any rebate of any portion of the premium charge shown by the schedule required by Section 12640.12. No mortgage guaranty insurer shall quote any premium charge to any person which is less than that currently available to others for the same type of mortgage guaranty insurance policy. The amount by which any premium charge is less than that called for by the current schedule of premium charges is an unlawful rebate.
No mortgage guaranty insurer shall pay any compensation to any person for transacting insurance for or with it based in whole or in part upon a commission basis unless such person is licensed pursuant to and subject to all the provisions of and restrictions in Chapter 5, Part 2, Division 1 of this code. This section shall not be construed so as to affect the meaning of any other provisions of this article.
The commissioner may after a hearing suspend or revoke the certificate of authority of any mortgage guaranty insurer which, after 10 days written notice from the commissioner requiring it to cease and desist, continues to pay any commission or to make any unlawful rebate in willful violation of the provisions of this article (commencing with Section 12640.12). The hearings of the commissioner shall be conducted in accordance with the Administrative Procedure Act, Chapter 5, Part 1, Division 3, Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
ARTICLE 6. Financial Statements [12640.16. - 12640.16.]
The provisions of Article 10 (commencing with Section 900), Chapter 1, Part 2, Division 1, relating to financial statements, shall apply to mortgage guaranty insurers.
The unearned premium reserve shall be computed in accordance with the other applicable sections of this code, except that on all policies covering a risk period of more than one year the unearned premium reserve shall be computed in accordance with standards promulgated by the commissioner after appropriate hearings.
In addition to the contingency reserve required under Section 12640.04, the case basis method shall be used to determine the loss reserve, which shall include a reserve for claims reported and unpaid and claims incurred but not reported, including:
Estimated losses on insured loans which have resulted in the conveyance of property which remains unsold.
Insured loans in the process of foreclosure.
Insured loans in default for four or more months.
ARTICLE 7. Applicability of Other Laws [12640.17. - 12640.17.]
All the applicable provisions of this code and of other statutes of this state, except as the same may be in conflict herewith, shall apply to the operation and conduct of the business authorized by this chapter.
ARTICLE 8. Additional Powers of Commissioner [12640.18. - 12640.18.]
The commissioner may adopt, pursuant to Chapter 3.5 (commencing with Section 11340 ) of Part 1 of Division 3 of Title 2 of the Government Code, such reasonable rules and regulations as may be necessary to carry out the provisions of this chapter, including, but not limited to, appropriate restrictions as to investments, giving full consideration to the desirability of high liquidity.
ARTICLE 9. Advertising [12640.19. - 12640.19.]
No bank, savings and loan association or insurance company, any of whose authorized real estate securities are insured by mortgage guaranty insurance pursuant to this chapter (commencing with Section 12640.01) may state in any brochure, pamphlet, report or any form of advertising that the real estate loans of the bank, savings and loan association or insurance company are “insured loans” unless the brochure, pamphlet, report or advertising also clearly states that the loans are insured by private insurers and the names of the private insurers are given and shall not make any such statement at all unless such insurance is by an insurer certificated to write in this State.
ARTICLE 10. Fees [12640.20. - 12640.20.]
The commissioner shall collect in advance a fee of four hundred seventy-two dollars ($472) from each mortgage guaranty insurer for the examination and analysis of the reinsurance contracts, final prospectus, and private placement memorandum filed with the commissioner after the issuance of a pool insurance policy.
CHAPTER 3. Land Value Insurance [12660. - 12661.]
Any person who in this state engages in the business of guaranteeing or insuring land values, or who solicits or negotiates in this state for the purpose of, or in any manner aids, any person within or without this state to engage in such business, is guilty of a public offense and punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not exceeding one year, or by fine not exceeding ten thousand dollars ($10,000), or by both that fine and imprisonment.
The commissioner may suspend or revoke or may deny any license or certificate issued under any provision of this code in any case where the applicant or licensee or certificate holder has committed an act denounced by section 12660.
PART 6.1. HEALTH DISABILITY INSURANCE CONVERSION [12670. - 12692.5.]
It is the intent of the Legislature to ensure that persons covered by a group policy, who become ineligible for that coverage have access to benefits pursuant to this part by requiring employers, employee organizations, and other entities that provide that coverage to their employees or members to also make available conversion policies for those persons and to ensure that insurers as herein defined offer conversion policies. The conversion policy shall be the most popular preferred provider organization product offered to residents of this state under the provisions of the federal Health Insurance Portability and Accountability Act of 1996. In addition, it is the intent of the Legislature to encourage the continuation of group health coverage by requiring the entities herein defined to make available continuation benefits for widows, widowers, divorced spouses, and dependents who were covered by the group policy on the date of termination of coverage.
As used in this part, the following terms have the following meanings:
“Group policy” means a group health insurance policy providing medical, hospital, surgical, major medical, or comprehensive medical coverage issued by an insurer, a group contract issued by a hospital service corporation, or medical, hospital, surgical, major medical, or comprehensive medical coverage otherwise provided by a policyholder to its employees or members, except for self-insurance programs provided by employers that are not exempt from the federal Employee Retirement Income Security Act of 1974 (ERISA), as specified in subdivision (i). For the purposes of this part, a group policy not having an established annual renewal date shall be considered renewed on each anniversary of its effective date.
“Conversion coverage” means health insurance benefits providing hospital, surgical, major medical, or comprehensive medical coverage issued to an individual under a converted policy.
“Converted policy” means a policy or contract providing conversion coverage issued by an insurance company or by a hospital service corporation, or individual hospital, surgical, major medical, or comprehensive medical coverage otherwise provided by a policyholder to its employees or members.
“Insurer” means the entity issuing a group policy, an individual or converted policy, a hospital service contract or an employer or employee organization otherwise providing medical, hospital, surgical, major medical, or comprehensive medical coverage to its employees or members.
“Insurance” refers to health insurance, major medical, or comprehensive coverage paid by premium or contribution under a group policy, a hospital service contract, or as otherwise provided by a policyholder to its employees or members other than by self-insuring except in the case of a plan that is exempt from ERISA, but does include an employer plan that is exempt from ERISA as specified in subdivision (i). “Insurance” does not include any of the following:
Coverage provided solely as an accrued liability or by reason of a disability extension.
Medicare supplement insurance.
Vision-only insurance.
Dental-only insurance.
CHAMPUS supplement insurance.
Hospital indemnity insurance.
Accident-only insurance.
Short-term limited duration health insurance. “Short-term limited duration health insurance” means health insurance coverage provided pursuant to a health insurance policy that has an expiration date specified in the policy that is less than 12 months after the original effective date of the coverage.
Specified disease insurance that does not pay benefits on a fixed benefit, cash payment only basis.
“Policyholder” means the holder of a group policy issued by an insurer, a holder of a group contract issued by a hospital service corporation or an employer, employee association, or other entity otherwise providing medical, hospital, surgical, major medical, or comprehensive medical coverage on a group basis to its employees or members.
“Premium” means contribution or other consideration paid or payable for coverage under a group policy or converted policy.
“Medicare” means Title XVIII of the United States Social Security Act as added by the Social Security Amendments of 1965 or as later amended or superseded.
“Employer plan that is exempt from ERISA” means an employer plan that, pursuant to Section 1003 of Title 29 of the United States Code, is not covered by or that is exempt from Subchapter I (commencing with Section 1001) of Chapter 18 of Title 29 of the United States Code, except that, in the case of a governmental plan, it only includes a self-insured governmental plan as defined in subdivision (j).
“Self-insured governmental plan” means a self-insured plan established or maintained for its employees by a public entity, as defined in Section 811.2 of the Government Code, that is a governmental plan as defined in subdivision (32) of Section 1002 of Title 29 of the United States Code.
Any group policy issued, amended, or renewed in this state on or after January 1, 1983, which provides insurance for employees or members on an expense-incurred or service basis, other than for a specific disease or for accidental injuries only, shall contain a provision that an employee or member whose coverage under the group policy has been terminated for any reason except as provided in this part, shall be entitled to have a converted policy issued to him or her by the insurer under whose group policy he or she was covered, without evidence of insurability, subject to the terms and conditions of this part.
This section shall be inoperative on January 1, 2014.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Sec. 300gg-91), this section shall become operative on the date of that repeal or amendment.
For purposes of this subdivision, “PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
Conversion coverage shall be required to be made available to an employee or member unless such coverage under the group policy terminates for one or more of the following reasons:
The group policy or the policyholder’s participation in the group policy terminates and the insurance is replaced by similar coverage under another group policy within 60 days of the date of termination of the group coverage or the policyholder’s participation.
The employee or member has failed to make any required payment of the premium or contribution when due.
The employee or member had not been continuously covered during the three-month period immediately preceding the employee’s or member’s termination of coverage.
A converted policy shall be issued effective on the day following the termination of coverage under the group policy if written application and the first premium payment for the conversion policy are made to the insurer not later than 31 days after the termination of insurance, unless such requirements are waived in writing by the insurer.
The premium for the conversion coverage shall be determined in accordance with the insurer’s rates applicable to the age and class of risk of each person to be covered and to the type and amount of coverage provided.
The conversion coverage shall cover the employee or member and his or her dependents who were covered by the group policy on the date of termination of coverage. At the option of the insurer, a separate converted policy may be issued to cover any dependent.
The insurer shall not be required to issue a converted policy covering any person if such person is entitled to be covered by Medicare.
The insurer shall not be required to issue a converted policy covering any person if any of the following exists:
The person is covered for similar benefits by another individual policy.
The person is covered or is eligible to be covered for similar benefits by another group policy.
The person is covered or is eligible to be covered for similar benefits under any arrangement of coverage for persons in a group whether insured or uninsured.
A converted policy may provide that the insurer may at any time request information from any person covered thereunder as to whether he or she is covered for the similar benefits described in Section 12678. The converted policy shall provide that as of any premium due date the insurer may refuse to renew the policy or the coverage of any insured person for the following reasons only:
Failure of the individual covered by the converted policy to provide the requested information.
Fraud or material misrepresentation by the individual covered by the converted policy in applying for any benefits under the converted policy.
Eligibility of the individual covered by the converted policy for coverage under Medicare or under any other state or federal law providing for benefits similar to those provided by the converted policy. As used in this section, “state or federal law” does not include Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code, or Title XIX of the United States Social Security Act.
Nonpayment of premium.
Coverage of the individual for similar benefits under another individual policy.
Eligibility of the individual covered by the converted policy for coverage under any arrangement for coverage for persons in a group whether insured or uninsured.
Other reasons approved by the Insurance Commissioner.
If conversion coverage is issued and benefits are also provided to a person under Section 12678, the insurer may limit the conversion benefits provided or available for such person so that such conversion benefits together with benefits provided or available from the sources referred to in Section 12678 shall not exceed 100 percent of the charges for covered benefits. Priority of any coverages involved shall be determined by the effective dates, the earlier one being first.
An insurer shall not be required to issue a converted policy providing benefits in excess of those provided under the group policy from which conversion is made.
The converted policy shall not exclude, as a preexisting condition, any condition covered by the group policy. The converted policy may provide for a reduction of its benefits by the amount of any such benefits payable under the group policy after the individual’s insurance terminates thereunder. The converted policy may also provide that during the first policy year the benefits payable under the converted policy, together with the benefits payable under the group policy, shall not exceed those that would have been payable had the individual’s coverage under the group policy remained in effect.
This section does not apply to a policy that primarily or solely supplements Medicare. The commissioner may adopt rules consistent with federal law to govern the discontinuance and replacement of plan policies that primarily or solely supplement Medicare.
Every group policy entered into, amended, or renewed on or after September 1, 2003, that provides hospital, medical, or surgical expense benefits for employees or members shall provide that an employee or member whose coverage under the group policy has been terminated by the employer shall be entitled to convert to nongroup membership, without evidence of insurability, subject to the terms and conditions of this section.
If the health insurer provides coverage under an individual health insurance policy, other than conversion coverage under this part, it shall offer one of the two health insurance policies that the insurer is required to offer to a federally eligible defined individual pursuant to Section 10785. The health insurer shall provide this coverage at the same rate established under Section 10901.3 for a federally eligible defined individual.
If the health insurer does not provide coverage under an individual health insurance policy, it shall offer a health benefit plan contract that is the same as a health benefit contract offered to a federally eligible defined individual pursuant to Section 1366.35. The health insurer shall offer the most popular preferred provider organization plan that has the greatest number of enrolled individuals for its type of plan as of January 1 of the prior year, as reported by plans by January 31, 2003, and annually thereafter, that provide coverage under an individual health care service plan contract to the department or the Department of Managed Health Care. A health insurer subject to this paragraph shall provide this coverage with the same cost-sharing terms and at the same premium as a health care service plan providing coverage to that individual under an individual health care service plan contract pursuant to Section 1399.805. The health insurer shall file the health benefit plan contract it will offer, including the premium it will charge and the cost-sharing terms of the contract, with the Department of Insurance.
A conversion policy shall not be required to be made available to an employee or insured if termination of his or her coverage under the group policy occurred for any of the following reasons:
The group policy terminated or an employer’s participation terminated and the insurance is replaced by similar coverage under another group policy within 15 days of the date of termination of the group coverage or the employer’s participation.
The employee or insured failed to pay amounts due the health insurer.
The employee or insured was terminated by the health insurer from the policy for good cause.
The employee or insured knowingly furnished incorrect information or otherwise improperly obtained the benefits of the policy.
The employer’s hospital, medical, or surgical expense benefit program is self-insured.
A conversion policy is not required to be issued to any person if any of the following facts are present:
Benefits of a conversion policy shall meet the requirements for benefits under this chapter.
Unless waived in writing by the insurer, written application and first premium payment for the conversion policy shall be made not later than 63 days after termination from the group. A conversion policy shall be issued by the insurer which shall be effective on the day following the termination of coverage under the group contract if the written application and the first premium payment for the conversion contract are made to the insurer not later than 63 days after the termination of coverage, unless these requirements are waived in writing by the insurer.
The conversion policy shall cover the employee or insured and his or her dependents who were covered under the group policy on the date of their termination from the group.
A notification of the availability of the conversion coverage shall be included in each evidence of coverage or other legally required document explaining coverage. However, it shall be the sole responsibility of the employer to notify its employees of the availability, terms, and conditions of the conversion coverage which responsibility shall be satisfied by notification within 15 days of termination of group coverage. Group coverage shall not be deemed terminated until the expiration of any continuation of the group coverage. For purposes of this subdivision, the employer shall not be deemed the agent of the insurer for purposes of notification of the availability, terms, and conditions of conversion coverage.
As used in this section, “hospital, medical, or surgical benefits under state or federal law” do not include benefits under Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code, or Title XIX of the United States Social Security Act.
On and after January 1, 2014, and except as provided in paragraph (2), this section shall not apply to any health insurance policies.
If Section 5000A of the Internal Revenue Code, as added by Section 1501 of PPACA, is repealed or amended to no longer apply to the individual market, as defined in Section 2791 of the federal Public Health Service Act (42 U.S.C. Section 300gg-91), paragraph (1) shall become inoperative on the date of that repeal or amendment and this section shall apply to health insurance policies issued, renewed, or amended on or after that date.
For purposes of this subdivision, “PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
At least 60 days prior to the policy renewal date, an insurer that does not otherwise issue individual health insurance policies shall issue the notice described in paragraph (2) to any policyholder of an individual health insurance policy issued pursuant to Section 12682.1 that is not a grandfathered health plan.
The notice shall be in at least 12-point type and shall include all of the following information:
Notice that, as of the renewal date, the individual policy will not be renewed.
The availability of individual health coverage through Covered California, including at least all of the following:
That, beginning on January 1, 2014, individuals seeking coverage may not be denied coverage based on health status.
That the premium rates for coverage offered by a health care service plan or a health insurer cannot be based on an individual’s health status.
That individuals obtaining coverage through Covered California may, depending upon income, be eligible for premium subsidies and cost-sharing subsidies.
That individuals seeking coverage must obtain this coverage during an open or special enrollment period, and describe the open and special enrollment periods that may apply.
At least 60 days prior to the policy renewal date, an insurer that issues individual health insurance policies shall issue the notice described in paragraph (2) to a policyholder of an individual health insurance policy issued pursuant to Section 10785 or 12682.1 that is not a grandfathered health plan.
The notice shall be in at least 12-point type and shall include all of the following:
Notice that, as of the renewal date, the individual policy shall not be renewed.
Information regarding the individual health insurance policy that the insurer will issue as of January 1, 2014, which the insurer has reasonably concluded is the most comparable to the individual’s current policy. The notice shall include information on premiums for the possible replacement policy and instructions that the individual can continue their coverage by paying the premium stated by the due date.
Notice of the availability of other individual health coverage through Covered California, including at least all of the following:
That, beginning on January 1, 2014, individuals seeking coverage may not be denied coverage based on health status.
That the premium rates for coverage offered by a health care service plan or a health insurer cannot be based on an individual’s health status.
That individuals obtaining coverage through Covered California may, depending upon income, be eligible for premium subsidies and cost-sharing subsidies.
That individuals seeking coverage must obtain this coverage during an open or special enrollment period, and describe the open and special enrollment periods that may apply.
No later than September 1, 2013, the commissioner, in consultation with the Department of Managed Health Care, shall adopt uniform model notices that health insurers shall use to comply with subdivisions (a) and (b) and Sections 10127.16, 10786, and 10965.13. Use of the model notices shall not require prior approval by the department. The model notices adopted for purposes of this section shall not be subject to the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The commissioner may modify the wording of these model notices specifically for purposes of clarity, readability, and accuracy.
The notices required under this section are vital documents, pursuant to clause (iii) of subparagraph (B) of paragraph (1) of subdivision (b) of Section 10133.8, and shall be subject to the requirements of that section.
For purposes of this section, the following definitions shall apply:
“Covered California” means the California Health Benefit Exchange established pursuant to Section 100500 of the Government Code.
“Grandfathered health plan” has the same meaning as that term is defined in Section 1251 of PPACA.
“PPACA” means the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152), and any rules, regulations, or guidance issued pursuant to that law.
Subject to the provisions and conditions of this part, if the group policy from which conversion is made covers the employee or member for basic hospital or surgical expense, the employee or member shall be entitled to obtain a converted policy providing at least the following minimum benefits:
Plan A.
Hospital room and board daily expense benefits up to two hundred dollars ($200) for a duration of 70 days.
Miscellaneous hospital expense benefits up to an amount of 10 times the hospital room and board daily expense benefits.
Surgical expense benefits according to a surgical procedures schedule consistent with those customarily offered by the insurer under a group or individual health insurance policy and providing a maximum benefit of four thousand eight hundred dollars ($4,800).
Plan B—75 percent of the dollar amounts of Plan A.
Plan C—50 percent of the dollar amounts of Plan A.
The maximum dollar amount for Plan A’s hospital room and board daily expense and surgical benefit may be redetermined by the Insurance Commissioner as to conversion coverage issued subsequent to that redetermination. The redetermination shall not be made more often than once in three years. The maximum dollar amount redetermined by the commissioner for hospital room and board shall not exceed 80 percent of the average semiprivate room rate then charged in the state.
Covered expenses under this section shall include benefits for expense incurred by the employee, member, or spouse in connection with pregnancy, provided that:
The pregnancy commenced while covered under the group policy from which conversion was made.
The expense is of a type which would have been covered under such group policy.
The conversion policy is in force when the expense is incurred.
Subject to the provisions and conditions of this part, if the group policy from which conversion is made provides the employee or member with major medical or comprehensive medical insurance, the employee or member shall be entitled to obtain a converted policy providing comprehensive medical coverage providing at least the following benefits:
A payment per covered person for all covered medical expenses incurred during the person’s lifetime equal to one hundred thousand dollars ($100,000); provided, however, that for treatment of mental illness payment may be limited to ten thousand dollars ($10,000) during the person’s lifetime.
Payment of benefits at the rate of 75 percent of covered medical expenses; provided, however, that if coverage is provided for expenses incurred for outpatient treatment of mental illness, payment of benefits may be at the rate of 50 percent of such covered expenses, and the insurer may limit the amount of covered expense for each outpatient visit and the amount of benefits payable for expenses incurred during each calendar year for that outpatient treatment.
A cash deductible for each benefit period at the option of the insured of two hundred dollars ($200), five hundred dollars ($500), or one thousand dollars ($1,000), but not less than the cash deductible which applied to the insured under the group policy which entitles him or her to a converted policy.
Covered medical expenses shall include the charges for a semiprivate hospital room and board, but need not exceed the lesser of two hundred dollars ($200) per day or the hospital’s most common charge for a semiprivate room, covered expenses for intensive care shall be at least two and one-half times the covered hospital room and board charge. The maximum dollar amount for hospital room and board daily covered expense may be redetermined by the commissioner as to conversion coverage issued after the redetermination. That redetermination shall not be made more often than once in three years. The maximum dollar amount redetermined by the commissioner shall not exceed the average semiprivate room rate then charged in the state.
Covered expenses under this section shall include benefits for expense incurred by the employee, member, or spouse in connection with pregnancy, provided that:
The pregnancy commenced while covered under the group policy from which conversion was made.
The expense is of a type which would have been covered under such group policy.
The conversion policy is in force when the expense is incurred.
Covered expense under this section need not include expense for dental or vision care, or other optional benefits not normally offered by the insurer under a major medical or comprehensive medical expense plan.
The insurer may, at its option, offer alternative plans for group health conversion in addition to those required by this part.
In the event coverage would be continued under a group policy on an employee or member following his or her retirement prior to the time he or she is or could be covered by Medicare, the employee or member may elect, in lieu of the continuation of group insurance, to have the same conversion rights as would apply had that coverage terminated at retirement by reason of termination of employment or membership.
The converted policy may provide for reduction or termination of coverage of any person upon his or her eligibility for coverage under Medicare or under any other state or federal law providing for benefits similar to those provided by the converted policy. As used in this section, “state or federal law” does not include Chapter 7 (commencing with Section 14000) or Chapter 8 (commencing with Section 14200) of Part 3 of Division 9 of the Welfare and Institutions Code, or Title XIX of the United States Social Security Act.
Subject to the conditions set forth herein, the conversion coverage shall also be available to:
A covered dependent spouse and such children whose coverage terminates under the group policy by reason of the death of the employee or member, or a covered dependent spouse in the event such person ceases to be a qualified family member by reason of the termination of the marriage.
A child, solely with respect to himself or herself, whose coverage terminates because the child ceases to be a qualified family member under the group policy.
The insurer may elect to provide conversion coverage through a group insurance policy issued for that purpose in lieu of an individual policy.
An insurer required by this part to provide conversion coverage may provide such coverage through one or more other insurers authorized to provide disability insurance coverage in this state.
Notwithstanding any other provision in this part, whenever an employee or member chooses among two or more conversion policies, such choice shall be made within 31 days from the last date when the employee or member was eligible for benefits under a group policy from which conversion is available.
Notwithstanding any provision in this part to the contrary, a hospital service corporation or any insurer which customarily offers individual conversion coverage on a service basis may, in lieu of the expense incurred conversion coverage provided in Sections 12683 and 12684, make available conversion coverage on a service basis which complies with the intent of this part as approved by the commissioner.
A notification of the conversion coverage shall be included in each certificate of coverage or other legally required document explaining coverage; provided, however, that it shall be the sole responsibility of the policyholder to notify its employees or members of the availability, terms and conditions of conversion coverage which responsibility shall be satisfied by notification within 15 days of termination of group coverage. Group coverage shall not be deemed terminated until the expiration of any continuation of the group coverage. For purposes of this part, the policyholder shall not be deemed to be the agent of the insurer for purposes of notification of the availability, terms and conditions of conversion coverage.
Nothing in this part shall prohibit insurers from establishing one or more pools from which the converted policies provided for on this part may be issued.
A converted policy which is delivered in a jurisdiction other than this state may be in a form which could be delivered in such jurisdiction as a converted policy had the group policy been issued in such jurisdiction.
On and after January 1, 1985, every insurer and nonprofit hospital service plan issuing group disability insurance which covers hospital, medical, or surgical expenses shall offer to group policyholders a continuation benefit which, if selected, shall have a duration of at least 90 days and which shall be offered consecutively to any federal requirement for continuation benefits. The terms and conditions shall include continuation benefit coverage for widows, widowers, divorced or legally separated spouses, spouses of covered employees becoming entitled to benefits under Title XVIII of the Social Security Act, and their dependents, including dependent children who cease to be dependent children under the plan, who were covered by the group contract on the date of termination of coverage. However, any existing provisions of law regarding termination of a dependent child status shall not be affected by this section.
The continuation of coverage shall be available only under the following conditions:
Those eligible remain within the State of California, although the departure of a dependent child to another state shall not invalidate the continuation provisions for any other family members.
Those eligible do not marry or remarry, although the marriage of any dependent child shall not invalidate the continuation provisions for other family members.
Those eligible are not eligible for any comparable state, federal, or private group medical plan, although the eligibility of any dependent child shall not invalidate the continuation provisions for other family members.
Those eligible do not find employment with an employer that has a group plan of its own, even if the plan is less substantive, although the entry into such an employee plan by a dependent child shall not invalidate the continuation provisions for other family members.
The group policy is not terminated or the employer’s participation in the group policy is not terminated.
Those eligible do not knowingly furnish incorrect information or otherwise improperly obtain the benefits of the plan.
The continuing individual shall pay the premium amount in the manner specified in the group policy for both his or her share of the premium and the group policyholder’s share, if any.
Eligible persons under this section shall be notified in the same manner required for conversion notification pursuant to Section 12689. Every insurer shall communicate the availability of such coverage to all group policyholders and to all prospective group policyholders with whom they are negotiating.
Notwithstanding any other provision of this part, Sections 12672, 12673, 12674, 12675, 12676, 12677, 12678, 12679, 12680, 12681, 12682, 12683, 12684, 12685, 12686, 12687, 12688, 12689, 12690, 12691, and 12692 shall not apply to a group policy that is issued, amended, or renewed on or after September 1, 2003.
PART 6.2. HEALTHY FAMILIES [12693. - 12694.2.]
CHAPTER 1. Purpose [12693. - 12693.]
The Legislature declares all of the following:
Approximately 1.6 million California children, 17 percent of children ages 17 and under, have no health insurance. One in four California children, which is 2.3 million, rely on Medi-Cal for insurance coverage, while just over half of the state’s children, 53 percent, have employment-based coverage through a parent.
Most uninsured California children come from low-income families, with nearly 75 percent of uninsured children (1.2 million) living in families with incomes below 200 percent of the federal poverty level. Children whose families earn incomes between 100 and 200 percent of the federal poverty level, an estimated 580,000 children, are among the most vulnerable of populations. Their families make too much money to generally qualify for free Medi-Cal, are employed in working class jobs that typically do not offer insurance, and cannot afford private health insurance. In short, affordability remains a major barrier to obtaining coverage.
Notwithstanding the generally good health of children, health insurance coverage is important to ensure that they receive the health care that is essential to monitor their growth, nutrition, and development and to address potential health problems early.
Lack of insurance coverage for children results in reduced access to medical services, resulting in restricted access to primary and preventive care and increased reliance on emergency rooms and hospitals for treatment. Timely treatment for infectious and chronic diseases can prevent more serious medical conditions in children of all ages.
When a child is seriously ill or injured, the costs of needed medical care can force families into financial ruin.
That by July 1, 1998, there shall be in place a program providing access to health coverage to all children residing in households with family incomes below 200 percent of the federal poverty level.
It is the intent of the Legislature that the program comply with the requirements of Title XXI of the Social Security Act, also know as the State Children’s Health Insurance Program.
CHAPTER 2. Definitions [12693.01. - 12693.17.]
For purposes of this part, the definitions contained in this chapter shall govern the construction of this part, unless the context requires otherwise.
“Applicant” means a person over the age of 18 years who is a natural or adoptive parent; a legal guardian; or a caretaker relative, foster parent, or stepparent with whom the child resides, who applies for coverage under the program on behalf of a child.
“Applicant” also means any of the following:
A person 18 years of age who is applying on his or her own behalf for coverage under the program.
A person who is under 18 years of age and is an emancipated minor who is applying on his or her own behalf for coverage under the program.
A minor who is not living in the home of a natural or adoptive parent, a legal guardian, or a caretaker relative, foster parent or stepparent, who is applying on his or her own behalf for coverage under the program.
A minor who applies for coverage under the program on behalf of his or her child.
“Board” means the Managed Risk Medical Insurance Board.
“Child” means a person who is under 19 years of age who is eligible for the program pursuant to Chapter 9 (commencing with Section 12693.70).
“Community provider plan” means that participating health plan in each geographic area that has been designated by the board as having the highest percentage of traditional and safety net providers in its provider network.
“County organized health system” means a health care organization that contracts with the State Department of Health Services to provide comprehensive health care to all eligible Medi-Cal beneficiaries residing in the county, and that is operated directly by a public entity established by a county government pursuant to Section 14087.51 or 14087.54 of the Welfare and Institutions Code, or Chapter 3 (commencing with Section 101675) of Part 4 of Division 101 of the Health and Safety Code.
“Family contribution” means the cost to an applicant to enable herself or himself or an eligible child or children to enroll in and participate in the program. Family contribution does not include copayments for insured services. The family contribution may be paid by a family contribution sponsor pursuant to Section 12693.17.
“Family value package” means the combination of participating health, dental, and vision plans available to subscribers in each geographic area offering the lowest prices to the program. The board may define the family value package to include not only the combination of participating health, dental, and vision plans offering the absolute lowest price to the program but also the combination of health, dental, and vision plans within a fixed percentage or dollar amount of the absolute lowest price.
“Fund” means the Healthy Families Fund.
“Local initiative” means a prepaid health plan that is organized by, or designated by, a county government or county governments, or organized by stakeholders, of a region designated by the department to provide comprehensive health care to eligible Medi-Cal beneficiaries. The entities established pursuant to the following sections of the Welfare and Institutions Code are local initiatives: Sections 14018.7, 14087.31, 14087.35, 14087.36, 14087.38, and 14087.96.
“Participating dental plan” means any of the following plans that is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal dental services under insurance policies or contracts, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contract with the board to provide coverage to program subscribers:
A dental insurer holding a valid outstanding certificate of authority from the commissioner.
A specialized health care service plan as defined under subdivision (o) of Section 1345 of the Health and Safety Code.
“Participating health plan” means any of the following plans that is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal health care services under insurance policies or contracts, medical and hospital service arrangements, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contracts with the board to provide coverage to program subscribers:
A private health insurer holding a valid outstanding certificate of authority from the commissioner.
A health care service plan as defined under subdivision (f) of Section 1345 of the Health and Safety Code.
A county organized health system.
A local initiative.
A health care service plan, as defined in subdivision (b) of Section 12693.10, shall include a plan operating as a geographic managed care plan.
“Participating vision care plan” means any of the following plans that is lawfully engaged in providing, arranging, paying for, or reimbursing the cost of personal vision services under insurance policies or contracts, or membership contracts, in consideration of premiums or other periodic charges payable to it, and that contract with the board to provide coverage to program subscribers:
A vision insurer holding a valid outstanding certificate of authority from the commissioner.
A specialized health care service plan as defined under subdivision (o) of Section 1345 of the Health and Safety Code.
“Program” means the Healthy Families Program, which includes a purchasing pool providing health coverage for children in families without access to affordable employer based dependent coverage and a purchasing credit mechanism through which families with access to employer based dependent coverage can receive financial assistance with the cost of dependent coverage for children.
“Purchasing credit member” means an applicant 18 years of age or a child who is eligible for and participates in the purchasing credit component of the program.
“Subscriber” means an applicant 18 years of age or a child who is eligible for and participates in the purchasing pool component of the program.
“Supplemental coverage” means coverage purchased by the program from (a) a private health insurer holding a valid outstanding certificate of authority from the Insurance Commissioner, or (b) a health care service plan as defined under subdivision (f) of Section 1345 of the Health and Safety Code to bring the coverage available to purchasing credit members into at least 95 percent actuarial equivalence with the coverage provided to subscribers through the purchasing pool component of the program. The coverage shall provide for any necessary adjustment of the cost-sharing levels charged to purchasing credit members to be equivalent to those charged to subscribers through the purchasing pool component of the program. Subscriber costs and benefits for the purchasing credit members shall be at least 95 percent actuarially equivalent to subscriber costs and benefits in the purchasing pool component.
“Geographic managed care plan” means an entity that is operating pursuant to a contract entered into under Article 2.91 (commencing with Section 14089) of Chapter 7 of Part 3 of Division 9 of the Welfare and Institutions Code.
“Family contribution sponsor” means a person or entity that pays the family contribution on behalf of an applicant for any period of 12 consecutive months and, notwithstanding Section 12693.70, if the sponsor is paying for the initial 12 months of eligibility, the payment for 12 months is made with the application.
CHAPTER 3. Creation of Program and Powers of the Board [12693.20. - 12693.23.]
The Healthy Families Program is hereby created and shall be administered by the Managed Risk Medical Insurance Board.
The board may do all of the following consistent with the standards in this part:
Determine eligibility criteria for the program.
Determine the participation requirements of applicants, subscribers, purchasing credit members, and participating health, dental, and vision plans.
Determine when subscribers’ coverage begins and the extent and scope of coverage.
Determine family contribution amount schedules and collect the contributions.
Determine who may be a family contribution sponsor and provide a mechanism for sponsorship.
Provide or make available subsidized coverage through participating health, dental, and vision plans, in a purchasing pool, which may include the use of a purchasing credit mechanism, through supplemental coverage, or through coordination with other state programs.
Provide for the processing of applications, the enrollment of subscribers, and the distribution of purchasing credits.
Determine and approve the benefit designs and copayments required by health, dental, or vision plans participating in the purchasing pool component program.
Approve those health plans eligible to receive purchasing credits.
Enter into contracts.
Sue and be sued.
Employ necessary staff.
Authorize expenditures from the fund to pay program expenses that exceed subscriber contributions, and to administer the program as necessary.
Maintain enrollment and expenditures to ensure that expenditures do not exceed amounts available in the Healthy Families Fund and if sufficient funds are not available to cover the estimated cost of program expenditures, the board shall institute appropriate measures to limit enrollment.
Issue rules and regulations, as necessary. Until January 1, 2000, any rules and regulations issued pursuant to this subdivision may be adopted as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The adoption of these regulations shall be deemed an emergency and necessary for the immediate preservation of the public peace, health, and safety or general welfare. The regulations shall become effective immediately upon filing with the Secretary of State.
Exercise all powers reasonably necessary to carry out the powers and responsibilities expressly granted or imposed by this part.
Notwithstanding any other provision of law, on and after January 1, 2011, impose any sanction on, and provide notice and a hearing to, participating health, dental, and vision plans consistent with Section 403 of the federal Children’s Health Insurance Program Reauthorization Act of 2009 (Public Law 111-3) by applying subsection (e) of Section 1932 of the federal Social Security Act.
During the 2009–10 and 2010–11 fiscal years, the adoption and readoption of regulations to modify health, dental, and vision benefits or otherwise modify program requirements and operations consistent with the provisions of this part shall be deemed to be an emergency and necessary for the immediate preservation of public peace, health and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
Until July 1, 2012, the adoption and readoption of regulations to implement subdivision (q) of Section 12693.21, subdivision (b) of Section 12693.26, or subdivision (l) of Section 56.30 of the Civil Code, or any provision of the federal Children’s Health Insurance Program Reauthorization Act of 2009 (Public Law 111-3) not addressed by those sections, shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
CHAPTER 4. Administration [12693.25. - 12693.55.]
The board may use a purchasing pool model, issuance of purchasing credits, supplemental coverage, or other means as appropriate to meet the purposes of this part.
The board shall establish a purchasing pool for coverage of program subscribers to enable applicants without access to affordable and comprehensive employer-sponsored dependent coverage to provide their eligible children with health, dental, and vision benefits. The board shall negotiate separate contracts with participating health, dental, and vision plans for each of the benefit packages described in Chapters 5 (commencing with Section 12693.60), 6 (commencing with Section 12693.63), and 7 (commencing with Section 12693.65).
Notwithstanding any other provision of law, on and after January 1, 2011, the board may negotiate contracts with entities that are not participating health, dental, or vision plans, including, but not limited to, interagency agreements with the State Department of Health Care Services, to provide or pay for benefits to subscribers under this part, if necessary for any of the following purposes:
To comply with Section 403 of the federal Children’s Health Insurance Program Reauthorization Act of 2009 (Public Law 111-3) by applying paragraph (4) of subsection (a) of Section 1932 of the federal Social Security Act.
To comply with Section 503 of the federal Children’s Health Insurance Program Reauthorization Act of 2009 (Public Law 111-3) by applying subsection (bb) of Section 1902 of the federal Social Security Act.
To ensure that subscribers have adequate access to benefits under this part.
Any interagency agreement entered into by a state agency with the board pursuant to subdivision (b), and any other contract or contract amendment necessary to implement that agreement, shall be exempt from any provision of law relating to competitive bidding and from the review or approval of any division of the Department of General Services in the same manner as contracts entered into by the board are exempt pursuant to Section 12693.54.
The board shall develop a purchasing credit mechanism to enable applicants with access to affordable and comprehensive employer-sponsored dependent coverage to have an eligible child enrolled in the employer’s health plan. Children enrolled in the purchasing credit mechanism may receive dental and vision benefits through the purchasing pool component of the program.
In order to be eligible for a purchasing credit, the employer shall make a meaningful contribution toward the cost of coverage for an employee’s dependents for whom an application is made for a purchasing credit. An employer’s contribution, including any increases or decreases in the contribution made after the effective date of this part, may not vary among employees based on wage base or job classification.
The board shall adopt appropriate mechanisms to recoup purchasing credit expenditures from an employer plan when the employees or dependents on behalf of whose coverage the payments are made are no longer enrolled in that plan.
An employer utilizing a purchasing credit arrangement and a participating health plan receiving a purchasing credit must use 100 percent of the funds for the purchase of coverage for purchasing credit members including dependent coverage.
A participating plan shall not assess the board for any portion of late fees, returned checks, or other fees in connection with an employer with group coverage who is also participating in the purchasing credit arrangement.
An applicant may begin coverage for dependents using a purchasing credit arrangement at any time. Purchasing credit members enrolling in employer-sponsored coverage shall not be considered late enrollees for the purposes of subdivision (d) of Section 1357 and subdivision (b) of Section 1357.50 of the Health and Safety Code, and subdivision (b) of Section 10198.6 and subdivision (l) of Section 10700.
Under no circumstances shall the employee’s share of cost, including, deductibles, copayments, and coinsurance, for dependent coverage, including any supplemental coverage necessary to meet the 95 percent actuarial standard established in Section 12693.15 be more than that required as the employee’s share of premium if the employee’s children were enrolled in the purchasing pool component of the program.
The board may limit participation in the purchasing credit program to those employers that provide employee health benefits through participation in public or private purchasing cooperatives.
The Legislature finds and declares that the state faces a fiscal crisis that requires unprecedented measures to reduce General Fund expenditures.
Notwithstanding any other provision of law, beginning the first day of the fifth month following the enactment of the 2008–09 Budget Act, the rates for the participating health, dental, and vision plans shall be set by reducing the rates that were in effect on July 1, 2007, by 5 percent, and by adjusting the July 1, 2007, rates downward to account for any reduction in the actuarial value of the benefits provided to subscribers as of the first day of the fifth month following the enactment of the 2008–09 Budget Act, associated with annual limitations on dental benefits. This requirement does not preclude the board from making other downward adjustments that it deems appropriate as a result of its annual rate negotiation process.
The program shall be administered without regard to gender, gender identity, gender expression, race, creed, color, sexual orientation, health status, disability, or occupation.
The board shall use appropriate and efficient means to notify families of the availability of health coverage from the program.
The State Department of Health Services in conjunction with the board shall conduct a community outreach and education campaign in accordance with Section 14067 of the Welfare and Institutions Code to assist in notifying families of the availability of health coverage for their children.
The board shall use appropriate materials, which may include brochures, pamphlets, fliers, posters, and other promotional items, to notify families of the availability of coverage through the program.
The board shall assure that written enrollment information issued or provided by the program is available to program subscribers and applicants in each of the languages identified pursuant to Chapter 17.5 (commencing with Section 7290) of Division 7 of Title 1 of the Government Code.
The board shall assure that phone services provided to program subscribers and applicants by the program are available in all of the languages identified pursuant to Chapter 17.5 (commencing with Sec. 7290) of Division 7 of Title 1 of the Government Code.
The board shall assure that interpreter services are available between subscribers and contracting plans. The board shall assure that subscribers are provided information within provider network directories of available linguistically diverse providers.
The board shall assure that participating health, dental, and vision plans provide documentation on how they provide linguistically and culturally appropriate services, including marketing materials, to subscribers.
No participating health, dental, or vision plan shall, in an area served by the program, directly, or through an employee, agent, or contractor, provide an applicant, or a child with any marketing material relating to benefits or rates provided under the program unless the material has been both reviewed and approved by the board.
The board may pay designated individuals or organizations an application assistance fee, if the individual or organization assists an applicant to complete the program application, and the applicant is enrolled in the program as a result of the application.
The board may establish the list of eligible individuals, or categories of individuals and organizations, the amount of the application assistance payment, and rules necessary to assure the integrity of the payment process.
The board, as part of its community outreach and education campaign, may include community-based face-to-face initiatives to educate potentially eligible applicants about the program and to assist potential applicants in the application process. Those entities undertaking outreach efforts shall not include as part of their responsibilities the selection of a health plan and provider for the applicant. Participating plans shall be prohibited from directly, indirectly, or through their agents conducting in-person, door-to-door, mail, or telephone solicitation of applicants for enrollment except through employers with employees eligible to participate in the purchasing credit mechanism. However, information approved by the board on the providers and plans available to prospective subscribers in their geographic areas shall be distributed through any door-to-door activities for potentially eligible applicants and their children.
All assistance offered to an individual applying to the program shall be free of charge. Except as provided in subdivision (a) or by a regulation adopted by the board, no individual or organization offering or providing assistance to an applicant to complete the program application shall solicit or receive any fee or remuneration from the applicant or subscriber for offering or providing that service.
A person who violates this subdivision or a regulation adopted by the board pursuant to this subdivision, shall be assessed a civil penalty of five hundred dollars ($500) for each violation. For this purpose, a violation occurs each day a solicitation is published on an Internet Web site or is otherwise circulated to the public. This penalty is in addition to any other remedy or penalty provided by law. All penalties collected under this paragraph shall be deposited in the State Treasury to the credit of the Healthy Families Fund.
A civil or administrative action brought under this article at the request of the board may be brought by the Attorney General in the name of the people of the State of California in a court of competent jurisdiction, or in a hearing through the Office of Administrative Hearings conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that when a civil action is to be filed in small claims court, the board may bring the action. The action shall be filed within three years of the date the board discovered the facts indicating a violation of this subdivision.
Notwithstanding any provision of this chapter, a participating health, dental, or vision plan that is licensed and in good standing as required by subdivision (b) of Section 12693.36 may provide application assistance directly to an applicant acting on behalf of an eligible person who telephones, writes, or contacts the plan in person at the plan’s place of business, or at a community public awareness event that is open to all participating plans in the county, or at any other site approved by the board, and who requests application assistance.
A participating health, dental, or vision plan may also provide application assistance directly to an applicant only under the following conditions:
The assistance is provided upon referral from a government agency, school, or school district.
The applicant has authorized the government agency, school, or school district to allow a health, dental, or vision plan to contact the applicant with additional information on enrolling in free or low-cost health care.
The State Department of Health Care Services approves the applicant authorization form in consultation with the board.
The plan may not actively solicit referrals and may not provide compensation for the referrals.
If a family is already enrolled in a health plan, the plan that contacts the family cannot encourage the family to change health plans.
The board amends its marketing guidelines to require that when a government agency, school, or school district requests assistance from a participating health, dental, or vision plan to provide application assistance, that all plans in the area shall be invited to participate.
The plan abides by the board’s marketing guidelines.
A participating health, dental, or vision plan may provide application assistance to an applicant who is acting on behalf of an eligible or potentially eligible child in any of the following situations:
The child is enrolled in a Medi-Cal managed care plan and the participating plan becomes aware that the child’s eligibility status has or will change and that the child will no longer be eligible for Medi-Cal. In those instances, the plan shall inform the applicant of the differences in benefits and requirements between the Healthy Families Program and the Medi-Cal program.
The child is enrolled in a Healthy Families Program managed care plan and the participating plan becomes aware that the child’s eligibility status has changed or will change and that the child will no longer be eligible for the Healthy Families Program. When it appears a child may be eligible for Medi-Cal benefits, the plan shall inform the applicant of the differences in benefits and requirements between the Medi-Cal program and the Healthy Families Program.
The participating plan provides employer-sponsored coverage through an employer and an employee of that employer who is the parent or legal guardian of the eligible or potentially eligible child.
The child and his or her family are participating through the participating plan in COBRA continuation coverage or other group continuation coverage required by either state or federal law and the group continuation coverage will expire within 60 days, or has expired within the past 60 days.
The child’s family, but not the child, is participating through the participating plan in COBRA continuation coverage or other group continuation coverage required by either state or federal law, and the group continuation coverage will expire within 60 days, or has expired within the past 60 days.
A participating health, dental, or vision plan employee or other representative that provides application assistance shall complete a certified application assistant training class approved by the State Department of Health Care Services in consultation with the board. The employee or other representative shall in all cases inform an applicant verbally of his or her relationship with the participating health plan. In the case of an in-person contact, the employee or other representative shall provide in writing to the applicant the nature of his or her relationship with the participating health plan and obtain written acknowledgment from the applicant that the information was provided.
A participating health, dental, or vision plan that provides application assistance may not do any of the following:
A participating health, dental, or vision plan that provides application assistance pursuant to this section is not eligible for an application assistance fee otherwise available pursuant to Section 12693.32, and may not sponsor a person eligible for the program by paying his or her family contribution amounts or copayments, and may not offer applicants any inducements to enroll, including, but not limited to, gifts or monetary payments.
A participating health, dental, or vision plan may assist applicants acting on behalf of subscribers who are enrolled with the participating plan in completing the program’s annual eligibility review package in order to allow those applicants to retain health care coverage.
Each participating health, dental, or vision plan shall submit to the board a plan for application assistance. All scripts and materials to be used during application assistance sessions shall be approved by the board and the State Department of Health Care Services.
Each participating health, dental, or vision plan shall provide each applicant with the toll-free telephone number for the Healthy Families Program.
When deemed appropriate by the board, the board may refer a participating health, dental, or vision plan to the Department of Managed Health Care or the State Department of Health Care Services, as applicable, for the review or investigation of its application assistance practices.
The board shall evaluate the impact of the changes required by this section and shall provide a biennial report to the Legislature on or before March 1 of every other year. To prepare these reports, the State Department of Health Care Services, in cooperation with the board, shall code all the application packets used by a managed care plan to record the number of applications received that originated from managed care plans. The number of applications received that originated from managed care plans shall also be reported on the board’s Web site. In addition, the board shall periodically survey those families assisted by plans to determine if the plans are meeting the requirements of this section, and if families are being given ample information about the choice of health, dental, or vision plans available to them.
Nothing in this section shall be seen as mitigating a participating health, dental, or vision plan’s responsibility to comply with all federal and state laws, including, but not limited to, Section 1320a-7b of Title 42 of the United States Code.
Notwithstanding any other provision of this part, a new subscriber in the program shall be allowed to switch his or her choice of plans once within the first three months of coverage for any reason.
To the extent feasible and permissible under federal law and with receipt of necessary federal approvals, the State Department of Health Services and the board shall develop a joint Medi-Cal and program application and enrollment form for children. The department shall seek any federal approval necessary to implement a combined application form.
The board may establish geographic areas within which participating health, dental, and vision plans may offer coverage to subscribers.
Nothing in this section shall restrict a county organized health system or a local initiative from providing service to program subscribers in their licensed geographic service area.
Participating health, dental, and vision plans shall have, but need not be limited to, all of the following operating characteristics satisfactory to the board in consultation with the plan’s licensing or regulatory oversight agency:
Strong financial condition, including the ability to assume the risk of providing and paying for covered services. A participating plan may utilize reinsurance, provider risk sharing, and other appropriate mechanisms to share a portion of the risk.
Adequate administrative management.
A satisfactory grievance procedure.
Participating plans that contract with or employ health care providers shall have mechanisms to accomplish all of the following, in a manner satisfactory to the board:
Review the quality of care covered.
Review the appropriateness of care covered.
Provide accessible health care services.
Before the effective date of the contract, the participating health plan shall have devised a system for identifying in a simple and clear fashion both in its own records and in the medical records of subscribers the fact that the services provided are provided under the program.
Throughout the duration of the contract, the plan shall use the system described in paragraph (1).
Plans licensed by the Department of Managed Health Care shall be deemed to meet the requirements of subdivisions (a) to (d), inclusive, of this section.
Notwithstanding any other provision of law, the board shall not be subject to licensure or regulation by the Department of Insurance or the Department of Managed Health Care, as the case may be.
Participating health, dental, and vision plans that contract with the program and are regulated by either the Insurance Commissioner or the Department of Managed Health Care shall be licensed and in good standing with their respective licensing agencies. In their application to the program, those entities shall provide assurance of their standing with the appropriate licensing entity.
The board shall contract with a broad range of health plans in an area, if available, to ensure that subscribers have a choice from among a reasonable number and types of competing health plans. The board shall develop and make available objective criteria for health plan selection and provide adequate notice of the application process to permit all health plans a reasonable and fair opportunity to participate. The criteria and application process shall allow participating health plans to comply with their state and federal licensing and regulatory obligations, except as otherwise provided in this chapter. Health plan selection shall be based on the criteria developed by the board.
In its selection of participating plans the board shall take all reasonable steps to assure the range of choices available to each applicant, other than a purchasing credit member, shall include plans that include in their provider networks and have signed contracts with traditional and safety net providers.
Participating health plans shall be required to submit to the board on an annual basis a report summarizing their provider network. The report shall provide, as available, information on the provider network as it relates to:
Geographic access for the subscribers.
Linguistic services.
The ethnic composition of providers.
The number of subscribers who selected traditional and safety net providers.
In each geographic area, the board shall designate a community provider plan that is the participating health plan which has the highest percentage of traditional and safety net providers in its network. Subscribers selecting such a plan shall be given a family contribution discount as described in Section 12693.43.
The board shall establish reasonable limits on health plan administrative costs.
The board shall contract with a sufficient number of dental and vision plans to assure that dental and vision benefits are available to all subscribers. The board shall develop and make available objective criteria for dental and vision plan selection and provide adequate notice of the application process to permit all dental and vision plans a reasonable and fair opportunity to participate. The criteria and application process shall allow participating dental and vision plans to comply with their state and federal licensing and regulatory obligations, except as otherwise provided in this part. Dental and vision plan selection shall be based on the criteria developed by the board.
Participating dental plans shall be required to submit to the board on an annual basis a report summarizing their provider network. The report shall provide, as available, information on the provider network as it relates to each of the following:
Geographic access for the subscribers.
Linguistic services.
The ethnic composition of providers.
The board shall establish reasonable limits on dental plan administrative costs.
The board shall establish a process for determining which employer-sponsored health plans are eligible to receive a purchasing credit issued by the program. The process shall assure that the benefits, copayments, coinsurance, and deductibles are no less than 95 percent actuarially equivalent to those provided to program subscribers enrolled in the purchasing pool.
The board shall contract with health plans to provide coverage supplemental to that provided by an applicant’s or applicant’s spouse’s employer-sponsored health plan for the purchasing credit member, if the employer-sponsored plan’s benefits are not 95 percent actuarially equivalent to those provided to subscribers. If supplemental coverage is available and provided, the plan may then, notwithstanding Section 12693.39, become eligible to receive purchasing credits.
The board shall consult and coordinate with the State Department of Health Services in implementing a preenrollment program into the Healthy Families Program or the Medi-Cal program pursuant to subdivision (b) of Section 14011.7 of the Welfare and Institutions Code. The board shall accept the followup application provided for in Section 14011.7 of the Welfare and Institutions Code as an application for the Healthy Families Program. Preenrollment shall be administered by the State Department of Health Services to provide full-scope benefits pursuant to Medi-Cal program requirements, at no cost to the applicant.
The board may use the state fiscal intermediary for medicaid to process the eligibility determinations and payments required pursuant to Section 14011.7 of the Welfare and Institutions Code.
The board shall be exempt from the requirements of Chapter 7 (commencing with Section 11700) of Division 3 of Title 2 of the Government Code and Chapter 3 (commencing with Section 12100) of Part 2 of Division 2 of the Public Contract Code as those requirements apply to the use of processing services by the state fiscal intermediary.
The board may adopt emergency regulations to implement preenrollment into the Healthy Families Program or the Medi-Cal program pursuant to Section 14011.7 of the Welfare and Institutions Code. The emergency regulations shall include, but not be limited to, regulations that implement any changes in rules relating to eligibility, enrollment, and disenrollment in the programs pursuant to Sections 12693.45 and 12693.70. The initial adoption of emergency regulations and one readoption of the initial regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, and general welfare. Initial emergency regulations and the first readoption of those regulations shall be exempt from review by the Office of Administrative Law. The initial emergency regulations and one readoption of those regulations authorized by this section shall be submitted to the Office of Administrative Law for filing with the Secretary of State and publication in the California Code of Regulations and each shall remain in effect for no more than 180 days.
This section shall become operative on April 1, 2003.
Any purchasing credit issued by the board, or a contractor acting on behalf of the board, pursuant to this part shall have an overall cost to the program no greater than the cost to the program to enroll the subscriber in the lowest cost plan available to the subscriber through the purchasing pool. Administrative costs and the cost to the program of any supplemental product shall be included in the calculation of the cost of the purchasing credit program and deducted from the amount of the purchasing credit.
Applicants applying to the purchasing pool shall agree to pay family contributions, unless the applicant has a family contribution sponsor. Family contribution amounts consist of the following two components:
The flat fees described in subdivision (b) or (d).
Any amounts that are charged to the program by participating health, dental, and vision plans selected by the applicant that exceed the cost to the program of the highest cost Family Value Package in a given geographic area.
In each geographic area, the board shall designate one or more Family Value Packages for which the required total family contribution is:
Seven dollars ($7) per child with a maximum required contribution of fourteen dollars ($14) per month per family for applicants with annual household incomes up to and including 150 percent of the federal poverty level.
Nine dollars ($9) per child with a maximum required contribution of twenty-seven dollars ($27) per month per family for applicants with annual household incomes greater than 150 percent and up to and including 200 percent of the federal poverty level and for applicants on behalf of children described in clause (ii) of subparagraph (A) of paragraph (6) of subdivision (a) of Section 12693.70.
Commencing the first day of the fifth month following the enactment of the 2008–09 Budget Act, the family contribution pursuant to this paragraph shall be twelve dollars ($12) per child with a maximum required contribution of thirty-six dollars ($36) per month per family.
Commencing November 1, 2009, the family contribution pursuant to this paragraph shall be sixteen dollars ($16) per child with a maximum required contribution of forty-eight dollars ($48) per month per family.
Subject to prior federal authorization, the family contribution pursuant to this paragraph shall be thirty dollars ($30) per child with a maximum required contribution of ninety dollars ($90) per month per family, or any lesser increase in family contributions as is authorized by the federal Department of Health and Human Services. The family contribution required by this subparagraph shall commence the first day of the third month following the later of the following:
The effective date of the act adding this subparagraph.
Receipt of federal authorization for the contribution in the form of an approved amendment to California’s state plan under Title XXI of the federal Social Security Act or a waiver of one or more requirements of Title XXI of the federal Social Security Act.
On and after July 1, 2005, fifteen dollars ($15) per child with a maximum required contribution of forty-five dollars ($45) per month per family for applicants with annual household income to which subparagraph (B) of paragraph (6) of subdivision (a) of Section 12693.70 is applicable. Notwithstanding any other provision of law, if an application with an effective date prior to July 1, 2005, was based on annual household income to which subparagraph (B) of paragraph (6) of subdivision (a) of Section 12693.70 is applicable, then this subparagraph shall be applicable to the applicant on July 1, 2005, unless subparagraph (B) of paragraph (6) of subdivision (a) of Section 12693.70 is no longer applicable to the relevant family income. The program shall provide prior notice to any applicant for currently enrolled subscribers whose premium will increase on July 1, 2005, pursuant to this subparagraph and, prior to the date the premium increase takes effect, shall provide that applicant with an opportunity to demonstrate that subparagraph (B) of paragraph (6) of subdivision (a) of Section 12693.70 is no longer applicable to the relevant family income.
Commencing the first day of the fifth month following the enactment of the 2008–09 Budget Act, the family contribution pursuant to this paragraph shall be seventeen dollars ($17) per child with a maximum required contribution of fifty-one dollars ($51) per month per family.
Commencing November 1, 2009, the family contribution pursuant to this paragraph shall be twenty-four dollars ($24) per child with a maximum required contribution of seventy-two dollars ($72) per month per family.
Subject to prior federal authorization, the family contribution pursuant to this paragraph shall be forty-two dollars ($42) per child with a maximum required contribution of one hundred twenty-six dollars ($126) per month per family, or any lesser increase in family contributions as is authorized by the federal Department of Health and Human Services. The family contribution required by this subparagraph shall commence the first day of the third month following the later of the following:
The effective date of the act adding this subparagraph.
Receipt of federal authorization for the contribution in the form of an approved amendment to California’s state plan under Title XXI of the federal Social Security Act or a waiver of one or more requirements of Title XXI of the federal Social Security Act.
Combinations of health, dental, and vision plans that are more expensive to the program than the highest cost Family Value Package may be offered to and selected by applicants. However, the cost to the program of those combinations that exceeds the price to the program of the highest cost Family Value Package shall be paid by the applicant as part of the family contribution.
The board shall provide a family contribution discount to those applicants who select the health plan in a geographic area that has been designated as the Community Provider Plan. The discount shall reduce the portion of the family contribution described in subdivision (b) to the following:
Applicants, but not family contribution sponsors, who pay three months of required family contributions in advance shall receive the fourth consecutive month of coverage with no family contribution required.
Applicants, but not family contribution sponsors, who pay the required family contributions by an approved means of electronic fund transfer shall receive a 25-percent discount from the required family contributions.
It is the intent of the Legislature that the family contribution amounts described in this section comply with the premium cost-sharing limits contained in Section 2103 of Title XXI of the Social Security Act. If the amounts described in subdivision (a) are not approved by the federal government, the board may adjust these amounts to the extent required to achieve approval of the state plan.
The adoption and one readoption of regulations to implement paragraph (3) of subdivision (b) and paragraph (3) of subdivision (d) shall be deemed to be an emergency and necessary for the immediate preservation of public peace, health, and safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe specific facts showing the need for immediate action and from review by the Office of Administrative Law. For purpose of subdivision (e) of Section 11346.1 of the Government code, the 120-day period, as applicable to the effective period of an emergency regulatory action and submission of specified materials to the Office of Administrative Law, is hereby extended to 180 days.
The board may adopt, and may only one time readopt, regulations to implement the changes to this section that are effective the first day of the fifth month following the enactment of the 2008–09 Budget Act. The adoption and one-time readoption of a regulation authorized by this section is deemed to address an emergency, for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted for this purpose from the requirements of subdivision (b) of Section 11346.1 of the Government Code.
The program shall provide prior notice to any applicant for a subscriber whose premium will increase as a result of amendments made to this section and shall provide the applicant with an opportunity to demonstrate that, based on reduced family income, the subscriber is subject to a lower premium pursuant to this section.
The adoption and readoption, by the board, of regulations to implement the changes made to this section by the act that added this subdivision shall be deemed to be an emergency and necessary to avoid serious harm to the public peace, health, safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
The board shall establish family contribution amounts for purchasing credit members that are equivalent to the amounts charged to subscribers participating in the purchasing pool portion of the program. Purchasing credit members shall not be required to pay family contribution amounts greater than the cost to the applicant if the purchasing credit members were enrolled in the purchasing pool component of the program. When calculating the cost to the applicant to participate in the purchasing pool, the family contribution discounts provided in subdivisions (c), (d), and (e) of Section 12693.34 shall not be considered. Purchasing credit members shall be eligible for dental and vision coverage through the purchasing pool at no additional premium charge.
The family contribution amounts paid on behalf of a purchasing credit member may be paid directly to the applicant’s employer through a payroll deduction or other mechanism.
After two consecutive months of nonpayment of family contributions by an applicant, and a reasonable written notice period of no less than 30 days is provided to the applicant, subscribers or purchasing credit members may be disenrolled for an applicant’s failure to pay family contributions. The board may impose or contract for collection actions to collect unpaid family contributions.
Subject to any additional requirements of federal law, disenrollments shall be effective at the end of the second consecutive month of nonpayment.
The board may prohibit applicants who drop coverage after enrolling in the pool from reenrollment in the program for up to six months.
The program may place a lien on compensation or benefits, recovered or recoverable by a subscriber or applicant from any party or parties responsible for the compensation or benefits for which benefits have been provided under a policy issued under this part.
The board may adjust payments made to a participating health plan if the board finds that the plan has a significantly disproportionate share of high- or low-risk subscribers. Prior to making this finding, the program shall obtain validated data from participating health plans. Reporting requirements shall be administratively compatible with the methods of operation of the health plans. Any adjustments to payments shall utilize demographic and other factors which are actuarially related to risk.
When an applicant is dissatisfied with any action or inaction of a participating plan in which a subscriber is enrolled through the purchasing pool, the applicant shall first attempt to resolve the dispute with the participating plan according to its established policies and procedures.
The board shall assure that all participating health, dental, and vision plans make subscribers aware of the regulatory oversight available to the applicant by the participating health, dental, or vision plan’s licensing or state oversight entity.
The board shall assure that all participating health, dental, and vision plans report to the board, at least once a year, the number and types of benefit grievances filed by applicants on behalf of subscribers in the program. This information shall be available to applicants upon request in a format determined by the board.
The board shall consult and coordinate with the State Department of Health Services to implement the Medi-Cal to Healthy Families Accelerated Enrollment program pursuant to Section 14011.65 of the Welfare and Institutions Code.
The state shall seek approval of any amendments to the state plan, necessary to implement Section 14011.65 of the Welfare and Institutions Code in accordance with Title XXI of the Social Security Act (42 U.S.C. 1397aa et seq.). Notwithstanding any other provision of law, only when all necessary federal approvals have been obtained shall Section 14011.65 of the Welfare and Institutions Code be implemented.
The board may adopt emergency regulations to implement the provision of accelerated eligibility benefits pursuant to this section and as described under Section 14011.65 of the Welfare and Institutions Code. The emergency regulations shall include, but not be limited to, regulations that implement any changes in rules relating to program eligibility, enrollment, and disenrollment. The initial adoption of emergency regulations and one readoption of the initial regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, and general welfare. Initial emergency regulations and the first readoption of those regulations shall be exempt from review by the Office of Administrative Law. The initial emergency regulations and one readoption of those regulations authorized by this section shall be submitted to the Office of Administrative Law for filing with the Secretary of State and publication in the California Code of Regulations, and each shall remain in effect for no more than 180 days.
A transfer of enrollment from one participating health plan to another may be made by a subscriber at times and under conditions as may be prescribed by regulations of the board.
The board shall provide for the transfer of coverage of any subscriber to another participating plan (1) if a contract with any participating plan under which the subscriber receives coverage is canceled or not renewed and (2) at least once a year upon request in a manner as determined by the board, and (3) if a subscriber moves to an area that the current health plan does not serve.
Effective July 1, 2004, any subscriber who affirmatively selects, or is assigned by default to, a federally qualified health center, as defined by Section 1396(d)(l)(2) of Title 42 of the United States Code, a rural health clinic, as defined by Section 1396(d)(l)(1) of Title 42 of the United States Code, or a primary care clinic that is licensed under Section 1204 of the Health and Safety Code, or is exempt from licensure under subdivision (h) of Section 1206 of the Health and Safety Code, shall be deemed to have been assigned directly to the federally qualified health center, the rural health clinic, or the primary care clinic, and not to any individual provider who performs services on behalf of the federally qualified health center, the rural health clinic, or the primary care clinic.
When a subscriber is assigned, from any source, to a physician who is an employee of a federally qualified health center, a rural health clinic, or a primary care clinic, the assignment shall constitute an assignment to that federally qualified health center, rural health clinic, or primary care clinic for purposes of the subscriber’s health care coverage.
When a subscriber is assigned, from any source, to a dentist who is an employee of a federally qualified health center, a rural health clinic, or a primary care clinic, the assignment shall constitute an assignment to that federally qualified health center, rural health clinic, or primary care clinic for purposes of the subscriber’s dental coverage.
When a subscriber is assigned, from any source, to an optometrist who is an employee of a federally qualified health center, a rural health clinic, or a primary care clinic, the assignment shall constitute an assignment to that federally qualified health center, rural health clinic, or primary care clinic for purposes of the subscriber’s vision coverage.
This section shall not limit any rights a subscriber may have to select an available primary care physician within a health care service plan’s service area pursuant to Section 1373.3 of the Health and Safety Code.
The board may negotiate or arrange for stop-loss insurance coverage that limits the program’s fiscal responsibility for the total costs of health services provided to program subscribers, or arrange for participating health plans to share or assure the financial risk for a portion of the total cost of health care services to program subscribers, or both.
The board shall develop and utilize appropriate cost containment measures to maximize the coverage offered under the program. Those measures may include limiting the expenditure of state funds for this purpose to the price to the state for the lowest cost plan contracting with the program and creation of program rules that restrict the ability of employers or applicants to drop existing coverage in order to qualify children for the program.
A contract entered pursuant to this part shall be exempt from any provision of law relating to competitive bidding, and shall be exempt from the review or approval of any division of the Department of General Services. The board shall not be required to specify the amounts encumbered for each contract, but may allocate funds to each contract based on the projected or actual subscriber enrollments to a total amount not to exceed the amount appropriate for the program including family contributions.
A health care provider who is furnished documentation of a person’s enrollment in the program shall not seek reimbursement nor attempt to obtain payment for any covered services provided to that person other than from the participating health plan covering that person or from other entities that the board enters into contracts or interagency agreements with to provide or pay for benefits under this part pursuant to Section 12693.26.
The provisions of subdivision (a) do not apply to any copayments required under this part for the covered services provided to the person.
For purposes of this section, “health care provider” means any professional person, organization, health facility, or other person or institution licensed by the state to deliver or furnish health care services.
CHAPTER 5. Health Benefits and Copayments [12693.60. - 12693.62.]
Coverage provided to subscribers shall meet the federal coverage requirements in Section 2103 of Title XXI of the Social Security Act. Except as otherwise provided in this part, the covered health benefits provided to subscribers shall be equivalent to those provided to state employees through the Public Employees’ Retirement System for the most recent plan year preceding the applicable program plan year, except that the plans may provide a mechanism for inpatient hospital care provided under the mental health benefit through which applicants may agree to a treatment plan in which each inpatient day may be substituted for two residential treatment days or three day treatment program days.
The adoption and readoption, by the Managed Risk Medical Insurance Board, of regulations to implement the changes made to this section by the act that added this subdivision, shall be deemed to be an emergency and necessary to avoid serious harm to the public peace, health, safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
The following provisions apply for subscribers who have been identified by the participating health plans as potentially seriously emotionally disturbed.
Participating plans, to the extent feasible, including plans receiving purchasing credits shall develop memoranda of understanding, consistent with criteria established by the board in consultation with the State Department of Health Care Services, for referral of subscribers who are seriously emotionally disturbed to a county mental health department. This referral does not relieve a participating plan from providing the mental health coverage specified in its contract, including assessment of, and development of, a treatment plan for serious emotional disturbance. Plans may contract with county mental health departments to provide for all, or a portion of, the services provided under the program’s mental health benefit.
The board shall establish an accounting process under which counties providing services to subscribers who have been determined to be seriously emotionally disturbed pursuant to Section 5600.3 of the Welfare and Institutions Code can claim federal reimbursement for the services. The board shall reimburse counties pursuant to the rates set by the State Department of Health Care Services in accordance with Sections 5705, 14705.7, 14705, 14708, 14711, and 14718 of the Welfare and Institutions Code. The actual amount reimbursed by the board shall be the federal share of the cost of the subscriber.
This section shall only become operative with federal approval of the State Child Health Plan and the approval of federal financial participation.
Counties choosing to enter into a memorandum of understanding pursuant to subdivision (a) shall provide the nonfederal share of cost for the subscriber.
The board shall establish the required subscriber copayment levels for specific benefits consistent with the limitations of Section 2103 of Title XXI of the Social Security Act. The copayment levels established by the board shall, to the extent possible, reflect the copayment levels established for state employees, effective January 1, 1998, through the Public Employees’ Retirement System. Except as otherwise provided in this section, under no circumstances shall copayments exceed the copayment level established for state employees for the most recent plan year preceding the applicable program plan year through the Public Employees’ Retirement System. Total annual copayments charged to subscribers shall not exceed two hundred fifty dollars ($250) per family. The board shall instruct participating health plans to work with their provider networks to provide for extended payment plans for subscribers utilizing a significant number of health services for which copayments are charged. The board shall track the number of subscribers who meet the copayment maximum in each year and make adjustments in the amount if a significant number of subscribers reach the copayment maximum.
No deductibles shall be charged to subscribers for health benefits.
Coverage provided to subscribers shall not contain any preexisting condition exclusion requirements.
No participating health, dental, or vision plan shall exclude any subscriber on the basis of any actual or expected health condition or claims experience of that subscriber or a member of that subscriber’s family.
There shall be no variations in rates charged to subscribers including premiums and copayments, on the basis of any actual or expected health condition or claims experience of any subscriber or subscriber’s family member. The only variation in rates charged to subscribers, including copayments and premiums, that shall be permitted is that which is expressly authorized by Section 12693.43.
There shall be no copayments for preventive services as defined in Section 1367.35 of the Health and Safety Code.
There shall be no annual or lifetime benefit maximums in any of the coverage provided under the program.
Plans that receive purchasing credits pursuant to Section 12693.39 shall comply with subdivisions (b), (c), (d), (e), (f), and (g).
Effective October 1, 2011, or the first day of the month following 120 days after the federal approval required by subparagraphs (A) and (B) of paragraph (3), whichever occurs later, copayments for emergency room and inpatient hospital services shall be set by the board as follows:
Fifty dollars ($50) for outpatient emergency room services. The copayment shall be waived if the subscriber is hospitalized.
One hundred dollars ($100) for each hospital inpatient day up to a maximum of two hundred dollars ($200) per admission.
The changes made to the copayments in paragraph (1) shall not increase the maximum annual copayment of two hundred fifty dollars ($250) per family described in subdivision (a).
The changes made to the copayments in paragraph (1) shall be implemented only if, and to the extent that, both of the following occur:
The state receives prior federal authorization to implement the copayments in the form of an approved amendment to the state plan under Title XXI of the federal Social Security Act or a waiver of one or more requirements of Title XXI of the federal Social Security Act.
The state receives prior federal authorization for, and implements, copayments in the same amounts for all children enrolled in the Medi-Cal program through an approved amendment to the state plan under Title XIX of the federal Social Security Act or a waiver of one or more requirements of Title XIX of the federal Social Security Act.
Notwithstanding paragraph (1), the state shall not implement the copayments otherwise required by this subdivision at an earlier date than the state implements copayments in the same amounts for all children in the Medi-Cal program.
The adoption and readoption, by the Managed Risk Medical Insurance Board, of regulations to implement the changes made to this section by the act that added this subdivision, shall be deemed to be an emergency and necessary to avoid serious harm to the public peace, health, safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
Notwithstanding any other provision of law, for a subscriber who is determined by the California Children’s Services Program to be eligible for benefits under the program pursuant to Article 5 (commencing with Section 123800) of Chapter 3 of Part 2 of Division 106 of the Health and Safety Code, a participating plan shall not be responsible for the provision of, or payment for, the particular services authorized by the California Children’s Services Program for the particular subscriber for the treatment of a California Children’s Services Program eligible medical condition. Participating plans shall refer a child who they reasonably suspect of having a medical condition that is eligible for services under the California Children’s Services Program to the California Children’s Services Program. The California Children’s Services Program shall provide case management and authorization of services if the child is found to be medically eligible for the California Children’s Services Program. Diagnosis and treatment services that are authorized by the California Children’s Services Program shall be performed by paneled providers for that program and approved special care centers of that program in accordance with treatment plans approved by the California Children’s Services Program. All other services provided under the participating plan shall be available to the subscriber.
CHAPTER 6. Dental Benefits and Copayments [12693.63. - 12693.64.]
The board shall determine the dental benefits to be provided to subscribers by the program. These benefits shall be consistent with those provided to state employees through the Department of Personnel Administration, the predecessor to the Department of Human Resources, on July 1, 1997, except that orthodontia shall only be a benefit when it is determined to be medically necessary.
The board shall establish the required subscriber copayment levels for dental benefits. The copayment levels established by the board shall, to the extent possible, reflect the copayment levels provided to state employees through the Department of Personnel Administration, the predecessor to the Department of Human Resources, on July 1, 1997, except that no copayment shall be charged for medically necessary orthodontia services. There shall be no subscriber copayments for preventive and diagnostic services, including, but not limited to, examinations, teeth cleaning, X-rays, topical fluoride treatments, space maintainers, and sealants.
No deductible shall be charged to subscribers for dental benefits.
The board may establish a cap on the amount of dental coverage provided to a subscriber in a given benefit year effective on and after the first day of the fifth month following enactment of the 2008–09 Budget Act. This dental coverage cap shall not be lower than one thousand five hundred dollars ($1,500) per subscriber per benefit year.
The board may adopt, and may only one-time readopt, regulations to implement paragraph (1). The adoption and one-time readoption of a regulation authorized by this paragraph is deemed to address an emergency, for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted for this purpose from the requirements of subdivision (b) of Section 11346.1 of the Government Code.
Notwithstanding any other provision of law, for a subscriber who is determined by the California Children’s Services Program to be eligible for benefits under the program pursuant to Article 5 (commencing with Section 123800) of Chapter 3 of Part 2 of Division 106 of the Health and Safety Code, a participating plan shall not be responsible for the provision of, or payment for, the particular services authorized by the California Children’s Services Program for the particular subscriber for the treatment of a California Children’s Services Program eligible medical condition. All other services provided under the participating plan shall be available to the subscriber.
CHAPTER 7. Vision Benefits and Copayments [12693.65. - 12693.66.]
Vision benefits shall be provided to subscribers and shall meet the federal coverage requirements in Section 2103 of Title XXI of the Social Security Act.
The covered benefits shall be equivalent to those provided to state employees through the Department of Human Resources, except for tinted lenses and also photochromatic lenses, unless otherwise deemed medically necessary.
The board shall establish the required subscriber copayment levels for vision benefits consistent with the limitations of Section 2103 of Title XXI of the Social Security Act. The copayment levels established by the board shall, to the extent possible, reflect the copayment levels provided to state employees through the Department of Human Resources.
From March 1, 2011, to June 30, 2012, inclusive, the adoption and readoption, by the board, of regulations to modify vision benefits pursuant to this section, including, but not limited to, restriction of providers through which covered vision benefits may be obtained, restriction of benefits for services from nonparticipating providers, or restriction of products and materials provided as benefits pursuant to this section, shall be deemed to be an emergency and necessary to avoid serious harm to the public peace, health, safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
Notwithstanding any other provision of law, for a subscriber who is determined by the California Children’s Services Program to be eligible for benefits under the program pursuant to Article 5 (commencing with Section 123800) of Chapter 3 of Part 2 of Division 106 of the Health and Safety Code, a participating plan shall not be responsible for the provision of, or payment for, the particular services authorized by the California Children’s Services Program for the particular subscriber for the treatment of a California Children’s Services Program eligible medical condition. All other services provided under the participating plan shall be available to the subscriber.
CHAPTER 8. Linkages with Public Programs [12693.68. - 12693.69.]
The board shall encourage all plans, including those receiving purchasing credits, that provide services under the program to have viable protocols for screening and referring children needing supplemental services outside of the scope of the screening, preventive, and medically necessary and therapeutic services covered by the contract to public programs providing such supplemental services for which they may be eligible, as well as for coordination of care between the plan and the public programs. The public programs for which plans may be required to develop screening, referral, and care coordination protocols may include the California Children’s Services Program, the regional centers, county mental health programs, substance use disorder programs administered by the State Department of Health Care Services, and programs administered by local education agencies.
A child enrolled in the Healthy Families Program who has a medical condition that is eligible for services pursuant to the California Children’s Services Program, and whose family is not financially eligible for the California Children’s Services Program, shall have the medically necessary treatment services for their California Children’s Services Program eligible medical condition authorized and paid for by the California Children’s Services Program. County expenditures for the payment of services for the child shall be waived and these expenditures shall be paid for by the state from Title XXI funds that are applicable and state general funds.
CHAPTER 9. Eligibility [12693.70. - 12693.765.]
To be eligible to participate in the program, an applicant shall meet all of the following requirements:
Be an applicant applying on behalf of an eligible child, which means a child who is all of the following:
Less than 19 years of age. An application may be made on behalf of a child not yet born up to three months prior to the expected date of delivery. Coverage shall begin as soon as administratively feasible, as determined by the board, after the board receives notification of the birth. However, no child less than 12 months of age shall be eligible for coverage until 90 days after the enactment of the Budget Act of 1999.
Not eligible for no-cost full-scope Medi-Cal or Medicare coverage at the time of application.
A child who meets citizenship and immigration status requirements that are applicable to persons participating in the program established by Title XXI of the Social Security Act, except as specified in Section 12693.76.
A resident of the State of California pursuant to Section 244 of the Government Code; or, if not a resident pursuant to Section 244 of the Government Code, is physically present in California and entered the state with a job commitment or to seek employment, whether or not employed at the time of application to or after acceptance in, the program.
In either of the following:
In a family with an annual or monthly household income equal to or less than 200 percent of the federal poverty level.
When implemented by the board, subject to subdivision (b) of Section 12693.765 and pursuant to this section, a child under the age of two years who was delivered by a mother enrolled in the Access for Infants and Mothers Program as described in Part 6.3 (commencing with Section 12695). Commencing July 1, 2007, eligibility under this subparagraph shall not include infants during any time they are enrolled in employer-sponsored health insurance or are subject to an exclusion pursuant to Section 12693.71 or 12693.72, or are enrolled in the full scope of benefits under the Medi-Cal program at no share of cost. For purposes of this clause, any infant born to a woman whose enrollment in the Access for Infants and Mothers Program begins after June 30, 2004, shall be automatically enrolled in the Healthy Families Program, except during any time on or after July 1, 2007, that the infant is enrolled in employer-sponsored health insurance or is subject to an exclusion pursuant to Section 12693.71 or 12693.72, or is enrolled in the full scope of benefits under the Medi-Cal program at no share of cost. Except as otherwise specified in this section, this enrollment shall cover the first 12 months of the infant’s life. At the end of the 12 months, as a condition of continued eligibility, the applicant shall provide income information. The infant shall be disenrolled if the gross annual household income exceeds the income eligibility standard that was in effect in the Access for Infants and Mothers Program at the time the infant’s mother became eligible, or following the two-month period established in Section 12693.981 if the infant is eligible for Medi-Cal with no share of cost. At the end of the second year, infants shall again be screened for program eligibility pursuant to this section, with income eligibility evaluated pursuant to clause (i), subparagraphs (B) and (C), and paragraph (2) of subdivision (a).
(II) Effective on October 1, 2013, or when the State Department of Health Care Services has implemented Chapter 2 (commencing with Section 15810) of Part 3.3 of Division 9 of the Welfare and Institutions Code, whichever is later, eligibility for coverage in the program pursuant to this clause shall terminate. The board shall coordinate with the State Department of Health Care Services to implement Chapter 2 (commencing with Section 15810) of Part 3.3 of Division 9 of the Welfare and Institutions Code, including transition of subscribers to the AIM-Linked Infants Program. The State Department of Health Care Services shall administer the AIM-Linked Infants Program, pursuant to Chapter 2 (commencing with Section 15810) of Part 3.3 of Division 9 of the Welfare and Institutions Code, to address the health care needs of children formerly covered pursuant to this clause.
All income over 200 percent of the federal poverty level but less than or equal to 250 percent of the federal poverty level shall be disregarded in calculating annual or monthly household income.
In a family with an annual or monthly household income greater than 250 percent of the federal poverty level, any income deduction that is applicable to a child under Medi-Cal shall be applied in determining the annual or monthly household income. If the income deductions reduce the annual or monthly household income to 250 percent or less of the federal poverty level, subparagraph (B) shall be applied.
The applicant shall agree to remain in the program for six months, unless other coverage is obtained and proof of the coverage is provided to the program.
An applicant shall enroll all of the applicant’s eligible children in the program.
In filing documentation to meet program eligibility requirements, if the applicant’s income documentation cannot be provided, as defined in regulations promulgated by the board, the applicant’s signed statement as to the value or amount of income shall be deemed to constitute verification.
An applicant shall pay in full any family contributions owed in arrears for any health, dental, or vision coverage provided by the program within the prior 12 months.
By January 2008, the board, in consultation with stakeholders, shall implement processes by which applicants for subscribers may certify income at the time of annual eligibility review, including rules concerning which applicants shall be permitted to certify income and the circumstances in which supplemental information or documentation may be required. The board may terminate using these processes not sooner than 90 days after providing notification to the Chair of the Joint Legislative Budget Committee. This notification shall articulate the specific reasons for the termination and shall include all relevant data elements that are applicable to document the reasons for the termination. Upon the request of the Chair of the Joint Legislative Budget Committee, the board shall promptly provide any additional clarifying information regarding implementation of the processes required by this subdivision.
The board shall monitor applications to determine whether employers and employees have dropped employer-sponsored dependent coverage in order to participate in the program.
The board may disapprove an application if it is determined that the children to be covered under the application were covered by an employer-sponsored insurance within the last three months.
If the board imposes the limitation identified in subdivision (b) or (d), it shall also establish exceptions to this limitation in cases where prior coverage ended due to reasons unrelated to the availability of the program. This shall include, but not be limited to:
Loss of employment due to factors other than voluntary termination.
Change to a new employer that does not provide an option for dependent coverage.
Change of address so that no employer sponsored coverage is available.
Discontinuation of health benefits to all employees of the applicant’s employer.
Expiration of COBRA coverage period.
Coverage provided pursuant to an exemption authorized under subdivision (i) of Section 1367 of the Health and Safety Code.
If the board determines, based on evidence gathered during a reasonable period of program operation, that a substantial share of funds expended for the program are providing health coverage for children that have discontinued employer-based coverage in order to enter the program or if required by the federal government for state plan approval, the board may take actions to increase the three-month time limit specified in subdivision (b), to such a time limit that cannot exceed six months.
The board may disapprove an application if it is determined that the children to be covered under the application were covered by an individual health care service plan contract or individual disability insurance policy during a specified period of time prior to the date of application only if required by the federal government for state plan approval. This time limitation period shall not exceed the time period required by the federal government.
If the board imposes the time limitation identified in subdivision (a), it shall also establish exceptions to this limitation in cases where the prior coverage ended due to reasons unrelated to the availability of the program. This shall include, but not be limited to, the prior coverage being pursuant to a health plan operating pursuant to an exemption authorized by subdivision (i) of Section 1367 of the Health and Safety Code.
Notwithstanding any other provision of law, children excluded from coverage under Title XXI of the Social Security Act are not eligible for coverage under the program, except as specified in clause (ii) of subparagraph (A) of paragraph (6) of subdivision (a) of Section 12693.70 and Section 12693.76.
To the extent federal financial participation is available, and subject to subdivision (e), the child shall remain continuously eligible for the program up to five years of age. The department shall seek any federal approvals that may be necessary to implement this subdivision.
Implementation of this section is contingent on all of the following conditions:
All necessary federal approvals have been obtained by the department pursuant to subdivision (e).
The Legislature has appropriated funding to implement this section after a determination that ongoing General Fund resources are available to support the ongoing implementation of this section in the 2024–25 fiscal year and subsequent fiscal years.
The department has determined that systems have been programmed to implement this section.
The department shall issue a declaration certifying the date that all conditions in paragraph (1) have been met. The department shall post the declaration on its internet website and provide a copy of the declaration to the Secretary of State, the Secretary of the Senate, the Chief Clerk of the Assembly, and the Legislative Counsel.
If at any time the director determines that the eligibility criteria established under this section for the program may jeopardize the state’s ability to receive federal financial participation under the federal Patient Protection and Affordable Care Act (Public Law 111-148), any amendment or extension of that act, or any similar federal legislation affecting federal financial participation, the director may alter the eligibility criteria to the extent necessary for the state to receive that federal financial participation.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, and Chapter 4 (commencing with Section 12693.25) and Part 6.1 (commencing with Section 12670), the department may implement, interpret, or make specific this section, in whole or in part, through all-county letters or similar instructions, without taking any further regulatory action.
This section shall be implemented only to the extent that any necessary federal approvals are obtained, and federal financial participation is available and not otherwise jeopardized.
If the voters approve the addition of Chapter 7.5 (commencing with Section 14199.100) to Part 3 of Division 9 of the Welfare and Institutions Code at the November 5, 2024, statewide general election, this section shall become operative on January 1, 2025, or the date certified by the department pursuant to paragraph (2) of subdivision (b), whichever is later.
If the voters do not approve the addition of Chapter 7.5 (commencing with Section 14199.100) to Part 3 of Division 9 of the Welfare and Institutions Code at the November 5, 2024, statewide general election, this section shall be repealed as of January 1, 2025.
The program shall make use of a simple and easy to understand mail-in application process.
For children referred pursuant to Section 14005.41 of the Welfare and Institutions Code, the program shall utilize the school lunch application and any supplemental forms received pursuant to Section 14005.41 of the Welfare and Institutions Code to make an eligibility determination and shall request additional information only as needed to complete the eligibility process.
The Managed Risk Medical Insurance Board may adopt emergency regulations to implement subdivision (b) and coordinate with all other state and local government entities in the implementation of Section 49557.2 of the Education Code and Section 14005.41 of the Welfare and Institutions Code. Any rules and regulations issued by the board pertaining to the implementation of this section may be adopted as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The adoption and one readoption of these regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health, and safety, or general welfare, and shall be exempt from review by the Office of Administrative Law. Any emergency regulations authorized by this section shall be submitted to the Office of Administrative Law for filing with the Secretary of State and publication in the California Code of Regulations, and shall remain in effect for not more than 180 days unless the department readopts those regulations. The regulations shall become effective immediately upon filing with the Secretary of State.
Subject to subdivision (b), commencing four months after the initial federal approval is obtained pursuant to the waiver described in subdivision (b), the board shall expand eligibility under this part to uninsured parents of, and as defined by the board, adults responsible for, children enrolled to receive coverage under this part or who are enrolled to receive the full scope of Medi-Cal services with no share of cost and whose income does not exceed 250 percent of the federal poverty level, before applying the income disregard provided for in subparagraph (B) of paragraph (6) of subdivision (a) of Section 12693.70.
The board shall implement a program to provide coverage under this part to any uninsured parent or responsible adult who is eligible pursuant to subdivision (a), pursuant to the waiver identified in paragraph (2).
The program shall be implemented only in accordance with a State Child Health Insurance Program waiver pursuant to Section 1397gg(e)(2)(A) of Title 42 of the United States Code, to provide coverage to uninsured parents and responsible adults, and shall be subject to the terms, conditions, and duration of the waiver. The services shall be provided under the program only if the waiver is approved by the federal Centers for Medicare and Medicaid Services, and, except as provided under the terms and conditions of the waiver, only to the extent that federal financial participation is available and funds are appropriated specifically for this purpose.
Notwithstanding any other provision of law, a child who meets the definition of the term defined in subsection (b) or (c) of Section 1641 of Title 8 of the United States Code shall not be determined ineligible solely on the basis of the child’s date of entry into the United States.
Notwithstanding any other provision of law, subdivision (a) may only be implemented to the extent provided in the annual Budget Act.
Notwithstanding any other provision of law, any uninsured parent or responsible adult who meets the definition of the term defined in subsection (b) or (c) of Section 1641 of Title 8 of the United States Code shall not be determined to be ineligible solely on the basis of that person’s date of entry into the United States.
Notwithstanding any other provision of law, subdivision (c) may only be implemented to the extent of funding provided in the annual Budget Act.
Notwithstanding any other provision of law and subject to subdivision (b), a child described in clause (ii) of subparagraph (A) of paragraph (6) of subdivision (a) of Section 12693.70 shall be deemed eligible to participate in the program at birth.
Notwithstanding any other provision of law, subdivision (a) and clause (ii) of subparagraph (A) of paragraph (6) of subdivision (a) of Section 12693.70 may only be implemented to the extent that funds are appropriated for that purpose in the annual Budget Act or other statute.
CHAPTER 10. Fiscal Integrity [12693.77. - 12693.77.]
The board shall develop safeguards to assure the fiscal integrity of the program.
The program shall ensure that subscribers are not eligible for no-cost full-scope Medi-Cal coverage. The board may provide data on applicants and subscribers to the State Department of Health Services for determination of Medi-Cal eligibility. The State Department of Health Services shall identify those subscribers enrolled in the program who are concurrently enrolled in Medi-Cal with no share of cost.
Any person who intentionally makes false declarations as to his or her eligibility or any person who intentionally makes false declarations as to eligibility on behalf of any other person seeking eligibility under this part for which that person is not eligible shall be guilty of a misdemeanor.
Plans and providers shall be subject to Section 550 of the Penal Code.
Any person who intentionally makes false declarations as to his or her eligibility or any person who intentionally makes false declarations as to eligibility on behalf of any other person seeking eligibility under this part for which that person is not eligible may be denied coverage for up to one year from the date of the denial of coverage by the board.
CHAPTER 11. Protection Against Substitution of Benefits [12693.80. - 12693.84.]
The board shall use due diligence in the creation of participation standards for the program that minimize the incentive for employers or applicants to drop or reduce dependent health coverage.
It shall constitute unfair competition for purposes of Chapter 5 (commencing with Section 17200) of Part 2 of Division 7 of the Business and Professions Code for an insurer, an insurance agent or broker, or an administrator, as defined in Section 1759, to refer an individual employee or employee’s dependent to the program, or arrange for an individual employee or employee’s dependent to apply for the program, for the purpose of separating that employee or employee’s dependent from group health coverage in connection with the employee’s employment.
Any employee applicant in subdivision (a) shall have personal right of action to enforce subdivision (a).
It shall constitute an unfair labor practice contrary to public policy, and enforceable under Section 95 of the Labor Code, for any employer to refer an individual employee or employee’s dependent to the program, or to arrange for an individual employee or employee’s dependent to apply to the program, for the purpose of separating that employee or employee’s dependent from group health coverage provided in connection with the employee’s employment.
It shall constitute an unfair labor practice contrary to public policy and enforceable under Section 95 of the Labor Code for any employer to change the employee-employer share-of-cost ratio based upon the employee’s wage base or job classification or to make any modification of coverage for employees and employee’s dependents in order that the employees or employee’s dependents enroll in the program established pursuant to this part.
CHAPTER 12. Appeals [12693.85. - 12693.89.]
Program decisions described in this section may be appealed to the board. If an applicant believes that a written decision on one of the following specified issues was made in violation of the program statutes or regulations, or other written representation of program policy made to the individual by the program or the board, that individual may file an appeal with the board. Decisions that may be appealed are the following:
A decision that a child is not qualified to participate or continue to participate in the program.
A decision that a child is not eligible for enrollment or continuing enrollment in the program.
A decision as to the effective date of coverage.
An appeal shall be filed in writing with the executive director within 60 calendar days of the date of the notice of the decision being appealed.
An appeal shall include all of the following:
A copy of any decision being appealed, or a written statement of the action or failure to act being appealed.
A statement specifically describing the issues that are disputed by the appellant.
A statement specifically describing the program statute or regulation, or other written representation of program policy that the appellant believes the program or board violated.
A statement of the resolution requested by the appellant.
Any other relevant information the appellant wants to include.
Any appeal that does not specifically allege a violation of a program statute or regulation, or other written representation of program policy will be deemed to be a request for program review pursuant to Section 12693.88.
An appeal that specifically alleges a violation of program statute or regulation or other written representation of program policy, but fails to include any other necessary information, shall be returned to the appellant without review. The appellant may resubmit the appeal. The resubmittal shall be filed within the time limits of subdivision (a) or within 20 calendar days of the receipt of the returned appeal, whichever is later.
Any appellant who files an appeal pursuant to Section 12693.85 shall receive an initial administrative review of the appeal.
Administrative reviews of appeals shall be conducted in two steps. Each appeal will be reviewed by the program to determine if the requested resolution is required by the statutes and regulations governing the program, or required in order to be consistent with a written representation of program policy made by the program or the board. If so, the appropriate action will be taken within 30 days of the receipt of the appeal, and the appellant will be notified. If not, the appellant will be so notified within 30 days of the receipt of the appeal and informed that he or she may request review by the executive director. This request must be filed in writing with the executive director within 30 days of the date of the notice of the program determination and shall include the information specified in subdivision (b) of Section 12693.86.
In conducting an administrative review of an appeal, the executive director may contact the appellant and any other party for further information.
The executive director’s decision shall be in writing.
The appellant retains the right to request an administrative hearing if the appellant is not satisfied with the decision of the executive director. Such a request shall be filed within 30 calendar days of receipt of the executive director’s decision. It shall include a clear and concise statement of what action is being appealed, and the reasons the executive director’s decision is not correct.
In addition to the appeal process established above, the board shall establish a program review process. If a subscriber or purchasing credit member is not eligible to file an appeal pursuant to Section 12693.85, but wants to have any program decision reviewed, he or she may request that the program review the decision. A review pursuant to this section is separate from and independent of an appeal pursuant to Section 12693.85, and a person that files a request pursuant to this section shall not, thereby, gain any right of appeal. Pursuant to Section 12693.49, any dissatisfaction with an action of a participating health, vision, or dental plan shall be resolved with the plan rather than by requesting program review. When an appeal that requests an administrative hearing is received, the appeal shall be set for hearing as provided in Section 12693.89.
Administrative hearings of appeals shall be conducted according to the appeal procedures, including pre- and post-hearing procedures, set forth in Article 3 (commencing with Section 1140) of Chapter 2 of Division 2 of Title 1 of the California Code of Regulations. Article 3 (commencing with Section 1140) is hereby incorporated by reference, subject to the following modifications:
Reference to the Health and Welfare Agency or the component department shall be deemed reference to the Managed Risk Medical Insurance Board.
Reference to the private nonprofit human service organization shall be deemed reference to the appellant.
Reference to Health and Safety Code sections providing the bases, grounds, authorization, or procedures for appeals shall be deemed reference to the bases and authorization, for appeal found in Section 12693.85 and the appeal procedures found in this section.
The 30-day time period specified in subdivision (b) of Section 1140 of Title 1 of the California Code of Regulations shall be extended to 60 days, and the 10-day time period in subdivision (a) of Section 1141 of Title 1 of the California Code of Regulations shall be extended to 30 days.
If the proposed decision submitted to the board is not adopted as the decision, the board may itself decide the case on the record, or may refer the case to the same hearing officer to take additional evidence. If the case is referred back to the hearing officer, the hearing officer shall prepare a new proposed decision based on the additional evidence and the record of the prior hearing.
The decision of the board shall be issued within 90 days following the initial hearing or, if the case is referred back to the hearing officer, within 90 days of the second hearing.
The board may elect to have a hearing conducted by an Administrative Law Judge employed by the Office of Administrative Hearings pursuant to the provisions of Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
CHAPTER 14. Rural Demonstration Project [12693.91. - 12693.915.]
The State Department of Health Services, in conjunction with the Managed Risk Medical Insurance Board, the County Medical Services Program board, and the Rural Health Policy Council, may develop and administer up to five demonstration projects in rural areas that are likely to contain a significant level of uninsured children, including seasonal and migratory worker dependents. In addition to any other funds provided pursuant to this section the grants for demonstration projects may include funds pursuant to subdivision (d).
The purpose of the demonstration projects shall be to fund rural collaborative health care networks to alleviate unique problems of access to health care in rural areas.
The State Department of Health Services, in conjunction with the Managed Risk Medical Insurance Board and Rural Health Policy Council, shall establish the criteria and standards for eligibility to be used in requests for proposals or requests for application, the application review process, determining the maximum amount and number of grants to be awarded, preference and priority of projects, and compliance monitoring after receiving comment from the public.
The grants may include funds for purchasing equipment, making capital expenditures, and providing infrastructure, including, but not limited to, salaries and payment of leaseholds. The funds under this subdivision may only be awarded to qualified eligible health care entities as determined by the State Department of Health Services. Title to any equipment or capital improvement purchased or acquired with grant funds shall vest in the grantee for the public good and not the state. Capital expenditures shall not include the acquisition of land. Notwithstanding subdivision (e), this subdivision shall be implemented only when funds are appropriated in the annual Budget Act or another statute to fund the cost of implementing this subdivision.
This section shall only become operative upon federal approval of the state plan or subsequent amendments for the program and approval of federal financial participation.
It is the intent of the Legislature to utilize fiscal resources in the most prudent and cost-efficient manner and to maximize the use of federal funds for services when feasible. Therefore, the Legislature intends to access funds from the Unallocated Account in the Cigarette and Tobacco Products Surtax Fund created in Section 30122 of the Revenue and Taxation Code, and as appropriated in the annual Budget Act, and to use these funds to obtain a 65-percent federal match through California’s allocation from the State Children’s Health Insurance Program (SCHIP). These funds will then be used under the state’s Healthy Families Program specifically for the rural demonstration projects established in Section 12693.91.
Notwithstanding Section 30122 of the Revenue and Taxation Code, funding for the rural demonstration projects as provided under the Health Families Program may be made available from the funds appropriated from the Unallocated Account in the Cigarette and Tobacco Products Surtax Fund and from funding received pursuant to Title XXI of the federal Social Security Act. These funds shall be used as provided under Section 12693.91.
Subdivision (b) constitutes an amendment of the Tobacco Tax and Health Protection Act of 1988, as added by Proposition 99.
CHAPTER 15. Reports [12693.92. - 12693.95.]
The program shall prepare an annual report in conformance with the requirements of Section 2108 of Title XXI of the Social Security Act (P.L. 105-33). A copy of the report shall be provided to the Legislature and other interested parties.
As soon as possible, but no later than July 1, 2000, the board shall include in its annual report information on (1) how assurance of preventive services by health plans and health care providers is achieved; (2) the performance of health plans and providers in providing preventive services and addressing barriers to service delivery; and (3) the mechanism or mechanisms that will be used to identify changes over time in the health status of children enrolled in the program. Beginning no later than July 1, 2001, the report shall include information about changes in the health status of children participating in the program.
The board shall immediately provide the fiscal and policy committees of the Legislature with a copy of their submittal to the federal government to meet the requirements for state plan provisions as contained in Chapter 1 of Title XXI of the Social Security Act. Any and all subsequent amendments to the state plan shall also be provided accordingly.
The Managed Risk Medical Insurance Board shall report to the Legislature on or before January 30, 2004, the following information with respect to the State Children’s Health Insurance Program:
A list of the categories of vulnerable children who should be the targets of public health initiatives, including, but not limited to, immigrant children, homeless children, and other children that face health disparities.
Recommendations on innovative methods available under the federal program for addressing health needs and barriers to care for the identified groups of vulnerable children. The board shall report as many recommendations as possible that are available under the federal program and the expected impact of each recommendation.
Recommendations on innovative methods available under the federal program for developing in urban areas initiatives similar to the rural demonstration projects. The board shall report as many recommendations as possible that are available under the federal program and the expected impact of each recommendation.
The board shall seek input, at regularly scheduled meetings of the board, from the Healthy Families Advisory Panel and stakeholder organizations, including, but not limited to, organizations that represent immigrant and homeless populations, other communities that experience health disparities, and traditional providers of care to low-income populations.
This section shall be implemented only to the extent that federal financial participation is obtained.
The board shall prepare an evaluation of the program and other state efforts to expand coverage to children in conformance with Section 2108 of Title XXI of the Social Security Act. The evaluation shall incorporate measurement of the delivery of preventive services by health plans and health care providers and assessment of changes over time in the health status of children participating in the program.
The board in consultation with the Department of Alcohol and Drug Programs shall provide the Legislature by April 15, 1998, a proposal assessing the viability of providing additional drug and alcohol treatment services for children enrolled in the program.
If the board determines that it is feasible to provide additional federal funds received pursuant to Title XXI (commencing with Section 2101) of the Social Security Act to counties to finance drug and alcohol services and required federal approval is obtained, the board shall negotiate with participating health plans to establish memoranda of understanding between plans and counties to facilitate referral of children in need of these services.
Based on the April 15, 1998, report by the board to the Legislature, the Legislature finds and declares that there is a statewide gap in publicly funded alcohol and other drug treatment for adolescents which is significant and systemic.
Therefore, the State Department of Health Care Services, in cooperation with the board, shall do the following:
Review capacity needs for the Healthy Families Program target group after year one data has been collected and an assessment of the adequacy of the benefit can be made.
Request that counties provide data on the number of adolescents requesting alcohol and other drug treatment and whether they are participating in the Healthy Families Program.
The board shall do the following:
Request the participating health plans to voluntarily collect data, as prescribed by the board, on the number of children needing services that exceed the substance abuse benefit in their plan.
Upon contract renewal, require participating health plans to collect and report the data.
By September 1, 1999, provide the policy and fiscal committees of the Legislature with an analysis of the data obtained by the Department of Alcohol and Drug Programs and from the participating health plans.
CHAPTER 16. Funds [12693.96. - 12693.97.]
The board shall authorize the expenditure from the fund of any state funds, federal funds, or family contributions deposited into the fund. This shall include the authority for the board to authorize the State Department of Health Services to transfer funds appropriated to the department for the program to the Healthy Families Fund, and to also deposit those funds in, and to disburse those funds from, the Healthy Families Fund.
Notwithstanding any other provision of law, this part shall be implemented only if, and to the extent that, as provided under Title XXI of the Social Security Act, federal financial participation is available and state plan approval is obtained, except as specified in Section 12693.76.
Nothing in this part is intended to establish an entitlement for individual coverage.
The State Department of Health Services and the board may explore and utilize any options available under federal law to allow the use of charitable funding as a match for federal funds for use in the provision of coverage by private and public not-for-profit organizations consistent with the provisions of this part.
CHAPTER 16.1. Healthy Families Bridge Benefits Program [12693.98. - 12694.]
The Medi-Cal-to-Healthy Families Bridge Benefits Program is hereby established to provide any child who meets the criteria set forth in subdivision (b) with a one calendar-month period of health care benefits in order to provide the child with an opportunity to apply for the Healthy Families Program established under Chapter 16 (commencing with Section 12693).
The Medi-Cal-to-Healthy Families Bridge Benefits Program shall be administered by the board and the State Department of Health Care Services.
Any child who meets all of the following requirements shall be eligible for one calendar month of Healthy Families benefits funded by Title XXI of the Social Security Act, known as the State Children’s Health Insurance Program:
He or she has been receiving, but is no longer eligible for, full-scope Medi-Cal benefits without a share of cost.
He or she is eligible for full-scope Medi-Cal benefits with a share of cost.
He or she is under 19 years of age at the time he or she is no longer eligible for full-scope Medi-Cal benefits without a share of cost.
He or she has family income at or below 200 percent of the federal poverty level.
He or she is not otherwise excluded under the definition of “targeted low-income child” under subsections (b)(1)(B)(ii), (b)(1)(C), and (b)(2) of Section 2110 of the Social Security Act (42 U.S.C. Secs. 1397jj(b)(1)(B)(ii), 1397jj(b)(1)(C), and 1397jj(b)(2)).
The one calendar month of benefits under this chapter shall begin on the first day of the month following the last day of the receipt of benefits without a share of cost.
The income methodology for determining a child’s family income, as required by paragraph (1) of subdivision (b) shall be the same methodology used in determining a child’s eligibility for the full scope of Medi-Cal benefits.
The one calendar-month period of Healthy Families benefits provided under this chapter shall be identical to the scope of benefits that the child was receiving under the Medi-Cal program without a share of cost.
The one calendar-month period of Healthy Families benefits provided under this chapter shall only be made available through a Medi-Cal provider or under a Medi-Cal managed care arrangement or contract.
Except as provided in subdivision (j), nothing in this section shall be construed to provide Healthy Families benefits for more than a one calendar-month period under any circumstances, including the failure to apply for benefits under the Healthy Families Program or the failure to be made aware of the availability of the Healthy Families Program, unless the circumstances described in subdivision (b) reoccur.
This section shall become operative on the first day of the second month following the effective date of this section, subject to paragraph (2).
Under no circumstances shall this section become operative until, and shall be implemented only to the extent that, all necessary federal approvals, including approval of any amendments to the State Child Health Plan have been sought and obtained and federal financial participation under the federal State Children’s Health Insurance Program, as set forth in Title XXI of the Social Security Act, has been approved.
This section shall become inoperative if an unappealable court decision or judgment determines that any of the following apply:
The provisions of this section are unconstitutional under the United States Constitution or the California Constitution.
The provisions of this section do not comply with the State Children’s Health Insurance Program, as set forth in Title XXI of the Social Security Act.
The provisions of this section require that the health care benefits provided pursuant to this section are required to be furnished for more than two calendar months.
If the State Child Health Insurance Program waiver described in Section 12693.755 is approved, and at the time the waiver is implemented, the benefits described in this section shall also be available to persons who meet the eligibility requirements of the program and are parents of, or, as defined by the board, adults responsible for, children enrolled to receive coverage under this part or enrolled to receive full-scope Medi-Cal services with no share of cost.
The one month of benefits provided in this section shall be increased to two months commencing on implementation of the waiver referred to in Section 12693.755.
This section shall cease to be implemented on the date that the Director of Health Care Services executes a declaration stating that implementation of the Healthy Families Presumptive Eligibility Program established pursuant to Section 12693.98a has commenced, and as of that date is repealed.
The Healthy Families Presumptive Eligibility Program is hereby established to provide any child who meets the criteria set forth in subdivision (b) with presumptive eligibility benefits until the board has determined the child’s eligibility for the Healthy Families Program.
The Healthy Families Presumptive Eligibility Program shall be administered by the board.
Any child who meets both of the following requirements shall be eligible for presumptive eligibility benefits under the Healthy Families Presumptive Eligibility Program:
He or she has been receiving, but is no longer eligible for, full-scope Medi-Cal benefits without a share of cost, or he or she is eligible for full-scope Medi-Cal benefits with a share of cost.
He or she otherwise appears to meet the income eligibility criteria for the Healthy Families Program.
The presumptive eligibility benefits under this section shall begin on the first day of the month following the last day of the receipt of Medi-Cal benefits without a share of cost. Presumptive eligibility benefits under this section shall terminate at the end of the month in which a child’s effective date in the Healthy Families Program begins or the end of the month in which the board determines that the child is not eligible for the Healthy Families Program. If the board determines that the child is eligible for the Healthy Families Program, the board shall enroll the child in the Healthy Families Program without an interruption in coverage. If the board determines that the child is ineligible for the Healthy Families Program, the board shall terminate the child’s benefits under the Healthy Families Presumptive Eligibility Program.
The income methodology for determining a child’s family income for the purposes of the Healthy Families Presumptive Eligibility Program, as required by paragraph (1) of subdivision (b), shall be the same methodology used in determining a child’s eligibility for the full scope of Medi-Cal benefits.
The scope of presumptive eligibility benefits provided under the Healthy Families Presumptive Eligibility Program shall be identical to the scope of benefits that the child was receiving under the Medi-Cal program without a share of cost.
The presumptive eligibility benefits provided under this section shall only be made available through a Medi-Cal provider or under a Medi-Cal managed care arrangement or contract.
When an application is forwarded by the county to the Healthy Families Program, the county shall send the application to the Healthy Families Program via an electronic application format defined by the department, provided that the department has implemented the automated interfaces necessary to accomplish electronic submission of applications from the county to the Healthy Families Program without requiring duplicative data entry by the county. The transmission of the electronic application to the Healthy Families Program shall occur within the timeframes designated by the department.
To the extent necessary, the department and the board may exchange a child’s case file solely for the purpose of determining the child’s eligibility for the Medi-Cal program or the Healthy Families Program, without requiring the family’s consent, to the extent allowed by federal law. Any information, including the child’s case file, shall be kept confidential by the department and the board pursuant to state and federal law, and it shall be used only for the determination or continuation of eligibility.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department shall implement this section by means of all-county letters or similar instructions, without taking any further regulatory action. Thereafter, the department may adopt regulations, as necessary, to implement this section in accordance with the requirements of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
This section shall be implemented when the state has sought and obtained approval of any amendments to its state plan necessary to implement the changes to this section, pursuant to this act, and has obtained funding under Title XXI of the Social Security Act (42 U.S.C. Sec. 1397aa et seq.) for the provision of benefits under this section. Until the changes to this section, made by this act, are implemented, the Medi-Cal to Healthy Families Bridge Program established pursuant to Section 12693.98 shall remain in effect. Notwithstanding any other provision of law, and only when all necessary federal approvals have been obtained by the state, this section shall be implemented only to the extent federal financial participation under Title XXI of the Social Security Act (42 U.S.C. Sec. 1397aa et seq.) is available to fund benefits provided under this section.
Upon implementation of the Healthy Families Presumptive Eligibility Program pursuant to this section, the Director of Health Care Services shall execute a declaration, which shall be retained by the director, stating that implementation of the section has commenced.
The Healthy Families-to-Medi-Cal Bridge Benefits Program is hereby established to provide any person enrolled for coverage under this part who meets the criteria set forth in subdivision (b) with a two calendar-month period of health care benefits in order to provide the person with an opportunity to apply for Medi-Cal.
The Healthy Families-to-Medi-Cal Bridge Benefits Program shall be administered by the board.
Any person who meets all of the following requirements shall be eligible for two additional calendar months of Healthy Families benefits:
He or she has been receiving, but is no longer eligible for, benefits under the program.
He or she appears to be income eligible for full-scope Medi-Cal benefits without a share of cost.
The two additional calendar months of benefits under this chapter shall begin on the first day of the month following the last day of the person’s eligibility for benefits under the program.
The two-calendar-month period of Healthy Families benefits provided under this chapter shall be identical to the scope of benefits that the person was receiving under the program.
Nothing in this section shall be construed to provide Healthy Families benefits for more than a two calendar-month period under any circumstances, including the failure to apply for benefits under the Medi-Cal program or the failure to be made aware of the availability of the Medi-Cal program unless the circumstances described in subdivision (b) reoccur.
This section shall become inoperative if an unappealable court decision or judgment determines that any of the following apply:
The provisions of this section are unconstitutional under the United States Constitution or the California Constitution.
The provisions of this section do not comply with the State Children’s Health Insurance Program, as set forth in Title XXI of the federal Social Security Act.
The provisions of this section require that the health care benefits provided pursuant to this section are required to be furnished for more than two calendar months.
The board shall cease to provide the benefits described in this section to any additional individuals on the date that the State Department of Health Care Services implements the presumptive eligibility program established pursuant to Section 14011.65b of the Welfare and Institutions Code and the Director of Health Care Services executes a declaration pursuant to subdivision (d) of that section stating that the program of presumptive eligibility has commenced. The board shall consult and coordinate with the State Department of Health Care Services in implementing presumptive eligibility under Section 14011.65b of the Welfare and Institutions Code for these individuals.
This section shall be repealed six months after the board ceases to provide benefits to additional individuals pursuant to this section.
For purposes of this chapter, “Medi-Cal” means the state health care program established pursuant to Chapter 14 (commencing with Section 14000) of Part 3 of Division 9 of the Welfare and Institutions Code.
The board and the department, in collaboration with program offices for the California Special Supplemental Food Program for Women, Infants, and Children (WIC or the WIC program), local WIC agencies, counties in their capacity of making Medi-Cal eligibility determinations, advocates, information technology specialists, and other stakeholders, shall design, promulgate, and implement policies and procedures for an automated enrollment gateway system developed by the department and the board that performs, but is not limited to performing, the following functions:
To the extent that federal financial participation is available, allowing children applying to the WIC program to submit a simple electronic application to simultaneously obtain presumptive eligibility for Medi-Cal and Healthy Families under Title XIX (42) U.S.C. 1396 et seq.) and Title XXI (42 U.S.C. 1397aa et seq.) of the Social Security Act and apply for enrollment into the Medi-Cal program or the Healthy Families Program with the consent of their parent or guardian.
Modify the existing WIC enrollment system to obtain the minimum required data for enrollment in Medi-Cal and Healthy Families in order to provide an electronic transactional platform that is connected to the simple electronic application referenced in paragraph (1) and allowing for an interface between that application, the Medi-Cal Eligibility Data System (MEDS), and the Medi-Cal program or the Healthy Families Program, as relevant.
Providing an automated real-time connection with MEDS for the purpose of checking an applicant’s enrollment status.
Allowing for the electronic transfer of information to the Medi-Cal program or the Healthy Families Program, as relevant, for the purpose of making the final eligibility determination.
Checking, as relevant, available government databases for the purpose of electronically receiving information that is necessary to allow the Medi-Cal program or the Healthy Families Program to complete the eligibility determination. The department and the Managed Risk Medical Insurance Board shall comply with all applicable privacy and confidentiality provisions under federal and state law.
The automated enrollment gateway system shall be constructed with the capacity to be used by entities operating the WIC program.
The WIC application process shall be modified to provide an electronic application described in subdivision (a), which shall contain the information necessary to apply for the automated enrollment gateway system, supplemented by information required to apply for enrollment into the Medi-Cal program or the Healthy Families Program.
Benefits for applicants opting to simultaneously obtain presumptive eligibility for enrollment under this section shall continue until a final eligibility determination is made for the Medi-Cal program or the Healthy Families Program pursuant to Section 14011.8 of the Welfare and Institutions Code.
Operation of the automated enrollment gateway system for the WIC program shall occur within a timely and appropriate period as determined by the department and the board, in consultation with the stakeholders as provided in subdivision (a) subject to a specific appropriation being provided for that purpose in the Budget Act or in subsequent legislation. The automated enrollment gateway system shall comply with all applicable confidentiality and privacy protection in federal and state law and regulation.
The WIC program shall collect income and residency information necessary for the Medi-Cal program and the Healthy Families Program documentation requirements for applications submitted through the automated enrollment gateway system. To the extent allowed by the federal government, the Medi-Cal and Healthy Families programs shall rely on income information obtained by WIC and upon the income verification process performed by WIC. The Medi-Cal and Healthy Families programs shall collect and verify citizenship and immigration information as required under those programs.
Consistent with the provisions of this section, the Medi-Cal and Healthy Families programs may collect additional information needed to verify eligibility in those programs.
Counties shall accept and process for a Medi-Cal eligibility determination applications provided by the WIC gateway system and ensure timely processing of these applications and a timely eligibility determination and ending of presumptive eligibility.
The presumptive eligibility benefits provided under this section shall be identical to the benefits provided to children who receive full-scope Medi-Cal benefits without a share of cost, and shall only be made available through a Medi-Cal provider.
The confidentiality and privacy protections set forth in Sections 10850 and 14100.2 of the Welfare and Institutions Code and all other confidentiality and privacy protections in federal and state law and regulation shall apply to all children and families using the automated enrollment gateway system as described in this section.
The state shall promote and offer support to the WIC program for the use of the simple electronic application and the automated enrollment gateway system.
The board shall seek approval of any amendments to the state plan necessary to implement this section, in accordance with Title XXI (42 U.S.C. Sec. 1397aa et seq.) of the federal Social Security Act.
The department shall seek approval of any amendments to the state plan necessary to implement this section, in accordance with Title XIX (42 U.S.C. 1396 et seq.) of the federal Social Security Act. Notwithstanding any other provision of law, only when all necessary federal approvals have been obtained shall this section be implemented.
CHAPTER 16.2. Transition of Healthy Families Program Enrollees to Medi-Cal [12694.1. - 12694.2.]
Pursuant to Sections 14005.26 and 14005.27 of the Welfare and Institutions Code, subscribers enrolled in the Healthy Families Program pursuant to this part shall, no sooner than January 1, 2013, transition to the Medi-Cal program pursuant to Sections 14005.26 and 14005.27 of the Welfare and Institutions Code to the extent they are otherwise eligible. AIM-linked infants, as defined in Section 12695.03, with incomes above 250 percent of the federal poverty level are exempt from this transition.
Notwithstanding Section 12693.74, disenrollment of subscribers in the manner, and at the times, specified in Section 14005.27 of the Welfare and Institutions Code. The board may retain a subscriber in the program for longer than 12 months if needed to ensure a smooth transition to the Medi-Cal program.
In coordination with the State Department of Health Care Services, provision of reasonable notice to applicants concerning disenrollment of subscribers consistent with Section 14005.27 of the Welfare and Institutions Code.
Notwithstanding Section 12693.51, transfers of subscribers from one participating plan to another at the times and under the conditions prescribed by the board, without the obligation that the board provide an annual opportunity for subscribers to transfer from one participating plan to another.
Nothing in subdivision (e) of Section 12693.43 shall be construed to require any refund or adjustment of family contributions if an applicant has paid for three months of required family contributions in advance and the subscriber for whom the applicant has paid these family contributions is disenrolled pursuant to this section, or for any other reason, without receiving a fourth consecutive month of coverage.
Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the board shall, without taking any further regulatory action, implement, interpret, or make specific this section by means of business rules, program bulletins, program correspondence to subscribers and contractors, letters, or similar instructions.
The board may adopt and readopt emergency regulations implementing this section. The adoption and readoption, by the board, of regulations implementing this section shall be deemed an emergency and necessary to avoid serious harm to the public peace, health, safety, or general welfare for purposes of Sections 11346.1 and 11349.6 of the Government Code, and the board is hereby exempted from the requirement that it describe facts showing the need for immediate action and from review by the Office of Administrative Law.
The Healthy Families Program, pursuant to this part, shall cease to enroll new subscribers no sooner than the date transition begins pursuant to subdivision (a), and any transition of children shall be in compliance with the implementation plan or plans as contained in Section 14005.27 of the Welfare and Institutions Code.
All civil service employees who are currently employed by the Managed Risk Medical Insurance Board, whose functions are transferred to the State Department of Health Care Services as a result of the act adding this section, shall retain their positions, status, and rights pursuant to Section 19050.9 of the Government Code and the State Civil Service Act (Part 2 (commencing with Section 18500) of Division 5 of Title 2 of the Government Code).
PART 6.8. Program Transfers [12739.77. - 12739.79.]
For the purposes of this part, the following terms have the following meanings:
“Board” means the Managed Risk Medical Insurance Board.
“Employee” means permanent or probationary civil service employee.
If any statute dissolves or terminates the board, any employee of the board who, immediately prior to the effective date of the dissolution or termination of the board, was assigned to the Healthy Families Program (Part 6.2 (commencing with Section 12693)), the Access for Infants and Mothers Program (Part 6.3 (commencing with Section 12695)), the County Health Initiative Matching Fund (Part 6.4 (commencing with Section 12699.50)), or the Major Risk Medical Insurance Program (Part 6.5 (commencing with Section 12700)) shall be transferred to the State Department of Health Care Services and shall retain his or her status, position, and rights pursuant to Section 19050.9 of the Government Code and the State Civil Service Act (Part 2 (commencing with Section 18500) and Part 2.6 (commencing with Section 19815) of Division 5 of Title 2 of the Government Code).
If employees are transferred to the State Department of Health Care Services pursuant to this subdivision, the department shall prepare a report on the transfer of employees, and, if applicable, any functions transferred to the department upon dissolution or termination of the board. The report shall, at a minimum, describe any assignment of new activities to transferred employees and provide workload justification for the position authority transferred pursuant to this subdivision. The department shall submit the report to the fiscal and relevant policy committees of the Legislature by February 1 of the year following the year in which employees are transferred, and shall update the report, if necessary, by February 1 of each of the two years following submission of the report. The report may be included with any budget information submitted by the department to those committees.
If any statute dissolves or terminates the board, any employee of the board who, immediately prior to the effective date of the dissolution or termination of the board, was assigned to the Federal Temporary High Risk Pool (Part 6.6 (commencing with Section 12739.5) and Part 6.7 (commencing with Section 12739.70)) shall be transferred to the California Health Benefit Exchange and shall retain his or her status, position, and rights pursuant to Section 19050.9 of the Government Code and the State Civil Service Act (Part 2 (commencing with Section 18500) and Part 2.6 (commencing with Section 19815) of Division 5 of Title 2 of the Government Code).
This subdivision shall not apply to any employee who has transferred to the California Health Benefit Exchange pursuant to subdivision (b) of Section 12739.61 or Section 12739.79.
If any statute dissolves or terminates the board, an employee’s applicable reinstatement rights that would have applied to the board shall instead apply to the State Department of Health Care Services.
Any permanent or probationary civil service employee who is employed by the board and assigned to the Federal Temporary High Risk Pool (Part 6.6 (commencing with Section 12739.5) and Part 6.7 (commencing with Section 12739.70)) and whose function ceases due to Section 12739.61 shall immediately be transferred to the California Health Benefit Exchange and shall retain his or her status, position, and rights pursuant to Section 19050.9 of the Government Code and the State Civil Service Act (Part 2 (commencing with Section 18500) and Part 2.6 (commencing with Section 19815) of Division 5 of Title 2 of the Government Code).
PART 7. HOME PROTECTION [12740. - 12764.]
CHAPTER 1. Definitions and Licensing [12740. - 12745.]
The definitions used in this section govern the construction and terms used in this part but shall not affect any other provisions of this code:
“Home protection contract” means a contract or agreement whereby a person, other than a builder, seller, or lessor of the home which is the subject of the contract, undertakes for a specified period of time, for a predetermined fee, to repair or replace all or any part of any component, system or appliance of a home necessitated by wear and tear, deterioration or inherent defect, arising during the effective period of the contract, and, in the event of an inspection conducted pursuant to subdivision (b) of Section 12761, by the failure of that inspection to detect the likelihood of any such loss.
Such contract shall provide for a system of service for effectuating such repair or replacement and shall not include protection against consequential damage from the failure of any component, system or appliance.
“Home protection company” means any person licensed pursuant to this part which issues home protection contracts.
“Protection contract fee” means the consideration received, or to be received, by a home protection company for the issuance of any home protection contract.
A home protection contract fee shall be the fee established by a home protection company for coverage extending one year from the effective date of the contract. Where initial coverage is provided for a period in excess of one year, the home protection contract fee shall be the annual fee, plus a separately stated pro rata portion of the annual fee for the period of coverage which exceeds one year.
“Home” or “residential property” as used in this part means any single or multiple unit or units, including mobilehomes, (as defined in Health and Safety Code Section 18211) used primarily for residential purposes.
This part shall not apply to:
Performance guarantees or service contracts given by either the builder of a home or the manufacturer or seller of an appliance or other system or component, whether or not an identifiable charge is made for such guarantee or service contract.
Any service contract, guarantee, or warranty intending to guarantee or warrant the repairs or service of a home appliance, system or component, provided such service contract, guarantee, or warranty is issued by a person who has sold, serviced, repaired or provided replacement of that appliance, system or component at the time of, or prior to issuance of the contract, guarantee, or warranty; and, provided, further, that the person issuing the service contract, guarantee, or warranty does not engage in the business of a home protection company.
The provider of any pest control service agreement pursuant to Section 8516 of the Business and Professions Code.
This section shall become operative January 1, 2004.
Home protection contracts and home protection companies, and all matters incident to or concerned with such contracts and companies, shall be exclusively subject to and regulated by the provisions of this part and, except as provided in Section 12743, shall not be governed by any other provision of this code.
The following provisions of this code shall be applicable to home protection contracts and home protection companies:
Chapter 3 (commencing with Section 330) of Part 1, Division 1.
Chapter 12 (commencing with Section 679.70) of Part 1, Division 1.
These provisions of Chapter 1, Part 2, Division 1:
Article 1 (commencing with Section 680).
Article 1.5 (commencing with Section 685).
Article 2 (commencing with Section 690).
Section 699, 699.5, 700, 701, 704, 704.5, 704.7, 705, 705.1, 707, 708, 709, 710, 713, 714, 715, 716, 717, 718, 720, and 725 of Article 3 (commencing with Section 699).
Section 750.
Article 5.5 (commencing with Section 770).
Article 6.5 (commencing with Section 790).
Article 8 (commencing with Section 820).
Article 9 (commencing with Section 880).
Article 11 (commencing with Section 939).
Article 13 (commencing with Section 980).
Article 14 (commencing with Section 1010).
Article 14.5 (commencing with Section 1065.1).
Article 15 (commencing with Section 1070).
Article 16 (commencing with Section 1080).
Article 17 (commencing with Section 1100).
These provisions of Chapter 2, Part 2, Division 1:
Article 1 (commencing with Section 1140).
Article 2 (commencing with Section 1150).
Article 3 (commencing with Section 1170).
Article 4 (commencing with Section 1190).
Article 4.7 (commencing with Section 1215).
Article 7 (commencing with Section 1250).
Article 8 (commencing with Section 1260).
Article 4 (commencing with Section 1610) of Chapter 4 of Part 2 of Division 1.
Article 3 (commencing with Section 1631) of Chapter 5 of Part 2 of Division 1.
Sections 1850, 1850.5, 1852, 1853.5, 1853.7, 1853.8, 1857, 1857.2, 1857.3, 1857.4, 1857.5, 1858, 1858.05, 1858.1, 1858.15, 1858.2, 1858.3, 1858.4, 1858.5, 1858.6, 1858.7, 1859, 1859.1, 1860, 1860.1, 1860.2 of Chapter 9, Part 2, Division 1.
Division 3 (commencing with Section 12900).
In any references in the provisions made applicable to this part by subdivisions (a) to (i) inclusive of this section:
“Insurer” shall mean home protection company.
“Insured” shall mean a home protection contract holder.
“Premium” shall mean protection contract fee.
“Policy” or “insurance” shall mean home protection contract.
When any provision of this code, other than this part, is applied to home protection companies, such provision shall be construed in accordance with the nature of home protection companies and the home protection business. In the event of any conflict between such other provision and this part, this part shall prevail.
No person shall issue or offer to issue home protection contracts in this state unless the person holds a home protection company license issued by the department, except as provided in subdivision (b) of this section.
An insurer admitted for the class of insurance defined in Section 120 is authorized, in addition to the underwriting powers granted by the class, to issue home protection contracts, but the provisions of this part shall not be otherwise applicable to those insurers or their contracts.
No license shall be granted to a foreign applicant that has not fulfilled the requirements of Sections 716 and 717. For purposes of this part, the term “class of insurance” as used in said sections shall mean the business of a home protection company. This section shall not prohibit the admission of a foreign home protection company that has actively transacted home protection business in its state of domicile for three years or more.
The commissioner shall by regulation prescribe forms for applications for home protection company licenses consistent with the provisions of this part. Any reference to certificate of authority in Article 3 (commencing with Section 699) of Chapter 1 of Part 2 of Division 1, shall mean home protection company license.
Subject to paragraph (2) and, notwithstanding subdivision (c) or any regulation to the contrary, the following requirements shall not apply to any foreign applicant:
Filing a financial statement certified by the applicant’s home state regulatory official as a true and correct copy of the statement filed with that official. This exemption applies only if the official does not require a home protection company or the applicant to file a financial statement.
Filing an examination report certified by the applicant’s home state regulatory official as a true and correct copy. This exemption applies only if the official does not prepare examination reports of home protection companies or has not prepared an examination report of the applicant.
Holding a certificate of authority as an insurance company.
The exemptions described in paragraph (1) apply only if the applicant’s chief executive officer stipulates that the company will provide financial reports in the same manner required of domestic home protection companies.
Any insurance holding company subject to Article 4.7 (commencing with Section 1215) of Chapter 2 of Part 2 of Division 1, one of whose affiliates is a home protection company as defined in this part, may invest in or operate a corporation which provides home service contractor or dispatch services or appliance service or appliance repair services pursuant to a contract issued for that purpose. The corporation shall not be subject to licensing or regulation under this part except as set forth in this section, provided, that the contract shall not be sold in conjunction with, or otherwise attach to, the sale or any proposed sale of the real property to which it relates.
At the time of filing its registration statement under Section 1215.4, and annually thereafter, each affiliate owning or operating such a corporation shall file as a supplement thereto, a statement of the financial condition of the corporation prepared according to generally accepted accounting principles, and a designated list of the name and addresses of all agents, employees, and independent contractors utilized to issue or sell those contracts. Each statement of financial condition and designated list shall be certified as correct by an officer of the corporation. The commissioner may prescribe the form for the statement or list.
CHAPTER 2. Fiscal Requirements [12750. - 12757.]
A home protection company which has issued or renewed an aggregate number of 1,000 or less contracts in the preceding calendar year shall maintain a minimum net worth of forty thousand dollars ($40,000) and for each additional 500 contracts, or fraction thereof, up to 10,000 contracts, an additional twenty thousand dollars ($20,000).
Net worth is defined as the excess of admitted assets over all liabilities and required reserves. At least twenty thousand dollars ($20,000) of net worth shall consist of paid-in capital.
Any home protection company which has issued and in force, prior to January 1, 1979, any contracts for home protection exempt from the provisions of this part pursuant to Section 12741, shall carry a portion of the fee received for such contracts in the reserve contemplated by Section 985, as though such fees were premiums subject to the provisions of that section, and such sums shall be deemed equivalent to premiums for purposes of that section but shall not be considered premiums for the purposes of Section 12202 of the Revenue and Taxation Code.
A home protection company shall file an annual statement exhibiting its conditions and affairs in accordance with Sections 900, 900.5, 900.8, 900.9, 902, 903, 903.5, 904, 922.1 to 922.8, inclusive, 923, 923.5, and 924. However, the required contents of the annual statement may vary from the requirements thereof, pursuant to regulations adopted by the commissioner in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, so as to adapt the requirements to the home protection business. This subdivision shall not be construed to limit the authority of the commissioner to request financial statements from licensees at any time.
The commissioner shall, before licensure and at other times as appears necessary, examine the business and affairs of a home protection company subject to this part. A home protection company so examined shall open its books and records for inspection by the commissioner and shall otherwise facilitate and cooperate in the examination. In making the examination, the commissioner shall have the rights specified in Section 733, and the examinee shall be subject to the obligations of Section 736. The commissioner shall not conduct more than one financial examination of a company in a five-year period, unless the commissioner finds that the financial condition of the company has deteriorated, thereby warranting an interim examination.
The commissioner may extend the period between examinations up to two additional years if the commissioner determines that conditions warrant the extension. In making that determination, the commissioner may consider all of the following factors:
The company’s reserves.
The company’s net worth.
Any other factors the commissioner considers relevant.
A home protection company shall maintain a reserve for unearned premiums in an amount not less than 40 percent of the aggregate premiums charged on its contracts currently in force.
Amounts to be reserved shall be on a 12-month basis. Where the contract is for a period of more than 12 months, the reserve for unearned premiums for the period beyond 12 months shall be 100 percent of the pro rata portion of the contract fee attributable to the period of coverage in excess of 12 months. The unearned premium reserve for contracts exceeding 12 months shall be reduced to not less than 40 percent of the pro rata portion of the contract fee applicable to the next succeeding 12-month period, as of the first day of the succeeding 12-month period, and each succeeding 12-month period thereafter during which the contract is in effect.
Where the home protection contract provides coverage during the selling or listing period of the real property to which the contract applies, the home protection contract fee applicable to this period of coverage shall be deemed fully earned upon the close of escrow, and receipt of payment of the applicable contract fee.
For purposes of this section, such reserve shall not include protection contract fees on home protection contracts to the extent provision is made for reinsurance of the outstanding risk on such contracts.
The commissioner may, by regulation, prescribe the format by which the reserve shall be reported.
A home protection company shall be deemed insolvent whenever its net worth is reduced below 50 percent of the amount required by Section 12750.
A home protection company shall invest only in those assets defined in Article 3 (commencing with Section 1170) and Article 4 (commencing with Section 1190) of Chapter 2 of Part 2 of Division 1, except that an amount to be determined by the commissioner by regulation of its admitted assets may be invested in tangible personal property held by it for the purpose of repair or replacement of home components, systems or appliances under its home protection contracts.
The provisions of Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1, shall not be applicable to home protection companies.
CHAPTER 3. Other Provisions [12760. - 12764.]
No home protection company shall pay a commission to any person as an inducement or compensation for the issuance, purchase or acquisition of a home protection contract, nor shall a home protection company or any other insurer either directly or indirectly, as a part of any real property transaction in which a home protection contract will be issued, purchased or acquired, require that a home protection contract be issued, purchased or acquired in conjunction with or as a condition precedent to the issuance, purchase or acquisition, by any person, of any other policy of insurance. The provisions of this section shall not prohibit payment of an override commission or marketing fee to an employee or commission sales agent who is the marketing representative of the home protection company or its parent, subsidiary, or affiliate on the sale or marketing of a home protection contract, provided such person is not a real estate licensee sharing in or entitled to share in, or affiliated with a real estate brokerage firm which is entitled to share in the real estate commission generated by the underlying real property transaction.
The furnishing of a home protection contract without charge to any person shall constitute a violation of this part. No home protection contract providing coverage prior to the time an interest in the home to which it attaches is sold shall be issued or delivered unless it provides for consideration. Such consideration may consist of a bona fide promise to pay the protection contract fee at the time of and only upon transfer of title.
A home protection company may require an onsite inspection as a prequalification for the issuance of a home protection contract, and in such event offer a report on the inspection in connection with a bona fide application for the issuance of such contract even though the issuance of a contract on the property which is the subject of the inspection does not occur.
A home protection company which was licensed as such on December 31, 1988, and as of that date was a franchisor of entities authorized by Section 771.1 to solicit, negotiate, or effect home protection contracts, or a parent, subsidiary, or affiliate of such a franchisor, and continues to be such a franchisor or parent, subsidiary, or affiliate of such a franchisor, may provide coverage for a listing period.
For the purposes of this section, a “listing period” means a period prior to the time an interest in the home to which the home protection coverage attaches is sold, during which there is in effect an exclusive right to sell listing as that term is defined in Section 1086 of the Civil Code, between the seller of that home and a franchisee of that franchisor.
Home protection contracts providing listing period coverage issued pursuant to this section shall be exempt from the provisions of both of the following:
Subdivision (c) of Section 12740, which requires a separately stated pro rata portion of the annual fee for the period of coverage which exceeds one year.
Subdivision (a) of Section 12753, which requires reserves for unearned premiums applicable to the listing period coverage provided under those home protection contracts.
A home protection contract shall specify, in clear and conspicuous terms, the following information:
Each of the appliances, systems and components covered by the contract.
All exclusions and limitations respecting the extent of coverage.
The period during which the contract will remain in effect, the protection contract fee and the renewal terms, if any.
With respect to the performance of services by the home protection company, all of the following:
The services to be performed by the company and the terms and conditions of such performance.
The service fee or fees, if any, to be charged for such services.
All limitations respecting the performance of services, including any restrictions as to the time period when or geographical area within which services may be requested or will be performed.
A statement that services will be performed upon telephonic request therefor to the company, without any requirement that claim forms or applications be filed prior to the rendition of service.
A representation that services will be initiated by or under the direction of the company within 48 hours after request is made for such services by any person entitled to make such request under the contract, or the agent of such person.
The commissioner may adopt, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, such reasonable regulations as may be necessary to make more specific the provisions of this section. Those regulations may also establish such other contract form standards and requirements as the commissioner may deem necessary and appropriate in the public interest. However, this section does not authorize the commissioner to specify those appliances, systems, or components which must be covered by a home protection contract except to the extent necessary to guarantee the equity of the exclusions from coverage offered or provided under a contract, or to the extent necessary to avoid illusory coverage due to the nature or extent of exclusions from the contract.
No home protection contract shall be issued or delivered until a copy of the form thereof is filed with the commissioner. The commissioner may charge a fee for the filing, which fee shall be established by regulation adopted pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
Any home protection contract shall be noncancellable during the initial term for which it was issued, except for:
Nonpayment of protection contract fees;
Fraud or misrepresentation of facts material to the issuance of such contract; or
Contracts providing coverage prior to the time that an interest in the residential property to which it attaches is sold, upon the contingency that such sale does not occur.
Nothing in this section establishes a right of the contract holder to renewal of any contract.
PART 8. SERVICE CONTRACTS [12800. - 12865.]
The following definitions apply for purposes of this part:
“Motor vehicle” means a self-propelled device operated solely or primarily upon land and may include both self-propelled motor homes or recreational vehicles, non-self-propelled camping and recreational trailers, off-road vehicles, and trailers designed to transport off-road vehicles. However, “motor vehicle” shall not include a self-propelled vehicle, or a component part of such a vehicle, that has any of the following characteristics:
Has a gross vehicle weight rating of 30,000 pounds or more, and is not a recreational vehicle as defined by Section 18010 of the Health and Safety Code.
Is designed to transport more than 15 passengers, including the driver.
Is used in the transportation of materials considered hazardous pursuant to the Hazardous Materials Transportation Act (49 U.S.C. Sec. 5101 et seq.), as amended.
“Watercraft” means a vessel, as defined in Section 21 of the Harbors and Navigation Code, and may include any non-self-propelled trailer used to transport such watercraft upon land.
“Vehicle service contract” means a contract or agreement for a separately stated consideration and for a specific duration to repair, replace, or maintain a motor vehicle or watercraft, or to indemnify for the repair, replacement, or maintenance of a motor vehicle or watercraft, necessitated by an operational or structural failure due to a defect in materials or workmanship, or due to normal wear and tear.
A vehicle service contract may also provide for the incidental payment of indemnity under limited circumstances only in the form of the following additional benefits: coverage for towing, substitute transportation, emergency road service, rental car reimbursement, reimbursement of deductible amounts under a manufacturer’s warranty, and reimbursement for travel, lodging, or meals.
A provider seeking to offer a vehicle service contract, including any of the benefits described in subparagraph (A), shall, when filing a specimen of the contract in accordance with subdivision (a) of Section 12820, certify that the indemnity benefits provided are incidental. For purposes of subparagraph (A) and this certification, indemnity benefits are incidental if the cost to provide them based on historical data, or projected data if historical data is unavailable or insufficient, is substantially less than the cost of providing all the benefits described in paragraphs (1), (3), (4), and (5). The commissioner may request the historical or projected data at any time.
“Vehicle service contract” also includes an agreement of a term of at least one year, for separately stated consideration, that promises routine maintenance.
Notwithstanding Section 116, and paragraphs (1) and (2) of this subdivision, a vehicle service contract also includes one or more of the following:
An agreement that promises the repair or replacement of a tire or wheel necessitated by wear and tear, defect, or damage caused by a road hazard. However, an agreement that promises the repair or replacement of a tire necessitated by wear and tear, defect, or damage caused by a road hazard, in which the obligor is the tire manufacturer, is exempt from the requirements of this part. A warranty provided by a tire or wheel distributor or retailer is exempt from the requirements of this part as long as the warranty covers only defects in the material or workmanship of the tire or wheel.
An agreement that promises the repair or replacement of glass on a vehicle necessitated by wear and tear, defect, or damage caused by a road hazard. However, a warranty provided by a vehicle glass or glass sealant manufacturer is exempt from the requirements of this part. A warranty provided by a vehicle glass distributor or retailer is exempt from the requirements of this part as long as the warranty covers only defects in the material or workmanship of the vehicle glass.
An agreement that promises the removal of a dent, ding, or crease without affecting the existing paint finish using paintless dent repair techniques, and which expressly excludes the replacement of vehicle body panels, sanding, bonding, or painting.
An agreement that promises the replacement of a motor vehicle key or key fob in the event that the key or key fob becomes inoperable or is lost or stolen.
“Vehicle service contract” also includes an agreement covering any of a vehicle’s mechanical components, provided with or without separate consideration, that promises to repair, replace, or maintain a motor vehicle or watercraft, or to indemnify for the repair, replacement, or maintenance of a motor vehicle or watercraft, conditioned upon the use of a specific brand or brands of lubricant, treatment, fluid, or additive.
“Service contract administrator” or “administrator” means any person, other than an obligor, who performs or arranges, directly or indirectly, any of the following activities:
Participating in the adjustment of claims arising from service contracts.
“Purchaser” means any person who purchases a vehicle service contract from a seller.
“Seller” means either of the following:
With respect to motor vehicles, a dealer or lessor-retailer licensed in one of those capacities by the Department of Motor Vehicles and who sells vehicle service contracts incidental to their business of selling or leasing motor vehicles.
With respect to watercraft, a person who sells vehicle service contracts incidental to that person’s business of selling or leasing watercraft vehicles.
“Obligor” means the entity legally obligated under the terms of a service contract.
“Road hazard” means a hazard that is encountered while driving a motor vehicle and that may include, but is not limited to, potholes, rocks, debris, metal parts, glass, plastic, curbs, or composite scraps.
A vehicle service contract that does each of the following:
Names as the obligor a motor vehicle manufacturer or distributor licensed in that capacity by the Department of Motor Vehicles, or a watercraft manufacturer.
Covers only motor vehicles or watercraft manufactured, distributed, or sold by that obligor.
A vehicle service contract in which the obligor is a seller, provided that the obligor complies with all provisions of this part except Section 12815.
A vehicle service contract sold by a seller in which the obligor is a party other than the seller, provided that the obligor complies with all provisions of this part.
An agreement in which the obligor is a motor vehicle or watercraft part manufacturer, distributor, or retailer, that covers no more than the following items:
The repair or replacement of a part manufactured, distributed, or retailed by that obligor.
Consequential and incidental damage resulting from the failure of that part.
An agreement in which the obligor is a repair facility, that is entered into pursuant and subsequent to repair work previously performed by that repair facility, and that is limited in scope to the following:
The repair or replacement of the part that was previously repaired.
Consequential and incidental damage resulting from the failure of that part.
An agreement promising only routine maintenance that does not constitute a vehicle service contract.
An agreement whereby an employer promises, or a third party contracted by the employer and acting on the employer’s behalf provides, mileage reimbursement or routine vehicle maintenance or noncollision repairs, or any combination of these benefits, to the employer’s employees for personal vehicles used in the employer’s business.
The types of agreements described in paragraphs (4) to (7), inclusive, of subdivision (a) are exempt from all provisions of this part.
No person, other than a seller, shall sell or offer for sale a vehicle service contract to a purchaser.
No obligor shall use a seller as a fronting company and no seller shall act as a fronting company. For purposes of this section, a “fronting company” is a seller that authorizes a third-party obligor to use its name or business to evade or circumvent the provisions of subdivision (a).
An obligor who is not a seller shall possess a vehicle service contract provider license. A vehicle service contract provider license shall be applied for and maintained, and its holder shall be subject to disciplinary action, as if it were a property broker-agent and casualty broker-agent license, with the following exceptions:
An applicant for a vehicle service contract provider license is exempt from having to satisfy continuing education requirements, and from having to pass a qualifying exam.
The fee to obtain a vehicle service contract provider license shall be four thousand nine hundred thirty-nine dollars ($4,939). The fee to renew a vehicle service contract provider license shall be eight hundred forty-seven dollars ($847).
A service contract administrator shall be licensed as a property broker-agent and casualty broker-agent.
Prior to offering a vehicle service contract form to a purchaser or providing a vehicle service contract form to a seller, an obligor shall file with the commissioner a specimen of that vehicle service contract form.
A vehicle service contract form may include any or all of the benefits described in subdivision (c) of Section 12800 and shall comply with all of the following requirements:
If an obligor has complied with Section 12830, the vehicle service contract shall include a disclosure in substantially the following form: “Performance to you under this contract is guaranteed by a California approved insurance company. You may file a claim with this insurance company if any promise made in the contract has been denied or has not been honored within 60 days after your request. The name and address of the insurance company is: (insert name and address). If you are not satisfied with the insurance company’s response, you may contact the California Department of Insurance at 1-800-927-4357 or access the department’s Internet Web site (www.insurance.ca.gov).”
If an obligor has complied with Section 12836, the vehicle service contract shall include a disclosure in substantially the following form: “If any promise made in the contract has been denied or has not been honored within 60 days after your request, you may contact the California Department of Insurance at 1-800-927-4357 or access the department’s Internet Web site (www.insurance.ca.gov).”
The requirement that a vehicle service contract form include the department’s Internet Web site shall not apply to a form for which the department has issued a “no objection letter” as of December 31, 2016.
All vehicle service contract language that excludes coverage, or imposes duties upon the purchaser, shall be conspicuously printed in boldface type no smaller than the surrounding type.
The vehicle service contract shall do each of the following:
State the obligor’s full corporate name or a fictitious name approved by the commissioner, the obligor’s mailing address, the obligor’s telephone number, and the obligor’s vehicle service contract provider license number.
State the name of the purchaser and the name of the seller.
Conspicuously state the vehicle service contract’s purchase price.
Name the administrator, if any, and provide the administrator’s license number.
If the vehicle service contract excludes coverage for preexisting conditions, the contract must disclose this exclusion in 12-point type.
The following benefits constitute insurance, whether offered as part of a vehicle service contract or in a separate agreement:
Indemnification for a loss caused by misplacement, theft, collision, fire, or other peril typically covered in the comprehensive coverage section of an automobile insurance policy, a homeowner’s policy, or a marine or inland marine policy, except as expressly authorized in subdivision (c) of Section 12800.
This section shall become operative on January 1, 2017.
In addition to any other right of rescission an obligor or purchaser may have, an obligor may include a provision in a service contract that reserves to the obligor the right to cancel the service contract within 60 days under the following conditions:
Notice of cancellation is mailed to the purchaser postmarked before the 61st day after the date the contract was sold by the seller.
The obligor provides the purchaser with a refund equal to the full purchase price stated on the contract within 30 days from the date of cancellation. However, if the obligor has paid a claim, or has advised the purchaser in writing that it will pay a claim, it may provide a pro rata refund, less the amount of any claims paid prior to cancellation.
The service contract ceases to be valid no less than five days after the postmark date of the notice.
The notice states the specific grounds for the cancellation.
An obligor may at any time cancel a service contract for nonpayment by the purchaser, conditioned upon each of the following:
Notice of cancellation is mailed to the purchaser.
If any refund is owed pursuant to Section 1794.41 of the Civil Code, the refund is paid within 30 days of the date of cancellation.
The service contract ceases to be valid no less than five days after the postmark date of the notice.
The notice states the specific grounds for the cancellation.
An obligor may at any time cancel a service contract for material misrepresentation or fraud by the purchaser, conditioned upon each of the following:
An obligor who cancels a contract is liable for any claim reported to a person designated in the contract for the reporting of claims if the claim is reported prior to the effective date of cancellation and is covered by the contract. For the purpose of this subdivision, a purchaser is deemed to have reported a claim if he or she has completed the first step required under the contract for reporting a claim.
An obligor canceling a contract pursuant to subdivision (b), (c), or (d) who pays a claim, or has advised the purchaser in writing that he or she will pay a claim, may provide a prorata rather than full refund, less the amount of any claims paid prior to cancellation.
Prior to incurring an obligation under a vehicle service contract, an obligor shall file with the commissioner, to the attention of the legal division, and receive the commissioner’s approval to use, a copy of an insurance policy covering 100 percent of the obligor’s vehicle service contract obligations. The policy must be issued by an insurer admitted in this state and authorized by the commissioner to issue that insurance in this state. The policy may also be issued by a risk retention group, as that term is defined in 15 U.S.C. Sec. 3901(a)(4), as long as that risk retention group is in full compliance with the federal Liability Risk Retention Act of 1986 (15 U.S.C. Sec. 3901 and following), is in good standing in its domiciliary jurisdiction, and has registered with the commissioner pursuant to Chapter 1.5 (commencing with Section 125) of Part 1 of Division 1. The insurance required by this subdivision shall be subject to the following:
The insurer or risk retention group shall, at the time the policy is filed with the commissioner, and continuously thereafter, be rated “B++” or better by A. M. Best Company, Inc., maintain surplus as to policyholders and paid-in capital of at least fifteen million dollars ($15,000,000), and annually file audited financial statements with the commissioner.
The commissioner may authorize an insurer or risk retention group that has surplus as to policyholders and paid-in capital of less than fifteen million dollars ($15,000,000) but at least equal to ten million dollars ($10,000,000) to issue the insurance required by this paragraph if the insurer or risk retention group demonstrates to the satisfaction of the commissioner that the company maintains a ratio of direct written premiums, wherever written, to surplus as to policyholders and paid-in capital of not more than 3 to 1.
An obligor required to maintain insurance pursuant to this paragraph who is an affiliate of a distributor of new motor vehicles licensed as such in any state prior to January 1, 2003, and continuously thereafter, is exempt from the requirement that its insurer or risk retention group satisfy the rating, surplus, and paid-in capital requirements of paragraph (1). This exemption shall apply only if the distributor sold or distributed at least 25,000 new motor vehicles to licensed dealers in the preceding five years. For the purpose of this paragraph, “affiliate” has the meaning set forth in subdivision (a) of Section 1215.
An insurance policy filed with the commissioner pursuant to subdivision (a) shall state the name of the obligor. The policy shall provide that all purchasers of vehicle service contracts shall be entitled to satisfaction by the insurer of any and all obligations arising under vehicle service contracts of the named obligor, upon the existence of all of the following conditions and no others:
The service contract obligor refuses or fails to satisfy an obligation arising under the vehicle service contract within 60 days of the date the purchaser submits proof of loss to the obligor.
The purchaser provides written notice to the insurer that the obligor has failed to comply with an obligation under the vehicle service contract.
The purchaser possesses a vehicle service contract sold after the inception and prior to any cancellation of the insurance policy required by subdivision (a), and the vehicle service contract recites the name of the obligor that is insured by the policy as the obligor of the service contract.
An insurer’s liability under a policy filed pursuant to subdivision (a) shall not be negated by any failure of the seller, an administrator, the obligor, or agents of any of these persons, to report the issuance of a vehicle service contract or to remit moneys to another person pursuant to a contractual agreement. The policy must state that the insurer is deemed to have received the premium for the policy upon payment by the purchaser for a vehicle service contract insured by that policy.
No policy cancellation by an insurer shall be valid unless a notice of the intent to cancel the policy was filed with the commissioner 30 days prior to the effective date of the cancellation, or 10 days prior in the event that the cancellation is due to fraud, material misrepresentation, or defalcation by the obligor or its administrator, if any.
In the event an insurer cancels a policy that it has filed with the commissioner pursuant to Section 12830, the obligor named on the policy shall do either of the following:
File a copy of a new policy with the commissioner, before the termination of the prior policy, providing no lapse in coverage following the termination of the prior policy.
Discontinue acting as an obligor as of the termination date of the policy until a new policy becomes effective and has been accepted and acknowledged by the commissioner.
This section shall not relieve an obligor from any obligation incurred under service contracts issued with its name as obligor prior to the date the policy was terminated.
In lieu of complying with Section 12830, an obligor or its parent company may establish to the commissioner’s satisfaction that it possesses a net worth of one hundred million dollars ($100,000,000). The obligor shall, upon request, provide the commissioner with all documents and affidavits necessary to establish the net worth, including, but not limited to, a copy of the obligor’s financial statements or the obligor’s parent company’s financial statements, and affidavits by the president and chief financial officer attesting to the net worth of the obligor or the obligor’s parent company. If the obligor elects to meet the net worth requirement through the parent company, the parent company shall agree in writing to guarantee the obligations of the obligor relating to contracts of the obligor issued in this state.
Every obligor or its administrator shall maintain at its principal office complete and accurate accounts, books, and records of all transactions among the obligor, its administrator, if any, sellers, insurers, and purchasers. Records maintained pursuant to this section shall be made available to the commissioner upon reasonable request. Any computerized recordkeeping system must be capable of producing a legible hard copy of all required records. Accounts, books, and records shall include:
A complete set of accounting records, including, but not limited to, a general ledger, cash receipts and disbursements journals, accounts receivable registers, and accounts payable registers.
Copies of each type of service contract sold.
The name and address of each service contract purchaser to the extent that the name and address have been furnished by the service contract purchaser.
A list of the locations where service contracts are marketed, sold, or offered for sale.
Written claims files which shall contain at least the dates and descriptions of claims related to the service contracts.
All required records pertaining to a service contract shall be maintained by the obligor, its administrator, or the insurer underwriting the contract, for at least three years after the expiration of the contract.
Every insurer that has issued a policy to an obligor shall have an ongoing right to access that obligor’s books and records in order to permit the insurer to fulfill all obligations to purchasers.
The commissioner may examine and investigate the affairs of every obligor and any administrator of an obligor. Any examination or investigation shall be at the expense of the obligor or the administrator, in the discretion of the commissioner. Any information contained in the books and records, including, but not limited to, the identity and addresses of sellers and purchasers of service contracts, shall be confidential, except that the commissioner may use the information in any proceeding or investigation instituted against an obligor or an administrator.
An obligor’s failure to keep or maintain the required accounts, books, or records, or to provide the commissioner with full and immediate access to those records, shall be grounds for the immediate suspension or revocation of the obligor’s vehicle service contract provider’s license, and also shall be grounds for the commissioner to issue a cease and desist order pursuant to Section 1065.2.
Any vehicle service contract obligor or administrator that provides vehicle service contract forms to sellers or purchasers, directly or indirectly, and fails to comply with Sections 12815, 12830 and 12835, is guilty of a public offense punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine not exceeding five hundred thousand dollars ($500,000), or both, and shall be enjoined from further violations by a court of competent jurisdiction on petition of the commissioner. This section shall not apply to a seller who is an obligor under vehicle service contracts it sells. The commissioner may issue a cease and desist order pursuant to Section 1065.2 to an obligor or administrator who violates Section 12830 or 12835. The commissioner may issue a cease and desist order pursuant to Section 12921.8 to an obligor or administrator in violation of Section 12815.
An obligor has the burden of proving that a claim is not covered by a service contract. An obligor has the burden of proving that a claim settlement amount is proper under the terms of the contract.
No seller of a service contract who participates in or influences, directly or indirectly, the processing, administration, or adjustment of claims, shall enter into any agreement or understanding the effect of which is to make the amount of the seller’s commission or compensation contingent upon savings effected in the adjustment, settlement, or payment of losses covered by the contract.
The commissioner may adopt regulations necessary or desirable to implement this chapter.
The provisions of this part are severable. If any provision of this part or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
A promise to refund some or all of the purchase price of a service contract if the purchaser does not file any claims, files a limited number of claims, or files claims the dollar amount of which does not exceed a set amount or percentage, shall constitute insurance, unless subdivisions (a) and (b) are satisfied. If conditions (a) and (b) are satisfied, the promise shall constitute a refund agreement.
The promise is offered without separate consideration, and the promisor complies with subdivisions (a)(1), (a)(2) or (a)(3).
The promisor is a service contract obligor, the promise is contained within a service contract, and the obligor has complied with all provisions of this part.
The promisor is a seller, the refund agreement provides no benefits other than the refund of some or all of the purchase price, and the promisor utilizes a refund agreement administrator.
The promisor is neither a seller nor a service contract obligor. Such a person shall be deemed a refund agreement obligor, and shall comply with subdivisions (c)(1), (c)(2) and (c)(3).
A person other than the seller who performs or arranges, directly or indirectly, the collection, maintenance, or disbursement of moneys to compensate any party under a refund agreement, and who also provides sellers with refund agreement forms and participates in the adjustment of refund agreement claims, shall be deemed a refund agreement administrator, and shall comply with subdivision (b)(2).
The sections enumerated in subdivision (b)(2) shall apply to refund agreements and refund agreement administrators. In applying those sections, the terms vehicle service contract administrator, administrator and obligor shall instead mean refund agreement administrator, the word sold shall instead mean provided and the terms vehicle service contract and service contract shall instead mean refund agreement. The sections enumerated in subdivision (b)(2) shall be construed in accordance with the nature of refund agreement forms, refund agreement administrators, and the refund agreement business.
The following sections shall apply and be interpreted pursuant to subdivision (b)(1): 12815(b); 12820(a), (b)(1), (b)(2), (b)(3)(A), (b)(3)(B), 12830(a), (a)(1), (a)(2), (b), (c), (d), (e); 12835; 12840; 12845; 12850; 12855.
A refund agreement obligor may not promise any benefit other than a refund of some or all of the purchase price of a service contract if the purchaser does not file any claims, files a limited number of claims, or files claims the dollar amount of which does not exceed a set amount or percentage.
No person other than a seller shall provide or offer to provide a refund agreement to a purchaser.
PART 9. Pet Insurance [12880. - 12880.8.]
For purposes of this part, the following definitions shall apply:
“Chronic condition” means a condition that can be treated or managed, but not cured.
“Congenital anomaly or disorder” means a condition that is present from birth, whether inherited or caused by the environment, which may cause or otherwise contribute to illness or disease.
“Hereditary disorder” means an abnormality that is genetically transmitted from parent to offspring and may cause illness or disease.
“Orthopedic” refers to conditions affecting the bones, skeletal muscle, cartilage, tendons, ligaments, and joints, including elbow dysplasia, hip dysplasia, intervertebral disc degeneration, patellar luxation, and ruptured cranial cruciate ligaments. “Orthopedic” does not include cancers or metabolic, hemopoietic, or autoimmune diseases.
“Pet insurance” means an individual or group property insurance policy that provides coverage for accidents and illnesses of pets, and other veterinary expenses.
“Preexisting condition” means any condition for which a veterinarian provided medical advice, the pet received treatment for, or the pet displayed signs or symptoms consistent with the stated condition prior to the effective date of a pet insurance policy or during any waiting period.
“Renewal” has the same meaning as defined in subdivision (e) of Section 660.
“Veterinarian” means an individual who holds a valid license to practice veterinary medicine from the Veterinary Medical Board pursuant to Chapter 11 (commencing with Section 4800) of Division 2 of the Business and Professions Code or other appropriate licensing entity in the jurisdiction in which the individual practices.
“Veterinary dental care” means the prevention, diagnosis, and treatment of conditions, diseases, and disorders of the oral cavity, the maxillofacial region, and associated structures.
“Veterinary expenses” means the costs associated with medical advice, diagnosis, care, or treatment provided by a veterinarian, including, but not limited to, veterinary dental care, the cost of drugs prescribed by a veterinarian, and services provided under the supervision of a veterinarian.
“Waiting period” means the period of time specified in a pet insurance policy that is required to transpire before some or all of the coverage in the policy can begin.
“Wellness program” means a subscription or reimbursement-based program that is separate from an insurance policy and that provides goods and services to promote the general health, safety, or well-being of the pet.
A policy of pet insurance that is marketed, issued, amended, renewed, or delivered, whether or not in California, to a California resident, on or after July 1, 2015, regardless of the situs of the contract or master group policyholder, or the jurisdiction in which the contract was issued or delivered, is subject to this part.
An insurer transacting pet insurance in California shall disclose all of the following to consumers:
If the policy excludes coverage due to any of the following:
A preexisting condition.
A hereditary disorder.
A congenital anomaly or disorder.
A chronic condition.
If the policy includes any other exclusion, the following statement: “Other exclusions may apply. Please refer to the exclusions section of the policy for more information.”
Any policy provision that limits coverage through a waiting period, a deductible, coinsurance, or an annual or lifetime policy limit.
Whether the insurer reduces coverage or increases premiums based on the insured’s claim history, the age of the covered pet, or a change in the geographic location of the insured.
If a pet insurer uses any of the terms in paragraph (1) of subdivision (a) in a policy of pet insurance, the insurer shall use the definition of those terms as set forth in Section 12880 and include the definitions of the terms in the policy. The pet insurer shall also make those definitions available before the sale of a policy, through a link on the main page of the insurer’s internet website, or as a hard copy if hard copy policy documents are requested by or provided to a consumer.
This subdivision and Section 12880 do not prohibit or limit the types of exclusions pet insurers may use in their policies. This subdivision does not require pet insurers to have any of the limitations or exclusions defined in Section 12880.
Before the sale of a policy, a pet insurer shall clearly disclose a summary description of the basis or formula on which the insurer determines claim payments under a pet insurance policy within the policy and through a link on the main page of the insurer’s internet website, or as a hard copy if hard copy policy documents are requested by or provided to a consumer.
A pet insurer that uses a benefit schedule to determine claim payment under a pet insurance policy shall do both of the following before the sale of a policy:
A pet insurer that determines claim payments under a pet insurance policy based on usual and customary fees, or any other reimbursement limitation based on prevailing veterinary service provider charges, shall do both of the following before the sale of a policy:
Include a usual and customary fee limitation provision in the policy that clearly describes the insurer’s basis for determining usual and customary fees and how that basis is applied in calculating claim payments.
Disclose the insurer’s basis for determining usual and customary fees through a link on the main page of the insurer’s internet website, or as a hard copy if hard copy policy documents are requested by or provided to a consumer.
If a medical examination by a licensed veterinarian is required to effectuate coverage, the pet insurer shall clearly and conspicuously disclose the required aspects of the examination before a policy purchase and disclose that examination documentation may result in a preexisting condition exclusion before the sale of a policy.
Waiting periods and the requirements applicable to waiting periods shall be clearly and prominently disclosed to consumers before a policy purchase.
The insurer shall create a summary of all policy provisions required in subdivisions (a) to (g), inclusive, and subdivision (j) into a separate document titled “Insurer Disclosure of Important Policy Provisions.”
The insurer shall post the “Insurer Disclosure of Important Policy Provisions” document required in subdivision (h) through a link on the main page of the insurer’s internet website, or as a hard copy if hard copy policy documents are requested by or provided to a consumer.
In connection with the issuance of a new pet insurance policy, the insurer shall provide the insured with a copy of the “Insurer Disclosure of Important Policy Provisions” document required pursuant to subdivision (h) in at least 12-point type when it delivers the policy.
In addition, the pet insurance policy shall have clearly printed thereon or attached thereto a notice stating that, after receipt of the policy by the owner, the policy may be returned by the insured for cancellation by delivering it or mailing it to the insurer or to the agent through whom it was purchased.
The period of time set forth by the insurer for return of the policy shall be clearly stated on the notice, and this free look period shall be not less than 30 days. The insured may return the policy to the insurer or the agent through whom the policy was purchased at any time during the free look period specified in the notice.
The delivery or mailing of the policy by the insured pursuant to this paragraph shall void the policy from the beginning, and the parties shall be in the same position as if a policy or contract had not been issued.
All premiums paid and any policy fee paid for the policy shall be refunded to the insured within 30 days from the date that the insurer is notified of the cancellation. However, if the insurer has paid any claim, or has advised the insured in writing that a claim will be paid, the 30-day free look right pursuant to this paragraph is inapplicable and instead the policy provisions relating to cancellation apply to any refund.
The disclosures required in this section shall be in addition to any other disclosure requirements required by law or regulation.
A person who violates a provision of this part is liable to the state for a civil penalty to be determined by the commissioner, not to exceed five thousand dollars ($5,000) for each violation, or, if the violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation. The commissioner may establish the acts that constitute a distinct violation for purposes of this section. However, when the issuance, amendment, or servicing of a policy or endorsement is inadvertent, all of those acts constitute a single violation for purposes of this section.
The penalty imposed by this section shall be imposed by and determined by the commissioner pursuant to Section 12880.4. The penalty imposed by this section is appealable by means of any remedy provided by Section 12940 or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
Whenever the commissioner shall have reason to believe that a person has engaged or is engaging in this state in a violation of this part, and that a proceeding by the commissioner in respect thereto would be to the interest of the public, he or she shall issue and serve upon that person an order to show cause containing a statement of the charges in that respect, a statement of that person’s potential liability under this part, and a notice of a hearing thereon to be held at a time and place fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the commissioner should issue an order to that person to pay the penalty imposed by Section 12880.3 and to cease and desist those methods, acts, or practices, or any of them, that violate this part.
If the charges or any of them are found to be justified, the commissioner shall issue and cause to be served upon that person an order requiring that person to pay the penalty imposed by Section 12880.3 and to cease and desist from engaging in those methods, acts, or practices found to be in violation of this part.
The hearing shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that the hearings may be conducted by an administrative law judge in the administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other Insurance Code sections that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted under the Administrative Procedure Act.
The person is entitled to have the proceedings and the order reviewed by means of any remedy provided by Section 12940 or by the Administrative Procedure Act.
The commissioner may adopt reasonable rules and regulations, as are necessary to administer this part, in accordance with the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).
At the time a pet insurance policy is issued or delivered to a policyholder, the insurer shall include a written disclosure with all of the following information, printed in 12-point boldface type:
The department’s mailing address, toll-free telephone number established pursuant to Section 12921.1, and internet website address.
The address and customer service telephone number of the insurer or the agent or broker of record.
A statement that the department should be contacted only after discussions with the insurer, or its agent or other representative, have failed to produce a satisfactory resolution of the problem.
If the policy was issued or delivered by an agent or broker, a statement advising the policyholder to contact the broker or agent for assistance.
After disclosure to the consumer, a pet insurer may issue policies that exclude coverage on the basis of one or more preexisting conditions. A condition for which coverage is afforded on a policy shall not be considered a preexisting condition on a renewal of the policy. The pet insurer has the burden of proving that the preexisting condition exclusion applies to the condition for which a claim is being made.
After disclosure to the consumer, a pet insurer may issue policies that impose waiting periods upon commencement of coverage that do not exceed 30 days for illnesses or orthopedic conditions not resulting from an accident. A pet insurance policy shall not impose a waiting period for accidents.
A pet insurer utilizing a waiting period shall include a provision in its contract that allows the waiting period to be waived upon completion of a medical examination. A pet insurer may require the examination to be conducted by a licensed veterinarian after the purchase of the policy.
A medical examination conducted pursuant to paragraph (1) shall be paid for by the policyholder, unless the policy specifies that the pet insurer will pay for the examination.
A pet insurer may specify elements to be included as part of the medical examination conducted pursuant to paragraph (1) and may require documentation of those elements, if those specifications do not unreasonably restrict an insured’s ability to waive the waiting period.
Waiting periods, and the requirements applicable to the waiting periods, shall be clearly and prominently disclosed to consumers before the policy purchase.
Upon receipt of a complete application for coverage and valid payment information, a pet insurer shall issue coverage to be effective no later than 12:01 a.m. on the second consecutive day.
Notwithstanding subparagraph (A):
A pet insurer may elect to conduct individualized underwriting on a specific pet, in which case coverage shall be effective no later than 12:01 a.m. on the next day after the pet insurer has determined the pet is eligible for coverage.
If pet insurance coverage is acquired by an individual through an employer or organization, the effective date of the pet insurance coverage may be postponed to align with the eligibility requirements, benefits effective date, or payment transmission date chosen by the employer or organization.
The date and time at which coverage becomes effective shall be prominently disclosed to the consumer.
For purposes of this paragraph, “individualized underwriting” may include examinations, tests, and any other diagnostic measures that the pet insurer may require, but shall not include any waiting or deferral periods.
A waiting period shall not be applied to a renewal of existing coverage.
A pet insurer shall not require a veterinary examination of the covered pet as a condition of policy renewal.
If a pet insurer includes any prescriptive, wellness, or noninsurance benefits in the policy form, then those benefits are made part of the policy contract and shall comply with all applicable laws and regulations for insurance policies.
A consumer’s eligibility to purchase a pet insurance policy shall not be based on participation, or lack of participation, in a separate wellness program.
A pet insurer or producer shall not market a wellness program as pet insurance. Marketing materials for pet insurance shall be separate from marketing materials for wellness programs.
If a wellness program is sold by a pet insurer or producer, all of the following shall apply:
The seller shall clearly and conspicuously disclose during the sales process that the wellness program is not a regulated insurance product and that a pet owner may purchase pet insurance without having to purchase a wellness program.
The purchase or renewal of the wellness program shall not be a requirement to the purchase or renewal of pet insurance.
The costs of the wellness program shall be separate and identifiable from a pet insurance policy sold by the pet insurer or producer.
A payment transaction for pet insurance shall be separate from a payment transaction for a wellness program.
The terms and conditions for a wellness program shall be separate from the terms and conditions of a pet insurance policy sold by the pet insurer or producer.
Documents and correspondence provided to a consumer regarding a wellness program shall clearly identify the entity providing the wellness program.
The products or coverages available through the wellness program shall not duplicate products or coverages available through the pet insurance policy.
The advertising of the wellness program shall not be misleading or false and shall comply with this section.
Coverages included in the pet insurance policy contract described as “wellness” benefits are insurance.
The wellness program services are provided by an entity other than an insurer.
The wellness program is marketed under the name of the entity providing wellness program services.
The wellness program does not constitute insurance pursuant to subdivision (e).
If a wellness program undertakes to indemnify a person against loss, damage, or liability arising from a contingent or unknown event, it is transacting insurance and is subject to this code.
DIVISION 3. THE INSURANCE COMMISSIONER [12900. - 13855.]
CHAPTER 1. Appointment, Qualification, and Offices [12900. - 12907.]
The commissioner shall be elected by the people in the same time, place, and manner as the Governor not to exceed two four-year terms.
Should a vacancy occur during the term of office, legislative confirmation shall be required for the position of commissioner in the same manner and procedure as that required by Section 5 of Article V of the California Constitution.
The commissioner shall be a person competent and fully qualified to perform the duties of the office. Neither the commissioner nor any deputy or employee shall during the commissioner’s, deputy’s, or employee’s tenure of office be an officer, agent, or employee of an insurer or directly or indirectly interested in any insurer or licensee under this code, except (a) as a policyholder or (b) by virtue of relationship by blood or marriage to any person interested in any insurer or licensee.
If the commissioner or any deputy or employee holds any license or permit issued under this code, that commissioner, deputy, or employee shall surrender it for cancellation within 10 days after appointment and qualification. Upon termination of the commissioner’s, deputy’s, or employee’s office or employment, that license or permit shall be reissued for the balance of the then current license or permit year without fee or penalty.
The annual salary of the commissioner is provided for by Chapter 6 of Part 1 of Division 3 of Title 2 of the Government Code.
The commissioner may employ actuarial, technical, and administrative assistants and clerks, as the commissioner may need to discharge in proper manner the duties imposed upon the commissioner by law. The commissioner may also employ stenographic reporters to take and transcribe the testimony in any formal hearing or investigation before the commissioner, deputy, or person authorized by the commissioner.
Those employed persons shall perform the duties assigned to them by the commissioner, subject to the provisions of the civil service laws. The commissioner may incur traveling and other expenses as are necessary, convenient, or advisable for the performance of the commissioner’s duties. The provisions of this section shall not be deemed to affect or modify positions or seniority of officers or employees existing and held in the office of the commissioner immediately prior to the date this section takes effect, and all persons then serving in any capacity therein shall continue and remain in that capacity without change of position or seniority, subject to the provisions of the law regulating civil service in the same manner and to the same extent as prior to the date this section takes effect.
The commissioner may not accept, use, or in any manner benefit from payments or reimbursements made to the department for travel from any of the following:
A single source that is subject to regulation by the commissioner.
A private attorney or law firm that is under contract or is bidding on or under consideration for a contract to represent either the department or the commissioner in the commissioner’s official capacity.
A private attorney or law firm that seeks to be awarded, or has been awarded, advocacy fees under subdivision (b) of Section 1861.10.
A private attorney or law firm that has a client subject to regulation by the commissioner.
For purposes of this section, any payment or reimbursement provided by a representative of a person or entity subject to regulation by the commissioner shall be deemed to be provided by the regulated person or entity.
The Attorney General or any other person within this state may bring a civil action for the violation of this section. The court may assess a civil penalty in the amount of three times the amount of the unlawful benefit or payment received by the commissioner.
An action under this subdivision shall be filed within five years of the date on which the violation occurred. If the commissioner engages in fraudulent concealment, the five-year period shall be tolled for the period of the concealment. For the purposes of this paragraph, “fraudulent concealment” means the commissioner knowingly concealed facts related to the commissioner’s travel expenditures or reimbursements.
On the recommendation of the commissioner the Personnel Board may establish rates of compensation for insurance examiners engaged in examinations out of this State which are in excess of the rates based on the regular monthly salary ranges established for such examiners.
In the administration of the provisions of this code and other insurance laws, the commissioner may purchase reports of financial and character reporting services, and other books and reports as in the commissioner’s opinion will aid in administration.
The commissioner shall maintain offices in Sacramento, Los Angeles, San Diego, and the San Francisco Bay area.
The governmental agency unit heretofore known as the Department of Insurance in the Business, Transportation and Housing Agency is hereby made an independent department. The Department of Insurance is under the control of the Insurance Commissioner. The removal from the Business, Transportation and Housing Agency of the Department of Insurance, effected by this section, shall not affect in any manner the deputies or employees of such governmental agency unit, except as otherwise provided by the act enacted in the 1990 portion of the 1989–90 Regular Session that amended this section, and, except as so provided, their employments and positions are hereby expressly continued in existence. The Insurance Commissioner is not a head of a department within the meaning of Sections 1061 and 11151 of the Government Code.
The following existing positions in the Department of Insurance shall be appointed by the Governor and are exempt from the state civil service system:
Chief executive officer.
Deputy commissioner for the office of the ombudsman.
Career executive assignment IV, in the administration and licensing services division.
CHAPTER 2. Powers and Duties [12919. - 13555.]
ARTICLE 1. Generally [12919. - 12938.]
Communications to the commissioner or any person in the commissioner’s office in respect to any fact concerning the holder of, or applicant for, any certificate or license issued under this code are made to the commissioner in official confidence within the meaning of Sections 1040 and 1041 of the Evidence Code. Liability shall not exist and no action or proceeding shall lie for or on account of any communication or the making thereof, but the existence of the communication shall not be deemed to dispense with or nullify any requirement of notice, hearing, or production of evidence before the commissioner as otherwise required by law.
The commissioner shall determine the sufficiency and validity of all securities required to be given by persons engaged, or to be engaged, in insurance business, and shall cause such security to be supplemented or renewed in case of the insufficiency or invalidity thereof.
In addition to and independent of any and all other proper causes for refusal by the commissioner to approve or accept any bond filed or presented for filing with the commissioner under any provision of this code or other laws, the commissioner shall decline to approve, accept, or file any bond, if, in the commissioner’s opinion, the principal and the surety are affiliated in any manner whereby insolvency of the one party would affect the solvency of the other or whereby it is made uncertain whether or not that result might occur.
The commissioner shall perform all duties imposed upon the commissioner by the provisions of this code and other laws regulating the business of insurance in this state, and shall enforce the execution of those provisions and laws.
In an administrative action to enforce the provisions of this code and other laws regulating the business of insurance in this state, any settlement is subject to all of the following:
The commissioner may delegate the power to negotiate the terms and conditions of a settlement to designated deputy commissioners. The commissioner may delegate the power to approve a settlement, unless the settlement involves any of the following:
An insurer.
A managing general agent or production agent that manages the business of an insurer.
A title company.
A home protection company.
An insurance adjuster whose claims practices are at issue.
An insurance agent or broker, or an applicant for an insurance agent or broker license, who has allegedly engaged in theft, fraud, or the misappropriation of premium or other funds in an amount that exceeds fifty thousand dollars ($50,000).
Unless specifically provided for in a provision of this code, the commissioner may not agree to any of the following:
That the respondent contribute, deposit, or transfer any moneys or other resources to a nonprofit entity.
That a respondent contribute, deposit, or transfer any fine, penalty, assessment, cost, or fee except to the commissioner for deposit in the appropriate state fund pursuant to Section 12975.7.
That the commissioner may or shall direct the transfer, distribution, or payment to another person or entity of any fine, penalty, assessment, cost, or fee.
The use of the commissioner’s name, likeness, or voice in any printed material or audio or visual medium, either for general distribution or for distribution to specific recipients.
The commissioner may only agree to payment to those persons or entities to whom payment may be due because of the respondent’s violation of a provision of this code or other law regulating the business of insurance in this state.
A settlement may only include the sanctions provided by this code or other laws regulating the business of insurance in this state, except that the settlement may include attorney’s fees, costs of the department in bringing the enforcement action, and future costs of the department to ensure compliance with the settlement agreement.
Notwithstanding any other law, the commissioner may accept documents submitted for filing or approval, process transactions, and maintain records in electronic form or as paper documents, and may adopt regulations to further this subdivision.
The commissioner shall establish a program on or before July 1, 1991, to investigate complaints and respond to inquiries received pursuant to Section 12921.3, to comply with Section 12921.4, and, when warranted, to bring enforcement actions against insurers or production agencies, as those terms are defined in subdivision (a) of Section 1748.5. The program shall include, but not be limited to, the following:
A toll-free telephone number published in telephone books throughout the state, dedicated to the handling of complaints and inquiries.
Public service announcements to inform consumers of the toll-free telephone number and how to register a complaint or make an inquiry to the department.
A simple, standardized complaint form designed to assure that complaints will be properly registered and tracked.
Retention of records on complaints for at least three years after the complaint has been closed.
Guidelines to disseminate complaint and enforcement information on individual insurers to the public, that shall include, but not be limited to, the following:
License status.
Number and type of complaints closed within the last full calendar year, with analogous statistics from the prior two years for comparison. The proportion of those complaints determined by the department to require that corrective action be taken against the insurer, or leading to insurer compromise, or other remedy for the complainant, as compared to those that are found to be without merit. This information shall be disseminated in a fashion that will facilitate identification of meritless complaints and discourage their consideration by consumers and others interested in the records of insurers.
Number and type of violations found, by reference to the line of insurance and the law violated. For the purposes of this subparagraph, the department shall separately report this information for health insurers.
Number and type of enforcement actions taken.
Ratio of complaints received to total policies in force, or premium dollars paid in a given line, or both. Private passenger automobile insurance ratios shall be calculated as the number of complaints received to total car years earned in the period studied.
Any other information the department deems is appropriate public information regarding the complaint record of the insurer that will assist the public in selecting an insurer. However, nothing in this section shall be construed to permit disclosure of information or documents in the possession of the department to the extent that the information and those documents are protected from disclosure under any other provision of law.
Procedures and average processing times for each step of complaint mediation, investigation, and enforcement. These procedures shall be consistent with those in Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1 for complaints within the purview of that article, consistent with those in Article 7 (commencing with Section 1858) of Chapter 9 of Part 2 of Division 1 for complaints within the purview of that article, and consistent with any other provisions of law requiring certain procedures to be followed by the department in investigating or prosecuting complaints against insurers or production agencies.
A list of criteria to determine which violations should be pursued through enforcement action, and enforcement guidelines that set forth appropriate penalties for violations based on the nature, severity, and frequency of the violations.
Referral of complaints not within the department’s jurisdiction to appropriate public and private agencies.
Complaint handling goals that can be tested against surveys carried out pursuant to subdivision (a) of Section 12921.4.
Inclusion in its annual report to the Governor, required by Section 12922, detailed information regarding the program required by this section, that shall include, but not be limited to: a description of the operation of the complaint handling process, listing civil, criminal, and administrative actions taken pursuant to complaints received; the percentage of the department’s personnel years devoted to the handling and resolution of complaints; and suggestions for legislation to improve the complaint handling apparatus and to increase the amount of enforcement action undertaken by the department pursuant to complaints if further enforcement is deemed necessary to ensure proper compliance by insurers or production agencies with the law.
The commissioner shall promulgate a regulation that sets forth the criteria that the department shall apply to determine if a complaint is deemed to be justified prior to the public release of a complaint against a specifically named insurer or production agency.
The commissioner shall provide to the insurer or production agency a description of any complaint against the insurer or production agency that the commissioner has received and has deemed to be justified at least 30 days prior to public release of a report summarizing the information required by this section. This description shall include all of the following:
The name of the complainant.
The date the complaint was filed.
A succinct description of the facts of the complaint.
A statement of the department’s rationale for determining that the complaint was justified that applies the department’s criteria to the facts of the complaint.
An insurer shall provide to the department the name, mailing address, telephone number, and facsimile number of a person whom the insurer designates as the recipient of all notices, correspondence, and other contacts from the department concerning complaints described in this section. The insurer may change the designation at any time by providing written notice to the Consumer Services Division of the department.
The commissioner may establish an Internet-accessible complaints response system to distribute and receive complaint information as described in subdivisions (a) and (c). Insurers shall be required to submit and receive complaint information, including, but not limited to, requested claim files, underwriting files, correspondence, and other supporting documents, using any system established by the commissioner pursuant to this subdivision.
For the purposes of this section, notices, correspondence, and other contacts with the designated person shall be deemed contact with the insurer.
On or before July 1, 1999, the commissioner shall prepare a written report, to be made available by the department to interested individuals upon written request, that details complaint and enforcement information on individual insurers in accordance with guidelines established under paragraph (5) of subdivision (a) of Section 12921.1. The report shall be made available by mail through the department’s consumer toll-free telephone number and through the department’s Internet website and transmitted via electronic mail if the individual has the ability to obtain the report in this manner. No complaint information shall be included in the report required by this section that has not been provided to the insurer in accordance with subdivision (c) of Section 12921.1
The commissioner may also, if deemed appropriate, publish the record of complaints against the production agency that have been determined by the department to be justified and that will assist the public in selecting a production agency. No complaint data shall be published that has not been provided to the production agency in accordance with subdivision (c) of Section 12921.1.
All public records of the department and the commissioner subject to disclosure under Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code shall be available for inspection and copying pursuant to those provisions at the offices of the department in the City of Oakland, the City of Los Angeles, and the City of Sacramento. Adequate copy facilities for this purpose shall be made available. Notwithstanding any other law, a person requesting copies of these records shall receive the copies from employees of the department and the fee charged for the copies shall not exceed the actual cost of producing the copies.
The commissioner, in person or through employees of the department, shall receive complaints and inquiries, investigate complaints, prosecute insurers or production agencies when appropriate and according to guidelines determined pursuant to Section 12921.1, and respond to complaints and inquiries by members of the public concerning the handling of insurance claims, including, but not limited to, violations of Article 10 (commencing with Section 1861) of Chapter 9 of Part 2 of Division 1, by insurers or production agencies, or alleged misconduct by insurers or production agencies.
The commissioner shall not decline to investigate complaints for any of the following reasons:
The insured is represented by an attorney in a dispute with an insurer, or is in mediation or arbitration.
The insured has a civil action against an insurer.
The complaint is from an attorney, if the complaint is based upon evidence or reasonable beliefs about violations of law known to an attorney because of a civil action.
The commissioner may defer the investigation until the finality of a dispute, mediation, arbitration, or civil action involving the claim is known.
The commissioner, as he or she deems appropriate, and pursuant to Section 12921.1, shall provide for the education of, and dissemination of information to, members of the general public or licensees of the department concerning insurance matters.
The commissioner shall, upon receipt of a written complaint with respect to the handling of an insurance claim or other obligation under a policy by an insurer or production agency, or alleged misconduct by an insurer or production agency, notify the complainant of the receipt of the complaint within 10 working days of receipt. Thereafter, the commissioner shall notify the complainant of the final action taken on that complaint within 30 days of the final action.
The department shall include, with each notification of final action, or, at a minimum, with a number of randomly selected notifications of final action sufficient to assure the validity of results, a complaint handling evaluation form. This form shall clearly and concisely seek an evaluation of the department’s performance in handling the complainant’s grievance. The areas of evaluation shall include, but not be limited to: whether the complaint was handled in a fair and reasonable manner, evaluated thoroughly and without bias; the time required for resolution of the complaint; whether the complaint was referred and, if so, whether it was referred within a satisfactory time; whether the staff involved in handling the complaint demonstrated an adequate knowledge of the issues involved in the complaint; whether the complainant was satisfied with the result of the department’s intervention; and whether the complainant would recommend the department’s complaint handling services to others.
The commissioner shall, if deemed appropriate, notify insurers or production agencies against whom the complaint is made of the nature of the complaint, may request appropriate relief for the complainant, and may meet and confer with the complainant and the insurer in order to mediate the complaint. This section shall not be construed to give the commissioner power to adjudicate claims.
The commissioner shall ascertain patterns of complaints by insurer, geographic area, insurance line, type of violation, and any other valid basis the commissioner may deem appropriate for further investigation, and periodically evaluate the complaint patterns to determine additional audit, investigative, or enforcement actions which may be taken by the commissioner, and report on all actions taken with respect to those patterns of complaints in the commissioner’s annual report to the Governor pursuant to Section 12922, and to the public. For the purposes of this subdivision, complaints mean those written complaints received by the commissioner under subdivision (a), and written complaints received by the commissioner from any other sources, alleging misconduct or unlawful acts by insurers or production agencies.
The commissioner may in person or through employees of the division meet with persons, organizations and associations interested in insurance for the purpose of securing cooperation in the enforcement of the insurance laws of this State and may disseminate information concerning the insurance laws of this State for the assistance and information of the public.
If no fee is designated in this code for the review of filings required to be made pursuant to this code, the commissioner may establish a fee to permit the department to recover the actual cost of review of those filings. The fee so established shall not be increased by more than twenty-five dollars ($25), unless the increase is made by law.
If this code designates a fee for any required filing, which fee the commissioner determines to be inadequate to cover the actual cost of review, the commissioner may assess an additional fee pursuant to this section not to exceed 25 percent of the fee designated by the code for the filing.
Any person assessed a fee under this section shall be entitled, upon request, to receive reasonable substantiation from the department for the fee assessed, based upon the cost records of the department.
As used in this section, “filings” means those items which the insurers are required to file with the department or commissioner pursuant to this code.
The fee provided for by this section shall be assessed without regard to the requirements of Section 12978 as to uniformity of increase, but shall be based upon the actual cost to the department for the review of the filing.
As used in this section, “person” means any person or entity subject to examination by the commissioner, or purporting to do insurance business in this state, or in the process of organization with intent to do insurance business in this state, or from whom the commissioner’s certificate of authority is required for the transaction of business, or whose certificate of authority is revoked or suspended.
Notwithstanding any other provision of law, the following shall apply to the adoption by the commissioner of any regulation as an emergency regulation pursuant to subdivision (b) of Section 11346.1 of the Government Code.
At least 5 working days prior to submission of the emergency regulation to the Office of Administrative Law, the commissioner shall mail a notice of proposed emergency action to every person, group, or association who had previously filed a request for notice of regulatory actions with the commissioner.
The notice of proposed emergency action shall include the following:
A description of the problem and the necessity for the regulation.
A description of the justification for adoption of the regulation as an emergency regulation.
A copy of the text of the proposed emergency regulation.
The commissioner may do the following:
Issue a cease and desist order to a person who has acted in a capacity for which a license, registration, or certificate of authority from the commissioner was required but not possessed.
Issue a cease and desist order to a person who has aided or abetted a person described in paragraph (1).
Impose a monetary penalty, pursuant to an order to show cause, on a person described in paragraph (1) or (2). The monetary penalty shall be the greater of the following:
Five times the amount of money received by the person for acting in the capacity for which the license, registration, or certificate of authority was required but not possessed.
Five thousand dollars ($5,000) for each day the person acted in the capacity for which the license, registration, or certificate of authority was required but not possessed. In the absence of contrary evidence, it shall be presumed that a person continuously acted in a capacity for which a license, registration, or certificate of authority was required on each day from the date of the earliest such act until the date those acts were discontinued, as proven by the person at a hearing.
A person to whom a cease and desist order or order to show cause has been issued, may, within seven days after service of the order, if a hearing has not already been scheduled by the commissioner, request a hearing by filing a request for the hearing with the commissioner. The hearing shall be conducted in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340), Chapter 4 (commencing with Section 11370), Chapter 4.5 (commencing with Section 11400), and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all the powers granted therein.
A person who has a hearing pursuant to subdivision (b) shall be entitled to have the proceedings and the order of the commissioner reviewed by means of any remedy provided by the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340), Chapter 4 (commencing with Section 11370), Chapter 4.5 (commencing with Section 11400), and Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code).
A letter or legal opinion signed by the Commissioner or the Chief Counsel of the Department of Insurance that was prepared in response to an inquiry from an insured or other person or entity and that discusses either generally or in connection with a specific fact situation the application of the Insurance Code or regulations promulgated by the commissioner shall be made public. The department may redact the name, address, policy number, and other identifying information regarding a particular insured or other person or entity from the letter or legal opinion when it is made public.
A letter or legal opinion made public pursuant to this section shall not be construed as establishing an agency guideline, criterion, bulletin, manual, instruction, order, standard of general application, rule, or regulation, as those terms are described in Sections 11340.5 and 11342.600 of the Government Code.
The commissioner shall, on or before the first day of August in each year, make a report to the Governor, the Legislature, and to the committees of the Senate and Assembly having jurisdiction over insurance containing a tabular statement and synopsis of the reports which have been filed in the commissioner’s office and showing, generally, the condition of the insurance business and interests in this state, and other matters concerning insurance. The report shall also contain a detailed verified statement, of the moneys and fees of office received by the commissioner, and for what purpose.
The commissioner shall convene a working group to identify, assess, and recommend risk transfer market mechanisms that:
Promote investment in natural infrastructure to reduce the risks of climate change related to catastrophic events.
Create incentives for investment in natural infrastructure to reduce risks to communities.
Provide mitigation incentives for private investment in natural lands to lessen exposure and reduce climate risks to public safety, property, utilities, and infrastructure.
To the extent that the working group recommends risk transfer market mechanisms that would be provided by insurance and reinsurance companies, the working group shall recommend mechanisms that:
Are profitable to insurance and reinsurance companies.
If appropriate, apply to communities or regions, rather than individual land parcels.
The policies recommended pursuant to subdivisions (a) and (b) shall include all of the following questions:
Can we create incentives for forests to be managed to reduce the risk of major fires?
Can we reduce the exposure of insurance companies to climate change-related losses through innovative state policies or insurance pricing mechanisms that reward good behavior and charge premiums for actions that increase public safety risks or losses of property or environmental attributes?
Can we develop rating systems based on community risk factors to climate events, and use insurance incentives to make a community more resilient?
A member of the American Academy of Actuaries.
An individual who has demonstrated by training and experience actuarial competence to the satisfaction of the Insurance Commissioner.
The commissioner shall, after notice and hearing, pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, promulgate reasonable rules and regulations which do all of the following:
Describe the documents which must be signed by an actuary when the documents are filed with the commissioner.
Implement paragraph (2) of subdivision (a).
The Department of Managed Health Care and the Department of Insurance shall maintain a joint senior level working group to ensure clarity for health care consumers about who enforces their patient rights and consistency in the regulations of these departments.
The joint working group shall undertake a review and examination of the Health and Safety Code, the Insurance Code, and the Welfare and Institutions Code as they apply to the Department of Managed Health Care and the Department of Insurance to ensure consistency in consumer protection.
The joint working group shall review and examine all of the following processes in each department:
Grievance and consumer complaint processes, including, but not limited to, outreach, standard complaints, including coverage and medical necessity complaints, independent medical review, and information developed for consumer use.
The processes used to ensure enforcement of the law, including, but not limited to, the medical survey and audit process in the Health and Safety Code and market conduct exams in the Insurance Code.
The processes for regulating the timely payment of claims.
The joint working group shall report its findings to the Insurance Commissioner and the Director of the Department of Managed Health Care for review and approval. The commissioner and the director shall submit the approved final report under signature to the Legislature by January 1 of every year for five years.
The commissioner may issue subpoenas and subpoenas duces tecum for witnesses to attend, testify, and produce documents before the commissioner, on any subject touching insurance business, or in aid of the commissioner’s duties. This process may be served, obeyed, and enforced as provided in the Code of Civil Procedure for civil cases. A defaulting witness may, upon application by the commissioner to the superior court, be required by order of the court to appear before the commissioner to testify as the court may order. The court may punish disobedience of its order as a contempt of court.
All the provisions of the Code of Civil Procedure relating to means of production of evidence shall be applicable to any hearing or investigation under this section. The provisions of this subdivision shall not apply to proceedings required by other provisions of this code to be conducted in accordance with Chapter 5 (commencing with Section 11500), Part 1, Division 3, Title 2 of the Government Code.
A person shall not be excused from testifying or from producing any book, document, or other thing under the person’s control upon any hearing or investigation on the ground that the person’s testimony, or the book, document, or other thing required, may tend to incriminate the person, or may have a tendency to subject the person to punishment for a felony or misdemeanor; but no individual shall be prosecuted or be subjected to punishment for a felony or misdemeanor for or on account of any act, transaction, matter, or thing concerning which that individual is so compelled, after validly claiming the privilege against self-incrimination, to testify or produce, except for perjury or contempt committed in that testimony.
The commissioner shall keep and preserve in a permanent form a full record of the commissioner’s proceedings, including a concise statement of the condition of each insurer, surplus line broker, or motor club examined as to their condition and affairs.
The commissioner shall require from every insurer a full compliance with all the provisions of this code.
In any matter involving compliance with or enforcement of any of the provisions of this code or the other laws of this state involving any entity subject to the jurisdiction or authority of the commissioner, whether the matter is a formal administrative accusation or adjudication, a formal or potential judicial action, or other enforcement tool, and whether or not the matter is settled or prosecuted to resolution, the use of any funds that are imposed as fines or penalties of any sort, or collected by means of settlement, or paid or reserved in any manner as a result of the action, shall be subject to the limitations of this section.
Fines, penalties, fees, and costs shall be deposited in the appropriate fund as provided by law.
Any funds ordered, or allocated by a settlement, to be used for public outreach of any sort, shall be subject to all of the following limitations:
The commissioner’s name, likeness, or voice shall not be used in any printed, audio, or visual material that is released either for general distribution or to specific recipients unless a court finds good cause to do so.
The message shall be limited to information relevant to the enforcement action or compliance issues that generated the funds.
The primary focus of any public outreach where the purpose is to advise members of the public of rights affecting pecuniary or property interests shall be to provide specific information needed by the affected persons to obtain or protect those rights.
No funds subject to this subdivision shall be used for general education of the public about insurance issues, except to the extent that the education relates to the type of violations that caused the enforcement or compliance action, and otherwise complies with the limitations of this section.
No funds subject to this subdivision shall be spent or otherwise disposed of unless the expenditure or disposal has been approved by a court of competent jurisdiction.
The commissioner may not increase fees or assessments against insurers in order to comply with this section.
As used in this section, “extraordinary circumstances” means circumstances outside of the control of a licensee that severely and materially affect the licensee’s ability to conduct normal business operations.
In determining noncompliance with this code and regulations adopted pursuant to this code, and appropriate penalties, if any, the commissioner may consider evidence concerning the existence of extraordinary circumstances.
A settlement agreement between the commissioner and an insurer may not contain a provision referencing the existence of extraordinary circumstances relative to the subject matter at issue, unless the agreement specifies the precise period of time during which extraordinary circumstances were in existence. Except as provided in subdivision (d), extraordinary circumstances may not be stated to exist for a duration of more than six months.
A settlement agreement may concede the existence of extraordinary circumstances for a period of time exceeding six months if all of the following conditions are met:
The commissioner makes a finding in the agreement that extraordinary circumstances existed for more than six months, and documents in that finding facts supporting that conclusion.
The finding identifies the public purpose justifying the extension of extraordinary circumstances beyond the six-month period.
The beginning and ending date, by month and year, of the commencement and termination of the extraordinary circumstances are identified.
All statements, estimates, percentages, payments, and calculations, required by this code to be made, either by the commissioner or insurers, shall be made on the basis of lawful money of the United States.
Whenever the commissioner ascertains that any insurer or any of its agents, officers or employees or any other person is guilty of violating any of the penal provisions of this code or of other laws he shall certify the facts of the violation to the district attorney of the county in which such offense was committed.
Whenever facts exist by reason of which, under any provision of this code, or other laws the commissioner may suspend, revoke, or deny any license or certificate of authority granted under any provision of this code, if the making or maintenance in force of a contract of insurance is one of the circumstances out of which facts arise, or, if, by reason of the existence of those facts, or in connection therewith a contract of insurance is made or maintained in force, the commissioner may, in lieu of or in addition to, the suspension, revocation, or denial of license or certificate, by order require the immediate cancellation of the contract, unless the contract, by its terms, is not subject to cancellation by the insurer and the insured did not knowingly participate in the wrongful acts.
The commissioner may also notify the insured, stating the reason why the cancellation was required.
In such a case, whether or not the particular contract is thus required to be canceled or is subject to cancellation, the commissioner may order the insurer, insurance agent, broker, solicitor, surplus line broker, or life agent soliciting, negotiating, or effecting the insurance to refrain from effecting insurance upon the property, risk, or insured under the contract for not exceeding five years from the date of the order.
The commissioner may suspend or revoke, or deny an application for, any license or certificate of authority granted under any provision of this code to any applicant or licensee violating any order issued by the commissioner pursuant to this section.
Whenever the commissioner believes, from evidence satisfactory to the commissioner, that a person is violating or about to violate this code or an order or requirement of the commissioner issued or promulgated pursuant to authority expressly granted the commissioner by this code or by law, the commissioner may bring an action in the name of the people of the State of California in the superior court of the State of California against the person to enjoin that person from continuing the violation or engaging therein or doing any act in furtherance thereof. In that action, an order or judgment may be entered awarding the preliminary or final injunction as is proper.
The commissioner may apply to the clerk of the superior court for a judgment to enforce an order requiring a person to pay restitution, a monetary penalty, or reimburse the department for costs incurred by the department in prosecuting a matter. The commissioner’s application shall include a certified copy of the order and any associated decision.
Subject to the requirements of paragraph (3), the order and decision shall constitute a sufficient showing to warrant issuance of a judgment in the amount ordered by the commissioner, plus interest. The clerk of the court shall accordingly enter a judgment within five court days.
For an order to qualify for a judgment pursuant to this section, the application shall be accompanied by a declaration given by the legal counsel for the commissioner affirming on information and belief that a petition for mandamus or other legal action for relief from the order has either been denied, or the time for the filing of a petition or action has lapsed.
A judgment entered under this section has the same force and effect as, and is subject to all the laws relating to, a judgment in a civil action, and may be enforced in the same manner as any other judgment of the court in which it is entered.
The commissioner may order a respondent to provide restitution for a loss arising from the respondent’s conduct. If the facts and equity permit, with a restitution order, the commissioner may issue an order of rescission enforceable on any person subject to the commissioner’s jurisdiction.
A restitution order under this section shall meet all of the following requirements:
The respondent shall be subject to the commissioner’s jurisdiction.
The restitution order shall be ancillary to another proceeding authorized by this code in which the commissioner does both of the following:
Determines the respondent violated this code or the standards of conduct applicable to persons acting in the capacity the respondent was acting in or purporting to act in when the loss occurred.
Issues an order imposing a cease and desist order, an order for a monetary penalty, or another sanction with respect to the respondent’s conduct.
The restitution order shall cite the factual basis for the restitution order.
The restitution order shall state the persons, or classes of persons, who suffered a loss.
The restitution order shall state the amount to be paid or property to be returned as restitution.
A rescission or restitution order shall be subject to judicial review in the same manner and at the same time as the order to which it is ancillary.
A rescission or restitution order may be judicially enforced in an action brought by the commissioner, the Attorney General, a district attorney, a city attorney, or any person owed restitution pursuant to the order. In that action, the court may award attorney’s fees and court costs to a prevailing plaintiff.
This section does not apply to an insurer authorized to transact business in this state or to a placement of insurance with an insurer that was in compliance with Section 1765.1 or 1765.2 at the time of the placement. This section does not apply to a person with respect to acts within the scope of a license issued under Chapter 5 (commencing with Section 1621), Chapter 5A (commencing with Section 1759), or Chapter 6 (commencing with Section 1760) of Part 2 if the person holds that license at the time of those acts or at the time an initial pleading seeking restitution is issued.
The commissioner may order a respondent who is ordered to provide restitution pursuant to this section to reimburse the commissioner for the commissioner’s costs of implementing and enforcing this section, including attorney’s fees. The commissioner shall not credit any funds received from a respondent towards payment of a monetary penalty until restitution has been tendered to all persons to whom restitution is owed, or to the commissioner on their behalf, as required by a restitution order.
This section does not limit or restrict actions, remedies, or procedures otherwise available to the commissioner, the department, or any person pursuant to an administrative or civil action to enforce any law. It is not a defense in an administrative or civil action that the commissioner did not order a person to pay restitution.
This section does not expand, limit, or otherwise affect the commissioner’s authority to seek or to have sought restitution, refunds, or penalties against insurers, except as expressly provided.
As used in this section, “restitution” means the full amount that will compensate each person for their direct and indirect financial and nonfinancial losses proximately caused by the respondent’s violations.
Irrespective of any provision in any law of this state the commissioner, pursuant to this code, has been and is authorized to correct: by amendment, by partial deletion, or by partial addition, any record, finding, determination, order, rule, or regulation made by the commissioner upon becoming satisfied that it is fair, just, and equitable to make the correction and that any record, finding, determination, order, rule, or regulation would have included the correction except for mistake, clerical error, inadvertence, surprise, or excusable neglect.
The correction shall only be made within a period of six months following the original action.
When the facts are within the commissioner’s personal knowledge, the commissioner may, upon the commissioner’s own motion and ex parte, enter an order making the correction.
Otherwise the commissioner shall enter an order of correction only after receipt and consideration of a written petition of a person described in Section 12923 or an employee of the Department of Insurance, accompanied in either case by a sworn affidavit of the facts constituting the mistake, clerical error, inadvertence, surprise, or excusable neglect relied upon to justify the correction requested. In such case the order may be made ex parte.
In either case the order shall recite the grounds and bases for the correction and shall be promptly given the same distribution, publicity, and circulation as was given the matter being corrected.
If, within 60 days following the making of the order of correction anyone objects thereto in writing, the commissioner shall set the matter for hearing, giving the same notice thereof, if any, as was given to the proceeding which gave rise to the original record, finding, determination, order, rule, or regulation.
Offenses under this code, or under other laws relating to insurers, shall be prosecuted and tried in all respects as provided in the Penal Code for public offenses. For the purpose of evidence the commissioner shall furnish to any district attorney, without cost to the county, certified copies of any papers or records of the office of the commissioner.
Service of legal process, notices, or other papers described in or referred to by Section 1452, 1605, 1610, 1612, 11104, or 11105 may be made upon the commissioner in the instances enumerated in this section and under the circumstances prescribed in this section by delivering to the commissioner, the commissioner’s deputy, or the commissioner’s designated agent for service of process two copies thereof for each person or party defendant so served accompanied by payment of a substituted service fee as determined pursuant to Section 12978 for each person or party, and by complying with the other provisions of this section.
The situations under which such service may be so made and the circumstances under which these provisions apply are:
Where for any reason the person desiring to have service so made elects to serve the commissioner instead of the attorney in fact, as stipulated pursuant to Section 1323, of a reciprocal or interinsurance exchange, domestic, foreign, admitted, or nonadmitted.
Where service is to be made on an admitted foreign or alien insurer, when service cannot be made on the principal statutory agent of such insurer duly appointed pursuant to Article 3 (commencing with Section 1600) of Chapter 4 of Part 2 of Division 1 for reasons specified in Section 1604 or otherwise recognized by law.
In actions against nonadmitted insurers, including nonadmitted fraternal benefit societies and reciprocals, under the circumstances described in Article 4 (commencing with Section 1610) of Chapter 4 of Part 2 of Division 1. This provision shall not apply to actions brought under insurance policies or certificates issued by nonadmitted insurers placed by surplus line brokers or special lines surplus line brokers where such insurance contract names a resident of this state as agent for service of process.
In actions involving admitted and formerly admitted fraternal benefit societies as described in Section 11104.
Upon receipt of two copies of the process, notice, or papers to be served and the fee above prescribed, the commissioner shall promptly mail one of the copies by certified mail (or by registered mail if it is addressed to an area outside of the United States where certified mail service is not available) to the defendant or person to be served at the last principal place of business of the defendant or person to be served, known to the commissioner by the commissioner’s official records in the case of a licensee; otherwise, in the case of a nonadmitted insurer, to its last principal place of business known to the commissioner from national directories or reference books or other reliable information available in the commissioner’s office. The commissioner shall keep a record of all services made upon the commissioner pursuant to this section. The other copy of the process, notice, or papers shall be retained among the commissioner’s official public records for a period not to exceed two years, absent special circumstances which in the commissioner’s judgment compel longer retention.
Service made in the manner provided for in this section is valid and sufficient and gives jurisdiction over the person of a nonadmitted or unauthorized defendant, provided notice of such service and a copy of the process, notice, or papers being served are sent within 10 days thereafter by certified mail (or by registered mail if it is addressed to an area outside of the United States where certified mail service is not available) by plaintiff or plaintiff’s attorney to the defendant at its last known principal place of business, and the receipt or the receipt of defendant’s agent for such copy, showing the name of the sender and the name and address of the addressee-defendant thereon, and the affidavit of plaintiff or plaintiff’s attorney showing compliance with this section, are filed with the clerk of the court in which such action is pending on or before the date the defendant is required to appear, or within further time as the court may allow.
In case of service made pursuant to this section upon a licensee of the commissioner required by law to keep the licensee’s current business address or that of its agent for service of process on file with the commissioner, the service shall be valid if the commissioner mailed, postage prepaid, a copy of the process, notice, or papers to the defendant or licensee intended to be served to the licensee’s current address as shown by the commissioner’s records, or, in the case of an insurer, to its manager, president, or secretary, and an affidavit of compliance by plaintiff or plaintiff’s attorney at law is made and filed at the place and within the time mentioned in this subdivision.
A plaintiff or complainant shall not be entitled to a judgment by default in any action, suit, or proceeding in which service of process is effected in the manner provided in this section until the expiration of 30 days from the date on which the affidavit of compliance is filed.
This section does not limit or abridge the right to serve any process, notice, papers, or demand upon any insurer in any other manner now or hereafter permitted by law.
The commissioner, by January 1, 1997, shall develop and make available to the general public, in the two most common non-English languages spoken in the state, which are Spanish and Vietnamese, informational sheets that provide a general explanation in those languages, of the terms most commonly used in passenger automobile and pickup truck liability insurance policies.
These informational sheets are intended to provide only the general explanation of these insurance terms, and in the case of a dispute between an insurer and an insured, the policy as written in English will prevail. The development of informational sheets or the use of these informational sheets by insureds, insurers, agents, brokers, or the state shall not be interpreted as creating a duty or obligation to provide additional information or insurance policies in a non-English language.
An informational sheet developed by the commissioner shall include a disclaimer, prominently displayed in 24-point type print at the beginning of the informational sheet, in the non-English language, that contains all of the following information:
The informational sheet is for informational purposes only.
The actual terms of an insurance policy prevail over the information provided in the informational sheet.
In the case of a dispute, the insurance policy is controlling and a court will rely on the policy as it is written in English to resolve the dispute.
The policy is the sole source of rights and obligations of the insurer and the insured.
The information contained in the informational sheets does not create rights or obligations on the part of the insured, the insurer, the agent, the broker, or the state.
The informational sheet is not intended to be a substitute for the actual policy written in English.
The commissioner may develop informational sheets regarding other forms of insurance.
The commissioner may develop informational sheets in foreign languages, other than Spanish and Vietnamese, as needed.
Once developed by the commissioner, he or she may produce public service announcements concerning the availability of these informational sheets, to be utilized in those communities that the commissioner deems would benefit from the information.
This section does not prevent an insurer or licensee from advertising an insurance policy, or the availability of a foreign language informational sheet, or the availability of a translation of an insurance policy, in a language other than English if the advertisement clearly states that the insurance policy is only available in English. However, in the case of a dispute, the insurance policy is controlling and any of those advertisements for insurance policies, informational sheets, or translations shall not be construed to modify or change the insurance policy.
Escheated funds deposited in the Insurance Fund pursuant to subdivision (a) of Section 1523 of the Code of Civil Procedure shall be transferred to the General Fund on June 30, 1998, to repay the principal and interest on the General Fund loan provided pursuant to Item 0845-001-0001 of the Budget Act of 1996, and such funds are hereby continuously appropriated for that purpose.
If the Director of Finance determines that funds subject to escheat for the 1997–98 fiscal year are insufficient to repay the General Fund loan plus the interest owed, funds subject to escheat in the 1998–99 fiscal year, up to the amount necessary to repay the General Fund loan plus the interest owed, shall be available for expenditure by the commissioner to repay the principal and interest on the General Fund loan. Notwithstanding the loan repayment date specified in Item 0845-001-0001 of the Budget Act of 1996, such a determination by the Director of Finance shall trigger an extension of the loan repayment date to June 30, 1999.
A policyholder who was entitled to a rebate pursuant to settlement or order of the commissioner and who has not received the escheated rebate may submit a claim to the Controller. The Controller shall pay the claim from among the Proposition 103 refunds that have escheated to the state and been deposited in the Unclaimed Property Fund upon verification that the claim is valid.
Escheated funds deposited in the Insurance Fund pursuant to subdivision (b) of Section 1517 of the Code of Civil Procedure shall be available for expenditure by the commissioner to fund proceedings and to pay expenses on nonasseted estates for which liabilities have been or will be incurred.
A policyholder who was entitled to funds described in subdivision (a) pursuant to an order of distribution and who has not previously received an appropriate distribution may submit a claim to the commissioner. The commissioner shall pay the claim from the escheated funds deposited in the Insurance Fund pursuant to subdivision (a) upon verification that the claim is valid.
The department shall not be required to conduct outreach programs to attempt to locate policyholders described in subdivision (b).
Notwithstanding any other provision of law, the department shall make available for public inspection and publish on its Internet Web site all of the information described in subdivisions (a) and (b). This information shall be maintained in a current, up-to-date condition. All identifying and privileged information regarding individual policyholders shall be redacted from documents available for public inspection and on the Internet Web site.
All fully executed stipulations, orders, decisions, settlements, or other forms of agreement resolving market conduct examinations, whether the examinations were finalized, terminated, or suspended, that pertain to unfair or deceptive practices in the business of insurance as defined in Section 790.03.
The commissioner upon adopting the report shall transmit a copy of the report, either electronically or by certified United States mail, to a representative that the examined insurer designated by that insurer to receive the report, or in the case of an examination of more than one insurer in an insurer group, to a single representative of the group designated to receive the report on behalf of all examined insurers. Within 20 business days after the transmittal, the examined insurer may submit comments to the commissioner relating to the adopted report. The comments shall be in a form and length as provided by regulation.
Twenty business days after the transmittal the commissioner shall publish on the department’s Internet Web site the adopted report and any comments submitted by the examined insurer unless a court of competent jurisdiction has stayed the publication of the report.
This section may not be construed to require the disclosure of company workpapers or other company documents discovered during the course of an examination or any preliminary report of the examination, except as otherwise permitted by law.
ARTICLE 1.1. The California Community Development Financial Institution Tax Credit Program [12939. - 12939.2.]
The Legislature finds and declares all of the following:
There are specialized financial institutions in California that are specifically dedicated to, and whose core purpose is to, provide financial products and services to people and communities underserved by traditional financial markets and to support renewable energy projects, energy efficiency improvements, economic development, and affordable housing in these communities. These community development financial institutions or CDFIs seek to bridge the growing gap that exists between the financial products and services, renewable energy generation, energy efficiency improvements, economic development, and affordable housing available to the economic mainstream and those offered to low-income people and communities, as well as the nonprofit institutions that serve them. In addition, they serve a critical role in addressing issues of poverty and access to credit in economically disadvantaged communities by providing services, including, but not limited to, credit counseling to consumers, financial literacy training, home ownership counseling, entrepreneurial education, and technical assistance to small business owners.
These mission-driven financial institutions require additional capital in order to expand their ability to provide financial products and services, and to promote needed renewable energy generation projects, energy efficiency improvements, economic development, and affordable housing for low-income individuals and communities, and the businesses and nonprofit agencies that serve them. For example, some offer responsible alternatives to high-cost check-cashing services and payday lenders that have moved into low-income communities. Others help finance small businesses, affordable housing, and community services and facilities that, in turn, help stabilize low-income neighborhoods and alleviate poverty.
In carrying out their mission, funding community development is given priority over providing high returns to investors.
It is the intent of the Legislature to provide an incentive in the form of California tax credits to attract much needed additional private capital investments that would not otherwise be available to CDFIs without the benefit of such incentive. It is the expectation of the Legislature that CDFIs will leverage these new investment dollars for the direct benefit of economically disadvantaged communities and low-income people in California.
The department, California Organized Investment Network (COIN), or any successor thereof, shall require the CDFIs receiving tax credit investments pursuant to Sections 12209, 17053.57, and 23657 of the Revenue and Taxation Code to submit reports to the department, COIN, or any successor thereof, on their use of the program and may specify by notice to those CDFIs the form, content, and manner of the reports.
Biennially the department, COIN, or any successor thereof, shall include in the report required by Section 12922, information on the CDFI tax credit program based on the reports submitted by the CDFIs pursuant to subdivision (a).
On or before December 31, 2010, the Legislative Analyst shall prepare an analysis, based upon data provided by the Franchise Tax Board, the Department of Insurance, and COIN, to the Legislative Analyst on or before September 30, 2010, of the tax credit investments provided for in Sections 12209, 17053.57, and 23657 of the Revenue and Taxation Code, including, but not limited to, the credits’ fiscal impact, what programs, projects, and other uses were funded or carried out by the CDFIs that were supported in whole or in part by the tax credit investments, and the resulting benefits to economically disadvantaged communities and low income people in California.
The commissioner may establish and appoint a California Organized Investment Network Advisory Board.
For purposes of this section, all of the following shall apply:
“Commissioner” means the Insurance Commissioner of this state.
“Board” means the California Organized Investment Network Advisory Board.
“Licensed attorney” means an attorney who resides in this state who has successfully passed the California bar examination and has been admitted to practice in this state or has otherwise been licensed to practice law in this state by the State Bar of California.
The board shall include the commissioner, or the commissioner’s designee, three executives in the insurance investment industry, and one volunteer from each of the following categories:
A member of a consumer advocacy group.
An affordable housing practitioner.
A local economic development practitioner.
A member of a financial institution or a community development financial institution.
A representative with experience seeking investments for underserved or low-to-moderate-income or rural communities.
A representative with experience seeking investments that provide environmental benefits.
The board shall elect, from among its members, a chair and vice chair.
The term of each member shall be for two years.
The board shall have all of the following powers and duties:
To advise the California Organized Investment Network, or its successor, on the best methods to increase the level of insurance industry capital in safe and sound investments while providing fair returns to investors and social or economic benefits to underserved and low-to-moderate-income communities, as well as environmental benefits.
To meet a minimum of three or more times per year, or as deemed necessary by the commissioner.
To facilitate contacts among executives at insurance companies, community-based organizations, and community development financial institutions.
To recommend programmatic guidelines, but not specific allocations of the tax credit amount, to the California Organized Investment Network program.
The members of the board shall not receive compensation from the state for their services under this section, but, when called to attend a meeting of the board, may be reimbursed for their actual and necessary expenses incurred in connection with the meeting.
This section shall remain in effect only until January 1, 2029, and as of that date is repealed.
ARTICLE 2. Review of Commissioner’s Acts [12940. - 12940.]
The acts and orders of the commissioner are subject to such review, or other action by a court of competent jurisdiction, as is permitted or authorized by law.
ARTICLE 3. Procuring Information on Policies [12950. - 12960.]
Any person interested as owner, assignee, pledgee or payee, of any policy and desiring any information about such policy, may apply to the commissioner for a certificate of the facts or information desired. Such application, filed in duplicate, shall be accompanied by an affidavit, in duplicate, showing his interest in the policy.
If the records of his office show the facts or information desired, the commissioner shall prepare his certificate reciting such facts or information. If his records do not show the facts or information desired, he may deliver or mail by certified mail an order to the insurer, directing it to state such information or facts in an affidavit and deliver such affidavit to him. If such insurer is a foreign insurer, the commissioner may deliver or mail by certified mail such order to its agent for service of process.
In such affidavit the insurer shall make a full, true and correct statement of all the desired facts and information in its possession, regardless of the location of its record of such information.
If such insurer neglects or refuses to make and deliver such affidavit to the commissioner within ninety days from the date of the delivery of the order by the commissioner to it or its agent for service of process, the commissioner shall revoke the certificate of authority of the insurer.
Immediately after receiving such affidavit from an insurer the commissioner shall certify such affidavit to the applicant. Such affidavit so certified by the commissioner shall be delivered to the applicant personally or by depositing it in the United States post office, addressed to the applicant, with postage prepaid thereon.
If a loss is sustained under a policy of insurance and such policy has been lost or destroyed, all rights of every kind and nature, the time for the presentation of notice of loss, and the time for the presentation of proof of loss are stayed from the date such applicant delivers to the commissioner the affidavit showing his interest until and after five days after the date of the delivery by the commissioner to the applicant of the affidavit furnished by the insurer.
Forms of policies filed with the commissioner and writings in respect thereto shall be open to public inspection except where, in his judgment, the public welfare or the welfare of any insurer demands that any portion thereof be not made public. In such cases he may withhold such information from public inspection for such time as in his judgment is necessary or advisable.
The commissioner shall not withdraw approval of a previously approved policy, except upon those grounds as, in the commissioner’s opinion, would authorize disapproval upon original submission thereof. Any withdrawal of approval shall be in writing and shall specify the ground thereof. If the insurer demands a hearing on a withdrawal, the hearing shall be granted and commenced within 30 days of the filing of a written demand with the commissioner. Unless the hearing is commenced, the notice of withdrawal shall become ineffective upon the 31st day from and after the date of filing of the demand.
This section shall not apply to policies subject to the provisions of subdivision (f) of Section 10291.5, or to policies, contracts, or agreements that were approved under an alternative filing and approval procedure as provided for in subdivision (f) of Section 10506.4 or subdivision (c) of Section 10507.5.
On January 1, 1990, and on every January 1, thereafter, the commissioner shall publish and distribute a comparison of insurance rates report for those lines of insurance which, in the comissioner’s judgment, are of most interest to individual purchasers of personal lines of coverage. The report shall be available to consumers. The distribution shall be designed to make consumers throughout the state aware of the content of the report. This report shall be prepared by the commissioner in a manner designed to provide information useful to consumers so that they may make informed comparisons of coverages and rates.
The submission of any false rate information by any such insurer pursuant to a request of the commissioner for the purpose of compiling comparative data for the report to be published as required in subdivision (a), shall be punishable by a civil penalty not to exceed one hundred thousand dollars ($100,000). Any person subject to regulation by the commissioner pursuant to this code that fails to comply with a data call required by the department pursuant to this section shall be liable to the state for a civil penalty in an amount not exceeding five thousand dollars ($5,000) for each 30-day period that the person is not in compliance, unless the failure to comply is willful, in which case the civil penalty shall be in an amount not to exceed ten thousand dollars ($10,000) for each 30-day period that the person is not in compliance, but not to exceed an aggregate amount of one hundred thousand dollars ($100,000). In determining the level of the penalty, the commissioner shall consider the good faith of the insurer and any similar prior violations by the insurer under this code.
The commissioner shall, by February 1, 2023, distribute a bulletin soliciting rate applications from insurers to account for the change to the financial responsibility law in Division 7 (commencing with Section 16000) of the Vehicle Code that will go into operation on January 1, 2025, and require the applications to be submitted by July 1, 2023. A rate change shall only go into effect on or after January 1, 2025, the operative date of the change in the financial responsibility law.
ARTICLE 3.5. Reporting [12962. - 12969.]
The commissioner shall report to the Governor, the Legislature, and to the committees of the Senate and Assembly having jurisdiction over insurance all of the following in the annual report submitted pursuant to Section 12922:
An aggregate and an average for all insurers for each item of information required by these sections.
The number of insurers reporting policies written for each class during the calendar year.
For each class, the number of insurers reporting a combined loss ratio of 100 percent or more, and the number reporting a combined loss ratio of under 100 percent.
An analysis of adjustments made to loss reserves for prior years.
The change in any item required to be included by paragraphs (1) to (4), inclusive, from the immediately prior year.
An analysis of the activities of the department in implementing the provisions of Proposition 103 on the November 8, 1988, general election ballot, as set forth in Article 10 (commencing with Section 1861.01) of Chapter 9 of Part 2 of Division 1.
Recommendations and proposals, including suggested legislation, to protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance marketplace, to provide for an accountable commissioner, and to ensure that insurance is fair, available, and affordable for all Californians.
The requirements of this section shall be satisfied if the analysis required by this section is included in the annual report to the Governor required by Section 12922, and a copy of that report is provided to the Legislature.
Each insurer transacting insurance, as defined in Sections 108 and 116, covering liability for any public entity, as defined in Section 811.2 of the Government Code, where the public entity is the named insured, shall report specified data to the commissioner by type of claim, upon request of the commissioner, which may, for a specified period, include, but not be limited to, the following:
The total number of insureds.
The total amount of premiums received from insureds, both written and earned.
The number of claims reported to the insurer and the number of claims reported closed.
The total number of claims outstanding, together with the monetary amount reserved for loss and allocated loss expense.
The number of claims closed with payment to the claimant, the total monetary amount paid thereon, and the total allocated loss expense paid thereon.
The monetary amount paid on claims with allocated loss expense paid.
The number of claims closed without payment to the claimant and the allocated loss expense paid thereon.
The monetary amount reserved on claims incurred but not reported to the insurer.
The number of lawsuits filed against the insurers insureds.
A distribution by size of payment for those claims closed showing the number of claims and total amount paid for each monetary category, as determined by the commissioner.
As used in this section, the type of claims to be reported shall include, but not be limited to, workers’ compensation, liability, personal injury other than automobile, property damage other than automobile liability, liability based upon the dangerous condition of public property, and other general liability claims.
The data and other information required to be filed or reported under this article may be transmitted by electronic media or data transmision to the receiver’s electronic data processing system.
The department shall develop and implement a coordinated approach to gather, review, and analyze the archives of insurers and other archives and records, using onsite teams and the oversight committee, to provide for research and investigation into insurance policies, unpaid insurance claims, and related matters of victims of the Holocaust or of the Nazi-controlled German government or its allies, and the beneficiaries and heirs of those victims, and for losses arising from the activities of the Nazi-controlled German government or its allies for insurance policies issued before and during World War II by insurers who have affiliates or subsidiaries authorized to do business in California. Information compiled shall be placed in a centralized database for the retention of policy and claimant data, and the data shall be used to implement this section and Section 790.15.
The department has an affirmative duty to play an independent role in representing the interests of Holocaust survivors where necessary, including the duty to carry out research, investigations, and advocacy. The department shall cooperate with, participate in, promote coordination with, and to the extent feasible and consistent with the purposes of this section, work jointly with the National Association of Insurance Commissioners and the international commission on Holocaust survivor claims or any other entity involved in the documentation, resolution, settlement, or distribution of insurance claims, including the documentation of unpaid claims and the distribution of proceeds, and the establishment and maintenance of a database to contain information relevant to claimants and documents and historical information. The department shall work to recover information and records that will strengthen the claims of California residents.
The department shall employ insurance archaeologists, economists, attorneys, accountants, and other specialists, in this country and in Europe, to implement this section. The department shall work jointly with the National Association of Insurance Commissioners and other organizations for this purpose. The department’s cooperation with other states shall be for the purpose of advancing survivors’ claims while avoiding duplication of efforts, and shall be dependent upon contributions by other states.
In order to ensure that Holocaust survivors receive the most aggressive and independent representation possible in pursuit of their historic claims, in contracting with accounting firms, law firms, economists, or others to implement this section, the department shall, to the maximum extent possible, avoid any potential or actual conflict of interest by doing the following:
Seek and give preference to firms that are entirely free of any associations with firms representing insurers and nations from which Holocaust survivors are seeking just treatment of their claims.
If the department finds that it is necessary to contract with a firm or firms that have conflicts or potential conflicts of interest, those conflicts or potential conflicts of interest shall be disclosed to the commissioner, and the following requirements shall apply:
The contract shall contain a provision that expresses a formal commitment on the part of the firm to aggressively pursue a maximum just settlement for Holocaust survivors and their families without regard to any adverse impacts on insurers, affiliates of insurers, nations, or others that may have employed the firm or affiliates of the firm that is contracting with the commissioner to assist in carrying out the commissioner’s responsibilities under this section.
If any conflict or potential conflict exists between the firm, or an affiliate of the firm, and an insurer, an affiliate of an insurer, a nation or others directly or indirectly involving Holocaust claims, the firm shall disclose both the fact of the conflict or potential conflict, and all relevant information describing the nature of the conflict or potential conflict.
If a conflict or potential conflict exists between the firm, or an affiliate of the firm, and an insurer, an affiliate of an insurer, a nation, or others that does not directly or indirectly involve Holocaust claims, the firm shall disclose the fact of the conflict or potential conflict and identify the source of the conflict or potential conflict, but need not describe the particular circumstances or facts that create the conflict or potential conflict.
The department may take whatever special measures it deems necessary to avoid either the appearance or the reality of conflicts that may undermine public confidence in the integrity of the effort to secure justice for Holocaust survivors.
The funding of the activities provided for by this section for the 1998–99 fiscal year shall be from funds transferred pursuant to subdivision (b) of Section 1523 of the Code of Civil Procedure, which funds are hereby appropriated to the commissioner for that purpose. The commissioner shall seek reimbursement of those funds as provided in subdivision (c).
Funding for subsequent fiscal years shall be subject to the Budget Act and based on a plan submitted by the commissioner to the Legislature outlining the plan for reimbursement of expenses of the department by affected insurers.
Funds made available to implement this section shall be used to develop and implement a coordinated approach to gather, review, and analyze the archives of affected insurance groups, and other archives and records, using onsite teams and the oversight committee. These funds shall also be used to fund the necessary expenses of the Holocaust Era Insurance Claims Oversight Committee established in subdivision (d). The information compiled shall be placed in a centralized database for the retention of policy and claimant data, and that data shall be used by the department to implement this section.
Any funds recovered by the department for the purpose of reimbursing the state for costs associated with investigation and enforcement actions under this section shall not be deposited in the Insurance Fund, but instead shall be delivered to the Controller for deposit into the General Fund.
To the maximum extent possible, the department shall seek reimbursement for its costs incurred in implementing this section, including funds transferred pursuant to subdivision (b) of Section 1523 of the Code of Civil Procedure, from any settlements reached with affected insurers.
Four members shall be appointed by the Governor.
One member shall be appointed by the President pro Tempore of the Senate.
One member shall be appointed by the Speaker of the Assembly.
One member shall be appointed by the Commissioner of Insurance.
Each member of the committee shall serve at the pleasure of the authority that appointed the member to serve on the committee.
The oversight committee shall be composed of qualified individuals with experience in Holocaust claims cases, similar investigations, archival research, and international law. The oversight committee shall also include Holocaust survivors. No member of the oversight committee shall have a potential or actual conflict of interest, or shall be employed by a person who has a potential or actual conflict of interest.
The appointments shall be expedited because of the urgency due to survivors’ needs.
The oversight committee shall have the following authority and shall do all of the following:
Review and make recommendations concerning any insurance settlement negotiation or offer relating to a Holocaust era insurance claim in which the department is involved.
Review and make recommendations to the commissioner on the priorities for expenditure of funds and use of resources by the department for Holocaust era insurance claims-related activities.
Recommend whether a proposed settlement of a Holocaust era insurance claim submitted to the committee pursuant to paragraph (7) is equitable before the department finalizes the settlement agreement.
The commissioner, in the event of a proposed settlement of any policy or group of policies relating to Holocaust era insurance claims, shall confer with the committee prior to the department finalizing the settlement agreement. The department may not finalize a proposed settlement of a Holocaust era insurance claim unless the committee, pursuant to subparagraph (C) of paragraph (6), recommends that the proposed settlement is equitable.
Every pleading issued by the commissioner to initiate a formal enforcement action under this code against a licensee or applicant, and every order issued by the commissioner or a court of competent jurisdiction or other document that resolves a formal enforcement action, shall be displayed on the department’s internet website, if the document is a public record that is not exempt from disclosure to the public pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code).
Notwithstanding Section 12969, if an enforcement action against a licensee or applicant is withdrawn, then each pleading, document, or order against that licensee or applicant shall be removed from the department’s internet website within 30 days of the withdrawal of the action. If a pleading, document, or order contains allegations against multiple licensees or applicants, and the department withdraws all allegations against any one or more of the licensees or applicants, then the department shall post, on its internet website, a pleading, document, or order that clarifies that the enforcement action against that specific licensee or applicant has been withdrawn.
An order or pleading posted on the department’s internet website that is related to a disciplinary proceeding or enforcement action under this code against a licensee or applicant, or that is related to a restricted license, shall be removed from the site 10 years from the date the disciplinary or enforcement action becomes final or, in actions resulting in the issuance of a restricted license, 10 years from the date the restriction on the license is removed. This section does not apply to an order or pleading related to an enforcement action resulting in a suspended or revoked license. This section is intended to apply solely to the department’s internet website and shall not be construed to require the department to permanently remove any information from its public record.
ARTICLE 4. Fees [12970. - 12980.]
The commissioner shall require the payment in advance of a fee for copying microfilm records in the amount of thirty cents ($0.30) per page.
In addition to all other fees required for furnishing copies of instruments or documents filed in his office, the commissioner shall require the payment, in lawful money of the United States, of an amount approximately equal to the postage or other delivery charges he must pay for delivery of the copies so furnished if at the request of the person ordering them they are delivered by any more expensive means than ordinary first-class United States mail.
The commissioner shall require the payment of one dollar ($1), in advance, as a fee for attaching the commissioner’s seal of office to any paper or document not specified in this code.
The commissioner shall require, in advance, as a fee for issuing certificates when the fee is not otherwise specified, the following amounts:
Twenty-two dollars ($22), if there is sufficient demand so that the commissioner in the commissioner’s discretion has prepared a form of the certificate in advance that requires only the filling in of blanks for completion.
For issuing any other certificate, the reasonable cost of preparing and issuing that certificate, but not to exceed fifty dollars ($50) for the first copy of the certificate and nine dollars ($9) for each additional copy.
The commissioner shall charge and collect, in advance, the following fees:
For filing any application for a license, permit, or certificate of authority when a fee for either filing the application or issuing the license, permit, or certificate is not elsewhere specified in this code, twenty-two dollars ($22).
For filing any application to take any qualifying examination required by this code to be taken by a licensee other than an insurer, or to be taken by any applicant for a license other than a certificate of authority when a fee for filing that application or giving that examination is not elsewhere specified in this code, seventy-two dollars ($72).
If a check in payment of a tax, fee, or penalty is not paid by the bank on which it is drawn on its first presentation, the commissioner shall charge and collect an additional fee of fourteen dollars ($14).
Where provision for fees or charges for documents, transcripts, or other materials which may be furnished by the commissioner is not specifically made in this code, the commissioner may fix and collect fees therefor not in excess of reasonable cost. All publications and other printed matter shall be distributed and sold by the Department of General Services.
Whenever by the provisions of this code a form of policy or certificate and any endorsement, rider, application, amendment, fill-in material, classification of rates, certificate or premium to be used therewith, is required to be filed with, submitted to, or approved by the commissioner, fees as provided for by this section shall be paid to the commissioner to cover the expenses of processing and indexing the same and maintaining copies of the same.
The required fee shall be prescribed by the commissioner for each type document submitted, depending on its nature and the kind of processing required. The commissioner may prescribe different fees for different types of documents, and in the case of documents submitted for approval or authorization of use, shall prescribe a fee only for the final approval or authorization for use, if any. The commissioner shall determine the fee, or fees, by estimating in advance the commissioner’s total costs of performing these services for all types of documents for a specified period of time, estimating the total number of documents of various kinds which will be submitted for processing during such time and equitably distributing the total cost on a per document basis. The commissioner shall, after notice and hearing, promulgate such reasonable rules and regulations as are necessary to establish the standard or standards by which the commissioner shall determine the original fee schedule or any amended fee schedule. Any rule or regulation shall be promulgated in accordance with the procedure provided in Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code and shall be effective 90 days after adoption by the commissioner, except the first fee schedule adopted by the commissioner under such regulation may be retroactive to the effective date of this section.
All fees received by the commissioner under this section shall be remitted to the credit of the Insurance Fund pursuant to the provisions of Section 12975.7.
Without in any manner affecting the applicability of this section to any other provisions of this code, it is expressly provided herein that the provisions of this section apply to the forms required to be filed, submitted, or approved under the following sections of this code: 779.8, 795.5, 1320, 9080.1, 10205, 10225, 10270, 10270.1, 10270.5, 10270.57, 10270.9, 10270.93, 10290, 10292, 10506, 11027, 11029, 11066, 11069, 11513, 11522, 11658, 12250, and 12640.18.
Whenever, by the provisions of this code a duty, right, privilege, or power is imposed or conferred upon the commissioner, but it is provided that the expense of performance of that duty or exercise of that right, privilege, or power is to be paid in advance or otherwise out of sources other than the Insurance Fund, the commissioner may defray that expense, or any portion thereof, out of the appropriation for the support of the Department of Insurance without regard to prospect of repayment. The repayment of those moneys, not to exceed one thousand one hundred twenty-one dollars ($1,121) shall be a debt of and a lien against the assets of every person otherwise chargeable with that payment and shall constitute a preferred claim in all proceedings in bankruptcy or insolvency to the same extent as claims for compensation due employees for wages and salaries and claims for expenses of conservatorship or liquidation in proceedings under Article 14 (commencing with Section 1010) of Chapter 1 of Part 2 of Division 1.
All examination expense moneys collected by the Department of Insurance under the provisions of Sections 736, 1061, and 1857.4 are hereby appropriated to the department and shall be deposited in the Insurance Fund to the credit of the support appropriation for the department current at the time of the deposit.
The commissioner may, in any investigation or hearing the commissioner conducts, take or cause to be taken the deposition of any witness residing within or without this state and may pay the expense thereof out of the current support appropriation of the department. The commissioner may pay out of the appropriation to any witness subpoenaed by the commissioner the necessary and reasonable traveling expenses of any witness, to the place of hearing or investigation and return and a per diem of twelve dollars ($12) for each day that the witness is in attendance at or en route to and from the place of hearing or investigation in obedience to the subpoena. The provisions of this section shall not apply to proceedings conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and those proceedings shall be governed solely by that chapter.
All moneys received by the commissioner in payment of lawful fees or reimbursements pursuant to this code shall be transmitted to the Treasurer to be deposited in the State Treasury to the credit of the Insurance Fund. Unless specified in this code to be deposited in a different fund, all moneys received by the commissioner in fines, penalties, assessments, costs, or other sanctions shall be transmitted to the State Treasury for deposit in the General Fund.
The money in the Insurance Fund received from the commissioner pursuant to this section is hereby appropriated to pay the refunds authorized by this code.
The balance of the money in the Insurance Fund shall be used for the purposes specified in Section 12975.9, for the support of the Department of Insurance as authorized by the Budget Act, and for related cashflow needs.
The Insurance Fund shall, in addition to the funds specified in Section 12975.7, consist of all of the following:
All moneys appropriated to the fund in accordance with law.
All moneys deposited into the State Treasury from any source whatever in payment of lawful fees or reimbursements collected by the Department of Insurance.
The balance remaining in the Insurance Fund at the end of the fiscal year, whether the moneys received are from an appropriation, fees, or from reimbursements for services rendered.
All moneys in the Insurance Fund credited to the Seismic Safety Account shall be subject to an annual appropriation each fiscal year for the purposes specified in Section 12975.9.
All other moneys in the Insurance Fund shall be subject to an annual appropriation each fiscal year for the support of the Department of Insurance.
If the current cash balance in the Seismic Safety Account is not adequate to fund the amount appropriated from it in the annual Budget Act, the Insurance Fund, upon enactment of the Budget Act, shall loan to the account the amount of the appropriation, and one half of this amount shall be transferred to the Seismic Safety Commission. The second half of the appropriated amount shall be transferred to the Seismic Safety Commission from the Seismic Safety Account on or before December 31 of each year. This loan shall be repaid by revenues collected pursuant to Section 12975.9.
Any balance remaining in the Insurance Fund at the end of the fiscal year may be carried forward to the next succeeding fiscal year.
Whenever the balance in the Insurance Fund is not sufficient to cover cashflow in the payment of authorized expenditures, the department may borrow funds as may be necessary from whatever source and under terms and conditions as may be determined by the Director of Finance. Repayment shall be made from revenues received by the department for the same fiscal year for which the loan is made.
The Seismic Safety Account is hereby created as a special account within the Insurance Fund. Moneys in the account are available, upon appropriation by the Legislature, for the purposes of this section to fund the department and the Alfred E. Alquist Seismic Safety Commission.
There is hereby imposed an assessment on each person who owns real property, commercial or residential, that is insured by a property insurance policy. The department shall calculate the annual assessment to be charged to each commercial and residential earned property exposure. The assessment shall be set annually every August 1, beginning August 1, 2014, for all commercial and residential earned property exposures reported during the previous calendar year. The annual assessment shall be set at fifteen cents ($0.15) per earned property exposure for the first three years of the implementation of this section. Each year thereafter, the annual assessment shall be based upon the number of earned property exposures from both commercial and residential insurance policies, the amount required for the support of the Alfred E. Alquist Seismic Safety Commission, the actual collection and administrative costs of the department, and the maintenance of an adequate reserve, but shall not exceed fifteen cents ($0.15) per earned property exposure.
The insurer, upon receipt of an invoice from the department, shall transmit payment to the department for deposit into the Seismic Safety Account. The insurer shall recover the assessment from the insured, unless the insurer elects to pay the assessment on the insured’s behalf. The insurer may provide a description of the assessment to the insured as part of its billing statement. The insurer is not required to refund any portion of an assessment because the policy or coverage is terminated prior to the expiration date of the policy or coverage. Any deficiency or excess in the amount collected in relation to the appropriation authority for the commission and the department shall be accounted for in the subsequent annual fee calculation. Any balance remaining in the Seismic Safety Account at the end of each fiscal year shall be retained in the account and carried forward to the next fiscal year.
Funds in the Seismic Safety Account shall be distributed, upon appropriation by the Legislature, to the Alfred E. Alquist Seismic Safety Commission for the support of the commission and to the department for the actual administrative costs incurred in collecting the assessments.
Any assessment collected from an insured that has not been remitted to the department shall be a debt owed to the state by the insurer. This part does not impose any obligation upon an insurer to take any legal action to enforce the collection of the assessment imposed by this section.
Payment of the assessment shall be considered delinquent if not paid within 45 days of the invoice date. The department is authorized to charge a late fee of 1.5 percent per month of the balance due, compounded monthly, for any amount not paid within this period in accordance with Section 12995.
Notwithstanding Section 10231.5 of the Government Code, the department shall report by December 1 of each year, beginning on December 1, 2014, to the Legislature, the Alfred E. Alquist Seismic Safety Commission, and the Department of Finance on the assessment calculation methodology employed.
A report to be submitted to the Legislature pursuant to this subdivision shall be submitted in compliance with Section 9795 of the Government Code.
All fines, forfeitures, taxes, assessments, restitution, and penalties provided for in this code shall be due and payable on the demand of the commissioner. If payment is not made within 10 days after that demand, then the commissioner shall institute an action in the name of the people of the State of California for the purpose of recovering that moneys due. All such actions shall be subject to all the provisions of the Code of Civil Procedure which may be applicable thereto.
On and after January 1, 1994, and before January 1, 1995, every insurer whose annual taxes exceed fifty thousand dollars ($50,000) shall make payment by electronic funds transfer. On and after January 1, 1995, every insurer whose annual taxes exceed twenty thousand dollars ($20,000) shall make payment by electronic funds transfer. The insurer shall choose one of the acceptable methods described in Section 45 for completing the electronic funds transfer.
Payment is deemed complete on the date the electronic funds transfer is initiated, if settlement to the state’s demand account occurs on or before the banking day following the date the transfer is initiated. If settlement to the state’s demand account does not occur on or before the banking day following the date the transfer is initiated, payment is deemed to occur on the date settlement occurs.
Any insurer required to remit taxes by electronic funds transfer pursuant to this section who remits those taxes by means other than an appropriate electronic funds transfer, shall be assessed a penalty in an amount equal to 10 percent of the taxes due at the time of the payment.
If the department finds that an insurer’s failure to make payment by an appropriate electronic funds transfer in accordance with subdivision (a) is due to reasonable cause or circumstances beyond the insurer’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect, that insurer shall be relieved of the penalty provided in paragraph (1).
Any insurer seeking to be relieved of the penalty provided in paragraph (1) shall file with the department a statement under penalty of perjury setting forth the facts upon which the claim for relief is based.
The commissioner may authorize the refund of money received or collected by the department in payment for the filing of applications for licenses, permits or certificates, or for the rendering of other services:
Where the receipt or collection has resulted in an overpayment or duplicate payment.
In cases where no payment is required for filing the application for the license, permit or certificate sought, or for rendering the other service.
Where an insufficient fee is paid and for which reason the application for the license, permit or certificate cannot be filed or the other service cannot be rendered.
The penalty fee required by subdivision (b) of Section 1718 upon a written showing, filed within sixty (60) days after the delinquency date, with particularity as to facts that late payment resulted from mistake, inadvertence or excusable neglect.
This section does not exclude the making of refunds under other appropriate provisions of law requiring the approval of the Director of General Services before such refunds may be made.
Notwithstanding any other law, the commissioner may increase or decrease the fees set forth in this code, as necessary, to allow the department to meet the appropriation authorized by the annual Budget Act. However, any increase or decrease so made shall be made only in accordance with this section, and a fee increase shall not exceed 10 percent without the prior approval of the Legislature.
A single annual increase or decrease in fees, on a fiscal year basis, may be made by the department at any time during the year provided it is announced by bulletin issued at least 90 days prior to the effective date of that increase or decrease. The bulletin shall be sent to all affected parties and to the Assembly Committee on Insurance and the Senate Committee on Insurance. That fee increase or decrease may be rescinded by a majority vote of both houses of the Legislature not later than 60 days after the issuance of the bulletin announcing the increase or decrease.
If the bulletin is issued during the period between August 1 and December 1 of any year, the department shall provide notice in writing of the necessity of any fee increase or decrease as proposed in the bulletin upon issuance of the bulletin to the chairperson of the committee in each house that considers appropriations and the Chairperson of the Joint Legislative Budget Committee.
If written notice is provided to the commissioner within 60 days of the issuance of the bulletin announcing the increase or decrease by any of the chairpersons that there is an objection to the fee increase or decrease, the increase or decrease shall take effect February 1 of the following year unless rescinded by a majority vote of both houses of the Legislature by that date, rather than 60 days after issuance of the bulletin.
The department shall annually project forward its workload for the subsequent three years in order to project appropriate fee levels, and shall annually make adjustments to those fees, if necessary, based on actual workload experience.
The limit on the cumulative amount that the fees may be increased or decreased shall be the amount necessary to provide sufficient moneys to carry out the projected workload within the appropriations contained in the Governor’s Budget for the next succeeding fiscal year, or, to the extent that moneys received or projected to be received by the department are insufficient to carry out the projected workload within the appropriation authorized by the annual Budget Act during the then current fiscal year, an amount necessary to meet that appropriation and consistent with that projected workload.
The Financial Responsibility Penalty Account is hereby created in the General Fund. Moneys in the account shall be expended, upon appropriation therefor, for matters including, but not limited to, automobile insurance and financial responsibility of vehicle owners and operators.
ARTICLE 5. Fee Oversight [12990. - 12995.]
The department shall adopt an accounting system, as recommended by the State Auditor in Report No. 93030, that will allow the department to accurately identify costs by the regulatory activities and to link the costs to fees collected for those regulatory activities.
The department shall determine the actual administrative and operational costs arising from the provisions of Article 10 (commencing with Section 1861.01) of Chapter 9 of Part 2 of Division 1. The department shall then set the fees assessed under Section 12979 to be based on the actual administrative and operational costs arising from the provisions of Article 10 (commencing with Section 1861.01) of Chapter 9 of Part 2 of Division 1.
The department shall provide the schedule of fees created under Section 12992, as well as the justification that the fees are based on the actual cost of the regulatory activity, to the Department of Finance, the Legislative Analyst, and the insurance committees in each house of the Legislature.
On or before October 1, 1995, the department shall publish a schedule of all fees levied under Sections 736 and 12979. The fees shall be calculated in accordance with Sections 12992 and 12993. On or before January 15, 1996, the Bureau of State Audits shall complete an audit of the schedule of fees created by this section. The audit shall determine if the fees are in compliance with Section 12992.
Notwithstanding any other provision of this code, all uncontested departmental billings for services or assessments authorized herein, which are not paid within 45 days of the invoice date, shall be subject to a late charge, unless waived or modified by the department. The late charge shall be 112 percent per month of the balance due. This late charge shall be compounded monthly.
Billings from the department shall be postmarked within five working days of the invoice date. If the billing is postmarked more than five working days after the invoice date, the insurer shall be given 45 days from the date of the postmark to pay the amount due. In those instances where a billing is postmarked more than five working days after the invoice date, the insurer is required to submit the postmarked envelope with payment to avoid a late charge.
Payments shall be postmarked by the due date to avoid a late charge. Except as provided in subdivision (d), contested billings for which the original amount is paid to the department after the 45 day period shall be subject to the late charge, unless waived or modified by the department. The insurer shall provide written notice of the contested billing and shall set forth the basis for the contestability in writing to the department prior to the due date.
Late charges shall be tolled for the portion of the billing that is contested by an insurer. The commissioner shall consider the material submitted by the insurer and reach a decision on the contested billing within 30 days of receiving written notification that a billing is being contested. The commissioner’s written decision on contested amounts shall be final and written notification, including a revised amount, if any, shall be provided indicating the basis for the decision. This written notification shall also include an invoice date from which an insurer shall be given 30 days to remit payment. This section shall not preclude an insurer from filing a petition for writ of mandate in accordance with the provisions of the Code of Civil Procedure.
All late charges collected pursuant to this section shall be deposited into the General Fund.
This section shall not apply to the Insurance Department Schedule of Fees and Charges pursuant to Section 12978.
ARTICLE 7. Suspension of Privilege of Appearing or Practicing Before the Commissioner [13500. - 13505.]
The commissioner may deny, temporarily or permanently, the privilege of appearing or practicing before the department in any way to any person, other than an attorney acting in that capacity, who is found by the commissioner, after notice of and opportunity for hearing, to be subject to any of the following:
The person does not possess the requisite qualifications to represent others.
The person is lacking in character or integrity or has engaged in unethical or improper professional conduct.
The person has willfully violated, or willfully aided and abetted the violation of any provision of this code, or the rules and regulations promulgated thereunder.
Any person whose license to practice as an accountant, actuary, or other expert has been revoked or suspended in any state, territory, district, commonwealth, or possession, or any person who has been convicted of a felony, or of a misdemeanor involving moral turpitude, shall be forthwith suspended from appearing or practicing before the commissioner. A suspension, revocation, or conviction within the meaning of this article shall be deemed to have occurred when the suspending, revoking, or convicting agency or tribunal enters its judgment or order, regardless of whether appeal is pending or could be taken, and includes a judgment or order on a plea of nolo contendere.
An application for reinstatement of a person permanently suspended or disqualified under Section 13500 may be made at any time, and the applicant may, in the commissioner’s discretion, be afforded a hearing. However, the suspension or disqualification shall continue unless and until the applicant has been reinstated by the commissioner for good cause shown.
Any person suspended under Section 13501 shall be reinstated by the commissioner, upon appropriate application, if all the grounds for application of the provisions of Section 13501 are subsequently removed by a reversal of the conviction or termination of the suspension or revocation. An application for reinstatement on any other grounds by any person suspended under Section 13501 may be filed at any time and the applicant shall be afforded an opportunity for a hearing in the matter. However, the suspension shall continue unless and until the applicant has been reinstated by the commissioner for good cause shown.
Any person appearing or practicing before the commissioner who has been the subject of an order, judgment, decree, or finding relevant to Section 13501 shall promptly file with the commissioner a copy thereof, together with any related opinion or statement of the agency or tribunal involved. Failure to make this filing shall not impair the operation of any other provision of this article.
Any proceeding brought under any section of this article shall not preclude a proceeding under any other section.
All hearings held under this article shall be closed to the public, unless the commissioner on the commissioner’s own motion, or at the request of a party, otherwise directs.
ARTICLE 8. Insurance Payment Intercept Program [13550. - 13555.]
An insurer shall cooperate with the Department of Child Support Services to identify claimants who are also obligors who owe past-due child support and report those claimants to the Department of Child Support Services.
An insurer shall identify and report a claimant to the Department of Child Support Services if the claim seeks an economic benefit for an obligor who owes past-due child support.
An “economic benefit” under a life insurance policy, disability income insurance policy, or annuity means a payment totaling at least one thousand dollars ($1,000) in which an individual is paid as the payee or copayee for any of the following:
A claim by a beneficiary under a life insurance policy.
A payment of the cash surrender value of a life insurance policy or annuity.
A payment to an annuitant.
A payment from a disability income insurance policy.
A loan against the cash value or surrender value of an insurance policy or annuity, excluding loans for premium payments.
An “economic benefit” under a property and casualty insurance policy means a payment totaling at least one thousand dollars ($1,000) under a liability insurance policy or underinsured motorist policy issued by an insurance company authorized to do business in this state. An “economic benefit” under a property and casualty insurance policy does not include payments to replace or repair lost or damaged property.
Notwithstanding subdivision (b), and except as provided in subdivision (h), a claimant with any of following economic benefits shall not be reported:
A claim for benefits to be paid under a limited benefit insurance policy that provides one of the following:
Coverage for one or more specified diseases or illnesses.
Dental or vision benefits.
Hospital indemnity or other fixed indemnity coverage.
Accident only coverage.
A claim for benefits that are the result of a state of emergency, as defined in Section 8558 of the Government Code.
An insurer in California subject to the requirements of this article shall identify and report a claimant to the Department of Child Support Services if either of the following apply:
Withholding from a qualifying disability insurance payment made to an obligor who owes past-due child support shall be limited to 50 percent of the claim for benefits.
If an insurer identifies a claimant as an obligor who owes past-due child support and reports the claimant to the Department of Child Support Services, the Department of Child Support Services shall provide the insurer with either of the following to secure the payment of the amount of past-due child support:
A notice of child support lien.
An income-withholding order.
Upon receiving notice from the Department of Child Support Services that a reported insurance claim is payable to an obligor with a child support delinquency, an insurer shall comply with the requirements of the notice.
Notwithstanding paragraph (2), this section does not require an insurer to comply with a notice from the Department of Child Support Services on a reported insurance claim payable to an obligor with a child support delinquency if the notice is received after the insurer has paid the claim.
For the purposes of this section, “insurer” includes a fraternal benefit society.
This section does not prohibit an insurer from cooperating voluntarily with the Department of Child Support Services to identify claimants who are also obligors who owe past-due child support and report those claimants to the Department of Child Support Services.
Notwithstanding any other law, an insurer or insurance company, its directors, agents, and employees, an insured individual on whose behalf the company makes a payment, and a central reporting organization and its respective employees and agents authorized by an insurer to act on its behalf who, in good faith, release information in accordance with this article, withhold amounts from payment based on the latest information supplied by the Department of Child Support Services pursuant to Section 13550, or make disbursements in accordance with Section 13550 shall be in compliance with this section and any applicable fair claim settlement act, and shall be immune from any liability to the claimant or other interested party arising from the payment.
Data obtained pursuant to this article shall only be used for the purpose of identifying claimants who are also obligors who owe past-due child support. If the Department of Child Support Services does not identify an obligor in the data obtained pursuant to this article with a child support obligor, the Department of Child Support Services shall not maintain that data and shall immediately destroy that data.
An insurer that provides, attempts to provide, or in any way accesses data pursuant to this article shall comply with all applicable state and federal laws for the protection of the privacy and the security of that data, including, but not limited to, the Insurance Information and Privacy Protection Act (Article 6.6 (commencing with Section 791) of Chapter 1 of Part 2 of Division 1), the Information Practices Act of 1977 (Chapter 1 (commencing with Section 1798) of Title 1.8 of Part 4 of Division 3 of the Civil Code), and the federal Health Insurance Portability and Accountability Act of 1996 (Public Law 104-191).
The Department of Child Support Services shall consider any information received from an insurer as confidential. That information shall be used or disclosed only for the purpose of collecting past-due child support.
Information provided by the Department of Child Support Services to an insurer, or its designated agent, for the purpose of identifying claimants who are also obligors shall not be used by the insurer or its agent for any other purpose, and shall not be disclosed to any person except to the extent necessary to identify and report a claimant who owes past-due child support. This subdivision does not apply to information contained in a child support lien or an income-withholding order received from the Department of Child Support Services after the insurer has identified and reported a claimant.
This section does not prohibit the Department of Child Support Services from disclosing aggregate data that does not reveal personally identifying information.
An insurer may satisfy its obligation to identify and report a claimant who owes past-due child support through the use of a central reporting organization. If an insurer does not use a central reporting organization to automate the process, the insurer shall determine if the claimant owes past-due child support before paying a claim.
For claims involving periodic payments after the insurer has determined that benefits will be paid, the insurer shall only determine if the claimant owes past-due child support before the initial payment and either 12 months thereafter, or the insurer may provide a copy of the settlement to the Department of Child Support Services.
If a central reporting organization identifies a claimant who is also an obligor, the central reporting organization shall notify the Department of Child Support Services, and the Department of Child Support Services shall follow the requirements of subdivision (e) of Section 13550.
For the purposes of this article, “central reporting organization” means a third-party service that automates the claims identifying process or provides interactive lookups.
This article shall become operative on January 1, 2020.
CHAPTER 3. Conciliation [13600. - 13601.]
The department shall provide any person who files a complaint pursuant to Section 678.5, with the option of submitting any dispute involving cancellation or nonrenewal to conciliation pursuant to the following conciliation procedures:
The complaint shall first be reviewed by the department. Each insurer shall designate a responsible staff member whom the department may contact to determine whether a complaint may be resolved through a conciliation process.
The complainant shall pay a filing fee of thirty-five dollars ($35), which shall be returned if the complainant prevails in whole or in part in conciliation.
The department staff shall attempt to resolve the dispute over the telephone. The insurer’s representative shall have the authority to bind any insurer to any agreement reached over the telephone.
The insurer shall notify the department of the representative’s identity in writing and immediately notify the department of any change in the designation.
If the department cannot resolve the dispute by conciliation, the complaint shall be referred to the commissioner, who may, if he or she determines that there are reasonable grounds for believing that a violation of Section 678.5 has occurred, hold a hearing to determine whether a violation has occurred. In the event of a finding that a violation has occurred, the commissioner may order reinstatement of the policy.
Nothing in this chapter shall preclude an insured or other aggrieved party from pursuing any available alternative remedy in lieu of conciliation or from pursuing that alternative remedy without first proceeding under this chapter, but the department shall have no jurisdiction to proceed under this chapter or resolve any dispute under this chapter during the pendency of any judicial action thereon initiated by an insured.
CHAPTER 4. Holocaust Era Insurance Registry [13800. - 13807.]
This chapter shall be known and may be cited as the Holocaust Victim Insurance Relief Act of 1999.
The Legislature finds and declares the following:
During World War II, untold millions of lives and property were destroyed.
In addition to the many atrocities that befell the victims of the Nazi regime, insurance claims that rightfully should have been paid out to the victims and their families, in many cases, were not.
In many instances, insurance company records are the only proof of insurance policies held. In some cases, recollection of those policies’ very existence may have perished along with the Holocaust victims.
At least 5,600 documented Holocaust survivors are living in California today. Many of these survivors and their descendents have been fighting for over 50 years to persuade insurance companies to settle unpaid or wrongfully paid claims. Survivors are asking that insurance companies come forth with any information they possess that could show proof of insurance policies held by Holocaust victims and survivors, in order to ensure that closure on this issue is swiftly brought to pass.
Insurance companies doing business in the State of California have a responsibility to ensure that any involvement they or their related companies may have had with insurance policies of Holocaust victims are disclosed to the state and to ensure the rapid resolution of these questions, eliminating the further victimization of these policyholders and their families.
The international Jewish community is in active negotiations with responsible insurance companies through the International Commission on Holocaust Era Insurance Claims to resolve all outstanding insurance claims issues. This chapter is necessary to protect the claims and interests of California residents, as well as to encourage the development of a resolution to these issues through the international process or through direct action by the State of California, as necessary.
For purposes of this chapter, the following definitions shall apply:
“Holocaust victim” means any person who was persecuted during the period of 1929 to 1945, inclusive, by Nazi Germany, its allies, or sympathizers.
“Related company” means any parent, subsidiary, reinsurer, successor in interest, managing general agent, or affiliate company of the insurer.
“Proceeds” means the face value or other payout value of insurance policies and annuities plus reasonable interest to date of payment without diminution for wartime or immediate postwar currency devaluation.
The commissioner shall establish and maintain within the department a central registry containing records and information relating to insurance policies, as described in Section 13804, of Holocaust victims, living and deceased. The registry shall be known as the Holocaust Era Insurance Registry. The Attorney General, in coordination with the department, shall establish appropriate mechanisms to ensure public access to the registry.
Any insurer currently doing business in the state that sold life, property, liability, health, annuities, dowry, educational, or casualty insurance policies, directly or through a related company, to persons in Europe, which were in effect between 1920 and 1945, whether the sale occurred before or after the insurer and the related company became related, shall, within 180 days following enactment of this act, file or cause to be filed the following information with the commissioner to be entered into the registry:
The number of those insurance policies.
The holder, beneficiary, and current status of those policies.
The city of origin, domicile, or address for each policyholder listed in the policies.
In addition, each insurer subject to subdivision (a) shall certify to any of the following:
That the proceeds of the policies described in subdivision (a) have been paid to the designated beneficiaries or their heirs where that person or persons, after diligent search, could be located and identified.
That the proceeds of the policies where the beneficiaries or heirs could not, after diligent search, be located or identified, have been distributed to Holocaust survivors or to qualified charitable nonprofit organizations for the purpose of assisting Holocaust survivors.
That a court of law has certified in a legal proceeding resolving the rights of unpaid policyholders, their heirs, and beneficiaries, a plan for the distribution of the proceeds.
That the proceeds have not been distributed and the amount of those proceeds.
An insurer who certifies as true any material matter pursuant to this subdivision, which the insurer knows to be false, is guilty of a misdemeanor.
An insurer currently doing business in the state that did not sell any insurance policies in Europe prior to 1945, shall not be subject to this section if a related company, whether or not authorized and currently doing business in the state, has made a filing under this section.
Any insurer that knowingly files information about a policy required by this chapter that is false shall, with respect to that policy, be liable for a civil penalty not to exceed five thousand dollars ($5,000), which penalty is hereby appropriated to the department to be used by it to aid in the resolution of Holocaust insurance claims.
The commissioner shall suspend the certificate of authority to conduct insurance business in the state of any insurer that fails to comply with the requirements of this chapter by the 210th day after this section becomes effective, until the time that the insurer complies with this chapter.
The commissioner shall adopt rules to implement this chapter within 90 days of its effective date. The rules shall be adopted as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of the Government Code, and for the purposes of that chapter, including Section 11349.6 of the Government Code, the adoption of the rules shall be considered by the Office of Administrative Law to be necessary for the immediate preservation of the public peace, health and safety, and general welfare.
CHAPTER 5. Slavery Era Insurance Policies [13810. - 13813.]
The commissioner shall request and obtain information from insurers licensed and doing business in this state regarding any records of slaveholder insurance policies issued by any predecessor corporation during the slavery era.
The commissioner shall obtain the names of any slaveholders or slaves described in those insurance records, and shall make the information available to the public and the Legislature.
Each insurer licensed and doing business in this state shall research and report to the commissioner with respect to any records within the insurer’s possession or knowledge relating to insurance policies issued to slaveholders that provided coverage for damage to or death of their slaves.
Descendants of slaves, whose ancestors were defined as private property, dehumanized, divided from their families, forced to perform labor without appropriate compensation or benefits, and whose ancestors’ owners were compensated for damages by insurers, are entitled to full disclosure.
CHAPTER 6. Affordable Housing Insurance Coverage Study [13850. - 13855.]
The Legislature finds and declares all of the following:
Hundreds of thousands of affordable homes have been built across California to meet the needs of low-income households and people experiencing homelessness. The state has invested billions of dollars in these homes through programs administered by the Department of Housing and Community Development and the California Tax Credit Allocation Committee.
The United States is facing an industrywide insurance crisis, especially in the property insurance sector. According to Marsh’s Global Insurance Market Index, property insurance rates have increased for 27 consecutive quarters, continuing the longest run of increases since the inception of the index in 2012.
Affordable housing entities in urban, suburban, and rural communities across California are facing limited availability of insurance coverage, significant premium and deductible cost increases, and reductions in the scope and quality of coverage. These issues are present in property, liability, and builder’s risk insurance.
Affordable housing entities have limited options to manage increased insurance costs due to their mission and legal requirements to keep rents at affordable levels for low-income households. As a result, affordable housing entities are particularly vulnerable to insurance cost increases, which now present an urgent threat to the fiscal solvency and stability of affordable housing across California.
While long-term structural reforms to the insurance market may be necessary, there is an immediate need for transparency and data-driven decisionmaking. Currently, there is limited publicly available information regarding how insurance market dynamics uniquely affect multifamily affordable housing. In particular, data on premium and deductible levels and trends and their relationship to claims types and amounts, resident composition, and property characteristics remain unanswered.
Efforts at a nationwide level, such as the 2024 voluntary data call by the National Association of Insurance Commissioners, have primarily focused on single-family homeowners’ insurance, leaving multifamily and affordable housing insurance trends largely unexamined.
The lack of reliable and comprehensive data impairs the state’s ability to respond effectively to the insurance crisis affecting its affordable housing investments. Granting the Department of Insurance the authority to request, collect, and analyze insurance-related data specific to affordable housing would enhance transparency and inform future policy and budget decisions.
Collecting this data will help preserve state investments, protect low-income residents from housing instability, and enable California to develop targeted strategies to address systemic insurance challenges in the affordable housing sector.
There is a compelling state interest in understanding how the insurance market’s current dynamics affect the availability and sustainability of affordable housing, and in exploring targeted solutions to reduce risks and ensure the long-term viability of publicly funded affordable housing developments.
The Department of Insurance shall conduct a study of the property, liability, and builders’ risk insurance coverages available to affordable housing entities as defined in Section 13907 and receiving a grant, loan, or tax credit awarded by the Department of Housing and Community Development or the California Tax Credit Allocation Committee intended to serve lower income households, as defined in Section 50079.5 of the Health and Safety Code.
The department shall conduct this study in consultation with the affordable housing entities described in paragraph (1), admitted insurers, providers of nonprofit insurance services, risk-sharing pools for public housing authorities and nongovernmental owners of affordable housing properties, insurance captives, risk retention groups, and other relevant state agencies, including the Department of Housing and Community Development and the California Tax Credit Allocation Committee.
An insurer, upon the request of the commissioner, shall provide and make available any information necessary to comply with the requirements of this section. Any information provided to the department by an insurer shall be considered a trade secret, confidential, privileged, or otherwise exempt from disclosure under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code). Nothing in this section prohibits the commissioner from preparing and publishing reports, analyses, or other documents using the data received under this section so long as the data is in aggregate form and does not permit the identification of information related to individual companies.
In conducting the study described in subdivision (a) of Section 13851, the department shall do all of the following:
Collect information necessary to conduct the study from relevant insurers with the affordable housing entities described in subdivision (a) of Section 13851.
Identify barriers to keeping the affordable housing entities appropriately insured.
Analyze and request any other relevant information that may help the department analyze the availability of property, liability, and builders’ risk insurance coverage for the affordable housing entities described in subdivision (a) of Section 13851.
Analyze trends impacting market availability of property, liability, and builders’ risk insurance coverage for the affordable housing entities described in subdivision (a) of Section 13851.
Analyze and request any other relevant information that may help the department analyze how, if at all, insurers consider the following in determinations of insurance policy offers or rate setting:
The level or source of income of an individual or group of individuals residing or intending to reside upon the property to be insured, if the individual or group of individuals is not the owner of the real property.
The receipt of assistance, intended for housing, from the federal or state government, or from a local public entity, as defined in Section 50079 of the Health and Safety Code, including, but not limited to, federal vouchers issued under Section 8 of the United States Housing Act of 1937 (42 U.S.C. Sec. 1437f), by an individual or group of individuals residing or intending to reside upon the property insured or to be insured.
The designation of real property containing a residential dwelling unit as affordable to residents at a specific income level pursuant to statute, regulations, or restrictive declaration, or pursuant to a regulatory agreement with a state governmental entity.
The department shall submit a report on the study described in subdivision (a) of Section 13851 to the Senate Committee on Insurance and the Assembly Committee on Insurance within one year of the appropriation made pursuant to Section 13854.
The report shall make recommendations on potential policy and budget options to address insurance coverage cost and access challenges for the affordable housing entities described in subdivision (a) of Section 13851, as identified in the study.
The report submitted to the Legislature pursuant to this section shall be submitted pursuant to Section 9795 of the Government Code.
Implementation of this chapter is contingent upon an appropriation by the Legislature for purposes of this chapter in the annual Budget Act or another statute.
This chapter shall remain in effect only until January 1, 2031, and as of that date is repealed.
DIVISION 4. AFFORDABLE HOUSING ENTITIES RISK RETENTION POOL [13900. - 13907.]
An affordable housing entity may join with one or more other affordable housing entities in an arrangement providing for the pooling of self-insured claims or losses with respect to any of the following:
Insurance covering all or any part of any tort liability.
Insurance covering any employee of the affordable housing entity against all or any part of his or her liability for injury resulting from an act or omission in the scope of employment.
Insurance covering any board member, officer, partner, manager, member, or volunteer of the affordable housing entity against any liability that may arise from any act or omission in the scope of participation with the affordable housing entity.
Insurance covering any loss arising from physical damage to motor vehicles, personal property, real property, or other property owned or operated by the affordable housing entity.
The pooling arrangement established pursuant to this division shall not be considered insurance, and shall not be subject to regulation under this code.
All affordable housing entities participating in a pooling arrangement established pursuant to this division shall be given written notice, in at least 10-point type, that the pool is not regulated by the Insurance Commissioner and that the state insurance insolvency guaranty funds are not available to safeguard its risk.
An insurance pool that is established pursuant to this division may be organized as a nonprofit corporation, limited liability company, partnership, or trust, whether organized under the laws of this state or another state or operating in another state.
An insurance pool that is established pursuant to this division shall have initial pooled resources of not less than two million five hundred thousand dollars ($2,500,000) in the form of cash or cash equivalents.
An insurance pool that is established pursuant to this division shall maintain adequate reinsurance to protect against its risks.
An insurance pool that is established pursuant to this division shall furnish a copy of the pool’s annual audited financial statement and most recent actuarial review, by first-class mail or by any other method of delivery, including electronic transmission, to the Insurance Commissioner, the Assembly Committee on Housing and Community Development, the Assembly Committee on Insurance, the Senate Committee on Insurance, and the Senate Committee on Housing within 180 days of the close of the pool’s fiscal year. If, in the period of time since the last submittal required by this subdivision, any of the following has occurred, the transmittal letter accompanying the annual audited financial statement and most recent actuarial review shall so indicate and shall provide a brief description of each matter:
There has been a change to the pool’s plan of financing, management, or operation, including a material amendment to any of those plans.
A claims audit report has been filed with a regulatory body with respect to the pool.
A report of examination issued by a regulatory body with respect to the pool has been received.
There has been a material change in the scope of the regulation of the pool by other states in which the pool operates.
All participating affordable housing entities in any insurance pool, established pursuant to this division, are required to agree to pay premiums or make other mandatory financial contributions, as determined by the governing board, provided for by the insurance pool arrangement, that are necessary to ensure a financially sound risk pool.
Any insurance pool, established pursuant to this division, shall not insure against any liability that may be insured against pursuant to Division 4 (commencing with Section 3200) of the Labor Code.
Nothing in this division shall be construed to authorize an affordable housing entity to pay for, to insure, to contract for payment of, or to provide for payment for, any part of a claim or judgment against an employee of the affordable housing entity for punitive or exemplary damages.
For the purpose of this division, “affordable housing” means housing developments in which some of the dwelling units may be purchased or rented, with or without government assistance, on a basis that is affordable to persons or families of low or moderate income, as defined in Section 50093 of the Health and Safety Code.
For the purpose of this division, an “affordable housing entity” means any of the following:
A housing authority created under the laws of this state or another jurisdiction and any agency or instrumentality of a housing authority, including, but not limited to, a legal entity created to conduct a self-insurance program for housing authorities that complies with Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 of the Government Code.
A nonprofit corporation organized under the laws of this state or another state that is engaged in providing affordable housing.
A partnership, general or limited, or limited liability company that is engaged in providing affordable housing and that is affiliated with a housing authority described in subdivision (a) or a nonprofit corporation described in subdivision (b) if the housing authority or nonprofit corporation has one or more of the following:
A financial or ownership interest in the partnership or limited liability company or the right to acquire that interest.
The power to direct the management or policies of the partnership or limited liability company.
A contract to lease, manage, or operate the affordable housing owned by the partnership or limited liability company.
DIVISION 5. INSURANCE ADJUSTERS [14000. - 16032.]
CHAPTER 1. Insurance Adjuster Act [14000. - 14099.]
ARTICLE 1. General Provisions [14000. - 14002.]
This chapter may be cited as the Insurance Adjuster Act.
As used in this chapter:
“Commissioner” means the Insurance Commissioner.
“Department” means the Department of Insurance.
“Licensee” means a person licensed under this chapter.
“Manager” means the individual under whose direction, control, charge, or management the business of a licensee is operated.
“Person” includes any individual, firm, company, association, organization, partnership, limited liability company, and corporation.
Nothing in this chapter shall be construed as entitling any person to practice law in this state, unless he is an active member of the State Bar of California.
ARTICLE 2. Administration [14010. - 14013.]
The department succeeds to and is vested with all the duties, powers, purposes, responsibilities, and jurisdiction previously vested in the Bureau of Collection and Investigative Services with respect to the licensing of insurance adjusters.
Any reference to prior licensing shall be deemed to licensing under the Private Investigator and Adjuster Act.
The commissioner shall administer and enforce the provisions of this chapter.
The commissioner may, in accordance with the State Civil Service Act, appoint such inspectors, investigators, and other personnel as may be necessary for the administration and enforcement of this chapter.
Every power and duty granted to or imposed upon the commissioner may be exercised by any other officer or employee of the department authorized by the commissioner, but the commissioner shall have the supervision of and the responsibility for all powers and duties exercised by such officers and employees.
The commissioner may adopt and enforce reasonable rules:
Fixing the qualifications of licensees and managers, in addition to those prescribed in this chapter, necessary to promote and protect the public welfare.
Carrying out generally the provisions of this chapter, including regulation of the conduct of licensees.
For a change in the classification of a licensee, or in the type of business organization upon application therefor by a licensee, and to prescribe the fee, if any, to be paid.
ARTICLE 3. Regulation, Licensing, and Registration [14020. - 14047.]
A person shall not engage in a business regulated by this chapter, or act or assume to act as, or represent themselves to be, a licensee unless the person is licensed under this chapter.
A person shall not falsely represent that the person is employed by a licensee.
An insurance adjuster within the meaning of this chapter is a person other than a private investigator as defined in Section 7521 of the Business and Professions Code who, for any consideration whatsoever, engages in business or accepts employment to furnish, or agrees to make, or makes, any investigation for the purpose of obtaining, information in the course of adjusting or otherwise participating in the disposal of, any claim under or in connection with a policy of insurance on behalf of an insurer or engages in soliciting insurance adjustment business or aids an insurer in any manner with reference to:
Crime or wrongs done or threatened against the United States of America or any state or territory of the United States of America; the identity, habits, conduct, business, occupation, honesty, integrity, credibility, knowledge, trustworthiness, efficiency, loyalty, activity, movement, whereabouts, affiliations, associations, transactions, acts, reputation, or character of any person; the location, disposition, or recovery of lost or stolen property; the cause or responsibility for fires, libels, losses, accidents, or damage or injury to persons or to property; or securing evidence to be used before any court, board, officer, or investigating committee.
Notwithstanding any other provision of law, this section is in no way intended to limit the ability of a duly licensed independent insurance adjuster to perform the duties of an independent insurance adjuster for any other entity.
This chapter does not apply to:
A person employed exclusively and regularly by one employer in connection with the affairs of the employer only and if there exists an employer-employee relationship, except as provided in paragraph (2).
After a declared state of emergency, as defined in Section 8558 of the Government Code, or other emergency declared by a public official, a person licensed under this chapter or a qualified manager shall require that all nonlicensed adjusters under the supervision of that person or manager read and understand the most recent notice and adjuster handbook prepared by the department pursuant to subdivision (a) of Section 14046 no later than 15 calendar days from the date on which the nonlicensed adjuster began claims adjusting activity in California.
In enforcing this chapter, the department shall not be required to investigate whether a person is employed exclusively and regularly by one employer pursuant to paragraph (1).
An officer or employee of the United States of America, or of this state or a political subdivision thereof, while that officer or employee is engaged in the performance of official duties.
A person engaged exclusively in the business of obtaining and furnishing information as to the financial rating of persons.
A charitable philanthropic society or association duly incorporated under the laws of this state, which is organized and maintained for the public good and not for private profit.
An attorney performing the duties of an attorney.
A licensed collection agency or an employee thereof acting within the scope of employment, while making an investigation incidental to the business of the agency, including an investigation of the location of a debtor or the debtor’s property if the contract with an assignor creditor is for the collection of claims owed or due or asserted to be owed or due or the equivalent thereof.
Admitted insurers and agents and insurance brokers licensed by the state, performing duties in connection with insurance transacted by them.
The legal owner of personal property that has been sold under a conditional sales agreement or a mortgagee under the terms of a chattel mortgage.
A bank subject to the jurisdiction of the Commissioner of Financial Institutions of the State of California under Division 1 (commencing with Section 99) of the Financial Code or the Comptroller of the Currency of the United States.
A person engaged solely in the business of securing information about persons or property from public records.
A building contractor, engineer, technical expert, or other person who is engaged by an insurer or licensed adjuster to provide an expert or professional evaluation of the extent, cause, or origin of damage to the insured property, but who does not otherwise participate in the process of adjusting claims.
In the event of an emergency situation as declared by the commissioner, claims arising out of the emergency, catastrophe, disaster, or other similar occurrence may be adjusted by a nonlicensed adjuster upon registration with the commissioner if all of the following requirements are met:
The work performed by the nonlicensed adjuster is under the active direction, control, charge, or management of a licensed adjuster or an insurer authorized to do business in this state.
The licensee or insurer registers the nonlicensed adjuster with the commissioner no later than 15 calendar days from the date on which the nonlicensed adjuster began claims adjusting activity in California.
The nonlicensed adjuster submits to the commissioner a certification in a form or other format specified by the commissioner, under penalty of perjury, that the adjuster has read and understands the most recent notice and the handbook for adjusting disaster claims prepared by the department pursuant to subdivision (a) of Section 14046.
“Registration” or “register,” within the meaning of this section, means filing with the commissioner a notice in a form or other format specified by the commissioner, submitted by the supervising licensed adjuster or admitted insurer, naming the nonlicensed adjusters, identifying their adjuster licenses held in other jurisdictions, or, if not licensed, providing other identification specified by the commissioner, stating when their claims adjusting activity will commence or has commenced, and any other information the commissioner may require.
Registration for claims adjusting activities arising out of an emergency is valid for a period of 180 days from the date of the registration letter. Before the lapse of that period, the commissioner may grant further 180-day extensions as the commissioner deems appropriate upon written request from the supervising licensed adjuster or the admitted insurer.
A registration is not valid unless a current certification is on file with the commissioner.
In enforcing this chapter, the department shall not be required to investigate the employment or contractor status of a person registered pursuant to this section.
This section does not apply to a nonlicensed adjuster who meets the criteria described in paragraph (1) of subdivision (a) of Section 14022.
An application for a license under this chapter shall be on a form prescribed by the commissioner and accompanied by the application fee provided by this chapter.
An application shall be verified and shall include:
The full name and business address of the applicant.
The name under which applicant intends to do business.
A statement as to the general nature of the business in which the applicant intends to engage.
A statement as to the classification or classifications under which the applicant desires to be qualified.
If the applicant is a person other than an individual, the full name and residence address of each of its partners, officers, and directors, and its manager.
Two recent photographs of the applicant, of a type prescribed by the commissioner, and two classifiable sets of his or her fingerprints.
A verified statement of his or her experience qualifications.
Such other information, evidence, statements, or documents as may be required by the commissioner.
Before an application for a license is granted, the applicant, or his or her manager, shall meet all of the following:
Be at least 18 years of age.
Not have committed acts or crimes constituting grounds for denial of licensure under Section 480 of the Business and Professions Code.
Shall have had at least two years of experience in adjusting insurance claims or the equivalent thereof as determined by the commissioner.
Comply with such other qualifications as the commissioner may fix by rule.
The commissioner may require an applicant, or his or her manager, to demonstrate his or her qualifications by a written or oral examination, or a combination of both.
Where a person who is or has been licensed under this chapter has been found by the commissioner to have violated any provision of this code that would justify the suspension or revocation of a license held by the person, or where a person is applying for a license under this chapter and there exists grounds for the denial of the application by the commissioner, the commissioner may, after hearing, revoke the license held or deny the application for an unrestricted license, and in lieu thereof issue to the person a restricted license. The commissioner may impose any reasonable conditions upon the acquisition of the restricted license or conduct of the holder of the license. The holder of the restricted license has no property right in it and the commissioner may, with or without either hearing or cause, suspend or revoke a restricted license. If a hearing is held under this section, it shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. The holder of a restricted license is subject to all the provisions of this code and the license shall be kept in force and renewed in the same manner, at the same time, and subject to the same conditions and fees as are applicable to an unrestricted license to act in the same capacity.
Payment of the application fee prescribed by this chapter entitles an applicant, or his or her manager, to one examination without further charge. If the person fails to pass the examination, he or she shall not be eligible for any subsequent examination except upon payment of the reexamination fee prescribed by this chapter for each such subsequent examination.
After a hearing the commissioner may deny a license unless the application makes a showing satisfactory to the commissioner that the applicant, if an individual, has not, or if the applicant is a person other than an individual, that its manager and each of its officers and partners have not:
Committed any acts or crimes constituting grounds for denial of licensure under Section 480 of the Business and Professions Code.
Been refused a license under this chapter or had a license revoked.
Been an officer, partner, or manager of any person who has been refused a license under this chapter or whose license has been revoked.
While unlicensed committed, or aided and abetted the commission of, any act for which a license is required by this chapter.
Committed any act or crime constituting grounds for denial of license under Section 1668.
The commissioner may, without hearing, deny a license if the applicant has committed any act or crime constituting grounds for denial of license under Section 1669.
The business of each licensee shall be operated under the active direction, control, charge, or management of the licensee, if the licensee is qualified, or the person who has qualified to act as the licensee’s manager, if the licensee is not qualified.
No person shall act as a manager of a licensee until he or she has complied with each of the following:
Demonstrated his or her qualifications by a written or oral examination, or a combination of both, if required by the commissioner.
If the manager, who has qualified as provided in this section, ceases for any reason whatsoever to be connected with the licensee to whom the license is issued, the licensee shall notify the commissioner in writing 30 days from the cessation. If notice is given, the license shall remain in force for a reasonable length of time to be determined by the rules of the commissioner pending the qualifications, as provided in this chapter, of another manager. If the licensee fails to notify the commissioner within the 30-day period, his or her license shall be subject to suspension or revocation and may be reinstated only upon the filing of an application for reinstatement, payment of the reinstatement fee, if any is due, and the qualification of a manager as provided herein.
Every manager shall renew his or her authority by satisfying the requirements of Article 8 (commencing with Section 14090).
Whenever the individual on the basis of whose qualifications a license under this chapter has been obtained ceases to be connected with the licensee for any reason whatever, the business may be carried on for such temporary period and under such terms and conditions as the commissioner shall provide by regulation.
Whenever a hearing is held under this chapter to determine whether an application for a license should be granted or to determine the qualifications of a licensee’s manager, the proceedings shall be conducted in accordance with Chapter 5 (commencing with Section 11501) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all of the powers granted therein.
The form and content of the license shall be determined by the commissioner in accordance with Section 164 of the Business and Professions Code.
The license shall at all times be posted in a conspicuous place in the principal place of business of the licenses.
Upon the issuance of a license, a pocket card of such size, design, and content as may be determined by the commissioner shall be issued without charge to each licensee, if an individual, or if the licensee is a person other than an individual, to its manager and to each of its officers and partners, which card shall be evidence that the licensee is duly licensed pursuant to this chapter. When any person to whom a card is issued terminates his or her position, office, or association with the licensee, the card shall be surrendered to the licensee and within five days thereafter shall be mailed or delivered by the licensee to the department for cancellation.
A licensee shall, within 30 days after such change, notify the department of any change of his or her address and of any change in the officers or partners of such licensee. The principal place of business may be at a home or at a business address, but it shall be the place at which the licensee maintains a permanent office.
Applications, on forms prescribed by the commissioner, shall be submitted by all new officers or partners. The commissioner may suspend or revoke a license issued under this chapter if he or she determines that at the time the person became an officer or partner of a licensee, any of the facts stated in Section 14028 or 14028.5 existed as to such person.
A license issued under this chapter is not assignable.
A licensee shall at all times be legally responsible for the good conduct in the business of each of the licensee’s employees or agents, including the licensee’s manager and any nonlicensed adjusters the licensee registers pursuant to Section 14022.5.
Any licensee or officer, director, partner, or manager of a licensee may divulge to any law enforcement officer or district attorney, or to his or her representative, any information he or she may acquire as to any criminal offense, but he or she shall not divulge to any other person, except as he or she may be required by law to do so, any information acquired by him or her except at the direction of the employer or client for whom the information was obtained.
No licensee or officer, director, partner, manager, or employee of a licensee shall knowingly make any false report to his or her employer or client for whom information was being obtained.
No written report shall be submitted to a client except by the licensee, qualifying manager, or a person authorized by one or either of them, and such person submitting the report shall exercise diligence in ascertaining whether or not the facts and information in such a report are true and correct.
No licensee, or officer, director, partner, manager, or employee of a licensee shall use a badge in connection with the official activities of the licensee’s business.
No licensee, or officer, director, partner, manager, or employee of a licensee, shall use a title, or wear a uniform, or use an insignia, or use an identification card, or make any statement with the intent to give an impression that he or she is connected in any way with the federal government, a state government, or any political subdivision of a state government.
No licensee, or officer, director, partner, manager, or employee of a licensee, shall enter any private building or portion thereof without the consent of the owner or of the person in legal possession thereof.
No licensee shall appear as an assignee party in any proceeding involving claim and delivery, replevin, or other possessory action, action to foreclose a chattel mortgage, mechanic’s lien, materialman’s lien, or any other lien.
No licensee shall permit an employee or agent in his or her own name to advertise, engage clients, furnish reports, or present bills to clients, or in any manner whatever to conduct business for which a license is required under this chapter. All business of the licensee shall be conducted in the name of and under the control of the licensee.
No licensee acting as an independent automobile damage appraiser or adjuster or as an automobile insurance claims adjuster, appraiser or representative shall receive any financial benefit from an automobile repair facility. “Financial benefit” means the receiving of any commission or gratuity, discount on repair costs, free repairs, employment by a repair facility, or possession of more than 3 percent direct ownership in an automobile repair facility located in this state.
No person licensed as an insurance adjuster shall do any of the following:
Fail to disclose his or her full financial interest in a contract or agreement executed by him or her for the adjustment of a claim prior to the execution thereof.
Use any misrepresentation to solicit a contract or agreement to adjust a claim.
Solicit or accept remuneration from, or have a financial interest exceeding 3 percent in, any salvage, repair, or other firm, which obtains business in connection with any claim which he or she has a contract or agreement to adjust.
Any badge or cap insignia worn by a person who is a licensee, officer, director, partner, manager, or employee of a licensee shall be of a design approved by the commissioner, and shall bear on its face a distinctive word indicating the name of the licensee and an employee number by which such person may be identified by the licensee.
Each licensee shall maintain a record containing such information relative to his or her employees as may be prescribed by the commissioner.
A licensee shall not conduct a business under a fictitious or other business name unless and until he or she has obtained the written authorization of the commissioner to do so.
The commissioner shall not authorize the use of a fictitious or other business name that is so similar to that of a public officer or agency or of that used by another licensee that the public may be confused or misled thereby.
The authorization shall require, as a condition precedent to the use of any fictitious name, that the licensee comply with Section 1724.5 of this code and Chapter 5 (commencing with Section 17900) of Part 3 of Division 7 of the Business and Professions Code.
A licensee desiring to conduct his or her business under more than one fictitious business name shall obtain the authorization of the commissioner in the manner prescribed in this section for the use of each name.
The licensee shall pay a fee of twenty-five dollars ($25) for each authorization to use an additional fictitious business name and for each change in the use of a fictitious business name. If the original license is issued in a nonfictitious name and authorization is requested to have the license reissued in a fictitious business name, the licensee shall pay a fee of twenty-nine dollars ($29) for that authorization.
Each licensee shall file with the commissioner the complete address of his or her principal place of business, including the name and number of the street or, if the street where the business is located is not numbered, the number of the post office box. The commissioner may require the filing of other information for the purpose of identifying such principal place of business.
Every advertisement by a licensee soliciting or advertising business shall contain his or her name, address, and license number as they appear in the records of the commissioner. The commissioner may adopt regulations defining the term “advertisement” as used in this section.
A licensee shall not advertise or conduct business from any location other than that shown on the records of the commissioner as his or her principal place of business unless he or she has received a branch office certificate for such location after compliance with the provisions of this chapter and such additional requirements necessary for the protection of the public as the commissioner may by regulation prescribe. A licensee shall notify the commissioner in writing within 10 days after closing or changing the location of a branch office.
The department shall annually prepare and deliver to every person licensed under this chapter and every insurer admitted in this state a notice describing the most significant California laws pertaining to property insurance policies, including those related to a declared state of emergency, as defined in Section 8558 of the Government Code, or other emergency declared by a public official.
The department shall prepare and deliver to every person licensed under this chapter a handbook for adjusting in California that includes information relevant to evaluating damage caused by an emergency, catastrophe, disaster, or other similar occurrence, including wildfires. The handbook shall be the similar or equivalent to one hour of continuing education for licensees.
For a claim under a policy of residential property insurance arising as a result of a declared state of emergency, as defined in Section 8558 of the Government Code, or other emergency declared by a public official, an insurer shall provide the claimant with a copy of the most recent notice described in paragraph (1) of subdivision (a) no later than 15 calendar days from the date on which the insurer received notice of the claim.
After a declared state of emergency, as defined in Section 8558 of the Government Code, or other emergency declared by a public official, a supervising licensed adjuster shall require any nonlicensed adjuster it has registered with the department pursuant to subdivision (b) of Section 14022.5 and any nonlicensed adjuster exempted from this chapter pursuant to subdivision (a) of Section 14022 to read and understand the most recent notice described in paragraph (1) of subdivision (a) and the most recent handbook described in paragraph (2) of subdivision (a) no later than 15 calendar days from the date on which the nonlicensed adjuster began claims adjusting activity in California.
The commissioner shall make the notice described in paragraph (1) of subdivision (a), the handbook described in paragraph (2) of subdivision (a), and the certification process required pursuant to paragraph (3) of subdivision (a) of Section 14022.5 accessible through a dedicated page on the department’s internet website.
For a claim under a policy of residential property insurance arising as a result of a state of emergency, as defined in subdivision (b) of Section 8558 of the Government Code, if, within a six-month period, an insurer assigns a third or subsequent first-party real or personal property claims adjuster to be primarily responsible for a claim, the insurer, in a timely manner, shall provide the insured with a written status report, establish a primary point of contact for the insured, and provide the insured with one or more direct means of communication with the primary point of contact.
The primary point of contact shall be available to respond to inquiries by the insured related to the residential property insurance claim. Other claims personnel, vendors, or professionals, including clerical staff members and call center staff members, may work on portions of the insured’s claim. Once assigned, the primary point of contact shall remain assigned to the insured’s claim until the insurer determines that the residential property claim is closed or litigation has been filed.
The insurer shall ensure that the primary point of contact refers and transfers an insured to the appropriate supervisor with a span of control over the primary point of contact upon the request of the insured. This process shall be satisfied by a referral to a first-tier or second-tier manager with authority over claim handling.
For purposes of this section:
“Policy of residential property insurance” has the same meaning as defined in Section 10087.
“Primary point of contact” means a first-party real or personal property claims adjuster or team employed as a member or members of the insurer’s staff who are knowledgeable about the claim and its current status.
ARTICLE 4. Bonds [14050. - 14054.]
A license shall not be issued under this chapter unless the applicant files with the commissioner a surety bond executed by a surety company authorized to do business in the state in the sum of two thousand dollars ($2,000) conditioned for the faithful and honest conduct of business by the applicant. The bond’s form, execution, and sufficiency of the sureties shall be approved by the commissioner.
Notwithstanding subdivision (a), a surety bond is not required for a licensed insurance adjuster, or an employee of a licensee, who adjusts claims on behalf of, and under the direction of, a licensee who is qualified as a manager, as described in Section 14029, and who has filed a surety bond or certificate of insurance. Notwithstanding subdivision (a), a licensed insurance adjuster, an employee of a licensee, or a qualified manager is not required to file a surety bond or certificate of insurance if that licensed insurance adjuster, employee of a licensee, or qualified manager adjusts claims for an association, organization, partnership, limited liability company, or corporation that has filed a surety bond or certificate of insurance.
A surety bond or certificate of insurance filed for the purposes described in paragraph (1) shall provide the names of all licensed insurance adjusters, employees, or qualified managers who may perform duties under that surety bond or certificate of insurance on a form provided by the commissioner. Any changes, removals, or additions to the licensed insurance adjusters, employees, or qualified managers listed on the form shall be made within 30 days in the manner required by the commissioner.
The bond required by this article shall be taken in the name of the people of this state and every person injured by the willful, malicious, or wrongful act of the principal may bring an action on the bond in his or her own name to recover damages suffered by reason of such willful, malicious, or wrongful act.
Every licensee who is required by this article to file a surety bond or a certificate of insurance shall at all times maintain on file the surety bond or certificate required by this article in full force and effect and shall maintain the names of all licensed insurance adjusters, employees, or qualified managers who may perform duties under that surety bond or certificate of insurance. If the licensee fails to maintain the surety bond or certificate or the names thereon, their license shall be immediately suspended and shall not be reinstated until an application therefor, in the form prescribed by the commissioner, is filed together with a proper surety bond or certificate.
The commissioner may deny the application notwithstanding the applicant’s compliance with this section:
For any reason that would justify a refusal to issue, or a suspension or revocation of, a license.
For the performance by applicant of any practice while under suspension for failure to keep the bond or certificate in force, for which a license under this article is required.
In lieu of the surety bond required by this article there may be deposited with the State of California the sum of two thousand dollars ($2,000) in cash, or evidence of deposit of the sum of two thousand dollars ($2,000) in banks authorized to do business in this state and insured by the Federal Deposit Insurance Corporation, or investment certificates or share accounts in the amount of two thousand dollars ($2,000) issued by a savings association doing business in this state and insured by the Federal Deposit Insurance Corporation, or evidence of a certificate of funds or share account of the sum of two thousand dollars ($2,000) in a credit union, as defined in Section 14000 of the Financial Code, whose share deposits are guaranteed by the National Credit Union Administration or guaranteed by any other agency approved by the Department of Financial Protection and Innovation.
Bonds executed and filed with the commissioner pursuant to this article shall remain in force and effect until the surety has terminated future liability by 30-day notice to the commissioner.
ARTICLE 5. Disciplinary Proceedings [14060. - 14065.]
Except as otherwise required to comply with the provisions of Article 6 (commencing with Section 14070), the proceedings under this article shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code and the commissioner shall have all the powers granted therein.
The commissioner may suspend or revoke a license issued under this chapter or may issue a restricted license in accordance with Section 14026.5 if he or she determines that the licensee, or his or her manager, if an individual, or if the licensee is a person other than an individual, that any of its officers, directors, partners, or its manager, has:
Made any false statement or given any false information in connection with an application for a license or a renewal or reinstatement of a license.
Violated any provisions of this chapter.
Violated any rule of the commissioner adopted pursuant to the authority contained in this chapter.
Been convicted of any crime substantially related to the qualifications, functions and duties of the holder of the registration or license in question.
Impersonated, or permitted or aided and abetted an employee to impersonate a law enforcement officer or employee of the United States of America, or of any state or political subdivision thereof.
Committed or permitted any employee to commit any act, while the license was expired which would be cause for the suspension or revocation of a license, or grounds for the denial of an application for a license.
Willfully failed or refused to render to a client services or a report as agreed between the parties and for which compensation has been paid or tendered in accordance with the agreement of the parties.
Committed assault, battery, or kidnapping, or used force or violence on any person, without proper justification.
Knowingly violated, or advised, encouraged, or assisted the violation of any court order or injunction in the course of business as a licensee.
Acted as a runner or capper for any attorney.
Committed any act which is a ground for denial of an application for license under this chapter.
Purchased, possessed, or transported any tear gas weapon except as authorized by law. A violation of this subdivision may be punished by the suspension of a license for a period to be determined by the commissioner.
The commissioner may, without hearing, suspend or revoke a license issued under this chapter, or may issue a restricted license, if he or she determines that the licensee has committed any act or crime constituting grounds for denial of license under Section 14028.5.
The record of conviction, or a certified copy thereof, shall be conclusive evidence of the conviction, as that term is used in this article or in Section 14028 or 14028.5.
A plea or verdict of guilty or a plea of nolo contendere is deemed to be a conviction within the meaning of this article or of Section 14028 or 14028.5. The commissioner may order the license suspended or revoked, or may decline to issue a license, when the time for appeal has elapsed, or the judgment of conviction has been affirmed on appeal or when an order granting probation is made suspending the imposition of sentence, irrespective of a subsequent order under Section 1203.4 of the Penal Code allowing that person to withdraw their plea of guilty and to enter a plea of not guilty, or setting aside the verdict of guilty, or dismissing the accusation, information, or indictment.
The commissioner may suspend or revoke a license issued under this chapter or may issue a restricted license in accordance with Section 14026.5 if the commissioner determines that the licensee, or his or her manager, if an individual, or if the licensee is a person other than an individual, that any of its officers, directors, partners, or its manager, has:
Used any letterhead, advertisement, or other printed matter, or in any matter whatever represented that he or she is an instrumentality of the federal government, a state or any political subdivision thereof.
Used a name different from that under which he or she is currently licensed in any advertisement, solicitation, or contract for business.
The commissioner may suspend or revoke a license issued under this chapter or may issue a restricted license in accordance with Section 14026.5 if the commissioner determines that the licensee, or his or her manager, if an individual, or if the licensee is a person other than an individual, that any of its officers, directors, partners, or its manager, has committed any act in the course of the licensee’s business constituting dishonesty or fraud.
“Dishonesty or fraud” as used in this section includes, in addition to other acts not specifically enumerated herein, all of the following:
Knowingly making a false statement relating to evidence or information obtained in the course of employment, or knowingly publishing a slander or a libel in the course of business.
Using illegal means in the collection or attempted collection of a debt or obligation.
Manufacture of evidence.
Acceptance of employment adverse to a client or former client relating to a matter with respect to which the licensee has obtained confidential information by reason of or in the course of his or her employment by such client or former client.
Impersonating, or permitting or aiding and abetting an employee to impersonate a law enforcement officer or employee of the United States of America, or of any state or political subdivision thereof.
The commissioner may deny, suspend, revoke, or restrict an adjusting firm’s license if a nonlicensed adjuster registered by the firm pursuant to Section 14022.5 commits an act that would give rise to suspension, revocation, or restriction of the firm’s license under Section 14038, 14039, or 14061 to 14064, inclusive.
The commissioner, in lieu of suspending or revoking a license issued under this chapter for violations of Sections 14061, 14063, 14064, and 14064.5, may impose a civil penalty not to exceed five hundred dollars ($500) upon a licensee, if the commissioner determines that a penalty better serves the purposes of this chapter.
ARTICLE 6. Nonresidents [14070. - 14078.]
As used in this article, “presiding officer” means the executive officer of the Office of Administrative Hearings.
The acceptance by a nonresident licensee of any of the rights and privileges conferred upon him or her by this chapter, as evidenced by his or her performance within this state, either personally or through an employee, of any act for which a license is required by this chapter, is equivalent to the appointment by such licensee of the presiding officer as his or her true and lawful attorney upon whom may be served all lawful process in any disciplinary proceeding conducted against him or her under this chapter.
The acceptance of such rights and privileges as evidenced by such act shall signify the agreement of the licensee that any such process which is served against him or her in the manner provided in this article shall be of the same legal force and validity as if served upon him or her personally in this state.
Service shall be made by leaving a copy of the accusation, together with a notice of defense and statement to respondent as described in Section 11505 of the Government Code, with a fee of two dollars ($2) for each licensee to be served, in the hands of the presiding officer or in his or her office in Sacramento. Such service shall be sufficient service on the licensee subject to compliance with Section 14074.
A notice of such service and a copy of the accusation, together with the notice of defense and statement to respondent, shall forthwith be sent by registered mail by the presiding officer to the licensee at his or her last known address as furnished by the commission. Personal service of such notice, copy of the accusation, notice of defense, and statement to respondent upon the licensee wherever found outside this state shall be the equivalent of such mailing.
Proof of compliance with Section 14074 shall be made in the event of service by mail by affidavit of the presiding officer or his or her authorized employee showing such service by mailing, together with the return receipt of the United States post office bearing the signature of the licensee or his or her agent. Such affidavit and receipt shall be appended to the original accusation on file with the commissioner. In the event of personal service outside this state, such compliance may be proved by the return of any duly constituted public officer qualified to serve process in civil actions in the state or jurisdiction where the licensee is found, showing such service to have been made. Such return shall be appended to the original accusation on file with the commissioner.
The commissioner, or if the proceeding is heard before a hearing officer of the Office of Administrative Hearings, such hearing officer, may order such postponements or continuances and grant such extensions of time as may be necessary to afford the licensee reasonable opportunity to defend the proceeding. In no event shall the licensee have less than 30 days after the date of service of the accusation in which to file a notice of defense, nor shall the notice of hearing provided for in Section 11509 of the Government Code or the notice and copy of affidavit referred to in Section 11514 of the Government Code be mailed or delivered less than 20 days prior to the date of hearing, and the time for making a request to cross-examine under Section 11514 of the Government Code shall not be less than 15 days.
The presiding officer shall keep a record of all process served upon him or her pursuant to this article, which record shall show the day and hour of service.
As used in this article, “nonresident” means a person who is not a resident of this state at the time of the performance of the act referred to in Section 14071.
ARTICLE 7. Penal Provisions [14080. - 14080.]
Any person who knowingly falsifies the fingerprints or photographs submitted under subdivision (f) of Section 14024 is guilty of a felony. Any person who violates any of the other provisions of this chapter is guilty of a misdemeanor punishable by fine not to exceed five hundred dollars ($500), or by imprisonment in the county jail not to exceed one year, or by both such fine and imprisonment.
ARTICLE 7.5. Crop Insurance Adjusters [14085. - 14085.]
Upon application, the commissioner shall issue a crop insurance adjuster license to a person who meets both of the following requirements:
Obtains an insurance adjuster license, with the exception of the examination requirement of Section 14026.
Provides evidence that he or she has satisfactorily completed the loss adjustment training curriculum and competency testing required by the Federal Crop Insurance Corporation Standard Reinsurance Agreement.
For the purposes of this article, the following definitions apply:
“Crop insurance” means insurance provided by the private insurance market that indemnifies for damage to crops from unfavorable weather conditions, fire, lightning, flood, hail, insect infestation, disease, or other yield-reducing conditions or perils, and multiple peril crop insurance reinsured by the federal crop insurance corporation.
“Crop insurance adjuster” means a person who investigates, negotiates, or settles crop insurance claims.
A person shall not act as or purport to be a crop insurance adjuster unless licensed as a crop insurance adjuster.
A person shall not contract, employ, or use any other person to adjust claims made under a crop insurance policy unless the other person is licensed as a crop insurance adjuster.
All provisions of this chapter and any regulations adopted pursuant to this chapter shall apply to crop insurance adjusters, unless exempted by or in conflict with this article or the regulations adopted pursuant to this article.
The commissioner may adopt regulations to implement this article, including, but not limited to, regulations that require applicants to satisfy other competency requirements in addition to or instead of those referred to in paragraph (2) of subdivision (a), and regulations that establish standards of practice for crop insurance adjusters.
ARTICLE 8. Expiration and Renewal of Licenses and Cards [14090. - 14094.]
Every license, branch office certificate, and pocket card issued pursuant to this chapter shall expire on the day two years after the last calendar day of the month in which the initial license was issued. Licenses issued prior to January 1, 2011, shall expire on May 31 of each even-numbered year. To renew an unexpired license or certificate, the licensee shall, on or before the date on which it would otherwise expire, apply for renewal on a form prescribed by the commissioner, and pay the renewal fee prescribed by this chapter. On renewal, the evidence of renewal of the license or certificate as the commissioner may prescribe, and renewal pocket cards for the persons mentioned in Section 14034, shall be issued to the licensee.
An individual who holds an insurance adjuster license and who is not exempt under subdivision (b) shall satisfactorily complete a minimum of 24 hours, of which three hours are to be in ethics, of continuing education courses pertinent to the duties and responsibilities of an insurance adjuster license reported to the insurance commissioner on a biennial basis in conjunction with his or her license renewal cycle.
This section does not apply to any of the following:
A licensee not licensed for one full year prior to the end of the applicable continuing education biennium.
A licensee holding a nonresident insurance adjuster license who has met the continuing education requirements of his or her designated resident state.
Notwithstanding Section 14090, the commissioner may establish license periods and renewal dates for all licenses issued pursuant to this chapter so as to distribute the renewal work to permit the most efficient and economical use of personnel and equipment. In such cases, to the extent practicable, provision shall be made for the proration or other adjustment of fees so that no person shall be required to pay more than that which he or she would have been required to pay had no change in license periods or renewal dates been made.
Except as otherwise provided in this article, an expired license or branch office certificate may be renewed at any time within one year after its expiration on the filing of an application for renewal on a form prescribed by the commissioner, and the payment of the renewal fee in effect on the last preceding regular renewal date. The licensee, as a condition precedent to renewal, shall also pay the delinquency fee prescribed by this chapter. Renewal under this section shall be effective on the date on which the application is filed, on the date on which the renewal fee is paid, or on the date on which the delinquency fee, if any, is paid, whichever last occurs. If so renewed, the license or certificate shall continue in effect through the date provided in Section 14090 which next occurs after the effective date of the renewal, when it shall expire if it is not again renewed.
Renewal of a license or certificate shall not prohibit the bringing of disciplinary proceedings for an act committed before the effective date of the renewal.
A suspended license or branch office certificate is subject to expiration and shall be renewed as provided in this article, but renewal of the license does not entitle the licensee, while the license remains suspended and until it is reinstated, to engage in the licensed activity, or in any other activity or conduct in violation of the order or judgment by which the license was suspended, and renewal of the branch office certificate does not entitle the licensee, while the certificate remains suspended, and until it is reinstated, to engage in the licensed activity at the location for which the certificate was issued, or to engage in any other activity or conduct in violation of the order or judgment by which the certificate was suspended.
A revoked license or branch office certificate is subject to expiration as provided in this article, but it may not be renewed. If it is reinstated after its expiration, the licensee, as a condition precedent to its reinstatement, shall pay a reinstatement fee in an amount equal to the renewal fee in effect on the last regular renewal date before the date on which it is reinstated, plus the delinquency fee, if any, accrued at the time of its revocation.
A license or branch office certificate which is not renewed within one year after its expiration may not be renewed, restored, reinstated, or reissued thereafter; and a license which expired before October 1, 1958, and was not reinstated before October 1, 1961, may not be renewed, restored, reinstated, or reissued.
The holder of the license or certificate may obtain a new license or certificate only on compliance with all of the provisions of this chapter relating to the issuance of an original license or certificate.
ARTICLE 9. Revenue [14097. - 14099.]
The amount of fees prescribed by this chapter, unless otherwise fixed, is that fixed in the following schedule:
The application fee for an original license is seventy-two dollars ($72).
The application fee for an original branch office certificate is forty-seven dollars ($47).
The fee for an original license is an amount equal to the renewal fee in effect on the last regular renewal date before the date on which the license is issued, except that, if the license will expire less than one year after its issuance, then the fee is an amount equal to 50 percent of the renewal fee in effect on the last regular renewal date before the date on which the license is issued. The commissioner may, by appropriate regulation, provide for the waiver or refund of the initial license fee if the license is issued less than 45 days before the date on which it will expire.
The renewal fee shall be fixed by the commissioner as follows:
For a license as an insurance adjuster, not more than two hundred eighty-three dollars ($283).
For a branch office certificate, not more than fifty-six dollars ($56).
The application and license fee for classifications prescribed by the commissioner, in addition to those provided for in this chapter, and the application and license fees for a change in the type of business organization of a licensee, shall be in the amount prescribed by rule and regulation of the commissioner.
The delinquency fee shall be 50 percent of the renewal fee in effect on the date of expiration, but not more than seventy-two dollars ($72).
The fee for reexamination of an applicant or his or her manager is twenty-nine dollars ($29).
The department shall receive and account for all money derived from the operation of this chapter and, at the end of each month, shall report such money to the Controller and shall pay it to the Treasurer, to the credit of the Insurance Fund.
Application or license fee shall not be refunded except in accordance with Section 158 of the Business and Professions Code.
CHAPTER 2. Public Insurance Adjusters Act [15000. - 15062.]
ARTICLE 1. General Provisions [15000. - 15002.]
This chapter may be cited as the Public Insurance Adjusters Act.
As used in this chapter, the following terms have the following meanings:
“Apprentice public insurance adjuster” means a person who is qualified in all respects as a public adjuster, except as to experience, education, or training.
“Business entity” means a corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity.
“Catastrophic disaster” means an event that results in large numbers of deaths and injuries; causes extensive damage or destruction of facilities that provide and sustain human needs; produces an overwhelming demand on state and local response resources and mechanisms; causes a severe long-term effect on general economic activity; and severely affects state, local, and private sector capabilities to begin and sustain response activities. A catastrophic disaster shall be declared by the President of the United States or the Governor of the state or district in which the disaster occurred.
“Commissioner” means the Insurance Commissioner.
“Department” means the Department of Insurance.
“Fingerprints” means an impression of the lines on the finger taken for the purposes of identification.
“Home state” means the District of Columbia and any state or territory of the United States in which the public insurance adjuster’s principal place of residence or principal place of business is located. If neither the state in which the public insurance adjuster maintains the principal place of residence nor the state in which the public insurance adjuster maintains the principal place of business has a substantially similar law governing public insurance adjusters, the public insurance adjuster may declare another state in which it becomes licensed and acts as a public insurance adjuster to be the “home state.”
“Licensee” means a person licensed under this chapter.
“Person” includes any individual, firm, company, association, organization, partnership, limited liability company, and corporation.
Nothing in this chapter shall be construed as entitling any person to practice law in this state, unless he or she is an active member of the State Bar of California.
ARTICLE 2. Administration [15003. - 15005.]
The commissioner may, in accordance with the State Civil Service Act, appoint those inspectors, investigators, and other personnel as may be necessary for the administration and enforcement of this chapter.
Every power and duty granted to or imposed upon the commissioner may be exercised by any other officer or employee of the department authorized by the commissioner, but the commissioner shall have the supervision of and the responsibility for all powers and duties exercised by those officers and employees.
The commissioner may adopt and enforce reasonable rules:
Fixing the qualifications of licensees in addition to those prescribed in the chapter, necessary to promote and protect the public welfare.
Carrying out generally the provisions of this chapter, including regulation of the conduct of licensees.
For a change in the classification of a licensee, or in the type of business organization upon application therefore by a licensee, and to prescribe the fee, if any, to be paid.
ARTICLE 3. Regulation, Licensing, and Registration [15006. - 15032.]
No person shall engage in a business regulated by this chapter, or act or assume to act as, or represent himself or herself to be, a licensee unless he or she is licensed under this chapter. Any person who violates this subdivision shall, in addition to any other penalties provided by law, be liable to the state for a civil penalty in an amount not exceeding ten thousand dollars ($10,000), or if that violation is willful, in an amount not exceeding twenty-five thousand dollars ($25,000). The penalty shall be assessed and recovered in a civil action brought by the commissioner in a court of competent jurisdiction in the name of the people of the State of California.
Any contract for services regulated by this chapter that is entered into by an insured with any person who is in violation of subdivision (a) may be voided at the option of the insured, and the insured shall not be liable for the payment of any past services rendered, or future services to be rendered, by that person under that contract or otherwise.
Whenever it appears to the commissioner that any person is engaging in acts or practices in violation of subdivision (a), the commissioner may, without any requirement of notice or hearing, issue and cause to be served upon that person an order requiring that person to cease and desist immediately from engaging further in those acts or practices.
Any person who fails to comply fully with an order of the commissioner issued under subdivision (c) shall be liable to the state for a civil penalty in an amount not exceeding one hundred dollars ($100) per day for each and every day that the violation or failure to comply continues, but in no event to exceed a maximum amount of five thousand dollars ($5,000). The commissioner shall collect the amount so payable and may bring an action in a court of competent jurisdiction in the name of the people of the State of California to enforce collection. This penalty is in addition to any other penalties provided by law.
The powers vested in the commissioner by this section are in addition to any and all other powers and remedies vested in the commissioner by law, and nothing herein shall be construed as requiring the commissioner to employ the powers conferred in this section instead of or as a condition precedent to the exercise of any other power or remedy vested in the commissioner.
A public insurance adjuster within the meaning of this chapter is a person who, for compensation, acts on behalf of or aids in any manner, an insured in negotiating for or effecting the settlement of a claim or claims for loss or damage under any policy of insurance covering real or personal property or any person who advertises, solicits business, or holds himself or herself out to the public as an adjuster of those claims and any person who, for compensation, investigates, settles, adjusts, advises, or assists an insured with reference to claims for those losses on behalf of any public insurance adjuster.
This chapter does not apply to any of the following:
An attorney at law admitted to practice in this state, when performing his or her duties as an attorney at law.
Photographers, estimators, appraisers, engineers, and arbitrators, who are employed exclusively by a public insurance adjuster for the purpose of furnishing technical assistance to a licensed public insurance adjuster.
A person who negotiates or settles claims arising under a life or health insurance policy or an annuity contract.
A person who settles subrogation claims between insurers.
An application for a license under this chapter shall be on a form prescribed by the commissioner and accompanied by the application fee provided by this chapter. Every applicant for a license under this chapter shall comply with the provisions of Section 1703.
The applicant shall complete a 20-hour prelicensing course of study for the lines of authority for a public insurance adjuster license.
An applicant who resides in another state that does not license public insurance adjusters is eligible to designate California as his or her home state. He or she is required to complete the prelicensing education, pass the public insurance adjuster examination, and meet the license application requirements before a license can be issued.
An applicant licensed as a public insurance adjuster in another state is exempt from completing a prelicensing education course to apply for a California public insurance adjuster license if, at the time of application, the applicant’s out-of-state license is current or was canceled within 90 calendar days.
An application shall be verified and shall include all of the following:
The full name and business address of the applicant.
The name under which the applicant intends to do business.
A statement as to the general nature of the business in which the applicant intends to engage.
If the applicant is a person other than an individual, the full name and resident address of each of its partners, officers, and directors.
Two photographs, not older than six months, of the applicant, of a type prescribed by the commissioner, and one classifiable set of his or her fingerprints, to be sent to a live scan fingerprint provider as directed by the department, if fingerprints are not submitted in person with a live scan fingerprinting service provider certified by the Department of Justice.
A verified statement of his or her experience qualifications.
Other information, evidence, statements, or documents as may be required by the commissioner.
Before an application for a license is granted, the applicant shall meet all of the following requirements:
Be at least 18 years of age.
Shall have at least two years’ experience in the handling of loss claims under insurance contracts as determined by regulations adopted by the commissioner, and be competent to transact business and discharge the responsibilities of a public insurance adjuster in a manner as to safeguard the interests of the public. A person who has been licensed as an apprentice public insurance adjuster, as set forth in Section 15016, for 12 full months, shall be considered to have met the two-year experience requirement.
Maintain an office in the State of California with public access during regular business hours.
Pass an exam given by the commissioner in regard to property loss adjusting.
Post a surety bond executed by a surety company authorized to do business in this state in the sum of twenty thousand dollars ($20,000).
For an organization applicant, designate a licensed individual public insurance adjuster to be responsible for the organization’s compliance with the insurance laws, rules, and regulations of this state.
For an organization applicant, authorize only licensed individual public insurance adjusters to exercise authority under the organization’s license.
Comply with any requirement to file supplementary documents, affidavits, and statements as may be necessary to obtain a full disclosure of the information that will aid the commissioner in determining whether the prerequisites for the license have been met.
The license issued by the commissioner shall include, but not be limited to, adjusting claims for fire and allied coverages, burglary, flood, and all property claims both real and personal, and loss of income.
Each applicant for a license as a public insurance adjuster shall, prior to issuance of the license, personally take and pass, to the satisfaction of the commissioner, an examination given by the department as follows:
The examination shall be prescribed by the commissioner and shall be of sufficient scope to reasonably test the applicant’s knowledge, among other things, of basic insurance theory, essential elements of contracts, technical competence in the handling of the various lines for which the applicant is being tested, claims ethics and knowledge of the Unfair Practices Act, and the duties and responsibilities of public insurance adjusters under the law.
The examination shall be given to applicants under the supervision of the department or the department’s examination contractor and shall be in written form.
The commissioner shall, within a reasonable period of time, not to exceed 30 days, transmit the results of the examination and action taken on the application to the applicant.
In the event an applicant who is otherwise qualified fails the examination, the commissioner may administer a reexamination.
The examination shall be given at those times and places within the state as the commissioner deems reasonably necessary to serve the convenience of the department and applicants.
The apprentice public insurance adjuster license is a license to facilitate the training necessary to ensure reasonable competency to fulfill the responsibilities of a public insurance adjuster as defined in Section 15007.
The apprentice public insurance adjuster license is subject to the following terms and conditions:
The applicant shall submit, with an application for an initial apprentice public insurance adjuster license, an attestation or certification from a licensed public insurance adjuster assuming responsibility for all actions of that applicant.
The apprentice public insurance adjuster is authorized to adjust claims only in California.
The applicant is required to qualify under subdivisions (a) and (b) of Section 15011.
The applicant is required to pay a license fee of one hundred dollars ($100).
The applicant is required to comply with any requirement to file supplementary documents, affidavits, and statements as may be necessary to obtain a full disclosure of the information that will aid the commissioner in determining whether the prerequisites for the license have been met.
The apprentice public insurance adjuster shall not be required to take and successfully complete the prescribed public insurance adjuster examination.
The licensee shall at all times be an employee of a public insurance adjuster and be subject to training, direction, and control by a licensed public insurance adjuster.
The apprentice public insurance adjuster license is for a period not to exceed 12 months, and the license shall not be renewed.
The licensee is restricted to participation in factual investigation, tentative closing, and solicitation of losses subject to the review and final determination of a licensed public insurance adjuster.
The licensee shall be subject to suspension, revocation, or conditions in accordance with Section 1668.
The applicant shall submit two photographs, not older than six months, of the applicant, of a type prescribed by the commissioner, and one classifiable set of his or her fingerprints, to be sent to a live scan fingerprint provider as directed by the department, if fingerprints are not submitted in person with a live scan fingerprinting service provider certified by the Department of Justice.
The apprentice public insurance adjuster shall complete the 20-hour prelicensing education course of study as defined in Section 15009.1 during the license period.
A nonresident license shall be issued by the commissioner to qualified persons who meet the requirements set forth in Section 15011, and who have appointed the commissioner as an agent for service of process in this state.
The person is currently licensed in good standing as a public insurance adjuster in his or her home state.
The person has paid the fees required by Section 15060.
The person has provided proof of financial responsibility as required by Section 15033.
The individual has submitted to the commissioner the completed application for licensure.
The person’s home state awards nonresident public insurance adjuster licenses to residents of California on the same basis.
After a hearing, the commissioner may deny a license unless the applicant makes a showing satisfactory to the commissioner that the applicant has not:
Committed any acts or crimes constituting grounds for denial of license under Section 1668.
Been refused a license under this chapter or had a license revoked.
While unlicensed, committed, aided or abetted the commission of any acts for which a license is required in this chapter.
Been convicted of any crime or wrongdoings in connection with this license.
The commissioner may, without hearing, deny an application if the applicant has committed any act or been convicted of a crime constituting grounds for denial of license under Section 1669.
Whenever a hearing is held under this chapter to determine whether an applicant for a license should be granted or to determine the qualifications of a licensee, the proceeding shall be conducted in accordance with Chapter 5 (commencing with Section 11501) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The form and content of the license shall be determined by the commissioner.
The license shall at all times be posted in a conspicuous place in the principal place of business of the licensee.
Upon the issuance of a license, a pocket card of that size, design, and content as may be determined by the commissioner shall be issued without charge to each licensee.
A license issued under this chapter is not assignable.
Each licensee shall file with the commissioner the complete address of his or her principal place of business including the name and number of the street, or if the street where the business is located is not numbered, the number of the post office box. The commissioner may require the filing of other information for the purposes of indentifying that principal place of business.
A licensee shall within 30 days of the change notify the department of any change of his or her address. The principal place of business may be at home or at a business address but it shall be the place at which the licensee maintains a permanent office.
A licensee shall not advertise or conduct business from any location other than that shown on the records of the commissioner as his or her principal place of business unless he or she has received a branch office certificate for that location after compliance with the provisions of this chapter and those additional requirements necessary for the protection of the public as the commissioner may by regulation prescribe. A licensee shall notify the commissioner in writing within 10 days of closing or changing the location of a branch office.
A licensee shall not, directly or indirectly, act within this state as a public insurance adjuster without having first entered into a contract, in writing, on a form approved by the insurance commissioner and executed in duplicate by the public adjuster and the insured or a duly authorized representative. One original contract shall be kept on file by the licensee, available at all times for inspection, without notice, by the commissioner or his or her duly authorized representative, and one original contract shall be given to the insured.
The written contract between the licensee and the insured shall contain each of the following:
Title of “Public Adjuster Contract.”
The name, business name, license number, telephone number, and address of the licensee.
The name and address of the insured.
A description of the loss and its location, if applicable.
The name of the insurer and the policy number, if known.
The full salary, fee, commission, or other consideration the licensee is to receive for services under the contract.
A public adjuster’s fee, commission, or other valuable consideration shall not cause the insured to receive less than any amount paid to the insured by the insurer prior to the date of the written contract between the insured and the public adjuster.
A description of the services to be provided to the insured.
Signatures of the licensee and the insured.
The date the contract was signed by the licensee and the date the contract was signed by the insured.
The following statement: “As a public adjuster, I am required by the California Insurance Code to post a surety bond in the sum of $20,000 to cover certain kinds of claims made by you, the insured. If you have any questions concerning the surety bond, you may contact the California Department of Insurance Licensing Hotline at 1-800-967-9331 or www.insurance.ca.gov.”
A statement of the compensation to the licensee, including the percentage and base to which the percentage applies.
A statement that the insured has the right to cancel the contract within three business days of signing it and being provided the signed contract.
A contract covered by this section shall not contain a contract term that does any of the following:
A licensee shall not solicit or attempt to solicit a client for employment during a loss-producing occurrence. A loss-producing occurrence continues to exist when any of the following conditions exist at the property that is subject to solicitation:
A licensee or any other person or entity offering, for a fee, service regulated by this chapter shall not solicit a policyholder for employment or initiate any contact with a policyholder between the hours of 6 p.m. and 8 a.m., unless requested by the policyholder.
A licensee shall not use any form of contract other than that approved by the commissioner and that contains each of the following:
A provision allowing the client to cancel the contract by written notice sent or delivered by certified mail, return receipt requested, or other form of mailing that provides proof of mailing, to the licensee by midnight of the third business day after the day on which the client signs a contract that complies with this section and is provided a copy of that signed contract. Each copy of the contract shall contain a completed form, captioned “Notice of Cancellation,” that shall be placed at the end of the contract and be separated from the remainder of the contract by a printed line. Nothing shall be printed on the reverse side of the notice form. The notice form shall be completed by the licensee, and shall contain in type of at least 10-point the following statement written in the same language, e.g., Spanish, as used in the contract:
Notice of Cancellation
You may cancel this contract within three business days from the above date that you signed the contract and you were provided with a copy of that signed contract, except that, as it pertains to a disaster as defined in Section 15001, your right to cancel is five calendar days without any penalty or obligation to pay your public adjuster, other than for reimbursement of moneys paid by your public adjuster for out-of-pocket emergency expenses for you or on your behalf. If your public adjuster seeks reimbursement from you for out-of-pocket emergency expenses, your public adjuster shall provide you with an itemized statement of those emergency expenses advanced to you or on your behalf if the cancellation is made within the first three business days after the contract was signed by you and you were provided a copy of the signed contract. Nothing in this contract permits your public adjuster to recover any costs, except for out-of-pocket emergency expenses advanced to you.
If you cancel, any money or other consideration paid by you will be returned within five business days following the receipt of your cancellation notice, and any security interest arising out of the transaction will be canceled.
To cancel this contract, mail or deliver by certified mail, return receipt requested, or other form of mailing that provides proof of mailing, a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to:
The statement “WE REPRESENT THE INSURED ONLY” prominently displayed in at least 10-point type.
A provision disclosing the percentage of the insured’s claim, or other fee, that the licensee will charge for his or her services. The licensee shall obtain the initials of the insured next to this provision.
A conspicuous statement in at least 10-point type in immediate proximity to the space reserved for the client’s signature, as follows: “You may cancel this contract at any time before midnight of the third business day after the date of this contract. See the notice of cancellation form at the end of this contract for an explanation of this right.”
A licensee shall not knowingly make any false report to his or her employer or divulge to any other person, except as he or she may be required by law to do so, any information acquired by him or her except at the direction of the employer or a client for whom the information is obtained.
A licensee shall not use a badge in connection with the official activities of the licensee’s business.
A licensee shall not permit an employee or agent in his or her own name to advertise, engage clients, furnish reports, or present bills to clients, or in any manner whatever to conduct business for which a license is required under this chapter.
Pursuant to subdivisions (a) and (c) of Section 15006, the commissioner shall have the authority to enforce the provisions of this chapter and prosecute violations thereunder committed by unlicensed persons or entities that hold themselves out or act as public insurance adjusters.
For purposes of this section, “business day” shall have the same meaning given to that term in subdivision (e) of Section 1689.5 of the Civil Code, as in effect on the operative date of this statute.
The contract and the notice of cancellation set forth in paragraph (1) of subdivision (f) shall be written in the same language, e.g., Spanish, as principally used in the negotiation of the contract.
Within five business days after a contract has been canceled, the licensee shall tender to the client any payments made by the client and any note or other evidence of indebtedness, including an itemized statement of all amounts tendered to the client.
The licensee is not entitled to compensation for services performed prior to cancellation, other than for reimbursement of moneys paid by the licensee for out-of-pocket emergency expenses for the client or on behalf of the client. If the licensee seeks reimbursement from the client for out-of-pocket emergency expenses, and if the cancellation is made within the first three business days after the contract was initiated, the licensee shall provide the client with an itemized statement of those emergency expenses advanced to the client or on behalf of the client by the licensee. Nothing in this subdivision shall permit the licensee to recover any costs, except for out-of-pocket emergency expenses advanced to the client. Any security interest shall be canceled upon cancellation of the contract.
Notice of cancellation given by the client need not take the particular form specified in paragraph (1) of subdivision (f). Notice of cancellation, however expressed, is effective if it indicates the intention of the client not to be bound by the contract.
Cancellation occurs when the client gives written notice of cancellation by certified mail, return receipt requested, or other form of mailing that provides proof of mailing, to the licensee at the address specified in the contract.
Notice of cancellation, if given by mail, is effective when sent by certified mail, return receipt requested, or other form of mailing that provides proof of mailing, properly addressed with postage prepaid.
Until the licensee has complied with this section, the client may cancel the contract.
The contracts shall be executed in duplicate. The licensee shall retain one original contract, and shall provide the insured with an original contract.
The licensee shall provide the client with an original contract and notice of cancellation at the time the client signs the contract.
Any confession of judgment or waiver of the provisions of this chapter shall be deemed contrary to public policy and shall be void and unenforceable.
Prior to the signing of the contract, the licensee shall provide the insured with a separate printed disclosure document in the following form that bears the name and license number of the licensee:
“DISCLOSURE
There are three types of insurance adjusters that could be involved in the processing of your insurance claim. The definitions of the three types are as follows:
Public adjusters means the insurance adjusters who do not work for your insurance company. They work for you, the insured, to assist in the preparation, presentation, and settlement of your claim. You hire them by signing a contract and agreeing to pay them a fee or commission based on a percentage of the settlement, or other method of compensation. Public adjusters are required to be licensed, bonded, and tested by the State of California to represent your interest only.
Company adjusters means the insurance adjusters who are employees of your insurance company. They represent your insurance company and are paid by your insurance company. They will not charge you a fee and are not individually licensed or tested by the State of California.
Independent adjusters means the insurance adjusters who are hired on a contract basis by your insurance company to represent the company in the settlement of the claim. They are paid by your insurance company. They will not charge you a fee.
You have the right, but are not required, to use the services of a public adjuster in the preparation and handling of your insurance claim.
Public adjusters cannot solicit your business while the loss is underway, or between the hours of 6 p.m. and 8 a.m.
Your “Public Adjuster Contract,” with a public adjuster representing you, should clearly indicate the amount of the fee you will be paying to your public adjuster. Your contract, with this fee percentage, should be acknowledged by your initials on the “Public Adjuster Contract.” The salary, fee, commission, or other consideration is to be paid by you (the insured), not the insurance company (insurer).
You have the right to cancel the contract with your public adjuster, without any penalty or obligation, within three business days from the date the contract is signed. If the contract was established from a catastrophic disaster as defined in subdivision (c) of Section 15001, the insured has the right to cancel within five calendar days.
If you cancel the contract with your public adjuster, any money or other consideration paid by you will be returned within five business days following the receipt of your cancellation notice, and any security interest arising out of the transaction will be canceled.
To cancel the contract with your public adjuster, mail or deliver by certified mail, return receipt requested, or other form of mailing that provides proof of mailing, a signed and dated copy of the cancellation notice, or any other written notice, or send a telegram to the public adjuster at the address in the contract.
You have the right to, and may, communicate with your insurance company at any time if you feel the need during the claims process.
If you have any concerns or questions, the officers at the California Department of Insurance Consumer Hotline are there to help you. Please contact them at 1-800-927-HELP (4357) or www.insurance.ca.gov.”
No later than three business days after the cancellation has expired, the public adjuster shall notify the insurer, its adjuster, or its attorney, that he or she has entered into a written contract with the insured.
If the licensee misrepresents or conceals a material fact from the insured prior to execution of the contract, the insured is entitled to rescind the contract without time limit.
Notwithstanding any other provision of this section, if a property loss is included in an area that is subject to a catastrophic disaster, as defined in Section 15001, the insured shall have the right to cancel a contract with a public adjuster within five calendar days of signing it and being provided a copy of the signed contract.
In addition to the restrictions in subdivision (e) of Section 15027, a licensee shall not solicit a contract of engagement for residential properties under this chapter that are included in an area subject to a catastrophic disaster until seven calendar days have elapsed from the conclusion of a loss-producing occurrence as defined in subdivision (d) of Section 15027.
Subdivision (a) shall not apply if the licensee is contacted directly by the insured or the insured’s representative.
Nothing in subdivision (a) shall prohibit a licensee from providing a policyholder, without making personal contact with the policyholder, with accurate written materials explaining services provided by public insurance adjusters.
Any person acting as a public adjuster who has executed a contract as described in Section 15027 is the agent of the insured. While acting under the authority of such a contract, a public adjuster may not receive any fees or other consideration, monetary or otherwise, from either the insured or any other source, in excess of the amount or percentage provided in the contract. Any compensation received by the public adjuster from any party or any other source connected to the claim adjustment, including any contractor, insurer, or vendor, shall be disclosed by the public adjuster to the insured. The insured may rescind the contract if the adjuster fails to make the required disclosure or if the public adjuster’s receipt of any compensation from a third party conflicts with the interests of the insured.
No person licensed as a public insurance adjuster shall do any of the following:
Use any misrepresentation to solicit a contract or agreement to adjust a claim.
Solicit or accept remuneration from, or have a financial interest in, any salvage, repair or other firm which obtains business in connection with any claim he or she has a contract or agreement to adjust.
Advance moneys to any potential client or insured in order to obtain business.
Offer to pay a fee, commission, or other valuable consideration, exceeding one hundred dollars ($100), to a person for referring a loss unless he or she employs that person to so act for him or her and that person is licensed to act as an adjuster under the provisions of this chapter.
Permit an employee or agent, in his or her own name, to advertise, engage clients, furnish reports, present bills to clients, or in any manner conduct business for which a license is required pursuant to this chapter.
A public insurance adjuster shall maintain a complete record of each of his or her transactions as a public insurance adjuster. The records shall include all of the following:
The name of the insured.
The date, location, and amount of the loss.
A copy of the contract between the public insurance adjuster and the insured.
The name of the insurer and the amount, expiration date, and number of each policy carried with respect to the loss.
An itemized statement of the recoveries by the insured from the sources known to the public insurance adjuster.
The total compensation received for the adjustment.
An itemized statement of disbursements made by the public insurance adjuster from recoveries received on behalf of the insured.
Records shall be maintained for at least five years after the termination of the transaction with the insured, and shall be open to examination by the commissioner.
All funds received as claim proceeds by any person acting as a public insurance adjuster are received and held by that person in his or her fiduciary capacity. Any person who diverts or appropriates any fiduciary funds for his or her own use is guilty of theft and punishable for theft as provided by law. Every applicant for a license to act as a public insurance adjuster shall, as part of the application, endorse an authorization for disclosure to the commissioner of all financial records of any fiduciary funds as defined in this section, pursuant to Section 7473 of the Government Code. The authorization shall continue in force and effect for so long as the licensee continues to be licensed by the department.
A public adjuster who receives, accepts, or holds any funds on behalf of an insured towards the settlement of a claim for loss or damage shall deposit the funds in a non-interest-bearing escrow or trust account in a financial institution that is insured by an agency of the federal government in the adjuster’s home state or the state where the loss occurred.
All funds held in an escrow or trust account shall be the property of the insured and shall be held pursuant to a written contract signed by the insured and the public adjuster.
A public adjuster who receives any fiduciary funds shall, within 15 business days of receipt, deposit the funds in the escrow account and provide a written statement to the insured showing the amount of funds received and deposited in escrow.
A public adjuster who, after reasonable diligence, is unable to obtain the endorsements of all payees designated on any bank draft representing fiduciary funds, or who receives a written statement from the insured indicating that he or she does not wish to establish an escrow or trust account, shall be exempt from the requirements of subdivisions (a) to (c), inclusive.
The endorsement by a payee designated on any bank draft representing fiduciary funds shall not be construed as a waiver of any potential right of the payee to dispute the public adjuster’s entitlement to those funds or any portion thereof.
No person shall concurrently hold a license under the provisions of this chapter and the provisions of Chapter 1 (commencing with Section 14000).
Each licensee shall maintain a record containing that information relative to his or her employees as may be prescribed by the commissioner.
A licensee shall not conduct a business under a fictitious or other business name unless and until he or she has obtained the written authorization of the commissioner to do so.
The commissioner shall not authorize the use of a fictitious or other business name that is so similar to that of a public officer or agency or that is used by another licensee that the public may be confused or misled thereby.
The authorization shall require, as a condition precedent to the use of a fictitious name, that the licensee comply with Section 1724.5.
A licensee desiring to conduct his or her business under more than one fictitious name shall obtain the authorization of the commissioner in a manner prescribed in this section for the use of additional fictitious names.
The licensee shall pay a fee of twenty-five dollars ($25) for each authorization to use an additional fictitious name and for each change in the use of a fictitious business name. If the original license is issued in a nonfictitious name and authorization is requested to have the license reissued in a fictitious business name, the licensee shall pay a fee of twenty-five dollars ($25) for that authorization.
Every advertisement by a licensee soliciting or advertising business shall contain his or her name, address, or license number as they appear in the records of the commissioner. The commissioner may adopt regulations defining the term “advertisement” as used in this section.
ARTICLE 4. Bonds [15033. - 15037.]
No license shall be issued under this chapter unless the applicant files with the commissioner a surety bond executed by a surety company authorized to do business in the state in the sum of twenty thousand dollars ($20,000) conditioned for the faithful and honest conduct of business by the applicant. The bond, as to its form, execution, and sufficiency of the surety shall be approved by the commissioner.
The bond required by this chapter shall be taken in the name of the people in the state and every person injured by the willful, malicious, or wrongful act of the principal may bring an action on the bond in his or her name to recover damages suffered by reason of that willful, malicious, or wrongful act.
Every licensee shall at all times maintain on file the surety bond required by this chapter in full force and effect and upon failure to do so the license of the licensee shall be forthwith suspended and shall not be reinstated until an application therefore, in the form prescribed by the commissioner, is filed together with a proper bond. The commissioner may deny the application notwithstanding the applicant’s compliance with this section:
For any reason which would justify a refusal to issue, or a suspension or revocation of, a license.
For the performance of applicant of any practice while under suspension for failure to keep his or her bond in force, for which a license under this chapter is required.
In lieu of the surety bond required by this chapter there may be deposited with the State of California the sum of twenty thousand dollars ($20,000) in cash, or evidence of deposit of the sum of twenty thousand dollars ($20,000) in banks authorized to do business in this state and insured by the Federal Deposit Insurance Corporation, or investment certificates or share accounts in the amount of twenty thousand dollars ($20,000) issued by a savings association doing business in this state and insured by the Federal Deposit Insurance Corporation, or evidence of a certificate of funds or share account of the sum of twenty thousand dollars ($20,000) in a credit union as defined in Section 14002 of the Financial Code whose share deposits are guaranteed by the National Credit Union Administration or guaranteed by any other agency approved by the Department of Financial Protection and Innovation.
Bonds executed and filed with the commissioner pursuant to this chapter shall remain in force and effect until the surety has terminated future liability by 30-day notice to the commissioner.
ARTICLE 5. Disciplinary Proceedings [15038. - 15043.]
Except as otherwise required to comply with the provisions of Article 6 (commencing with Section 15044), the proceedings under this article shall be conducted in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and the commissioner shall have all the powers granted therein.
The commissioner may suspend or revoke a license issued under this chapter if he or she determines that the licensee has done any of the following:
Made any false statement or given any false information in connection with an application for a license or a renewal or reinstatement of the license.
Violated this chapter.
Violated any rule of the commissioner adopted pursuant to the authority contained in this chapter.
Been convicted of any crime substantially related to the qualifications, functions, and duties of the holder of the registration or license in question.
Impersonated, or permitted, or aided and abetted an employee to impersonate a law enforcement officer or employee of the United States of America, or of any state or subdivision thereof.
Committed or permitted any employee to commit any act, while the license was expired which would be cause for the suspension or revocation of a license, or grounds for the denial of an application for a license.
Willfully failed or refused to render to a client services or a report as agreed between the parties and for which compensation has been paid or tendered in accordance with the agreement of the parties.
Committed assault, battery, or kidnapping, or used force or violence on any person.
Knowingly violated, or advised, encouraged, or assisted the violation of any court order or injunction in the course of business as a licensee.
Acted as a runner or capper for any attorney.
Committed any act which is a ground for denial of an application for license under this chapter.
Manufactured evidence.
Acceptance of employment adverse to a client or former client relating to a matter with respect to which the licensee has obtained confidential information by reason of or in the course of his or her employment by that client or former client.
The commissioner may, without hearing, suspend or revoke a license issued under this chapter if he or she determines that the licensee has committed any act or crime constituting grounds for denial of license under Section 15018.5.
The record or conviction, or a certified copy thereof, shall be conclusive evidence of the conviction as that term is used in this article or in Section 15018 or 15018.5.
A plea or verdict of guilty or a plea of nolo contendere is deemed to be a conviction within the meaning of this article or of Section 15018 or 15018.5. The commissioner may order the license suspended or revoked, or may decline to issue a license, when the time for appeal has elapsed, or the judgment of conviction has been affirmed on appeal or when an order granting probation is made suspending the imposition of sentence, irrespective of a subsequent order under Section 1203.4 of the Penal Code allowing that person to withdraw their plea of guilty and enter a plea of not guilty, or setting aside the verdict of guilty, or dismissing the accusation, information, or indictment.
The commissioner shall suspend or revoke a license issued under this chapter if the commissioner determines that the licensee has:
Used any letterhead, advertisement, or other printed matter, or in any matter whatever represented that he or she is an instrumentality of the federal government, a state, or any political subdivision thereof.
Used a name different than that under which he or she is currently licensed in an advertisement, solicitation, or contract for business.
The commissioner may suspend or revoke a license issued under this chapter if the commissioner determines that the licensee has committed any act in the course of the licensee’s business constituting dishonesty or fraud.
“Dishonesty or fraud” as used in this section includes, in addition to other acts not specifically enumerated herein, any of the following:
Knowingly making a false statement relating to evidence or information obtained in the course of employment, or knowingly publishing a slander or libel in the course of business.
Using illegal means in the collection or attempted collection of a debt or obligation.
Manufacture of evidence.
Acceptance of employment adverse to a client or former client relating to a matter with respect to which the licensee has obtained confidential information by reason of or in the course of his or her employment by that client or former client.
The commissioner, in lieu of suspending or revoking a license issued under this chapter for violations of Sections 15039, 15041, and 15042, may impose a civil penalty not to exceed five hundred dollars ($500) upon a licensee, if the commissioner determines that such action better serves the purposes of this chapter.
ARTICLE 6. Nonresidents [15044. - 15052.]
As used in this article, “presiding officer” means the Executive Officer of the Office of Administrative Hearings.
The acceptance of a nonresident licensee of any of the rights and privileges conferred upon him or her by this chapter, as evidenced by his or her performance in this state, either personally or through an employee, of any act for which a licensee is required by this chapter, is equivalent to the appointment by that licensee of the presiding officer as his or her true and lawful attorney upon who may be served all lawful process and any disciplinary proceedings conducted upon him or her under this chapter.
The acceptance of such rights and privileges as evidenced by such act shall signify the agreement of the licensee that any such process which is served against him or her in the manner provided in this article shall be of the same legal force and validity as if serviced upon him or her personally in this state.
Service shall be made by leaving a copy of the accusation, together with notice of defense and statement to respondent as described in Section 11505 of the Government Code, with a fee of five dollars ($5) for each licensee to be served, in the hands of the presiding officer or in his or her office in Sacramento. That service shall be sufficient service on the licensees subject to compliance with Section 15048.
A notice of that service and a copy of the accusation, together with the notice of defense and statement to respondent shall forthwith be sent by registered mail by the presiding officer to the licensee at his or her last known address as furnished by the commissioner. Personal service of the notice, copy of the accusation, notice of defense, and statement to respondent upon the licensee whenever found outside this state shall be the equivalent to those mailings.
Proof of compliance with Section 15048 shall be made in the event of service by mail by affidavit of the presiding officer or his or her authorized employee showing such service by mailing, together with the return receipt of the United States Post Office bearing the signature of the licensee or his or her agent. That affidavit or receipt shall be appended to the original accusation on file with the commissioner. In the event of personal service outside this state, such compliance may be proven by the return of any duly constituted public officer qualified to serve process in civil actions in the state or jurisdiction where the licensee is found, showing such service to have been made. Such return shall be appended to the original accusation on file with the commissioner.
The commissioner, or if the proceeding is heard before a hearing officer of the Office of Administrative Hearings, the hearing officer, may order those postponements or continuances and grant those extensions of time as may be necessary to afford the licensee reasonable opportunity to defend the proceedings. In no event shall the licensee have less than 30 days after the date of service of accusation in which to file a notice of defense, nor shall the notice of hearings provided for in Section 11509 of the Government Code or the notice and copy of affidavit referred to in Section 11514 of the Government Code be mailed or delivered less than 20 days prior to the date of hearing, and the time for making a request to cross-examine under Section 11514 of the Government Code shall be not less than 15 days.
The presiding officer shall keep a record of all process served upon him or her pursuant to this article, which records shall show the day and hour of service.
As used in this article, “nonresident” means a person who is not a resident of this state at the time of the performance of the act referred to in Section 15045.
ARTICLE 7. Penal Provisions [15053. - 15053.]
A person who knowingly falsifies the fingerprints or photographs submitted under subdivision (f) of Section 15010 or paragraph (12) of subdivision (b) of Section 15016 is guilty of a felony. A person who violates any of the other provisions of this chapter is guilty of a misdemeanor punishable by a fine not to exceed five hundred dollars ($500) or by imprisonment in a county jail not to exceed one year, or by both that fine and imprisonment.
ARTICLE 8. Expiration and Renewal of Licenses and Cards [15054. - 15062.]
Every license, branch office certificate, and pocket card issued pursuant to this chapter shall expire on the day two years after the last calendar day of the month in which the initial license was issued. Licenses issued prior to January 1, 2011, shall expire on May 31 of each even-numbered year. To renew an unexpired license or certificate, the licensee shall, on or before the date on which it would otherwise expire, apply for renewal on a form prescribed by the commissioner, and pay the renewal fee prescribed by this chapter. On renewal, the evidence of renewal of the license or certificate as the commissioner may prescribe, and renewal pocket cards for the persons mentioned in Section 15022 shall be issued to the licensee.
Notwithstanding Section 15054, the commissioner may establish license periods and renewal dates for all licenses issued pursuant to this chapter so as to distribute the renewal work to permit the most efficient and economic use of personnel and equipment. In such cases, to the extent practical, provisions shall be made for the proration or other adjustment of fees so that no person shall be required to pay more than that which he or she would have been required to pay and no change in license period or renewal date shall be made.
Except as otherwise provided in this article, an expired license or branch office certificate may be renewed at any time within one year after its expiration on the filing of an application for renewal on a form prescribed by the commissioner, and the payment of a renewal fee in effect on the actual renewal date. If the license or certificate is renewed after its expiration, the licensee, as a condition precedent to renewal, shall also pay the delinquency fee prescribed by this chapter. Renewal under this section shall be effective on the date on which the application is filed, on the date on which the renewal fee is paid, or on the date on which the delinquency fee, if any, is paid, whichever occurs last. If so renewed, the license or certificate shall continue in effect through the date provided in Section 15054 that next occurs after the effective date of the renewal, when it shall expire if it is not again renewed.
Renewal of a license or certificate does not prohibit the bringing of disciplinary proceedings for an act committed before the effective date of the renewal.
A suspended license or branch office certificate is subject to expiration and shall be renewed as provided in this article, but renewal of the license does not entitle the licensee, while the license remains suspended and until it is reinstated, to engage in the licensed activity, or any other activity or conduct in violation of the order or judgment by which the license was suspended, and renewal of the branch office certificate does not entitle the licensee, while the certificate remains suspended, and until it is reinstated, to engage in the license activity at the location for which the certificate was issued, or to engage in any other activity or conduct in violation with an order or judgment by which certificate was suspended.
A revoked license or branch officer certificate is subject to expiration as provided in this article, but it may not be renewed. If it is reinstated after its expiration, the licensee, as a condition precedent to its reinstatement, shall pay a reinstatement fee in the amount equal to the renewal fee in effect on the last regular renewal date before the date on which it is reinstated, plus the delinquency fee, if any accrued at the time of its revocation.
A license or branch office certificate which is not renewed within one year after its expiration may not be renewed, restored, reinstated, or reissued thereafter.
The holder of the license or certificate may obtain a new license or certificate only on compliance with all of the provisions of this chapter relating to the issuance of an original license or certificate.
An individual who holds a public insurance adjuster license and who is not exempt under subdivision (b) shall satisfactorily complete a minimum of 24 hours, of which three hours are to be in ethics, of continuing education courses pertinent to the duties and responsibilities of a public insurance adjuster license, to be reported to the insurance commissioner on a biennial basis in conjunction with his or her license renewal cycle.
This section shall not apply to:
A licensee not licensed for one full year prior to the end of the applicable continuing education biennium.
A licensee holding a nonresident public insurance adjuster license who has met the continuing education requirements of his or her designated state or residence.
A person who fails to meet the requirements imposed by Section 15059.1, and who has not been granted an extension of time by the commissioner within which to comply, shall have his or her license placed on inactive status until he or she demonstrates to the satisfaction of the commissioner that he or she has complied with all of the requirements of this article and all other applicable law. A licensee placed on inactive status may not perform the activities described in Section 1631. If a person cannot perform the requirements of this article due to a disability or inactivity due to special circumstances, the commissioner shall provide a procedure for the person to place his or her license on inactive status until the person demonstrates to the satisfaction of the commissioner that he or she has complied with all of the requirements of this article for the period of disability or inactivity.
The amount of fees prescribed by this chapter is that in the following schedule:
The fee for the qualifying examination for an original license is sixty-two dollars ($62).
The application fee for an original branch office certificate is thirty-five dollars ($35).
The fee for an original license application is two hundred forty dollars ($240). If the license will expire less than one year after its issuance, then the fee is an amount equal to 50 percent of the renewal fee in effect on the last regular renewal date before the date on which the license is issued.
The renewal fees are as follows:
For a license as a public insurance adjuster, two hundred forty dollars ($240).
For a branch office certificate, fifty dollars ($50).
The fee for replacing an identification card is twenty-five dollars ($25).
The delinquency fee shall be 50 percent of the renewal fee in effect on the date of expiration.
The fee for reexamination of an applicant is twenty-five dollars ($25).
The department shall receive and account for all moneys derived from the operation of this chapter and, at the end of each month, shall report such money to the Controller and shall pay it to the Treasurer, to the credit of the Insurance Fund.
Application or license fees shall not be refunded pursuant to Section 1751.5.
CHAPTER 3. Emergency Disaster Assessment [16000. - 16032.]
ARTICLE 1. General Provisions [16000. - 16002.]
As used in this chapter, “state of emergency” means a state of emergency or local emergency as defined in Section 8558 of the Government Code.
This chapter shall apply to all insurers insuring real or personal property in the state, and any other classes of insurers that the commissioner determines should participate in emergency disaster preparation and assistance under this chapter.
The purpose and function of the disaster assessment teams is solely to determine the staffing and support needs of insurers in handling anticipated claims.
ARTICLE 2. Emergency Disaster Assessment [16010. - 16016.]
In order to ensure an adequate response to disasters, the Legislature finds it necessary and appropriate to establish insurance disaster assessment teams.
The commissioner shall establish insurance disaster assessment teams in accordance with the provisions of this chapter.
Each team shall consist of not more than seven insurance representatives. Insurers doing business in this state that want to participate in the insurance disaster assessment teams shall submit the names of qualified representatives to the commissioner.
The commissioner may establish one or more insurance disaster assessment teams, and may provide for different teams for different locations and different types of disasters.
The commissioner may assign a representative of the commissioner to accompany the team or teams. The representative shall complete the appropriate Standardized Emergency Management Systems training.
Upon the occurrence of any state of emergency involving property damage, the commissioner may require any insurance disaster assessment team to assemble for the purpose of assessing the extent, type, and degree of insured damage involved in the emergency.
State and local law enforcement officials shall permit an insurance disaster assessment team to have access to any disaster area as soon as determined safe and practical by the incident commander. The commissioner shall be responsible for the coordination and dispatch of insurance disaster assessment teams to disaster areas.
The insurance disaster assessment team may use any of the following techniques to assess the amount of damage:
Ground surveying on foot or vehicle, or aerial surveying if necessary.
Analysis of data provided by others.
The insurance disaster assessment team shall make a general assessment of the amount and types of damage suffered in an attempt to identify the overall scope of damage.
The insurance disaster assessment team shall compile its findings into a report and submit the report to the commissioner as soon as practical, but not more than five days after completion of the assessment unless authorized by the commissioner. The report shall be developed, in accordance with procedures established by the commissioner. The information shall be disseminated publicly, and shall be made available to local and state disaster organizations, and to the commissioner for distribution to insurers. These findings and information shall not be binding on any insured as to coverage.
ARTICLE 3. Adjuster Identification [16020. - 16022.]
The commissioner, in consultation with the Office of Emergency Services and other emergency service agencies, shall establish a method for identification of representatives of insurers.
In accordance with the methods established under Section 16020, the commissioner shall issue identification badges to each insurer insuring property in the state. The insurer shall be responsible for the distribution of the identification badges to appropriate insurer representatives. The identification badges shall permit access to disaster areas as soon as determined safe and practical by the incident commander.
The purpose of the identification badges is to enable the incident commander and state and local law enforcement officials to identify the representatives of insurers for purposes of access to disaster areas, and the badges shall not be used as identification for other purposes. The badges shall include in bold lettering larger than the other identifying information a statement that the bearer is not a state employee or public official, and does not possess any governmental authority.
The commissioner shall distribute identification badges to insurance adjusters for the purpose of identifying persons who should be given access to disaster areas. Every insurer shall maintain a list of adjusters that have been assigned to work in the disaster area.
ARTICLE 4. Coordination of Emergency Operations [16030. - 16032.]
The commissioner, in cooperation with insurers, the Office of Emergency Services, and other emergency service agencies, shall establish procedures for the coordination of efforts between insurers and their representatives and those of emergency response agencies.
The commissioner shall assign a representative of the commissioner to work within the state’s regional emergency operations centers. The representative shall complete the appropriate Standardized Emergency Management Systems training.
All insurance disaster assessment team members shall complete the appropriate Standardized Emergency Management Systems training.
Any privately owned or operated resources hired by an insurer for the purpose of protecting structures endangered by fire or performing firefighting duties shall report to the incident commander or his or her designee immediately upon arriving at the site of a fire. Those resources must obey all directions, including evacuation orders, given by the incident commander or his or her designee.