BILL NUMBER: AB 2540	ENROLLED
	BILL TEXT

	PASSED THE SENATE  AUGUST 24, 2010
	PASSED THE ASSEMBLY  AUGUST 26, 2010
	AMENDED IN SENATE  JULY 15, 2010
	AMENDED IN ASSEMBLY  APRIL 8, 2010

INTRODUCED BY   Assembly Member De La Torre

                        FEBRUARY 19, 2010

   An act to amend Sections 790.03, 790.035, and 10400 of, and to add
Section 12739.06 to, the Insurance Code, relating to health
insurance.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 2540, De La Torre. Health insurance: postclaims underwriting:
unfair and deceptive practices.
   Existing law provides for the regulation of health insurers by the
Department of Insurance. Existing law prohibits a health insurer
from engaging in postclaims underwriting, as defined, and requires an
insurer that willfully violates that provision to pay a $118 penalty
to the state.
   Existing law prohibits any person in the state from engaging in
any trade practices that are defined as unfair methods of competition
or unfair or deceptive acts or practices in the business of
insurance and makes a person who engages in those practices liable to
the state for a civil penalty not to exceed $5,000 or $10,000, as
specified.
   This bill would include engaging in health insurance postclaims
underwriting as an unfair method of competition or unfair or
deceptive act or practice in the business of insurance. The bill
would specify the penalties that could be levied on a person who
engages in postclaims underwriting, as specified, and would require
that the amount by which a penalty exceeds $118 be deposited in the
Major Risk Medical Insurance Fund to be used, upon appropriation by
the Legislature, for the California Major Risk Medical Insurance
Program.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 790.03 of the Insurance Code is amended to
read:
   790.03.  The following are hereby defined as unfair methods of
competition and unfair and deceptive acts or practices in the
business of insurance.
   (a) Making, issuing, circulating, or causing to be made, issued,
or circulated, any estimate, illustration, circular, or statement
misrepresenting the terms of any policy issued or to be issued or the
benefits or advantages promised thereby or the dividends or share of
the surplus to be received thereon, or making any false or
misleading statement as to the dividends or share of surplus
previously paid on similar policies, or making any misleading
representation or any misrepresentation as to the financial condition
of any insurer, or as to the legal reserve system upon which any
life insurer operates, or using any name or title of any policy or
class of policies misrepresenting the true nature thereof, or making
any misrepresentation to any policyholder insured in any company for
the purpose of inducing or tending to induce the policyholder to
lapse, forfeit, or surrender his or her insurance.
   (b) Making or disseminating or causing to be made or disseminated
before the public in this state, in any newspaper or other
publication, or any advertising device, or by public outcry or
proclamation, or in any other manner or means whatsoever, any
statement containing any assertion, representation, or statement with
respect to the business of insurance or with respect to any person
in the conduct of his or her insurance business, which is untrue,
deceptive, or misleading, and which is known, or which by the
exercise of reasonable care should be known, to be untrue, deceptive,
or misleading.
   (c) Entering into any agreement to commit, or by any concerted
action committing, any act of boycott, coercion, or intimidation
resulting in or tending to result in unreasonable restraint of, or
monopoly in, the business of insurance.
   (d) Filing with any supervisory or other public official, or
making, publishing, disseminating, circulating, or delivering to any
person, or placing before the public, or causing directly or
indirectly, to be made, published, disseminated, circulated,
delivered to any person, or placed before the public any false
statement of financial condition of an insurer with intent to
deceive.
   (e) Making any false entry in any book, report, or statement of
any insurer with intent to deceive any agent or examiner lawfully
appointed to examine into its condition or into any of its affairs,
or any public official to whom the insurer is required by law to
report, or who has authority by law to examine into its condition or
into any of its affairs, or, with like intent, willfully omitting to
make a true entry of any material fact pertaining to the business of
the insurer in any book, report, or statement of the insurer.
   (f) Making or permitting any unfair discrimination between
individuals of the same class and equal expectation of life in the
rates charged for any contract of life insurance or of life annuity
or in the dividends or other benefits payable thereon, or in any
other of the terms and conditions of the contract.
   This subdivision shall be interpreted, for any contract of
ordinary life insurance or individual life annuity applied for and
issued on or after January 1, 1981, to require differentials based
upon the sex of the individual insured or annuitant in the rates or
dividends or benefits, or any combination thereof. This requirement
is satisfied if those differentials are substantially supported by
valid pertinent data segregated by sex, including, but not
necessarily limited to, mortality data segregated by sex.
   However, for any contract of ordinary life insurance or individual
life annuity applied for and issued on or after January 1, 1981, but
before the compliance date, in lieu of those differentials based on
data segregated by sex, rates, or dividends or benefits, or any
combination thereof, for ordinary life insurance or individual life
annuity on a female life may be calculated as follows: (a) according
to an age not less than three years nor more than six years younger
than the actual age of the female insured or female annuitant, in the
case of a contract of ordinary life insurance with a face value
greater than five thousand dollars ($5,000) or a contract of
individual life annuity; and (b) according to an age not more than
six years younger than the actual age of the female insured, in the
case of a contract of ordinary life insurance with a face value of
five thousand dollars ($5,000) or less. "Compliance date" as used in
this paragraph shall mean the date or dates established as the
operative date or dates by future amendments to this code directing
and authorizing life insurers to use a mortality table containing
mortality data segregated by sex for the calculation of adjusted
premiums and present values for nonforfeiture benefits and valuation
reserves as specified in Sections 10163.1 and 10489.2 or successor
sections.
   Notwithstanding the provisions of this subdivision, sex-based
differentials in rates or dividends or benefits, or any combination
thereof, shall not be required for (1) any contract of life insurance
or life annuity issued pursuant to arrangements that may be
considered terms, conditions, or privileges of employment as these
terms are used in Title VII of the Civil Rights Act of 1964 (Public
Law 88-352), as amended, and (2) tax sheltered annuities for
employees of public schools or of tax-exempt organizations described
in Section 501(c)(3) of the Internal Revenue Code.
   (g) Making or disseminating, or causing to be made or
disseminated, before the public in this state, in any newspaper or
other publication, or any other advertising device, or by public
outcry or proclamation, or in any other manner or means whatever,
whether directly or by implication, any statement that a named
insurer, or named insurers, are members of the California Insurance
Guarantee Association, or insured against insolvency as defined in
Section 119.5. This subdivision shall not be interpreted to prohibit
any activity of the California Insurance Guarantee Association or the
commissioner authorized, directly or by implication, by Article 14.2
(commencing with Section 1063).
   (h) Knowingly committing or performing with such frequency as to
indicate a general business practice any of the following unfair
claims settlement practices:
   (1) Misrepresenting to claimants pertinent facts or insurance
policy provisions relating to any coverages at issue.
   (2) Failing to acknowledge and act reasonably promptly upon
communications with respect to claims arising under insurance
policies.
   (3) Failing to adopt and implement reasonable standards for the
prompt investigation and processing of claims arising under insurance
policies.
   (4) Failing to affirm or deny coverage of claims within a
reasonable time after proof of loss requirements have been completed
and submitted by the insured.
   (5) Not attempting in good faith to effectuate prompt, fair, and
equitable settlements of claims in which liability has become
reasonably clear.
   (6) Compelling insureds to institute litigation to recover amounts
due under an insurance policy by offering substantially less than
the amounts ultimately recovered in actions brought by the insureds,
when the insureds have made claims for amounts reasonably similar to
the amounts ultimately recovered.
   (7) Attempting to settle a claim by an insured for less than the
amount to which a reasonable person would have believed he or she was
entitled by reference to written or printed advertising material
accompanying or made part of an application.
   (8) Attempting to settle claims on the basis of an application
that was altered without notice to, or knowledge or consent of, the
insured, his or her representative, agent, or broker.
   (9) Failing, after payment of a claim, to inform insureds or
beneficiaries, upon request by them, of the coverage under which
payment has been made.
   (10) Making known to insureds or claimants a practice of the
insurer of appealing from arbitration awards in favor of insureds or
claimants for the purpose of compelling them to accept settlements or
compromises less than the amount awarded in arbitration.
   (11) Delaying the investigation or payment of claims by requiring
an insured, claimant, or the physician of either, to submit a
preliminary claim report, and then requiring the subsequent
submission of formal proof of loss forms, both of which submissions
contain substantially the same information.
   (12) Failing to settle claims promptly, where liability has become
apparent, under one portion of the insurance policy coverage in
order to influence settlements under other portions of the insurance
policy coverage.
   (13) Failing to provide promptly a reasonable explanation of the
basis relied on in the insurance policy, in relation to the facts or
applicable law, for the denial of a claim or for the offer of a
compromise settlement.
   (14) Directly advising a claimant not to obtain the services of an
attorney.
   (15) Misleading a claimant as to the applicable statute of
limitations.
   (16) Delaying the payment or provision of hospital, medical, or
surgical benefits for services provided with respect to acquired
immune deficiency syndrome or AIDS-related complex for more than 60
days after the insurer has received a claim for those benefits, where
the delay in claim payment is for the purpose of investigating
whether the condition preexisted the coverage. However, this 60-day
period shall not include any time during which the insurer is
awaiting a response for relevant medical information from a health
care provider.
   (i) Canceling or refusing to renew a policy in violation of
Section 676.10.
   (j) Engaging in postclaims underwriting as defined by Section
10384.
  SEC. 2.  Section 790.035 of the Insurance Code is amended to read:
   790.035.  (a) A person who engages in an unfair method of
competition or an unfair or deceptive act or practice defined in
Section 790.03 is liable to the state for a civil penalty to be fixed
by the commissioner, not to exceed five thousand dollars ($5,000)
for each act, or, if the act or practice was willful, a civil penalty
not to exceed ten thousand dollars ($10,000) for each act. The
commissioner shall have the discretion to establish what constitutes
an act. However, when the issuance, amendment, or servicing of a
policy or endorsement is inadvertent, all of those acts shall be a
single act for the purpose of this section.
   (b) The penalty imposed by this section shall be imposed by and
determined by the commissioner as provided by Section 790.05. The
penalty imposed by this section is appealable by means of any remedy
provided by Section 12940 or by Chapter 5 (commencing with Section
11500) of Part 1 of Division 3 of Title 2 of the Government Code.
   (c) With respect to a penalty imposed under this section against a
person who engages in an unfair method of competition or unfair or
deceptive act or practice as defined in subdivision (j) of Section
790.03, the amount by which the penalty exceeds one hundred eighteen
dollars ($118) shall be deposited in the Major Risk Medical Insurance
Fund created pursuant to Section 12739 to be used, upon
appropriation by the Legislature, for the California Major Risk
Medical Insurance Program for the purposes specified in Section
12739.1.
  SEC. 3.  Section 10400 of the Insurance Code is amended to read:
   10400.  (a) A person who willfully violates any provision of this
chapter or order of the commissioner made in accordance therewith
shall forfeit to the people of this state a sum not to exceed one
hundred eighteen dollars ($118) for each violation, which sum may be
recovered by civil action. The commissioner may also suspend or
revoke the license of an insurer or agent for any such willful
violation.
   (b) An insurer that violates Section 10384 shall not be subject to
the monetary penalty described in subdivision (a) where the insurer
has been assessed a civil penalty for that violation under
subdivision (j) of Section 790.03 and Section 790.035.
  SEC. 4.  Section 12739.06 is added to the Insurance Code, to read:
   12739.06.  Notwithstanding Section 12739, funds placed in the
Major Risk Medical Insurance Fund pursuant to subdivision (c) of
Section 790.035 shall not be continuously appropriated.