California Assembly Bill AB2064 Introduced / Bill

 BILL NUMBER: AB 2064INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Cooley FEBRUARY 20, 2014 An act to amend Sections 10081, 10085, 10086, 10089.6, and 10089.26 of, to add Sections 10081.1 and 10089.42 to, and to repeal and add Sections 10089.28 and 10089.41 of, the Insurance Code, relating to earthquake insurance. LEGISLATIVE COUNSEL'S DIGEST AB 2064, as introduced, Cooley. Earthquake insurance: mandatory offer. Existing law prohibits a policy of residential property insurance from being issued or delivered or initially renewed in this state unless the named insured is offered coverage for loss or damage caused by an earthquake, and, if the offer of earthquake coverage is accepted, requires the insurer to provide certain disclosures based on whether the policy was issued by the California Earthquake Authority (CEA). Existing law created the CEA, to be administered under the authority of the Insurance Commissioner, and authorized it to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance in the manner provided. The CEA has no authority to transact any other type of insurance business. The CEA's operating expenses are capped at 3% of its premium income. This bill would revise and recast these provisions by instead requiring insurers who are members of the CEA to provide their insureds with specified disclosures with regard to coverage of losses, the CEA's liability limitations, and premiums concurrent with the issuance or renewal by the CEA of a residential earthquake insurance policy. The bill would also prohibit member insurers from issuing, delivering, or renewing a policy of residential property insurance in this state, unless the named insured is provided notice of the availability of residential earthquake insurance from the CEA within 60 days of issuance or renewal of the insured's residential insurance policy, as provided. The CEA would be required to prepare the forms of notice for use by member insurers and submit the forms to the commissioner for approval. The insurers would be authorized to provide the notice electronically or by mail. The bill would provide that member insurers that fulfil the specified notice requirements would be in compliance with the earthquake insurance provisions applicable to the issuance, delivery, and renewal of a policy of residential property insurance. This bill would increase the cap on the CEA's operating expenses to not more than 5% of its premium income. The bill would also require that a CEA residential earthquake insurance policy be effective upon receipt by the member insurer of both the completed CEA-approved application for the policy, signed by the applicant, and either the annual premium or the first installment of the annual premium. This bill would also make conforming changes. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 10081 of the Insurance Code is amended to read: 10081.  No   Except as provided in Section 10081.1, a  policy of residential property insurance  may   shall not  be issued or delivered or, with respect to policies in effect on the effective date of this chapter, initially renewed in this state by any insurer unless the named insured is offered coverage for loss or damage caused by the peril of earthquake as provided in this chapter. That coverage may be provided in the policy of residential property insurance itself, either by specific policy provision or endorsement, or in a separate policy or certificate of insurance  which   that  specifically provides coverage for loss or damage caused by the peril of earthquake alone or in combination with other perils. SEC. 2. Section 10081.1 is added to the Insurance Code, to read: 10081.1. Section 10081 does not apply to any insurer that participates in the California Earthquake Authority pursuant to Chapter 8.6 (commencing with Section 10089.5). Each insurer participating in the authority shall provide notice to all of its residential property insurance policyholders of the availability of earthquake insurance coverage in the manner required by Section 10089.42. SEC. 3. Section 10085 of the Insurance Code is amended to read: 10085. If the insurer establishes proof of mailing or delivery of the  required  offer  that is required pursuant to Section 10081  and the offer of earthquake coverage is not accepted by the named insured within 30 days from the date of mailing or delivery of the offer, there shall be a conclusive presumption that the named insured elected not to accept the coverage. An election, actual or presumed, by any named insured shall be binding upon any other person insured or any other party having an insurable interest in the insured property. SEC. 4. Section 10086 of the Insurance Code, as amended by Section 14 of Chapter 369 of the Statutes of 2013, is amended to read: 10086. (a) If an offer of earthquake coverage  , made pursuant to Section 10081,  is accepted, the coverage shall be continued at the applicable rates and conditions for the policy term, provided the policy of residential property insurance is not terminated by the named insured or insurer. (1) At any renewal, an insurer may modify the terms and conditions of an existing policy, rider, or endorsement providing coverage against loss or damage caused by the peril of earthquake if the modified terms and conditions provide the minimum coverages required by Section 10089. (2) An insurer that modifies the terms and conditions of an existing policy, rider, or endorsement shall provide the insured with the renewal notice in a stand-alone disclosure document stating the changes in the terms and conditions of the insured's existing policy, rider, or endorsement. The offer of renewal may be made electronically pursuant to Section 38.5. Proof of mailing of the disclosure document by first-class mail to a named insured at the mailing address shown on the policy or application, or proof consistent with Section 38.5 that the offer of renewal of coverage was sent to the named insured or applicant by electronic transmission, creates a conclusive presumption that the disclosure document was provided. The disclosure shall include the following statement in 14-point boldface type: "THE COVERAGE IN THE POLICY WE ARE OFFERING YOU WITH THIS RENEWAL HAS BEEN REDUCED, AND SUBSTANTIALLY DIFFERS FROM THE COVERAGES PROVIDED BY YOUR HOMEOWNERS' POLICY. INSURANCE COMPANIES ARE ALLOWED TO RENEW EARTHQUAKE INSURANCE POLICIES WITH COVERAGE THAT IS REDUCED FROM THE COVERAGE YOU PREVIOUSLY PURCHASED. YOU MAY REQUEST A SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR TO MAKING A DECISION TO ACCEPT THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14 DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE COPY SHALL NOT CHANGE OR EXTEND THE POLICY EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE. A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS NOTICE." The commissioner shall approve the form of the summary at the time he or she approves the policy. The summary shall include the information contained in subdivision (a) of Section 10083, and may be included with the renewal notice in standard type. The commissioner may approve substantially similar disclosure forms if necessary to accurately disclose relevant information to the policyholder. The commissioner may also approve disclosure forms substantially similar to the disclosure statement required by Section 10083 if necessary to accurately disclose relevant information to the policyholder.  (3) If the earthquake coverage is provided by a policy issued by the California Earthquake Authority, the following disclosure shall be provided in 14-point boldface type:   CALIFORNIA EARTHQUAKE AUTHORITY POLICY DISCLOSURE   THIS POLICY IS BEING PURCHASED FROM THE CALIFORNIA EARTHQUAKE AUTHORITY ("CEA"). THE COVERAGE IN THIS CEA POLICY SUBSTANTIALLY DIFFERS FROM THE COVERAGES PROVIDED IN YOUR HOMEOWNER'S POLICY. THE CEA IS NOT PART OF OR ASSOCIATED WITH YOUR HOMEOWNER'S INSURANCE COMPANY. IF LOSSES AS A RESULT OF AN EARTHQUAKE OR A SERIES OF EARTHQUAKES EXCEED THE AVAILABLE RESOURCES OF THE CEA, THIS POLICY IS NOT COVERED BY THE CALIFORNIA INSURANCE GUARANTY ASSOCIATION. THEREFORE, THE CALIFORNIA INSURANCE GUARANTY ASSOCIATION WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF THE CEA BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED. IN ADDITION, YOUR CEA POLICY MAY BE SUBJECT TO FUTURE SURCHARGES OF THE POLICY PREMIUM IN CERTAIN CASES WHERE AN EARTHQUAKE OR SERIES OF EARTHQUAKES HAS EXCEEDED AVAILABLE RESOURCES TO PAY CLAIMS. IN THAT CASE, THIS MEANS THAT IN ADDITION TO THE ANNUAL PREMIUM, YOU MAY BE CHARGED UP TO AN ADDITIONAL 20% OF THE PREMIUM.  (b) If the offer  of earthquake coverage made pursuant to Section 10081  is not accepted, the insurer or any affiliated insurer shall be required on an every other year basis to offer earthquake coverage in connection with any continuation, renewal, or reinstatement of the policy following any lapse thereof, or with respect to any other policy that extends, changes, supersedes, or replaces the policy of residential property insurance. The offer may be made electronically pursuant to Section 38.5. (c) Nothing in this section shall preclude the named insured from terminating the earthquake coverage at any time. (d) This section shall remain in effect only until January 1, 2019, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2019, deletes or extends that date. SEC. 5. Section 10086 of the Insurance Code, as added by Section 15 of Chapter 369 of the Statutes of 2013, is amended to read: 10086. (a) If an offer of earthquake coverage  , made pursuant to Section 10081,  is accepted, the coverage shall be continued at the applicable rates and conditions for the policy term, provided the policy of residential property insurance is not terminated by the named insured or insurer. (1) At any renewal, an insurer may modify the terms and conditions of an existing policy, rider, or endorsement providing coverage against loss or damage caused by the peril of earthquake if the modified terms and conditions provide the minimum coverages required by Section 10089. (2) An insurer that modifies the terms and conditions of an existing policy, rider, or endorsement shall provide the insured with the renewal notice in a stand-alone disclosure document stating the changes in the terms and conditions of the insured's existing policy, rider, or endorsement. Proof of mailing of the disclosure document by first-class mail to a named insured at the mailing address shown on the policy or application creates a conclusive presumption that the disclosure document was provided. The disclosure shall include the following statement in 14-point boldface type: "THE COVERAGE IN THE POLICY WE ARE OFFERING YOU WITH THIS RENEWAL HAS BEEN REDUCED, AND SUBSTANTIALLY DIFFERS FROM THE COVERAGES PROVIDED BY YOUR HOMEOWNERS' POLICY. INSURANCE COMPANIES ARE ALLOWED TO RENEW EARTHQUAKE INSURANCE POLICIES WITH COVERAGE THAT IS REDUCED FROM THE COVERAGE YOU PREVIOUSLY PURCHASED. YOU MAY REQUEST A SAMPLE COPY OF THIS NEW POLICY TO REVIEW PRIOR TO MAKING A DECISION TO ACCEPT THIS RENEWAL, AND WE WILL MAIL OR DELIVER IT TO YOU WITHIN 14 DAYS OF YOUR REQUEST. A REQUEST FOR THE SAMPLE COPY SHALL NOT CHANGE OR EXTEND THE POLICY EXPIRATION DATE SPECIFIED IN THE RENEWAL NOTICE. A SUMMARY OF THE CHANGES IS INCLUDED WITH THIS NOTICE." The commissioner shall approve the form of the summary at the time he or she approves the policy. The summary shall include the information contained in subdivision (a) of Section 10083, and may be included with the renewal notice in standard type. The commissioner may approve substantially similar disclosure forms if necessary to accurately disclose relevant information to the policyholder. The commissioner may also approve disclosure forms substantially similar to the disclosure statement required by Section 10083 if necessary to accurately disclose relevant information to the policyholder.  (3) If the earthquake coverage is provided by a policy issued by the California Earthquake Authority, the following disclosure shall be provided in 14-point boldface type:   CALIFORNIA EARTHQUAKE AUTHORITY POLICY DISCLOSURE   THIS POLICY IS BEING PURCHASED FROM THE CALIFORNIA EARTHQUAKE AUTHORITY ("CEA"). THE COVERAGE IN THIS CEA POLICY SUBSTANTIALLY DIFFERS FROM THE COVERAGES PROVIDED IN YOUR HOMEOWNER'S POLICY. THE CEA IS NOT PART OF OR ASSOCIATED WITH YOUR HOMEOWNER'S INSURANCE COMPANY. IF LOSSES AS A RESULT OF AN EARTHQUAKE OR A SERIES OF EARTHQUAKES EXCEED THE AVAILABLE RESOURCES OF THE CEA, THIS POLICY IS NOT COVERED BY THE CALIFORNIA INSURANCE GUARANTY ASSOCIATION. THEREFORE, THE CALIFORNIA INSURANCE GUARANTY ASSOCIATION WILL NOT PAY YOUR CLAIMS OR PROTECT YOUR ASSETS IF THE CEA BECOMES INSOLVENT AND IS UNABLE TO MAKE PAYMENTS AS PROMISED. IN ADDITION, YOUR CEA POLICY MAY BE SUBJECT TO FUTURE SURCHARGES OF THE POLICY PREMIUM IN CERTAIN CASES WHERE AN EARTHQUAKE OR SERIES OF EARTHQUAKES HAS EXCEEDED AVAILABLE RESOURCES TO PAY CLAIMS. IN THAT CASE, THIS MEANS THAT IN ADDITION TO THE ANNUAL PREMIUM, YOU MAY BE CHARGED UP TO AN ADDITIONAL 20% OF THE PREMIUM.  (b) If the offer  of earthquake coverage made pursuant to Section 10081  is not accepted, the insurer or any affiliated insurer shall be required on an every other year basis to offer earthquake coverage in connection with any continuation, renewal, or reinstatement of the policy following any lapse thereof, or with respect to any other policy that extends, changes, supersedes, or replaces the policy of residential property insurance. (c) Nothing in this section shall preclude the named insured from terminating the earthquake coverage at any time. (d) This section shall become operative on January 1, 2019. SEC. 6. Section 10089.6 of the Insurance Code is amended to read: 10089.6. (a) There is hereby created the California Earthquake Authority, which shall be administered under the authority of the commissioner and have the powers conferred by this chapter. The authority shall be authorized to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance in the manner set forth in Sections 10089.26, 10089.27, and 10089.28. The authority shall have no authority to transact any other type of insurance business. (b) (1) The investments of the authority shall be limited to those securities eligible under Section 16430 of the Government Code. (2) The rights, obligations, and duties owed by the authority to its insureds, beneficiaries of insureds, and applicants for insurance shall be the same as the rights, obligations, and duties owed by insurers to its insureds, beneficiaries of insureds and applicants for insurance under common law, regulations, and statutes. The authority shall be liable to its insureds, beneficiaries of insureds, and applicants for insurance as an insurer is liable to its insureds, beneficiaries of insureds, and applicants for insurance under common law, regulations, and statutes. (c) The operating expenses of the authority shall be capped at not more than  3 percent   5 percent  of the premium income received by the authority. The funds shall be available to pay any advocacy fees awarded in a proceeding under subdivision (c) of Section 10089.11. SEC. 7. Section 10089.26 of the Insurance Code is amended to read: 10089.26. (a)  (1)    The authority shall issue policies of basic residential earthquake insurance, including earthquake loss assessment policies for individual condominium unit properties, to any owner of a qualifying residential property, as long as the owner has secured a policy of residential property insurance from a participating insurer.  (2) A policy of residential earthquake insurance written by the authority shall be effective upon receipt by the participating insurer of both of the following:   (A) The completed authority-approved application for the policy, signed by the applicant.   (B) Either the annual premium or the first installment of the annual premium.   (1)   (b)  For purposes of this section, earthquake loss assessment coverage shall be issued in a minimum amount of fifty thousand dollars ($50,000) for individual condominium units valued at more than one hundred thirty-five thousand dollars ($135,000). Earthquake loss assessment coverage shall be issued in a minimum amount of twenty-five thousand dollars ($25,000) for individual condominium units of one hundred thirty-five thousand dollars ($135,000) in value or less. The value of the land shall be excluded when determining the value of the condominium, as it relates to the earthquake loss assessment coverage offered by the authority.  (2)   (c)  The panel shall submit to the board, and the board shall approve, rates for earthquake loss assessment coverage that reasonably balance the earthquake loss assessment coverages offered and the potential exposure to earthquake loss resulting from an earthquake loss assessment policy as compared to the coverages offered and the potential exposure to earthquake loss resulting from residential property other than individual condominium policies.  It   (d)     It  is the intent of the Legislature, to the extent practicable, that rates charged by the authority to condominium loss assessment policyholders and residential property owner policyholders are treated equitably, and that a proportionate share of premiums is paid for potential exposure to loss, to the authority.  (b)   (e)  Nothing in this section shall prohibit a participating or nonparticipating insurer from offering a condominium earthquake loss assessment policy for different amounts of coverage other than those offered by the authority. SEC. 8. Section 10089.28 of the Insurance Code is repealed.  10089.28. (a) All policies of residential earthquake insurance provided by the authority shall be written by the authority. Authority policies shall be marketed and policyholders serviced by the participating insurer that writes the underlying policy of residential property insurance, and participating insurers shall be reasonably compensated for the claims and policyholder services they provide on behalf of the authority. Authority services may be performed on behalf of the authority in any reasonable manner by the participating insurer that is in compliance with statutory, regulatory, and case laws regarding claims handling practices; provided, however, where the authority has promulgated specific procedures to govern its operations, the participating insurer shall conform its practices to those procedures. The authority procedures shall comply with statutory, regulatory, and case law governing claims handling practices. Nothing in this provision shall be deemed or construed to affect any duty or liability of the authority or participating carrier as set forth in paragraphs (2) and (3) of subdivision (e) of Section 10089.7. (b) The participating insurer shall notify each of its insureds that the authority is the provider of earthquake coverage under the policy. The form and method of notice shall meet standards established by the commissioner by regulation. The authority shall provide to participating insurers appropriate applications and forms and shall maintain records of all policies written, moneys received, and claims paid. (c) The duty of an agent or broker to investigate the financial condition of the authority before placement of insurance shall be the same as the duty of an agent or broker to investigate the financial condition of an admitted insurer before placement of a policy of insurance.  SEC. 9. Section 10089.28 is added to the Insurance Code, to read: 10089.28. (a) All policies of residential earthquake insurance provided by the authority shall be written by the authority. Authority policies shall be marketed and policyholders serviced by the participating insurer that writes the underlying policy of residential property insurance, and participating insurers shall be reasonably compensated for the claims and policyholder services they provide on behalf of the authority. Authority services may be performed on behalf of the authority in any reasonable manner by the participating insurer that is in compliance with statutory, regulatory, and case laws regarding claims handling practices; provided, however, where the authority has promulgated specific procedures to govern its operations, the participating insurer shall conform its practices to those procedures. The authority procedures shall comply with statutory, regulatory, and case law governing claims handling practices. Nothing in this provision shall be deemed or construed to affect any duty or liability of the authority or participating carrier as set forth in paragraphs (2) and (3) of subdivision (e) of Section 10089.7. (b) Concurrent with the issuance or renewal by the authority of a residential earthquake insurance policy, the participating insurer shall provide the following disclosure to the insured in 14-point boldface type: "California Earthquake Authority Policy Disclosure You have purchased a California Earthquake Authority (CEA) earthquake insurance policy, which can help you cover the cost of repairing damage to your property and possessions caused by an earthquake. The CEA is not part of your homeowners' insurance company. Please keep in mind these important things about your CEA insurance policy: 1. CEA policy coverages are different from the coverages provided in your homeowners insurance policy. For example, this policy does not cover earthquake damage to swimming pools, and it may provide more limited coverage for chimneys, outbuildings, and masonry fences. These are examples of possible differences between your CEA policy and your homeowners' policy, and you should consult your CEA policy to understand the types of losses that are limited or excluded and those that are covered. 2. If CEA's liability for earthquake losses exceeds the CEA's available resources the CEA may reduce its payment to you or pay you in installments. This policy is not covered by the California Insurance Guarantee Association and therefore the California Insurance Guarantee Association will not pay your claims if the CEA becomes insolvent and is unable to make payments as promised. 3. In certain cases, your CEA policy premium may be subject to future surcharges if the CEA's obligations to pay earthquake losses rise to a pre-defined level. In that case, in addition to your annual premium you may be charged up to an additional 20% of that premium." (c) The authority shall provide to participating insurers appropriate applications and forms and shall maintain records of all policies written, moneys received, and claims paid. (d) The duty of an agent or broker to investigate the financial condition of the authority before placement of insurance shall be the same as the duty of an agent or broker to investigate the financial condition of an admitted insurer before placement of a policy of insurance. SEC. 10. Section 10089.41 of the Insurance Code is repealed.  10089.41. (a) The offer of an authority policy by a participating insurer shall constitute a mode of insurer compliance with Chapter 8.5 (commencing with Section 10081) of Part 1 of Division 2, and as set forth in Section 10084. (b) If the authority ceases operation for any reason, including, but not limited to, repeal of this chapter or insolvency of the authority, participating carriers shall no longer be able to satisfy the requirement to offer residential earthquake insurance coverage by placement within the authority. The commissioner shall adopt a schedule in accordance with subdivision (a) of Section 10089.35 to establish when participating carriers shall be required to offer coverage by another mode authorized pursuant to Chapter 8.5 (commencing with Section 10081) of Part 1 of Division 2 to those policyholders for whom they write the underlying policies of residential property insurance. (c) If the authority ceases operation pursuant to a statute enacted by the Legislature, that statute shall determine the duty of participating insurers to provide earthquake insurance pursuant to Chapter 8.5 (commencing with Section 10081). Chapter 8.5 (commencing with Section 10081) shall remain in effect unless specifically repealed by that statute.  SEC. 11. Section 10089.41 is added to the Insurance Code, to read: 10089.41. (a) Compliance with the provisions of Section 10089.42 by a participating insurer shall also constitute compliance by that participating insurer with Chapter 8.5 (commencing with Section 10081). (b) If the authority ceases operation for any reason, including, but not limited to, the repeal of this chapter or insolvency of the authority, participating carriers shall be required to offer residential earthquake insurance coverage pursuant to Section 10081. The commissioner shall adopt a schedule in accordance with subdivision (a) of Section 10089.35 to establish when participating carriers shall be required to offer coverage pursuant to Section 10081 to those policyholders for whom they write the underlying policies of residential property insurance. (c) If the authority ceases operation pursuant to a statute enacted by the Legislature, that statute shall determine the duty of participating insurers to provide earthquake insurance pursuant to Chapter 8.5 (commencing with Section 10081). Chapter 8.5 (commencing with Section 10081) shall remain in effect unless specifically repealed by that statute. SEC. 12. Section 10089.42 is added to the Insurance Code, to read: 10089.42. (a) A policy of residential property insurance shall not be issued, delivered, or renewed in this state, by any participating insurer unless the named insured is provided notice of the availability of residential earthquake insurance from the authority within 60 days of issuance or renewal of the insured's residential insurance policy. The notice required by this subdivision shall do all of the following: (1) Notify the insured that the residential property insurance policy does not provide coverage for loss or damage caused by the peril of earthquake. (2) Disclose that the insured can apply at any time through the participating insurer for insurance issued by the authority that covers loss or damage caused by the peril of earthquake. (3) Notify the insured that a policy of residential earthquake insurance from the authority provides different protection, and in some cases less protection, than the residential property insurance policy. (4) Inform the insured of the amounts of premium and deductible applicable to base-limits authority earthquake insurance coverage. (5) Direct the insured to an Internet Web site maintained by the participating insurer or by the authority, or jointly by both, where the insured can obtain premium estimates and information on additional earthquake insurance coverages, coverage limits, deductibles, and other policy and coverage features for a residential earthquake insurance policy from the authority. (6) Direct the insured to an Internet Web site or toll-free telephone number, or both, where the insured can be referred to or speak with a representative or broker-agent of the participating insurer who can facilitate the preparation and receipt of an application for residential earthquake insurance written by the authority. (b) The participating insurer may, but shall not be required to, provide notice under this section to any insured who has purchased through that participating insurer, and has in force, a residential earthquake insurance policy written by the authority. (c) The authority shall prepare forms of notice for use by participating insurers and submit them to the commissioner for approval. The commissioner shall approve a form of notice if it accurately discloses the information required by subdivision (a). Forms of notice are not required to be reproduced in identical form to the disclosures and advice set forth in subdivision (a), and they may contain provisions additional to those set forth in subdivision (a) if the additional provisions do not conflict with this section. (d) (1) The notice required by this section may be made electronically pursuant to Section 38.5. (2) Proof of mailing of any notice required by this section by first-class mail to a named insured at the mailing address shown on the policy or application, or proof consistent with Section 38.5 that the notice was sent to the named insured or applicant by electronic transmission, creates a conclusive presumption that the notice required by this section was provided.