BILL NUMBER: SB 1993 PROPOSED
BILL TEXT
PROPOSED CONFERENCE REPORT JULY 7, 1996
CONFERENCE REPORT NO. 1
PROPOSED IN CONFERENCE JULY 7, 1996
AMENDED IN ASSEMBLY APRIL 22, 1996
AMENDED IN SENATE MARCH 27, 1996
AMENDED IN SENATE MARCH 26, 1996
AMENDED IN SENATE MARCH 25, 1996
INTRODUCED BY Senator Calderon
(Coauthor: Assembly Member Cunneen)
FEBRUARY 23, 1996
An act to amend Sections 10081, 10086, 10086.5, 10089.5,
10089.6, 10089.7, 10089.10, 10089.11, 10089.13, 10089.14, 10089.15,
10089.19, 10089.20, 10089.23, 10089.25, 10089.28, 10089.30, 10089.33,
10089.35, 10089.36, 10089.40, 10089.41, and 10089.50 of, to amend
and renumber Sections 10089.7 and 10089.15 of, to add Sections
10089.21, 10089.22, 10089.31, 10089.52, and 10089.53 to, and to
repeal Sections 10089.18, 10089.29, 10089.37, 10089.38, and 10089.39
of, the Insurance Code, relating to earthquake insurance, and making
an appropriation therefor. An act to amend Sections
10086, 10089.5, 10089.6, 10089.8, 10089.10, 10089.11, 10089.13,
10089.20, 10089.23, 10089.25, 10089.26, 10089.34, and 10089.50 of, to
amend and renumber Sections 10089.7 and 10089.15 of, to add Sections
10089.17, 10089.21, 10089.22, 10089.52, and 10089.53 to, the
Insurance Code, relating to earthquake insurance, making an
appropriation therefor and declaring the urgency thereof, to take
effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 1993, as amended, Calderon. Earthquake insurance: California
Earthquake Authority.
(1) Under existing law, a policy of residential property insurance
may not be issued or delivered or, under certain circumstances,
initially renewed by any insurer unless the named insured is offered
coverage for loss or damage caused by an earthquake, as specified.
If an offer of earthquake coverage is accepted, the coverage must be
continued at the applicable rates and conditions for the policy term,
if the residential property insurance policy is not terminated by
the named insured or the insurer. At any renewal, an insurer may
modify the terms and conditions of an existing policy to provide only
the minimum coverage required by law as a result of the enactment of
Chapter 939 of the Statutes of 1995, as specified , but must
disclose the modification to the insured .
Additionally, under existing law, an insurer must offer earthquake
coverage every other year to an insured in connection with any
continuation, renewal, or reinstatement of a policy, as specified.
This bill would eliminate the requirement for insurers that do not
participate in the California Earthquake Authority to offer
earthquake coverage, except that nonparticipating insurers would be
required to maintain in force existing policies for at least 3 years,
as specified. Insurers that participate in the authority would
continue to be required to offer earthquake coverage, which would be
provided through the authority.
This bill would also eliminate the requirement for insurers to
offer earthquake coverage every other year to residential
policyholders who do not accept an offer of earthquake coverage.
(2) Existing law provides that an insurer may not refuse to renew,
reject, or cancel a policy of residential property insurance after
an insured has accepted an offer of earthquake insurance solely
because the insured has accepted that offer, unless the policy is
terminated by the insured.
This bill would provide that an insurer may refuse to renew a
policy if the decision to refuse is based on sound underwriting
principles, if the commissioner finds that the exposure to potential
losses will threaten the solvency of the insurer or place the insurer
in a hazardous condition, if the insurer has a reduced opportunity
to obtain reinsurance, or for other specified grounds.
(3) This bill would require a specified disclosure
to be provided to an insured if earthquake coverage is provided by a
policy issued by the California Earthquake Authority.
(2) Existing law creates the California Earthquake
Authority, which is authorized to become operational and issue
policies of basic residential earthquake insurance, as defined, under
certain conditions. These conditions include a determination by the
Internal Revenue Service that the authority is exempt from federal
income tax, a requirement for certain commitments from insurers and
reinsurers, and enactment of a subsequent statute that expressly
authorizes the authority to issue policies of earthquake insurance.
This bill would provide that these conditions have been
met and would specifically authorize the authority to
become operational and issue policies of basic residential earthquake
insurance as soon as the Insurance Commissioner certifies that
the first 2 conditions in paragraph (2) above have been met .
This bill would also:
(A) Change the definition of "available capital" relative to the
authority, and the definition of basic residential earthquake
insurance, as specified.
(B) Limit investments of the authority to certain securities, as
specified and limit operating expenses of the authority .
(C) Delete provisions that deem the authority to be an
insurer for the purposes of the Insurance Code but provide
Provide that the duties and liabilities of the
authority owes to its insured shall be
the same as those an insurer owes its insureds under common laws and
statutes.
(D) Provide that there shall be a limited immunity on
account of any act performed or omitted or obligation entered into on
behalf of the authority on the part of the authority's governing
board, advisory panel, or any officer, employee, or agent of the
authority, or on the part of any participating insurer.
(E) Require advocacy fees awarded to persons initiating or
intervening in any judicial, quasi-judicial, or administrative
proceeding related to earthquake insurance rates to be paid from the
annual budget of the Department of Insurance, as specified.
(F) Specify that the authority is subject to the
Political Reform Act of 1974.
(E) Declare that the authority is a public instrumentality
of the state, exercising an essential state function.
(G)
(F) Prohibit the authority from becoming a debtor under the
United States bankruptcy laws and provide that claims against the
authority are to be governed under existing provisions of the
Government Code.
(H)
(G) Continuously appropriate funds in the California
Earthquake Authority Fund for the purposes of the authority, thereby
making an appropriation.
(I) Provide that an agent or broker shall have no responsibility
or duty to investigate the financial condition of the authority
before binding coverage, and provide that
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 to investigate the financial
condition of an admitted insurer before placement of
a policy of insurance.
(J) Add provisions with respect to
the powers and duties of the Insurance Commissioner, including
authority to seek court orders to protect the authority under certain
circumstances, and relating to various financial provisions.
(K) Repeal provisions requiring the authority to use a portion of
investment income to fund the establishment and operation of the
Earthquake Loss Mitigation Fund for grants and loans to dwelling
owners to retrofit their homes to protect against earthquake damage.
(L)
(H) Delete existing provisions that would have provided for the
reduction and eventual elimination of assessments by the authority of
participating insurers, and instead provide for the reallocation of
the assessments, and the reduction of the aggregate assessment to
zero dollars in specified circumstances after a specified period of
time.
(I) Provide for the authority to issue loss assessment policies
for individual condominium units, as specified.
(J) Require an insurer that withdraws from the authority
under certain circumstances to impose a premium surcharge on
earthquake policies to be used by the authority to repay debt.
(M)
(K) Provide that if legislation is enacted that causes the
authority to cease operations while debt of the authority is
outstanding, participating insurers would be required to impose a
premium surcharge on earthquake policies to be used by the authority
to repay debt.
Because the bill would provide for premium surcharges on
earthquake policies that were not issued by the authority, the bill
would impose a tax.
Since the bill would result in a change in state taxes for the
purpose of increasing state revenues within the meaning of Section 3
of Article XIIIA of the California Constitution, it thus would
require the approval of 2/3 of the membership of each house of the
Legislature for passage.
The bill would also enact other related provisions.
(3) The bill would also provide for a loan of $1,300,000 to the
California Earthquake Authority from the California Residential
Earthquake Recovery Fund, to be repaid with interest, as specified.
(4) The bill would become operative only if AB 2086 is also
enacted.
(5) The bill would declare that it would take effect immediately as
an urgency statute.
Vote: majority 2/3 .
Appropriation: yes. Fiscal committee: yes. State-mandated local
program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature finds and declares
SECTION 1. The Legislature finds and declares as follows:
The California Earthquake Authority, created by Chapter 944 of the
Statutes of 1995, shall become operational and may issue policies of
basic residential earthquake insurance as soon as the Insurance
Commissioner has certified that all of the following conditions have
been met:
(a) The Internal Revenue Service has determined that the authority
is exempt from federal income taxation.
(b) Insurers whose cumulative residential market share is more
than 70 percent of the total residential property insurance market in
California, exclusive of insurers who have withdrawn from the
residential property insurance market as of January 1, 1995, have
filed letters of intent, with binding contractual obligation, to
participate in the authority. These letters of intent include
acknowledgment of the initial operating capital and potential loss
assessment requirements.
(c) The authority has obtained appropriate risk transferability in
the form of firm reinsurance commitments in an aggregate amount of
not less than 200 percent of the total capital contributions
committed by participating insurers.
SEC. 2. Section 10086 of the Insurance Code is amended to read:
10086. (a) If an offer of earthquake coverage 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 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.
SEC. 3. Section 10089.5 of the Insurance Code is amended to read:
10089.5. As used in this chapter:
(a) "Authority" means the California Earthquake Authority.
(b) "Available capital" means the sum of all moneys and invested
assets , in excess of two hundred million dollars
($200,000,000) actually held in the California Earthquake
Authority Fund, except as otherwise appropriated
allocated to pay specific losses and loss adjustment
expenses under policies of basic residential earthquake insurance.
"Available capital" includes all interest or other income from
the investment of money held in the California Earthquake Authority
Fund. "Available capital" does not include the proceeds of
contracts of reinsurance procured by or in the name of the authority
pursuant to subdivision (a) of Section 10089.10, or any funds
realized on account of any transaction pursuant to capital market
contracts authorized by subdivision (b) of Section 10089.10.
(c) "Basic residential earthquake insurance" means that policy of
residential earthquake insurance described in Section 10089
except as follow:
(1) (A) If one year after the authority commences operation the
authority has available capital equal to or exceeding seven hundred
million dollars ($700,000,000), any policy issued or renewed on or
after that date shall provide, less any applicable deductible, not
less than two thousand five hundred dollars ($2,500) in coverage for
additional living expenses.
(B) If the authority met the available capital requirements of
subparagraph (A) and two years after the authority commences
operation the authority has available capital equal to or exceeding
seven hundred million dollars ($700,000,000), any policy issued or
renewed on or after that date shall provide, less any applicable
deductible, not less than three thousand dollars ($3,000) in coverage
for additional living expenses.
(2) (A) If the authority did not meet the available capital
requirement of subparagraph (A) of paragraph (1) but, two years after
the authority commences operation the authority has available
capital equal to or exceeding seven hundred million dollars
($700,000,000), any policy issued or renewed on or after that date
shall provide, less any applicable deductible, not less than two
thousand five hundred dollars ($2,500) in coverage for additional
living expenses.
(B) If the authority met the available capital requirements in as
provided by subparagraph (A) and three years after the authority
commences operation the authority has available capital equal to or
exceeding seven hundred million dollars ($700,000,000), any policy
issued or renewed on or after that date shall provide, less any
applicable deductible, not less than three thousand dollars ($3,000)
in coverage for additional living expenses.
(d) "Board" means the governing board of the authority.
(e) "Bonds" means bonds, notes, commercial paper, variable rate
and variable maturity securities, and any other evidence of
indebtedness.
(f) "Capital market contract" means an agreement between the
authority and a purchaser pursuant to which the purchaser agrees to
purchase bonds of the authority.
(g) "Nonparticipating insurer" means an insurer that elects
not to transfer or place any residential earthquake policies in the
authority.
(h) "Panel" means the advisory panel of the authority.
(h)
(i) "Participating insurer" means an insurer that has elected to
join the authority.
(j) "Policy of residential property insurance" means those
policies described in Section 10087.
(i)
(k) "Private capital market" means one or more purchasers of
bonds of the authority pursuant to a capital market contract.
(j)
(l) "Qualifying residential property" includes all those
residential dwellings set forth in Section 10087.
(k)
(m) "Residential earthquake insurance market share" means an
individual insurer's total direct premium received for (1)
residential earthquake policies and endorsements written or renewed
by the insurer in California and (2) residential earthquake policies
written or renewed by the authority for which the insurer has written
or renewed an underlying policy of residential property insurance,
divided by the total gross premiums received by all admitted insurers
and the authority for their basic residential earthquake insurance
in California.
(l)
(n) "Residential property insurance market share" means an
individual insurer's total gross premiums received for residential
property insurance policies written or renewed by the insurer,
divided by the total gross premiums received by all admitted insurers
for residential property insurance in California.
(m)
(o) "Revenue" means all income and receipts of the
authority, including, but not limited to, income and receipts derived
from premiums, bond purchase agreements, capital
contributions by insurers, assessments levied on insurers, surcharges
applied to authority earthquake policyholders, and all interest or
other income from investment of money in any fund or account of the
authority established for the payment of principal or interest, or
premiums on bonds, including reserve funds.
SEC. 4. 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. No policies shall be issued by the
authority until enactment of the legislation specified in Section 1
of the act enacting this section.
(b) The authority shall be deemed to be an insurer for purposes of
the Insurance Code and the duties owed an insured under common law
and statutes.
(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 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. 5. Section 10089.7 of the Insurance Code, as added by Section
1 of Chapter 848 of the Statutes of 1995, is amended and renumbered
to read:
10089.7.
10089.70. The department shall establish a pilot program
for the mediation of the disputes between insured complainants and
insurers arising out of the Northridge earthquake of 1994 or any
subsequent earthquake. The pilot program shall apply only to
personal lines of insurance related to residential coverage. The
goal of the pilot program shall be to favorably resolve a
statistically significant number of disputes sent to mediation under
the program. This chapter does not apply to any dispute that turns
on a question of major insurance coverage or a purely legal
interpretation, or disputes involving the actions of an agent or
broker in which the insurer is not alleged to have been responsible
for the conduct, or any complaint the commissioner finds to be
frivolous, or any dispute in which a party is alleged to have
committed fraud.
SEC. 6. Section 10089.8 of the Insurance Code is amended to read:
10089.8. (a) The authority shall operate pursuant to a written
plan of operations. The panel shall submit a plan to the board for
approval. If it approves the plan, the board shall submit the plan
to the commissioner for his or her approval. On receiving the
commissioner's approval, the board shall formally adopt the plan and
submit the plan to the Legislature. Upon commencement of the
issuance of insurance policies by the authority, any subsequent
amendments to the plan of operation shall be approved by the board
and the commissioner.
(b) If at any time the commissioner disapproves the submitted plan
or any plan amendments adopted by the board, the board may within 15
days submit changes in the plan to the commissioner. If the
commissioner disapproves the plan or the changes in the plan, or if
the board fails to submit a plan or to make and submit the requested
changes, the commissioner may require the board to adopt that plan or
those changes directed by the commissioner.
(c) The plan of operations shall establish in detail the policies
and procedures of the authority, including, but not limited to,
financial operations of the authority, claims procedures, methods of
premium collection, procedures consistent with constitutional,
statutory, and common law requirements for resolving grievances of
applicants or policyholders who are dissatisfied with application
handling or adverse claims decisions, whether by the authority or by
a servicing insurer, assessment procedures, a plan for resolution of
assessment disputes between the authority and insureds,
grievances between the authority and participating carriers,
servicing carrier fees and expenses, reasonable underwriting
standards, and producer compensation.
SEC. 7. Section 10089.10 of the Insurance Code is amended to read:
10089.10. To expand the capacity of the authority and achieve
maximum capacity for writing earthquake coverage, the authority shall
do both of the following acts, on prior approval of the
commissioner:
(a) The authority shall purchase contracts of reinsurance at rates
and on terms the board considers reasonable and appropriate.
(b) Under the commissioner's continued, active
supervision, the The authority, through the
Treasurer, shall enter capital market contracts on terms as the board
and Treasurer may consider reasonable and appropriate. The
Treasurer shall not withhold approval except for good cause related
to the purposes of the authority. Such terms may include
indemnification and contribution provisions protecting parties to the
capital market contracts of the authority against material
misstatements in or material omissions from the authority's official
statements and other authority documents referred to in the capital
markets contracts.
(c) The total annual expenditure for reinsurance contracts and
capital market contracts pursuant to this section shall not exceed a
reasonable and appropriate percentage of the annual earthquake
insurance premiums collected by the authority.
SEC. 8. Section 10089.11 of the Insurance Code is amended to read:
10089.11. (a) The commissioner shall adopt regulations to
implement the provisions of this chapter within 60 days of its
effective date. The regulations shall be adopted as emergency
regulations in accordance with Chapter 3.5 (commencing with Section
11340) of the Government Code, and for the purposes of that chapter,
including Section 11349.6 of the Government Code, the adoption of the
regulations shall be considered by the Office of Administrative Law
to be necessary for the immediate preservation of the public peace,
health and safety, and general welfare.
(b) Regulations shall specify procedures for ratemaking and forms
approval, define the type and quality of investments the authority is
authorized to make, define coverage types and limits, set forth
producer compensation rates, and specify the procedures to be
followed by the authority following any earthquake event where the
magnitude of earthquake losses make it likely that prorated benefits
may be paid. The regulations shall be consistent with the
requirements of Proposition 103.
(c) Any person may initiate or intervene in any
proceeding permitted or established pursuant to this chapter, may
challenge any action of the commissioner The rights
provided by Section 1861.10 shall apply to proceedings under
this chapter , and may enforce any provision of this chapter
relating to establishing rates and regulations for
earthquake insurance sold by the authority .
(d) All materials and documents prepared or used by the authority
to determine its rates other than proprietary materials and documents
owned or licensed by third parties shall be considered public
documents, and copies of the public documents shall be made available
to the public for inspection at no charge. Members of the public
may purchase public ratemaking related documents from the authority
at actual cost.
SEC. 9. Section 10089.13 of the Insurance Code is amended to read:
10089.13. (a) One year following its commencement of operations,
and annually thereafter by each January 1, the authority shall report
to the Legislature and the commissioner on program operations
in a format prescribed by the commissioner . The report shall
include, but shall not be limited to, the financial condition of the
authority, a description of all rates and rating plans approved
for use in the authority, an evaluation of the functioning of
the authority in light of its stated purposes, and an
analysis of any recommended program changes to permit the authority
to better fulfill its stated purposes purpose of
making residential property insurance and residential earthquake
insurance more available. The report shall also include an analysis
of the growth by market share of residential property insurance of
participating insurers compared to nonparticipating insurers, any
adverse consequences on the various insurance distribution systems
resulting from the operation of the authority or alterations in the
growth of the residential property insurance market share between
participating insurers and nonparticipating insurers, any adverse
consequences of the various insurance distribution systems resulting
from the operation of the authority or alterations in the growth of
homeowners' insurance market share between participating insurers and
nonparticipating insurers, and an analysis of any recommended
program changes to permit the authority to better fulfill its stated
purpose. In making this determination the board shall be mindful of
the competitive nature of the market and how any decision can
negatively impact insurers who are currently competing in the
marketplace.
(b) The annual report shall include full information describing
the following matters relating to the authority's condition and
affairs.
(1) The property or assets held by the authority, including the
amount of cash on hand and deposited in banks to its credit, the
amount of cash in the hands of servicing insurance companies, the
amount of any stocks or bonds owned by the authority, specifying the
amount, number of shares, and the par and market value of each kind
of stock or bond, and all other assets, specifying each.
(2) The liabilities of the authority, including the amount of
losses due and unpaid, the amount of claims for losses resisted by
the authority and the amount of losses in the process of adjustment
or in suspense, including all reported and supposed losses, the
amount of revenue bonds or other debt financing issues under Section
10089.29 or Section 10089.50, and all other liabilities.
(3) Income of the authority during the preceding year, specifying
premiums received, interest money received, and income from all other
sources, specifying the source.
(4) Expenditures of the authority during the preceding year,
specifying the amount of losses paid, the amount of expenses paid by
category, and the amount of all other payments and expenditures.
(5) The costs and scope of all reinsurance and capital market
contracts entered into by the authority under Section 10089.10.
(c) As part of the annual report, the authority shall make a
separate, summary report on the financial capacity of the authority
to pay claims made against the authority. Copies of this report
shall also be made available to the public. The report shall
include, but shall not be limited to, the following information,
valued as of 30 days prior to the date of the report.
(1) The available capital of the authority.
(2) The liabilities of the authority.
(3) The amount of all assessments previously made and the amount
of assessments that may be made in the future under Section 10089.23.
(4) The amount of the reinsurance under contract and actually
available to the authority.
(5) The amount of all revenue bonds or other debt financing
previously issued or contracted for and the amount of all revenue
bonds or other debt financing that may be issued or contracted for in
the future under Section 10089.29.
(6) The amount of surcharges previously assessed against
policyholders and the amount of surcharges that are currently
outstanding against policyholders under Section 10089.29.
(7) The amount of capital committed and actually available by
contract from private capital markets that is available to pay claims
against the authority.
(8) The amount of all assessments previously made and the amount
of all assessments that may be made in the future under Section
10089.30 .
(b)
(d) In verification of the matters set forth in the annual
report provided for in subdivision (a), the Department of Finance
shall approve independent qualified auditors selected by
the commissioner to examine the books and accounts relating to all
matters concerning the financial and program operations of the
authority. The commissioner shall file a certified report of the
examination with the Legislature President
pro Tempore of the Senate, the Speaker of the Assembly, the
Chairpersons of the Senate and Assembly Insurance Committees, and the
Chairperson of the Senate Committee on Judiciary within 10
days of its receipt. Copies of this report shall also be made
available to the public. The expense of examining the books and
accounts of the authority shall be paid out of the operating funds
of the authority.
(c)
(e) The authority shall, within 120 days following a seismic
event that results in the payment of claims by the authority, and
within one year of a major seismic event that results in the payment
of claims by the authority, submit to the Legislature
President pro Tempore of the Senate, the Speaker of
the Assembly, the Chairpersons of the Senate and Assembly Insurance
Committees, and the Chairperson of the Senate Committee on Judiciary,
and the commissioner a concise written report of program
operations related to that seismic event. The reports shall include,
but not be limited to, progress on payment of claims, claims
payments made and anticipated, and the functioning of the authority
in response to the seismic event.
(d) This section shall become operative upon enactment of the
legislation specified in Section 1 of the act enacting this section.
Copies of this report shall also
be made available to the public.
SEC. 10. Section 10089.15 of the Insurance Code, as added by
Section 7 of Chapter 1166 of the Statutes of 1990, is amended and
renumbered to read:
10089.15.
10089.1. To the extent that the coverage is not already
provided in the minimum offer of coverage, every insurer shall offer
the following optional coverage as part of the offer of coverage as
required by Section 10081 only after the insured has completed and
the insurer has verified retrofitting of the residential dwelling as
described in subdivision (a) of Section 10089.2:
Coverage in the amount of ten thousand dollars ($10,000) for the
purpose of reconstruction costs required to bring the residential
dwelling on the residential property up to required current local
residential dwelling building code standards as required by the local
entity as part of the approval of the reconstruction permit process
after an earthquake.
SEC. 11. Section 10089.17 is added to the Insurance Code, to read:
10089.17. Notwithstanding subdivision (h) of Section 10089.7, the
authority shall be subject to the provisions of the Political Reform
Act of 1974 (Title 9 (commencing with Section 81000) of the
Government Code).
SEC. 12. Section 10089.20 of the Insurance Code is amended to
read:
10089.20. The authority shall renew any policy of basic
residential earthquake insurance, provided the authority receives
payment of the applicable renewal premium on or before the expiration
date stated in the policy. The authority may
shall nonrenew , rescind, or cancel a policy
on the grounds if the property is no
longer covered by an underlying policy of residential property
insurance. The policy issued by the authority shall not provide
coverage in the event that there is no underlying policy of property
insurance at the time of loss. In that case, any unearned premiums
shall be returned to the policyholder on a pro rata basis.
SEC. 13. Section 10089.21 is added to the Insurance Code, to read:
10089.21. The authority is a public instrumentality of the State
of California and the exercise of its powers is an essential state
governmental function. No provision of law, including, but not
limited to, subdivision (h) of Section 10089.7 and subdivision (e) of
Section 10089.22, shall be construed to affect the status of the
authority as a public instrumentality of the State of California.
Notwithstanding any other provision of law, the authority is not and
shall never be authorized to become a debtor in a case under the
United States Bankruptcy Code (Title 11 of the United States Code) or
to make an assignment for the benefit of creditors or to become the
subject of any similar case or proceeding, nor is the authority
subject to Article 14 (commencing with Section 1010) and Article 14.3
(commencing with Section 1064.1) of Chapter 1 of Part 2 of Division
1. Notwithstanding any other provision of law, the commissioner
shall not, directly or indirectly, when exercising the power and
authority contained or referred to in or arising from Section
10089.6, paragraph (5) of subdivision (e) of Section 10089.7, Section
10089.12, subdivision (e) of Section 10089.22, subdivision (b) of
Section 10089.35, or any other statute, rule, or regulation, impede
or in any manner interfere with, but shall affirmatively take all
necessary steps to effect, and no person acting under subdivision (c)
of Section 10089.11, or any other provision of law or principle of
equity shall be permitted in any way to impede or in any manner
interfere with: (a) the full and timely payment of principal,
interest, and premiums on revenue bonds of the authority and amounts
due those bond insurers and providers of credit support and letters
of credit; and (b) any pledge or assignment of revenues as security
for those payments or amounts due, and the full and timely
application of those pledged or assigned revenues to those payments
and amounts due, in each or either case, (a) or (b), as and when due
in accordance with and subject to the limitations contained in
Section 10089.22 and the terms of the constituent instruments
defining the rights of the holders of the bonds and the providers of
bond insurance, credit support, and letters of credit.
Division 3.6 (commencing with Section 810) of Title 1 of the
Government Code shall not apply to acts of the authority.
SEC. 14. Section 10089.22 is added to the Insurance Code, to read:
10089.22. (a) The authority shall be continued in existence for
so long as its bonds are outstanding. Unless and until the authority
is terminated pursuant to Section 10089.43, the commissioner and the
authority shall execute assignments and contracts and take all
necessary steps to assure that all revenue of the authority is paid
to a trustee appointed by the Treasurer, which trustee may be the
treasurer. The revenue of the authority shall be pledged and
assigned to and held in trust by the trustee and invested and
disbursed by the trustee, to pay, or to set aside funds to pay,
principal, interest, and premiums on bonds and amounts due bond
insurers and providers of credit support and letters of credit for
those bonds, but only in the manner and in accordance with the terms
of the constituent instruments defining the rights of the holders of
bonds of the authority and the providers of bond insurance, credit
support and letters of credit for those bonds. Amounts held by the
trustee from time to time after provisions for those payments may be
disbursed free of trust to the California Earthquake Authority Fund.
Notwithstanding the foregoing provisions of this section, (1) debt
service payments on bonds of the authority secured by or payable from
securities described in Section 16430 of the Government Code shall
not be secured by a pledge or assignment of revenue of the authority
other than revenue of the authority from (A) the proceeds of sale of
such bonds, (B) the securities described in Section 16430 of the
Government Code, and (C) principal and interest payments on such
securities described in Government Code Section 16430, but debt
service payments on such bonds of the authority may also be made
payable from revenue of the authority in the California Earthquake
Authority Fund, and (2) the constituent instruments defining the
rights of the holders of bonds of the authority referred to in
paragraph (1) shall specify that payment of a portion of the interest
on such bonds is contingent upon payment of policyholder claims for
which the bonds are responsible and that the obligation of the
authority is to first apply such assigned or pledged revenue to the
payment of such policyholder claims instead of paying that contingent
interest.
(b) There is hereby created the California Earthquake Authority
Fund, which is not a fund in the State Treasury. Notwithstanding
Section 13340 of the Government Code, the fund is continuously
appropriated without regard to fiscal years for the purposes of this
chapter. The fund shall be administered by the commissioner, subject
to the direction of the board, to pay all costs arising from this
chapter, including, but not limited to, premiums payable by the
authority under contracts of reinsurance, claims arising under
policies of basic residential earthquake insurance issued by the
authority, operating and other expenses of the authority, and to
establish reserves. At the discretion of the commissioner,
segregated, dedicated accounts within the fund may be established for
those payments.
(c) The board may cause moneys in the fund to be invested and
reinvested, from time to time, in accordance with paragraph (4) of
subdivision (c) of Section 10089.7 and subject to subdivision (b) of
Section 10089.6. Moneys in the fund and not so invested may be
deposited from time to time in (1) financial institutions authorized
by law to receive deposits of public moneys, or (2) with the approval
of the Treasurer, the Surplus Money Investment Fund as provided in
Article 4 (commencing with Section 16470) of Division 4 of Title 2 of
the Government Code.
(d) A national bank shall be custodian of all securities belonging
to the fund, except as otherwise provided in this chapter and except
as otherwise provided in the constituent instruments that define the
rights of the holders of bonds of the authority and the providers of
bond insurance, credit support, and letters of credit for those
bonds.
(e) The board may, in cooperation with the Treasurer, authorize
the establishment of an account or fund in the State Treasury in the
name of the authority, but money deposited with the Treasurer in that
account or fund is not state money within the intent of Section
16305.2 of the Government Code, and Sections 16305.3 to 16305.7,
inclusive, of the Government Code shall not apply to money drawn or
collected by the authority.
SEC. 15. Section 10089.23 of the Insurance Code is amended to
read:
10089.23. (a) (1) If at any time following the payment of
earthquake losses the authority's available capital is reduced to
less than two hundred three hundred fifty
million dollars ($200,000,000)
($350,000,000) , or if at any time the authority's available
capital is insufficient to pay benefits and continue operations, the
authority shall have the power to assess participating insurance
companies subject to the maximum limits as set forth in this section
and Section 10089.30. The assessment shall be limited to the amount
necessary to pay the outstanding or expected claims of the authority
and to return the authority's available capital to two
hundred three hundred fifty million dollars
($200,000,000) ($350,000,000) , as
determined by the board, subject to approval by the commissioner.
(2) Each participating insurer's assessment shall be determined by
multiplying its residential earthquake insurance market share, as of
December 31 of the immediately preceding year or the most recent
year for which premium data not more than one year old are available,
by the amount of the total assessment sought by the authority.
(3) Maximum permissible insurer assessments pursuant to this
section and Section 10089.30, maximum permissible earthquake
policyholder assessments pursuant to Section 10089.29, and maximum
permissible bond issuances or other debt financing issued or secured
by the Treasurer pursuant to Section 10089.29 shall be reduced
uniformly by multiplication of the maximum assessments and other
amounts provided in those sections by the percentage of the total
residential property insurance market share participation attained by
the authority upon its commencement, as described in Section
10089.14 10089.15 . The total amount of
all assessments levied on participating insurance companies by the
authority pursuant to this section shall not exceed three billion
dollars ($3,000,000,000), less any assessment reduction
specified in subdivision (c), regardless of the frequency
or severity of earthquake losses at any and all times subsequent to
the creation of the authority. Once the authority
a participating insurer has levied an assessment
or assessments equaling paid amounts equal to its
residential earthquake insurance market share multiplied by
three billion dollars ($3,000,000,000) in the aggregate on
participating insurers pursuant to this section,
less any assessment reduction specified in subdivision (c),
the authority's power to assess participating insurers
that insurer under this section shall cease and
the authority shall be prohibited from levying additional assessments
on that insurer pursuant to this section.
(4) Beginning December 31 of the first year following
commencement of operations, and each December 31
thereafter, the board shall adjust the maximum permissible
insurer assessments pursuant to this section and Section 10089.30,
the maximum permissible authority policyholder assessment pursuant to
Section 10089.29, and the maximum permissible bond issuances or
other debt financing issued or secured by the Treasurer pursuant to
Section 10089.29 to reflect the market share of new insurers entering
into the authority as authorized by Section
Sections 10089.15 and 10089.16 and participating insurers
withdrawing from the authority as authorized by Section 10089.19. The
adjustments shall be made in the same manner as authorized by
paragraph (3).
(b) In the case of any insurer assessment, the authority shall
cause to be sent to each participating company
insurer a notice of that company's
insurer's assessment, and full payment shall be due within 30
days and shall be overdue after 30 days. Penalties and interest
shall be assessed for late payments in the same manner as provided
for late payments of the insurer gross premium tax pursuant to
Section 12258 of the Revenue and Taxation Code. The board may waive
the penalties and interest for good cause shown. The board shall
make every effort to assess insurers only for funds reasonably
anticipated to be necessary for claims payments and to return the
authority's available capital to two hundred
three hundred fifty million dollars ($200,000,000)
($350,000,000) .
(c) On the first December 31 after two years following the date of
commencement of authority operations, the aggregate
assessment authorized under this section shall be reduced by an
amount equal to the amount of available capital in excess of one
billion dollars ($1,000,000,000). Each December 31 thereafter, the
board shall further reduce the aggregate assessment authorized under
this section by the net increase in available capital in excess of
the previous level of available capital at which a reduction in the
aggregate assessment was made. No reduction pursuant to this
subdivision shall exceed 15 percent of the original aggregate
assessment in any year of the first seven years of operation of the
authority. In no event shall any reduction previously authorized by
the board be reinstated. the aggregate assessment
authorized under this section shall be subject to reallocation by an
amount equal to the amount of available capital in excess of one
billion dollars ($1,000,000,000). For each dollar accumulated in
available capital in excess of one billion dollars ($1,000,000,000),
the board shall reallocate one dollar ($1) of the aggregate
assessment liability of participating insurers under this section to
make those funds subject to assessment only in the event that the
benefits paid by the authority following an earthquake event exhaust
the total of (1) the authority's available capital, (2) the maximum
amount of all insurer capital contributions pursuant to Section
10089.15, (3) the maximum amount of insurer assessments pursuant to
Section 10089.23 which has not been reallocated, (4) all reinsurance
actually available and under contract to the authority, (5) the
maximum amount of all authority policyholder assessments pursuant to
Section 10809.29, (6) all capital committed and actually available by
contract to the authority from private capital markets, and (7) the
maximum amount of all insurer assessments pursuant to Section
10089.30. Each December 31 thereafter, the board shall further
reallocate the aggregate assessment authorized under this section by
an amount equal to the net increase in available capital in excess of
the previous level of available capital at which a reallocation in
the aggregate assessment was made. Any reallocation pursuant to this
subdivision shall not exceed 15 percent of the original aggregate
assessment in any year of the operation of the authority. In no
event shall any reallocated assessments previously authorized by the
board be reinstated.
(d) If the average daily balance of the authority's available
capital exceeds four billion dollars ($4,000,000,000) for any 30-day
period after the authority has been operative for 10 or more years,
the aggregate assessment authorized by this section, including any
reallocated amounts, shall be reduced by the board to zero dollars
($0), notwithstanding any other provisions of this section.
(e) Notwithstanding the other provisions of this section,
the aggregate assessment authorized by this section , including
any reallocated amounts, shall be reduced to zero no later than
10 12 years following the commencement
of authority operations.
SEC. 16. Section 10089.25 of the Insurance Code is amended to
read:
10089.25. Beginning December 31, 1996
1997 , and annually thereafter on the 31st of December, the
board shall notify each participating insurer of the maximum
earthquake loss funding assessment level that it may be required to
meet.
SEC. 17. Section 10089.26 of the Insurance Code is amended to
read:
10089.26. (a) The authority shall be
authorized to 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.
(1) 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) 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 a
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 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) 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. 18. Section 10089.34 of the Insurance Code is amended to
read:
10089.34. (a) (1) The policies issued by the authority shall not
be subject to assessment for, nor shall any authority policyholder be
eligible for benefits from, the California Insurance Guaranty
Association.
(2) Policies of residential earthquake insurance written by
participating insurers that supplement, augment, or are in excess of
the authority's policy of basic earthquake insurance may
shall be subject to assessment by the California
Insurance Guaranty Association and shall be covered to the extent
provided in Article 14.2 (commencing with Section 1063) of Chapter 1
of Part 2 of Division 1.
(b) (1) Policies of basic residential earthquake insurance written
by nonparticipating insurers may shall
be subject to assessment by the California Insurance Guaranty
Association and shall be covered to the extent provided in Article
14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of
Division 1.
(2) Participating insurers of the authority shall have no
obligation to pay assessments to the California Insurance Guaranty
Association for those policies covered claims
obligation arising from policies of basic residential
earthquake insurance written by nonparticipating insurers.
SEC. 19. Section 10089.50 of the Insurance Code is amended to
read:
10089.50. The authority Treasurer
may from time to time enter into one or more credit facilities
permitting the authority to draw an amount up to one billion dollars
($1,000,000,000) with payment, interest rate, indemnity,
compensation, security, default, remedy, and other terms and
conditions as determined by the authority. All drawings under these
credit facilities shall be available as funding for the authority as
provided in Section 10089.29.
SEC. 20. Section 10089.52 is added to the Insurance Code, to read:
10089.52. Nothing in Section 10089.50 or 10089.51 is intended to
limit the applicability to the authority of any provision of Section
5450 or subdivision (c) of Section 5922 of the Government Code.
SEC. 21. Section 10089.53 is added to the Insurance Code, to read:
10089.53. (a) Any insurer that withdraws from the authority under
Section 10089.19 while bonds or other debt is outstanding shall
impose annually a premium surcharge on each policy of residential
earthquake insurance written by it equal in percentage amount,
calculated as a percentage of the basic residential earthquake
insurance premium, to the percentage amount of the surcharge being
imposed in that year by the authority pursuant to subdivision (b) of
Section 10089.29. That insurer shall remit promptly all those
surcharges collected by it to the trustee appointed pursuant to
Section 10089.22. The surcharges shall be used solely to repay the
bonded indebtedness or other debt issued pursuant to subdivision (a)
of Section 10089.29. If the sum of the surcharges remitted to the
trustee pursuant to this section plus the amount of the surcharges
imposed by the authority pursuant to subdivision (b) of Section
10089.29 would exceed the amount authorized by that provision, then
surcharges of the authority shall be reduced by an amount equal to
that excess.
(b) Should the Legislature and Governor approve legislation that
causes the authority to cease operation while bonds or other debt are
outstanding, participating insurers shall impose annually a premium
surcharge on each policy of residential earthquake insurance written
by them equal in percentage amount, calculated as a percentage of the
basic residential earthquake insurance premium, to the percentage
amount of the surcharge being imposed in that year by the authority
pursuant to subdivision (b) of Section 10089.29. Those insurers
shall remit promptly all these surcharges collected by them to the
trustee appointed pursuant to Section 10089.22. The surcharges shall
be used solely to repay the bonded indebtedness or other debt issued
pursuant to subdivision (a) of Section 10089.29. If the sum of the
surcharges remitted to the trustee pursuant to this section plus the
amount of the surcharges imposed by the authority pursuant to
subdivision (b) of Section 10089.29 would exceed the amount
authorized by that provision, then surcharges of the authority shall
be reduced by an amount equal to that excess.
SEC. 22. The sum of one million three hundred thousand dollars
($1,300,000) is hereby loaned to the California Earthquake Authority
from the California Residential Earthquake Recovery Fund in order to
implement this act. This loan shall be repaid within the first 12
months of operation of the authority with interest due at the legal
rate on the outstanding balance.
SEC. 23. The provisions of this act are severable. If any
provision of this act or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.
SEC. 24. This act shall become operative only if Assembly Bill
2086 is also enacted.
SEC. 25. This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
In order to promote the restoration of affordable and
available homeowners' insurance for all Californians, provide
protection from the devastating and catastrophic losses caused by
earthquakes, and continue California's economic growth, it is
necessary that this act take effect immediately.
_____________________________________ All matter omitted in this
version of the bill appears in the bill as amended in the Assembly,
April 22, 1996 (JR 11) ____________________________________