Bill Text: CA SB1192 | 2019-2020 | Regular Session | Amended


Bill Title: Firefighters’, police officers’, or peace officers’ benefit and relief associations.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced) 2020-03-25 - From committee with author's amendments. Read second time and amended. Re-referred to Com. on RLS. [SB1192 Detail]

Download: California-2019-SB1192-Amended.html

Amended  IN  Senate  March 25, 2020

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 1192


Introduced by Senator Bradford

February 20, 2020


An act to amend Section 2051.5 of 11400 of, to amend the heading of Chapter 10A (commencing with Section 11400) of Part 2 of Division 2 of, to add the heading of Article 1 (commencing with Section 11400) to Chapter 10A of Part 2 of Division 2 of, and to add Article 2 (commencing with Section 11410) to Chapter 10A of Part 2 of Division 2 of, the Insurance Code, relating to insurance.


LEGISLATIVE COUNSEL'S DIGEST


SB 1192, as amended, Bradford. Fire insurance: indemnity. Firefighters’, police officers’, or peace officers’ benefit and relief associations.
Existing law generally provides for the regulation of insurers by the Department of Insurance pursuant to laws set forth in the Insurance Code. Existing law authorizes the Insurance Commissioner to make certain examinations, investigations, and prosecutions and, upon making a determination of the existence of certain conduct, conditions, or grounds, to issue orders reasonably necessary to correct, eliminate, or remedy the conduct, conditions, or grounds. Existing law also prohibits insurers from engaging in unfair or deceptive acts or practices, including advertising insurance that an insurer will not sell. A violation of that prohibition is a misdemeanor.
Existing law exempts from the requirements set forth in the Insurance Code firefighters’, police officers’, and peace officers’ benefit and relief associations that comply with specified criteria, including, among other things, a requirement that the membership consist solely of certain state or local peace or law enforcement officers, members of police or fire departments, and emergency medical personnel employed by fire departments, as specified.
This bill would impose reporting, reserve, and disclosure requirements upon those associations described above that offer long-term benefits, as defined. The bill would authorize the commissioner to examine the operations, affairs, transactions, conduct, and financial condition of an association, and to carry out other enforcement duties with respect to these associations. The bill would make these associations subject to the prohibitions against unfair or deceptive acts or practices. By expanding the scope of a crime, the bill would impose a state-mandated local program.
This bill would require an association, on an annual basis, to submit to the commissioner the opinion of a qualified actuary as to whether the reserves and related actuarial items that support the policies or contracts issued are expected to be adequate to satisfy contractual provisions, are based on reasonable assumptions, and are based on specified actuarial standards. The bill would recognize that information submitted by a company pursuant to those provisions and in the possession or control of the department as proprietary and containing trade secrets. The bill would require that information to be confidential and privileged, exempt from disclosure by the commissioner pursuant to the California Public Records Act, and not subject to subpoena or discovery from the commissioner or admissible into evidence in a private civil action if obtained from the commissioner.
This bill would require an association to pay an annual regulatory fee of $466, which would be used by the department for reasonable administrative costs necessary to regulate the association and to enforce the requirements of the bill. The bill would also require an association to pay an annual filing fee of $462, which would be used by the department to cover the reasonable administrative costs of reviewing and maintaining the financial information required to be submitted to the department by an association.
The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.
This bill would make legislative findings to that effect.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law defines the measure of indemnity for a loss under an open fire insurance policy and specifies time limits under which an insured must collect the full replacement cost of the loss. In the event of a total loss of an insured structure, existing law prohibits a fire insurance policy issued or delivered in this state from containing a provision that limits or denies payment of the building code upgrade cost or the replacement cost on the basis that the insured has decided to rebuild at a new location or to purchase a built home at a new location.

This bill would make technical, nonsubstantive changes to those provisions.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NOYES  

The people of the State of California do enact as follows:


SECTION 1.

 The heading of Chapter 10A (commencing with Section 11400) of Part 2 of Division 2 of the Insurance Code is amended to read:
CHAPTER  10A. Firemen's, Policemen's,or Firefighters’, Police Officers’, or Peace Officers’ Benefit and Relief Associations

SEC. 2.

 The heading of Article 1 (commencing with Section 11400) is added to Chapter 10A of Part 2 of Division 2 of the Insurance Code, to read:
Article  1. General Provisions

SEC. 3.

 Section 11400 of the Insurance Code is amended to read:

11400.
 Firemen's, policemen’s Firefighters’, police officers’, or peace officers’ benefit and relief associations now existing, or which that may be formed hereafter for the purpose of aiding their members or dependents of their members in case of sickness, accident, distress, or death, shall be subject to the provisions of this chapter. While such an this chapter, to the extent not preempted by the federal Employee Retirement Income Security Act of 1974 (ERISA). An association that operates strictly in accordance with this chapter, it shall not be subject to any other provision of this code nor or to any law of this State state relating to insurance, whether now existing or hereafter enacted, except when expressly designated therein. designated in that law.

SEC. 4.

 Article 2 (commencing with Section 11410) is added to Chapter 10A of Part 2 of Division 2 of the Insurance Code, to read:
Article  2. Long-Term Benefits

11410.
 For purposes of this chapter, “long-term benefits” means scheduled member benefits that are eligible to be paid for a period exceeding one year in duration and that are not otherwise subject to the federal Employee Retirement Income Security Act of 1974 (ERISA). These benefits include, without limitation, a benefit providing coverage for long-term disability or disability income insurance, as defined in subdivision (i) of Section 799.01, or long-term care insurance, as defined in Section 10231.2, or any similar coverage or benefit providing for payments that may last for a period longer than one year.

11410.5.
 (a) This article applies to an association that offers long-term benefits.
(b) Notwithstanding subdivision (a), an association that arranges at all times to have all long-term benefits provided completely and continuously by an insurer admitted in this state for the class of benefits offered is not subject to this article.

11411.
 An association subject to this article shall do all of the following:
(a) Operate in accordance with sound actuarial principles and be able to meet its obligation to provide the benefits that it promises to its members.
(b) Establish and maintain appropriate loss and loss-adjustment reserves determined by sound actuarial principles published by the American Academy of Actuaries and the Actuarial Standards Board.
(c) (1) Establish and maintain an active life reserve that shall place a sound value on its liabilities under all policies and that shall not be less than the reserve according to the standards set forth in regulations adopted by the commissioner and, in no event, less in the aggregate than the pro rata gross unearned premium reserve for the policies. An associations’ reserves and liabilities, other than for specific claim losses, shall meet the requirements of paragraphs (2), (3), and (4).
(2) An association that issues one or more of the following three types of policies shall maintain a reserve not less than the minimum reserve required under this subdivision:
(A) Policies that are guaranteed renewable for life or to a specified age at guaranteed premium rates.
(B) Policies that are guaranteed renewable for life or to a specified age but under which the association has reserved the right to change the scale of premiums.
(C) Policies, other than those described in paragraph (A), in which the insurer has reserved the right to cancel or to refuse renewal for one or more reasons, but has agreed implicitly or explicitly that, prior to a specified time or age, it will not cancel or decline renewal solely because of deterioration of health after issuance.
(3) The minimum reserve required by this subdivision shall be an amount computed employing the following assumptions:
(A) For mortality and interest, the assumptions specified in Article 3 (commencing with Section 10478) and Article 3a (commencing with Section 10489.1) of Chapter 5, for the determination of minimum policy reserve liabilities for ordinary life insurance.
(B) For morbidity or other contingency, any tables adopted by the National Association of Insurance Commissioners, or its successor, that are approved by regulations adopted by the commissioner for use in determining the minimum standard of valuation for use in valuing individual disability insurance policies, or any modification of the tables approved by the commissioner, or any tables based upon an individual insurer’s own experience and approved by the commissioner.
(4) For each benefit, an association shall establish reserves that place a sound value on the liabilities for the benefit.
(5) The minimum unearned premium reserve shall be the pro rata unearned portion of gross premiums in force and may be reduced by premiums paid or credited for risks reinsured in solvent associations.
(6) Provided the reserve on all policies to which the method or basis is applied is not less in the aggregate than the required amount determined according to the applicable standards specified in paragraph (3), an association may use any reasonable assumptions as to the interest rate, mortality rates, or the rates of morbidity or other contingency, and may introduce an assumption as to the voluntary termination of policies. Also, subject to the preceding conditions, the association may employ methods other than the methods stated in paragraph (3) in determining a sound value of its liabilities the policies, including, but not limited to, any of the following:
(A) The use of midterminal reserves in addition to either the gross pro rata unearned premium reserves described in this subdivision or the net pro rata unearned premium reserve.
(B) The use of approximations, including those involving age groupings, groupings of several years of issue, and average amounts of indemnity.
(d) Maintain a contingency reserve of not less than 20 percent of the greater of the past 12 months’ premium or the expected annual premium for the next 12 months.
(e) Hold all reserves and other funds for the payment and administration of benefits provided pursuant to this article in trust, to be used for the exclusive purpose for which they were intended, which may include necessary and reasonable administrative costs.

11411.3.
 (a) An association shall maintain at least 25 percent of the contingency reserve required by subdivision (d) of Section 11411 in investments specified in Article 3 (commencing with Section 1170) of Chapter 2 of Part 2 of Division 1 and in Section 1192.5.
(b) The balance of the assets of the association in an amount equal to the reserves may be invested in assets permissible for investment by multiple employer welfare arrangements pursuant to subdivision (b) of Section 742.245.
(c) The commissioner may, for good cause and after a hearing, by written order, require the disposal of an investment if it was not made in compliance with this section or if the association has failed to maintain cash or liquid assets sufficient to meet its claims and any other contractual obligations.

11411.5.
 An association subject to this article shall not avoid the applicability of this article by making statements in any contract for benefits, or by any other means, to the effect that payment of benefits is contingent upon the availability of assets, moneys, or other financial resources sufficient to make the payment.

11412.
 The commissioner or a person designated by the commissioner shall have the power to examine the operations, affairs, transactions, conduct, and financial condition of an association, and for that purpose shall have access to all books, records, and documents that relate to the business of the association that is regulated by this article and may examine under oath its trustees, officers, agents, and employees in relation to the operations, affairs, transactions, conduct, and condition of the association. If the commissioner determines that the association’s operations, affairs, transactions, conduct, or financial condition do not comply with the requirements of this chapter, the commissioner may apply any remedies authorized by this code. Examinations may be conducted at the expense of either the association or the department, at the commissioner’s request.

11412.5.
 (a) Upon request of the commissioner, and at intervals as prescribed by the commissioner, an association that appears to the commissioner to require immediate regulatory attention shall provide to the commissioner supplemental accounting, financial, and actuarial information. If the information supplied or likely to be supplied is not satisfactory or acceptable to the commissioner, or, if the person who would be responsible for the preparation of that information has previously provided information that was not satisfactory or acceptable to the commissioner, the commissioner may request that an association select and retain an independent certified public accountant, a certified public accountant corporation, an actuarial corporation, or an independent actuary satisfactory to the commissioner, if the association has not already retained experts of this type. The commissioner may select or retain an independent certified public accountant, a certified public accountant corporation, an actuarial corporation, or an independent actuary, if the association does not within a reasonable time make the selection as requested by the commissioner. If the information is prepared by an independent certified public accountant or independent actuary, or other independent professional financial corporation or person, the corporation or person shall examine and render an opinion upon that supplemental information.
(b) Sections 925.1 to 925.4, inclusive, apply to all proceedings under this section.

11413.
 Books, records, and documents pertaining to the business of an association that is subject to this article shall be maintained either by the association or by its administrator if any, or both, for a period of five years after the end of the year when the transaction evidenced thereby ends. “Administrator,” as used in this section, has the same meaning as that contained in Section 1002(16)(A) of Title 29 of the United States Code.

11413.5.
 An association that elects to cease operation in this state shall be governed by and comply with Sections 1070 to 1076, inclusive.

11414.
 The commissioner may exercise stop order power over an association that is subject to this article, pursuant to Sections 1065.1 to 1065.7, inclusive.

11414.5.
 An association subject to this article is subject to Sections 790 to 790.09, inclusive.

11415.
 An association shall owe and pay the following annual regulatory fees, in addition to any other remuneration required by law:
(a) An annual fee of four hundred sixty-six dollars ($466) in advance, that shall be due on March 1, and shall be delinquent on and after April 1. The moneys from the fee shall be used by the department for reasonable administrative costs necessary to regulate the association and enforce the provisions of this article. However, the moneys from the fee shall not be used by the department to review or maintain the financial information to be submitted by an association pursuant to Section 11415.5.
(b) An annual fee of four hundred sixty-two dollars ($462) for the filing of financial information pursuant to Section 11415.5, to be used by the department to cover the reasonable administrative costs of reviewing and maintaining the information. The filing fee shall be due when the information is filed pursuant to Section 11415.5.

11415.5.
 (a) An association subject to this article shall annually submit to the commissioner audited financial reports and detailed actuarial liability calculations for review of the appropriateness of portfolio assets as well as methods and assumptions used to calculate the present value of incurred claims.
(b) (1) An association shall, on a biennial basis, submit to the commissioner the opinion of a qualified actuary as to whether the reserves and related actuarial items that support the policies or contracts issued pursuant to this chapter, including policies and contracts issued by entities established by associations that provide benefits described in this chapter, are expected to be adequate to satisfy contractual provisions, are based on reasonable assumptions, and are based on actuarial standards of practice published by the American Academy of Actuaries and the Actuarial Standards Board.
(2) The opinion required by paragraph (1) shall include supporting memoranda from the same qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are expected to be adequate to satisfy contractual provisions and shall make adequate provision for the association’s obligations under the policies and contracts, including, but not limited to, the benefits and any administrative and operating expenses associated with the policies and contracts.
(c) If, in the commissioner’s view, the materials submitted pursuant to subdivision (b) fail to meet the requirements of this section, the commissioner shall notify the association of the deficiencies in the submission, and shall make a specific request that identifies the issues that should be addressed in an amended submission. If, in the commissioner’s view, an amended submission remains inconsistent with actuarial standards of practice, the commissioner may refer the author of the submission to the Actuarial Board for Counseling and Discipline of the American Academy of Actuaries.
(d) Upon review of any of the materials submitted pursuant to this section, the commissioner may provide a written response to the association.
(e) Documents, materials, or other information, including the opinion with supporting memoranda, submitted pursuant to this section that are in the possession or control of the department and that are obtained by, created by, or disclosed to the commissioner or any other person pursuant to this section are recognized by this state as being proprietary and to contain trade secrets. These documents, materials, or other information shall be confidential by law and privileged, shall not be subject to disclosure by the commissioner pursuant to the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code), and shall not be subject to subpoena or discovery from the commissioner or admissible into evidence in a private civil action if obtained from the commissioner. The commissioner shall not make those documents, materials, or other information public without the prior written consent of the association.
(f) Notwithstanding this section, the commissioner may disclose any documents, materials, or other information to the Actuarial Board for Counseling and Discipline of the American Academy of Actuaries as part of a referral pursuant to subdivision (c). Whether the commissioner has made a referral shall itself be subject to the provisions of subdivision (e).

11416.
 (a) An association shall, upon written request from a member, provide to that member the following documents, within 30 days of the request:
(1) A written report or summary detailing the association’s previous year-end financial condition, including the amount of administrative costs and the ratio of those costs to benefits paid, as well as any response provided by the commissioner to the association in the last two calendar years pursuant to subdivision (d) of Section 11415.5.
(2) The contract for benefits, certificate evidencing coverage, or other plan document that describes the benefits being provided to that member.
(b) A member shall be given notice of a benefit plan amendment within 90 days of the amendment’s approval by the association’s trustees, directors, or governing body, by whatever name their office is known or designated.
(c) If an association maintains an internet website, the association shall display a prominent electronic link on that website’s homepage where both members and prospective members may see the most current benefit plan documents.

11416.5.
 (a) An association shall continue to provide long-term benefits to any individual or entity that is no longer a member but became entitled to benefits prior to the end of membership, as if that individual or entity remained a member.
(b) Benefits may be limited to the duration of the benefit period, if any, or to payment of the maximum benefits, and may be subject to any policy waiting period, and all other applicable provisions of the policy consistent with this section.
(c) An association may stop providing benefits to an individual or entity specified in subdivision (a) upon receipt of written confirmation from another association or admitted insurer that the individual or entity will begin receiving the benefits without lapse.

11417.
 An individual or entity aggrieved by an action taken by an association regarding the disclosure of information upon member request, payment of benefits, or entitlement to benefits, may file a complaint with the commissioner pursuant to the provisions of Sections 12921.1 to 12921.4, inclusive. For the purposes of Sections 12921.1 to 12921.4, inclusive, an association shall be deemed an “insurer.”

11417.5.
 If, upon sufficient complaint as provided in Section 11417, or upon the basis of other information, the commissioner has good cause to believe that an association has violated this chapter, the commissioner may hold a public hearing in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that the hearings may be conducted by an administrative law judge in the administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other sections in this code that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted under the Administrative Procedure Act.

11418.
 (a) If, after a hearing pursuant to Section 11417.5, the commissioner finds that an association has violated this chapter, the commissioner may suspend or revoke, in whole or in part, the certificate of authority of any association granted pursuant to Section 11401, and, in addition, may assess a civil penalty not to exceed five thousand dollars ($5,000) for each violation, or, if the violation was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each violation.
(b) An association may have the hearing and the order of the commissioner reviewed by a court of competent jurisdiction as provided by the Administrative Procedure Act.

SEC. 5.

 The Legislature finds and declares that Section 4 of this act, which adds Section 11415.5 to the Insurance Code, imposes a limitation on the public’s right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
In order to protect proprietary information, it is necessary to enact legislation that limits the public’s right of access to financial information provided by firefighters’, police officers’, or peace officers’ benefit and relief associations pursuant to Section 11415.5 of the Insurance Code.

SEC. 6.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.
SECTION 1.Section 2051.5 of the Insurance Code is amended to read:
2051.5.

(a)(1)Under an open policy that requires payment of the replacement cost for a loss, the measure of indemnity is the amount that it would cost the insured to repair, rebuild, or replace the thing lost or injured, without a deduction for physical depreciation, or the policy limit, whichever is less.

(2)If the policy requires the insured to repair, rebuild, or replace the damaged property in order to collect the full replacement cost, the insurer shall pay the actual cash value of the damaged property, as defined in Section 2051, until the damaged property is repaired, rebuilt, or replaced. Once the property is repaired, rebuilt, or replaced, the insurer shall pay the difference between the actual cash value payment made and the full replacement cost reasonably paid to replace the damaged property, up to the limits stated in the policy.

(b)(1)(A)(i)A time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall not be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit.

(ii)In the event of a loss relating to a “state of emergency,” as defined in Section 8558 of the Government Code, a time limit of less than 36 months from the date that the first payment toward the actual cash value is made shall not be placed upon the insured in order to collect the full replacement cost of the loss, subject to the policy limit.

(iii)This subdivision does not prohibit an insurer from allowing the insured additional time to collect the full replacement cost.

(B)An insurer shall provide to a policyholder one or more additional extensions of six months for good cause pursuant to clause (i) or (ii) of subparagraph (A) if the insured, acting in good faith and with reasonable diligence, encounters a delay or delays in approval for, or reconstruction of, the home or residence that are beyond the control of the insured. Circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, the lack of necessary construction materials, or the unavailability of contractors to perform the necessary work.

(2)In the event of a covered loss relating to a state of emergency, as defined in Section 8558 of the Government Code, coverage for additional living expenses shall be for a period of no less than 24 months from the inception of the loss, but shall be subject to other policy provisions. An insurer shall grant an extension of up to 12 additional months, for a total of 36 months, if an insured acting in good faith and with reasonable diligence encounters a delay or delays in the reconstruction process that are the result of circumstances beyond the control of the insured. Circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, lack of necessary construction materials, and lack of available contractors to perform the necessary work. Additional extensions of six months shall be provided to policyholders for good cause.

(c)In the event of a total loss of the insured structure, a policy issued or delivered in this state shall not contain a provision that limits or denies, on the basis that the insured has decided to rebuild at a new location or to purchase an already built home at a new location, payment of the building code upgrade cost or the replacement cost, including any extended replacement cost coverage, to the extent the costs are otherwise covered by the terms of the policy or a policy endorsement. However, the measure of indemnity shall not exceed the replacement cost, including the building code upgrade cost and any extended replacement cost coverage, if applicable, to repair, rebuild, or replace the insured structure at its original location.

(d)This section does not prohibit an insurer from restricting payment in cases of suspected fraud.

(e)(1)On and after July 1, 2005, and only until July 1, 2019, all policy forms used by an insurer shall be in compliance with this section, except for the changes made to this section by the act that added paragraph (2).

(2)On and after July 1, 2019, all policy forms issued or renewed by an insurer shall comply with this section in its entirety, including the changes made to this section by the act that added this paragraph.

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